Unlocking Complexities.
Unlocking Value.
F R A N K ’ S I N T E R N A T I O N A L
2 0 1 5 A N N U A L R E P O R T
1
Unlocking Value in a
World of Complexities
Frank’s International has a storied history of unlocking value for our
customers by providing innovative products and engineered solutions
to solve the most complex subsurface drilling challenges facing the
industry. In 2015, we continued down this path despite persistently
low commodity prices and decreased customer spending. Even in
light of difficulties beyond our control, Frank’s remained dedicated
and focused on unlocking value for both our customers and our
stakeholders in 2015. We will continue doing so as we navigate
through the trough of the business cycle.
GROW
EXISTING MARKETS
DEVELOP
NEW MARKETS
EXPAND
TECHNOLOGY LEADERSHIP
BUILD
ORGANIZATIONAL CAPABILITY
As one of the industry’s
premier providers of tubular
running services, Frank’s
enjoys market share positions
around the globe and close
relationships with blue-chip
companies in the oil and gas
industry. We plan to deepen
these existing relationships
by offering new products, ser-
vices and innovative solutions
to sustain and maximize value
creation in these regions.
Taking our equipment and
services into new markets
or regions where we are
underrepresented from a
market share standpoint
will be a pivotal part of
growing over the long term.
Additionally, the ability to
add new equipment or
service offerings to our
existing suite will assist
in opening the door to
new customers.
Frank’s takes pride in its
track record of designing
and building groundbreaking
equipment that has helped
move the industry forward.
With more than 200 U.S. and
foreign patents and counting,
we have the competence and
experience to continue to
develop or acquire innovative
technologies and processes
that will assist our customers
in accessing natural resources
more efficiently.
Investing in our people
and in a scalable corporate
infrastructure is an essential
part of positioning Frank’s to
be competitive and grow in the
future. This past year involved
attracting top industry talent
and expertise in key areas of
the business to improve opera-
tions and form a more unified
and aligned organization for
success going forward.
2 0 1 5 A N N U A L R E P O R T
1
2015 Financial Highlights
(In thousands, except per share data)
2015
2014
2013
2012
Year ended December 31
Revenue(1)
$ 974,600
1,152,632
$ 1,077,722
$ 1,039,054
Income from Continuing Operations
Net Income
Adjusted EBITDA(2)
Diluted earnings per common share(3)
Net cash provided by operating activities
Capital Expenditures
Debt
$
$
$
$
$
$
$
106,110
106,110
317,441
$
$
$
229,312
229,312
$ 450,376
0.60
$
1.03
427,758
99,723
7,321
$ 368,860
$
$
172,952
304
$
308,195
$ 344,250
$ 350,830
$ 438,739
$
$
$
$
1.85
277,431
184,504
376
$
$
$
350,934
439,524
2.04
$ 344,766
$
$
180,187
475,931
Total stockholders’ equity
$ 1,451,426
$ 1,472,536
$ 1,333,327
$ 446,988
Total Recordable Incident Rate (TRIR)
Lost Time Incident Rate (LTIR)
(1) From continuing operations
(2) Adjusted EBITDA is a non-GAAP financial measure
(3) Excluding one-time severance and other charges net of tax
0.76
0.21
1.27
0.36
1.13
0.33
1.96
0.54
Total Recordable
Incident Rate
(TRIR)
Free Cash Flow
Dollars in millions
Working Capital
Dollars in millions
0.76
1.27
1.13
328
196
92
232
411
391
2015
2014
2013
2015
2014
2013
2015
2014
2013
2
U N L O C K I N G C O M P L E X I T I E S A N D V A L U E
Fellow Shareholders
After six consecutive years of record revenues,
it’s no understatement to say that 2015 was
a challenging year for our industry and Frank’s.
However, despite the unfavorable industry
conditions we faced, we never lost sight of
our core values and objectives as a company,
both financially and operationally.
While much has changed from the commodity peak in 2014, what remains the
same is our ability to effectively manage through these industry cycles as our
company has for over 77 years. Although 2015 represented a year of change from
our high-growth story of the past several years, I’m pleased with our team’s
response in taking the appropriate actions to mitigate the impacts of this cycle
and put us on the right path forward to emerge as a stronger company with
a more favorable position in the marketplace.
2015 Accomplishments
Safety
Operating safely is an essential part of the value proposition we deliver our
customers as more reliable, higher-quality service often translates to lower total
cost of ownership. Our objective in this area is and always will be zero incidents.
In 2015 our total recordable incident rate was down 40% versus the previous year,
showing tremendous progress in this important area. I am extremely proud of our
employees around the globe for their efforts to operate safely in a difficult market.
Driving Sustainability and Efficiency
In June, we initiated Frank’s Business System (FBS) to drive lean concepts across the
company, including areas such as asset utilization, supply chain management and
new business development. Since the creation of the program, the company has
held more than 15 kaizen events involving over 200 employees from Louisiana to
Norway and from Human Resources to Operations. The positive impacts of FBS
are evident in the more than $25 million of cost savings delivered in 2015 and a
cumulative expected benefit in excess of $60 million in 2016.
Technology Leadership
We also took the opportunity to reorganize our technology and engineering
function to better incubate future innovation, as well as respond to real-time
engineering and technical support 24 hours a day, seven days a week. Technological
innovation has been a differentiator for Frank’s throughout our history. It will con-
tinue to play an important role in delivering value to our customers in an evolving
industry moving rapidly toward increased automation and cost efficiency. Our stage
gate process is designed to accelerate new ideas from concept to prototype
“ I’m very pleased with the
progress made during a
difficult year for our industry
and excited for the good
things planned for 2016
and beyond.”
Gary Luquette
President and Chief Executive Officer
3
2015 ANNUAL REPORT Fellow Shareholders (continued)
to eventual deployment. Lastly, while the addressable market for our services was
contracting during the year, we were able to maintain greater than a 50-percent
share in our two largest regions, West Africa and the Gulf of Mexico. In fact, our
strong reputation and track record of excellence and quality allowed us to secure
new contracts and even gain share in some previously underrepresented markets.
Controlling What We Can Control
As an industry veteran with over 37 years of experience, I have endured several
commodity cycles during my career. In those experiences I’ve come to appreciate
the great opportunities these downturns represent to get introspective and pivot
operationally in order to emerge as a stronger company with a more favorable
position in the marketplace. With this in mind, we took action in areas within
our control including workforce planning, business optimization, and improved
working capital management.
First, we took the necessary steps to right-size the organization and adjust our
footprint to ensure we remain competitive in a challenging market. We reduced
our workforce by 20 percent, closed twelve of our bases in the U.S. and two manu-
facturing facilities internationally. We are confident that we have put the right
structure in place and adjusted our capability to respond appropriately to changes
in market conditions. Second, we reduced working capital, excluding cash balances,
nearly 44 percent from 2014 levels with inventories coming down about 21 percent
and accounts receivable lowered by 37 percent. In fact, on average, our days of
sales outstanding fell below 100 days from a previous average of almost 120 days.
Process improvement events held during the year were a leading contributor to
achieve these results and we think other areas of the business are ripe for similar
improvement. We are pleased with the progress we have made in our short time
as a public company and will continue our journey to become an even more
widely admired and respected public company.
Looking Ahead to 2016
As we progress through 2016, Frank’s will be focusing on several key areas from a
strategic standpoint until crude supply and demand fundamentals rebalance and
macro conditions improve. First, we plan to be aggressive in protecting and growing
market share in the face of pricing headwinds and a shrinking addressable market.
However, we will be thoughtful in the manner in which we pursue this strategy
ensuring we balance growing market share with upholding leading industry
margins even in the trough of the cycle.
Deepening Our Global Footprint
Opportunities for our equipment and services in the deep and ultra-deepwater
were down in 2015, and are expected to contract further in 2016 as our customers
have indicated budget reductions ranging from 10 percent to 25 percent, depending
on the region. As projects are either cancelled or deferred, our plan is to focus our
efforts on replacing that business in markets where new opportunities exist,
primarily the offshore shelf involving jack-up rig work and the expansion of our
international onshore business where the market has remained more resilient and
Return on Invested Capital
(ROIC)
11.4%
13.8%
20.8%
2015
2014
2013
4
UNLOCKING COMPLEXITIES AND VALUE Capital Expenditures
As a percentage of revenue
10.2%
15.0%
17.1%
2015
2014
2013
margins are more compelling than our U.S. onshore. The deeper, more complex
wells will always be the foundation of Frank’s and we will continue to compete for
that business at every opportunity. However, in situations where fewer complex
wells are being funded, we find it prudent to dedicate resources to strengthen our
position in areas where we can still produce competitive returns.
Focused on the Customer
We are also re-examining our U.S. onshore business to improve profitability. Beyond
the previously mentioned workforce reduction and base closures, we are also testing
new operating models that involve more centralized support of back office functions,
equipment and inventory, as well as technical and operational support into regional
hubs. This will allow us to support smaller, leaner field locations closer to the customer.
This hub-and-spoke concept will provide us the opportunity to bring the full services
of Frank’s to customers in new or remote areas, both domestically and abroad, with-
out having to make extensive infrastructure investments. The improvements made
in our U.S. onshore business will position us to scale up in the eventual rebound and
also benefit our targeted international onshore operations.
Investing in People
In closing, over the last several months we have taken advantage of the down
market and secured outstanding new talent to augment the longstanding skills
and capabilities inherent in the Frank’s organization. We will continue to look for
opportunities to strengthen our organization, but we feel we now have the team
in place to not only navigate this difficult market, but also one that will enable
Frank’s to profitably grow well into the future.
These efforts will lead to a stronger Frank’s that delivers its equipment and
services reliably and at a lower cost, one that utilizes this downturn wisely to
improve its market position, and a company that has increased the organizational
capability with the aim to ultimately become the premium player in our market
segment. We are also in a unique position amongst our peer group, both in terms
of our balance sheet strength and our ability to deliver positive free cash flow from
operations. We intend to use these strengths to our advantage by returning cash
to shareholders in the form of dividends, pursuing organic investments and being
opportunistic as it relates to acquisitions. I thank you for your continued support
and I am confident that our approach to managing the complex challenges we
currently face will unlock value for our shareholders.
Sincerely,
Gary Luquette
Chief Executive Officer
5
2015 ANNUAL REPORT Unlocking Efficiencies
Sales Outstanding
Number of days
92
124
124
2015
2014
2013
6
Delivering Value to Customers through Innovation and Technology
Our leadership position in technology and innovation means that
the efficiencies gained from our tools and procedures can be passed
on to the customer and create value. Three key ways Frank’s is able
to improve the full cost of ownership of our services is through
reduced rig time, safer operations and increased well integrity.
Reduced Rig Time
Our Jet String Elevator provides Frank’s the ability to operate more efficiently and
reduce the amount of time on the job by negating the need for additional welding
procedures and rental tools. Rig rates can reach as high as $1 million per day to operate
so every hour saved can translate to thousands of dollars in saving for the customer.
Safer Operations
Our people are our most important asset and we strive to operate with the highest
standards of reliability and quality. Tools like the Sheave-less Control Line Manipulator
Arm increase safety on the rig floor by reducing the chances of control lines and cables
being severed or a tripping hazard while running casing and lines concurrently.
Increased Well Integrity
Independent studies show that tubing and casing failures are two of the most highly
cited reasons for a loss of well integrity during the first five years and can lead to costly
workovers, maintenance or adverse environmental impacts. Our patented Fluid Grip
Tong prevents creating markings or stress points on the pipe during the handling and
running process that can increase chances of well integrity issues.
UNLOCKING COMPLEXITIES AND VALUE 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, 2015
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)20 693 8597
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
As of June 30, 2015, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was
approximately $651.2 million.
As of February 25, 2016, there were 155,332,241 shares of common stock, €0.01 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 2016 Annual Meeting of Stockholders, to be filed no later than 120 days
after the end of the fiscal year to which this Form 10-K relates, 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, 2015
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
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
11
28
28
29
29
30
32
33
46
49
86
86
86
86
86
87
87
87
88
94
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;
further or sustained declines in oil and gas prices, which have dropped significantly in recent periods;
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. All such forward-looking statements in the Form 10-K are
expressly qualified in their entirety by the cautionary statements in this section.
3
Item 1. Business
General
PART I
Frank’s International N.V. ("FINV") is a Netherlands limited liability company (Naamloze Vennootschap) and
includes the activities of Frank’s International C.V. ("FICV") and its wholly owned subsidiaries (either individually or
together, as context requires, 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.
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 offerings, we 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):
2015
Year Ended December 31,
2014
2013
Revenue
Percent
Revenue
Percent
Revenue
Percent
International Services
U.S. Services
Tubular Sales (1)
Total
$
$
442,107
326,437
206,056
974,600
45.4% $
33.5%
21.1%
100.0% $
537,259
439,638
175,735
1,152,632
475,297
46.6% $
434,940
38.1%
15.3%
167,485
100.0% $ 1,077,722
44.1%
40.4%
15.5%
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 the year ended
December 31, 2013.
4
Our Organizational Structure
We completed our initial public offering ("IPO") on August 14, 2013. Immediately prior to the completion of our
IPO, Mosing Holdings, Inc. ("MHI") 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 our 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 minimis amount of revenue, including aircraft, real estate and life insurance
policies, which were retained by MHI.
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 consisted of its ownership of 74.2% of the limited
partnership interest and the 0.1% general partnership interest in FICV. MHI held the remaining 25.7% limited partnership
interest in FICV.
MHI 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 MHI's interest
in FICV.
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, Bakken Shale, Barnett Shale, Eagle Ford Shale, Haynesville Shale, Marcellus
Shale and Utica Shale, as well as in the U.S. Gulf of Mexico.
Tubular Sales
The Tubular Sales segment designs, manufactures and distributes large OD pipe, connectors and casing attachments
and sells large OD pipe originally manufactured by various pipe mills. We also provide specialized fabrication and
welding services in support of offshore projects, 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. This segment also
designs and manufactures proprietary equipment for use in our International Services and U.S. Services segments.
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 23 of the Notes to the Consolidated Financial Statements.
5
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.
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, ocean currents, winter storms and other disruptions.
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, 2015, 2014 and 2013.
Our International Services segment had no single customer that contributed more than 10% of its revenue in 2015.
Our U.S. Services and Tubular Sales segments each had three customers which accounted for more than 10% of their
revenue in 2015.
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 ours. 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 its reputation for
safety. In general, we face a larger number of smaller, more regionally-specific customers in the 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.
6
Market Environment
As a result of the dramatic downturn in oil and natural gas prices during 2015 and continuing into 2016 to date,
many of our customers have reduced their oil and natural gas drilling activities. In addition, we expect oil and gas
exploration and production companies to cut capital budgets from 2015 levels globally. A further decrease in project
spending from our customers is expected to translate to a similar decrease in our earnings. We believe that we have
mitigated in 2015 and going-forward in 2016 will be able to mitigate some of the impact of lower revenues through
both previously implemented as well as additional planned cost reductions. We expect continued weakness in the U.S.
onshore business segment and lower revenues in International Services as pricing pressure and the scope of our service
activity shifts. Additionally, despite the strong margins recorded in the fourth quarter of 2015, we expect the adjusted
EBITDA contribution from Tubular Sales to decrease in the first quarter of 2016 as visibility on new orders and expected
deliveries is significantly lower than the first quarter of 2015.
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 for 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, Occupational 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”), 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.
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
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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. Over the next several years, we may be required
to incur certain capital expenditures for air pollution control equipment or other air emissions related issues. For example,
in October 2015, the EPA lowered the National Ambient Air Quality Standard, or NAAQS, for ozone from 75 to 70
parts per billion. State implementation of the revised NAAQS could result in stricter air emissions permitting
requirements, delay or prohibit our ability to obtain such permits, and result in increased expenditures for pollution
control equipment, the costs of which could be significant. 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
The EPA has 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 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 of the federal Clean Air
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Act. The EPA has proposed various measures regulating the emission of greenhouse gases, including proposed
performance standards for new and existing power plants, and pre-construction and operating permit requirements for
certain large stationary sources already subject to the Clean Air Act. 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 many of the states have already taken legal measures to reduce emissions of greenhouse gases.
For example, the state of California has adopted a "cap and trade program" that requires major sources of greenhouse
gas emissions 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 in the U.S. or abroad designed 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. For example, in
August 2015, the EPA announced proposed rules that would establish new air emission controls for methane emissions
for certain new, modified or reconstructed equipment and processes in the oil and natural gas source category, including
production, processing, transmission and storage activities, as part of the overall effort to reduce methane emissions
by up to 45 percent in 2025. These rules have the potential to impose significant costs on our customers. Also, new
legislation or regulatory programs related to the control of greenhouse gas emissions could 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.
Hydraulic Fracturing
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. We do not perform hydraulic fracturing, but many of our customers utilize this technique.
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. In June 2015, the EPA released its draft report on the potential impacts of hydraulic
fracturing on drinking water resources, which concluded that hydraulic fracturing activities have not led to widespread,
systemic impacts on drinking water resources in the United States, although there are above and below ground
mechanisms by which hydraulic fracturing activities have the potential to impact drinking water resources. The draft
report is expected to be finalized after a public comment period and a formal review by the EPA's Science Advisory
Board. 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.
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
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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 do not believe that
compliance with existing environmental laws and regulations will 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.
Employees
At December 31, 2015, we had approximately 3,900 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, Asia Pacific,
Africa 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)20 693 8597. 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, Proxy Statements, 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 and Compensation 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.
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol ("FI").
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.
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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 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;
• 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 have had 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. Commodity prices have gone below a certain threshold for an extended period of time and demand for our
services in the U.S. onshore market have been greatly reduced, having a material adverse effect on our business, financial
condition and results of operations.
Oil and gas prices are extremely volatile and have decreased substantially during the year ended December 31,
2015. For example, during the year ended December 31, 2015, the average daily prices for New York Mercantile
Exchange West Texas Intermediate ranged from a high of approximately $60/Bbl in June 2015 to a low of approximately
$37/Bbl in December 2015 and have declined even further through 2016 to date. Any additional actual or anticipated
reduction in oil or gas prices may reduce the level of exploration, drilling and production activities. The current price
environment has already resulted in some capital budget reductions by our customers compared to prior years. Prolonged
lower oil prices have resulted in softer demand for our services. Further, we have reduced pricing in some of our
customer contracts in light of the volatility of the oil and gas market.
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Furthermore, 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 has adversely affected the demand for oilfield services and our business, financial
condition and results of operations.
The downturn in the oil and gas industry has negatively affected and will likely continue to affect our ability to
accurately predict customer demand, causing us to potentially hold excess or obsolete inventory and experience a
reduction in gross margins and financial results.
We cannot accurately predict what or how many products our customers will need in the future. Orders are placed
with our suppliers based on forecasts of customer demand and, in some instances, we may establish buffer inventories
to accommodate anticipated demand. Our forecasts of customer demand are based on multiple assumptions, each of
which may introduce errors into the estimates. In addition, many of our suppliers, such as those for certain of our
standardized valves, require a longer lead time to provide products than our customers demand for delivery of our
finished products. If we overestimate customer demand, we may allocate resources to the purchase of material or
manufactured products that we may not be able to sell when we expect to, if at all. As a result, we would hold excess
or obsolete inventory, which would reduce gross margin and adversely affect financial results. Conversely, if we
underestimate customer demand or if insufficient manufacturing capacity is available, we would miss revenue
opportunities and potentially lose market share and damage our customer relationships. In addition, any future significant
cancellations or deferrals of product orders or the return of previously sold products could materially and adversely
affect profit margins, increase product obsolescence and restrict our ability to fund our operations.
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. 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 Africa, Middle East, 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, ocean currents 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;
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successful exploration for, and production and transportation of, oil and gas from onshore sources;
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, 2015, 2014 and 2013, international operations accounted for approximately 45%, 47% and 44%,
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.
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.
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
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in order to support our services depends on our ability to 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 and trade secrets 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 (for example, 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.
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
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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 can be limited in certain jurisdictions, 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 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
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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.
We are subject to the risk of supplier concentration.
Certain of our product lines depend on a limited number of third party suppliers and vendors. As a result of this
concentration in some of our supply chains, our business and operations could be negatively affected if our key suppliers
were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products.
For example, we have a limited number of vendors for our bearings product lines. The partial or complete loss of any
one of our key suppliers, or a significant adverse change in the relationship with any of these suppliers, through
consolidation or otherwise, would limit our ability to manufacture or sell certain of 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,
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.
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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, in April 2015 the Bureau of Safety and Environmental Enforcements published a proposed rule
containing more stringent standards relating to well control equipment used in connection with offshore well drilling
operations. The proposed standards focus on blowout preventers, along with well design, well control, casing, cementing,
real-time well monitoring, and subsea containment requirements. 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
tubular services to a large number of major oil companies, any such failure could adversely affect our business, financial
condition and results of operations.
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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.
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 occupational health
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and safety 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.
We operate internationally and in some countries with high levels of perceived corruption commonly gauged
according to the Transparency International Corruption Perceptions Index. We must comply with complex foreign and
U.S. laws including the United States Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act 2010 and the United
Nations Convention Against Corruption, which prohibit engaging in certain activities to obtain or retain business or to
influence a person working in an official capacity. We do business and may in the future do additional business in
countries and regions in which we may face, directly or indirectly, corrupt demands by officials, tribal or insurgent
organizations, or by private entities in which corrupt offers are expected. Furthermore, many of our operations require
us to use third parties to conduct business or to interact with people who are deemed to be governmental officials under
the FCPA. Thus, we face the risk of unauthorized payments or offers of payments or other things of value by our
employees, contractors or agents. It is our policy to implement compliance procedures to prohibit these practices.
However, despite those safeguards and any future improvements to them, 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 and/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.
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
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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 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 gases. For example, in August 2015, the EPA announced proposed rules that
would establish new air emission controls for methane emissions from certain new, modified, or reconstructed equipment
and processes in the oil and natural gas source category, including production, processing, transmission and storage
activities, as part of an overall effort to reduce methane emissions by up to 45 percent in 2025. These rules have the
potential to impose significant costs on our customers. 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. Also any legislation or regulatory programs related to the control of
greenhouse gas emissions could increase the cost of consuming, and thereby reduce demand for, hydrocarbons that our
customers produce, which could impact demand for our services. 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.
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, 2015, on a U.S.
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dollar-equivalent basis, approximately 20% 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, Canadian Dollar, 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 and ocean currents 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. We do not perform hydraulic fracturing, but many of our customers utilize this technique.
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, in June 2015,
the EPA released its draft report on the potential impacts of hydraulic fracturing on drinking water resources, which
concluded that hydraulic fracturing activities have not led to widespread, systemic impacts on drinking water resources
in the United States, although there are above and below ground mechanisms by which hydraulic fracturing activities
have the potential to impact drinking water resources. The draft report is expected to be finalized after a public comment
period and a formal review by the EPA's Science Advisory Board. The EPA has also taken steps to regulate certain
aspects of hydraulic fracturing. 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.
Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory
risks, which increases the risk that they may default on their obligations to us. To the extent one or more of our key
customers is in financial distress or commences bankruptcy proceedings, contracts with these customers may be subject
to renegotiation or rejection under applicable provisions of the United States Bankruptcy Code. Any material
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nonpayment or nonperformance by our key customers could adversely affect our business, financial condition and
results of operations.
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, including Gary Luquette, our President and
Chief Executive Officer, Jeff Bird, our Executive Vice President and Chief Financial Officer and John Walker, our
Executive Vice President, Operations. These and other senior executives 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 agreement we have entered into with
certain of our executive officers, and such 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 MHI 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 MHI 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% of the combined voting power of the FINV Stock through MHI and,
until recently, through FWW B.V. ("FWW"), a wholly owned subsidiary of Ginsoma Family C.V. ("Ginsoma"). On
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October 30, 2015, Ginsoma was liquidated and terminated and the shares of the Company's common stock held by
FWW and other receivables of FWW were pro rata distributed to all former Ginsoma partners. The Mosing family
members have entered into a voting agreement with respect to the shares they own. 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 supervisory board. Our supervisory board consists of seven members,
three of whom are members of the Mosing family. As a result, members of the Mosing family have meaningful influence
over us and potential conflicts may arise. 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 25.4% 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 or other holders of shares of our common stock
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 MHI 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 FICV and MHI 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 after the IPO 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 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
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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
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 MHI 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 MHI 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, 2015, the estimated termination payment
would be approximately $45.5 million (calculated using a discount rate of 5.67%). 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
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 25, 2016, we had
155,332,241 outstanding shares of our common stock and 52,976,000 outstanding shares of Preferred Stock that are
convertible into an equivalent number of shares of common stock. Members of the Mosing family own, both directly
and indirectly (through MHI), 119,024,000 shares of common stock and all of our shares of Preferred Stock. Together,
these shares represent approximately 83% of our total outstanding FINV Stock. All of these shares may be sold into
the market in the future.
24
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
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.
25
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.
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.
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
26
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 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.
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.
27
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 that 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 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 MHI (a U.S. corporation); however, the ownership of MHI in our stock, taking into
account common stock that MHI is deemed to own under the “stock equivalent” rules, is 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 to obtain a U.S. tax credit with respect to any Dutch
withholding tax imposed on a distribution.
Item 1B. Unresolved Staff Comments
None.
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.
28
The following table details our material facilities by segment, owned or leased by us as of December 31, 2015.
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 our Tubular
Sales segment. The Lafayette facility is our global headquarters for the design and manufacture of our equipment and
is situated on a total of 187 acres. The main facility occupies 155 acres and consists of manufacturing, operations, pipe
storage, training and administration. The remaining 32 acres located off of the main campus consists of manufacturing,
warehousing and administration. There are a total of 15 buildings onsite and 13 buildings offsite. Our manufacturing
operations occupy 7 of the 28 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 MHI 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. A liability
is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss
contingencies, individually or in the aggregate, as of December 31, 2015. We believe the probability is remote that the
ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations
or cash flows. See Note 21 in the Notes to Consolidated Financial Statements, which are incorporated herein by reference
to Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
29
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NYSE under the symbol "FI". The following table sets forth, for the periods indicated, the high
and low sale prices and the dividend payments for our common stock.
Year Ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Dividends
Per Share
$
$
$
$
18.95
21.50
18.90
18.14
26.99
27.60
24.81
21.00
$
$
14.53
18.25
13.66
14.80
20.76
22.64
18.41
14.87
0.150
0.150
0.150
0.150
0.075
0.075
0.150
0.150
On February 25, 2016, we had 155,332,241 shares of common stock outstanding. The common shares outstanding at February 25,
2016 were held by approximately 15 record holders. The actual number of shareholders is greater than the number of holders of record.
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
Our current policy is to pay quarterly cash dividends on our common stock of $0.15 per share. 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.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
30
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, 2015. 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, 2015. The shareholder return set forth herein is not necessarily indicative of future performance.
*$100 invested on 8/9/13 in stock of 7/31/13 in index, including reinvestment of dividends.
Fiscal year ending December 31.
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.
31
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 that are 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
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)
2015
Year Ended December 31,
2013
2012
2014
(in thousands, except per share amounts)
2011
$
974,600
106,110
1,726,838
$ 1,152,632
229,312
1,758,681
$ 1,077,722
308,195
1,561,195
$ 1,039,054
344,250
1,107,961
$
719,412
162,798
847,500
7,321
—
1,451,426
304
—
1,472,536
376
—
1,333,327
7,368
468,563
446,988
9,204
2,913
667,128
$
$
$
$
$
$
0.51
—
0.51
0.50
—
0.50
154,662
209,152
0.60
$
$
$
$
$
1.03
—
1.03
1.03
—
1.03
153,814
207,828
0.45
$
$
$
$
$
1.69
0.24
1.93
1.62
0.23
1.85
132,257
185,506
0.075
$
$
$
$
$
2.15
0.04
2.19
2.00
0.04
2.04
$
$
$
$
1.02
0.05
1.07
0.95
0.04
0.99
119,024
172,000
— $
119,024
172,000
—
317,441
$
450,376
$
438,739
$
439,524
$
241,124
(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, its most directly comparable
financial measure presented in accordance with GAAP, 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."
32
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 statements 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 global provider of highly engineered tubular services to the oil and gas industry and have been in business
for over 75 years. 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 offshore 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, Bakken Shale, Barnett Shale, Eagle Ford Shale, Haynesville Shale, Marcellus Shale and Utica
Shale.
•
Tubular Sales. We design, manufacture and distribute large OD pipe, connectors and casing attachments and
sell large OD pipe originally manufactured by various pipe mills. We also provide specialized fabrication and
welding services in support of offshore projects, 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. 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 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.
Outlook
We see the oilfield services industry, including tubular running services, remaining under pressure until a meaningful
recovery in commodity prices occurs. The current low commodity price environment has led to decreased capital
spending from our customers and thus lower demand for our services globally. We expect this trend to continue until
oil and gas prices increase meaningfully above current levels; causing our customers to increase their capital investment
33
in new exploration and production projects. Our cost reduction initiatives have helped to mitigate the impact of lower
revenues on our operating earnings, but we expect our revenues and operating earnings to materially decrease in 2016.
Our offshore businesses, both in the U.S. and internationally, are experiencing activity declines and a full year of
realized lower prices due to fewer financial resources allocated to oil and gas exploration and development projects by
our customers, particularly in the deep and ultra-deep water markets where our services are most profitable. To the
extent we decide to preserve or grow market share in our operating areas, further price reductions for our services may
be required.
Our onshore operations are expected to be similarly impacted by decreased drilling activity and aggressive pricing
competition, particularly in the U.S. onshore business. While our strong financial position and reduced cost structure
will allow us to continue to service our clients, we do not expect a material increase in pricing or activity in the near
term.
The Tubular Sales business is driven by specialized needs of our customers and the timing of projects, specifically
in the Gulf of Mexico. Revenues in the segment will likely be lower than our revenue in 2015 due to fewer projects
proceeding on schedule and lower visibility on forthcoming orders in the current commodity price environment.
Overall, we are in a very strong financial position with a significant cash balance relative to our debt. We are
focused on controlling costs and improving capital efficiency. We anticipate that our cash flows from operations will
be sufficient to fund our capital expenditures and dividends for the foreseeable future. We believe our financial position
gives the company flexibility to adapt to a challenging market and we believe we are well-positioned to take advantage
of opportunities to grow market share or make strategic acquisitions.
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, 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 charges or credits. 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").
34
The following table presents a reconciliation of income from continuing operations to Adjusted EBITDA, our most
directly comparable GAAP performance measure, as well as adjusted EBITDA margin for each of the periods presented
(in thousands):
Income from continuing operations
Interest (income) expense, net
Depreciation and amortization
Income tax expense
(Gain) loss on sale of assets
Foreign currency loss
Stock-based compensation expense
Severance and other costs
Change in value of contingent consideration
IPO transaction-related costs (1)
Adjusted EBITDA
Adjusted EBITDA margin
Year Ended December 31,
2014
2013
2015
$
$
106,110
(341)
108,962
37,319
(1,038)
6,358
26,119
35,484
(1,532)
—
317,441
$
$
229,312
(87)
90,041
75,412
289
17,041
38,368
—
—
—
450,376
$
$
308,195
653
78,082
38,727
(122)
2,556
7,220
—
—
3,428
438,739
32.6%
39.1%
40.7%
(1) Represents 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.”
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. 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.
35
The table below presents our worldwide TRIR and LTIR for the years ended December 31, 2015, 2014 and 2013:
TRIR
LTIR
Results of Operations
Year Ended December 31,
2014
2013
2015
0.76
0.21
1.27
0.36
1.13
0.33
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
Severance and other charges
Change in value of contingent consideration
Gain (loss) 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 of tax
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Frank's International N.V.
$
Year Ended December 31,
2014
2013
2015
$
$
766,252
208,348
974,600
969,703
182,929
1,152,632
$
902,960
174,762
1,077,722
304,473
113,918
270,678
108,962
35,484
(1,532)
(1,038)
143,655
5,791
341
(6,358)
(226)
143,429
37,319
106,110
—
106,110
27,000
79,110
$
369,855
110,126
267,378
90,041
—
—
289
314,943
6,735
87
(17,041)
(10,219)
304,724
75,412
229,312
—
229,312
70,275
159,037
$
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) 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, 2015 Compared to Year Ended December 31, 2014
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2015
decreased by $178.0 million, or 15.4%, to $974.6 million from $1,152.6 million for the year ended December 31, 2014.
36
The decrease was primarily attributable to lower revenues in our U.S. Services and International segments with revenues
decreasing $113.2 million and $95.1 million, respectively, primarily as a result of declining rig count as well as downward
pricing pressures, which were driven by depressed oil and gas prices. Additionally, there were some weather related
delays in the Gulf of Mexico. The decreased revenues were partially offset by increased revenues in our Tubular Sales
segment of $30.3 million as a result of project related orders and being able to meet urgent unscheduled customer
requests for products. Revenue for our segments are discussed separately below under the heading "Operating Segment
Results."
Cost of revenues, exclusive of depreciation and amortization. Cost of revenues for the year ended December 31,
2015 decreased by $61.6 million, or 12.8%, to $418.4 million from $480.0 million for the year ended December 31,
2014. The decrease was primarily attributable to lower activity and cost reduction efforts taken throughout the year,
which caused a decrease in compensation-related costs of $34.8 million, product costs of $17.4 million and field supplies
of $7.5 million.
General and administrative expenses. General and administrative ("G&A") expenses for the year ended
December 31, 2015 increased by $3.3 million, or 1.2%, to $270.7 million from $267.4 million for the year ended
December 31, 2014 primarily as a result of higher compensation-related costs of $11.5 million as a result of continuing
to build and optimize the human resource infrastructure to support a public company and professional fees of $9.6
million due to acquisition costs and strategic initiatives to optimize and further develop various corporate functions.
The increases were partially offset by decreased stock-based compensation expense of $12.2 million as the six months
ended June 30, 2014 included an out-of-period adjustment of $7.5 million, which corrected the amortization of expense
related to retirement-eligible employees (see Note 1 in the Notes to Consolidated Financial Statements for additional
detail) in addition to lower other taxes of $4.0 million.
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2015 increased
by $18.9 million, or 21.0%, to $109.0 million from $90.0 million for the year ended December 31, 2014. The increase
was primarily attributable to our Timco acquisition of $8.3 million as well as a higher depreciable base resulting from
property and equipment additions.
Severance and other charges. Severance and other charges for the year ended December 31, 2015 were $35.5
million as a result of the transition of a key executive to a non-executive member of the Supervisory Board, workforce
reductions, base rationalization and lease termination fees as discussed in Note 20 in the Notes to Consolidated Financial
Statements, which affected the following segments: International Services ($1.5 million), U.S. Services ($32.8 million)
and Tubular Sales ($1.2 million).
Foreign currency loss. Foreign currency loss for the year ended December 31, 2015 decreased by $10.7 million
to $6.4 million from $17.0 million for the year ended December 31, 2014. The decrease was primarily due to foreign
currency losses in Venezuela of $13.0 million in 2014 and other changes caused by non-local currency working capital
specifically in Norway, Brazil, the United Kingdom and the Eurozone.
Income tax expense. Income tax expense for the year ended December 31, 2015 decreased by $38.1 million, or
50.5%, to $37.3 million from $75.4 million for the year ended December 31, 2014 as a result of a decrease in taxable
income. 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 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 from operations and our income
tax provision varies from period to period.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2014
increased by $74.9 million, or 7.0%, to $1,152.6 million from $1,077.7 million for the year ended December 31, 2013.
The increase was primarily attributable to higher revenues in all of our segments, most notably in our International and
Tubular segments, with revenues increasing $62.0 million and $8.2 million, respectively, due to an increase in demand
37
and expansion in new and existing locations. Revenue for our segments are discussed separately below under the
heading "Operating Segment Results."
Cost of revenues, exclusive of depreciation and amortization. Cost of revenues for the year ended December 31,
2014 increased by $45.6 million, or 10.5%, to $480.0 million from $434.3 million for the year ended December 31,
2013. The increase was primarily attributable to compensation related costs of $23.6 million, repairs and maintenance
of $6.9 million, freight expense of $6.5 million, custom duty charges of $3.3 million, business and travel expenses of
$2.8 million, tool inspections of $2.0 million and rent expense of $1.3 million, partially offset by smaller decreases in
several other costs of $0.8 million.
General and administrative expenses. G&A expenses for the year ended December 31, 2014 increased by $42.6
million, or 19.0%, to $267.4 million from $224.8 million for the year ended December 31, 2013 primarily due to an
increase in stock compensation costs of $31.2 million. Included in this amount is an out-of-period adjustment of $4.7
million related to 2013, which corrected the amortization of expense related to retirement-eligible employees (for
additional detail, see Note 1 in the Notes to Consolidated Financial Statements). Compensation related costs of $14.1
million, medical claims of $3.5 million, professional fees of $3.5 million, rent and utilities expense of $3.2 million and
insurance costs of $1.9 million also contributed to the increase as well as smaller decreases in several other costs of
$0.8 million. The increase in all other costs is primarily attributable to incurring public company costs for a full year
in 2014 compared to only four months in 2013. These increases were partially offset by a decrease in bad debt expense
of $15.6 million.
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2014 increased
by $12.0 million, or 15.3%, to $90.0 million from $78.1 million for the year ended December 31, 2013. 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, 2014 decreased by $2.7 million, or 28.8%, to $6.7
million from $9.5 million for the year ended December 31, 2013. The decrease was primarily attributable to lower
royalties received in 2014.
Foreign currency loss. Foreign currency loss for the year ended December 31, 2014 increased by $14.5 million to
$17.0 million from $2.6 million for the year ended December 31, 2013. The increase in foreign currency loss was
primarily due foreign currency losses in Venezuela of $13.0 million in addition to unfavorable fluctuations of $1.5
million in other foreign currency exchange rates.
Income tax expense. Income tax expense for the year ended December 31, 2014 increased by $36.7 million, or
94.7%, to $75.4 million from $38.7 million for the year ended December 31, 2013 primarily due to our U.S. operations
becoming taxable as a result of our restructuring concurrent with the IPO for a full year in 2014 compared to four
months in 2013. 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 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 from operations and our income
tax provision varies from period to period.
Income from discontinued operations. We did not recognize any income from discontinued operations for the year
ended December 31, 2014. 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.
38
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
Total
Corporate and other (1)
Adjusted EBITDA Total (2)
Interest income (expense), net
Income tax expense
Depreciation and amortization
Gain (loss) on sale of assets
Foreign currency loss
Stock-based compensation expense
Severance and other costs
Change in value of contingent consideration
IPO transaction-related costs
Income from continuing operations
Year Ended December 31,
2014
2013
2015
442,861
352,281
241,983
(62,525)
974,600
$
538,730
463,372
240,277
(89,747)
$ 1,152,632
$
478,572
455,492
238,756
(95,098)
$ 1,077,722
182,475
93,871
40,999
317,345
96
317,441
341
(37,319)
(108,962)
1,038
(6,358)
(26,119)
(35,484)
1,532
—
106,110
$
$
231,469
180,575
38,366
450,410
(34)
450,376
87
(75,412)
(90,041)
(289)
(17,041)
(38,368)
—
—
—
229,312
$
$
199,620
198,442
40,624
438,686
53
438,739
(653)
(38,727)
(78,082)
122
(2,556)
(7,220)
—
—
(3,428)
308,195
$
$
$
$
(1) Corporate and other represents amounts not directly associated with an operating segment.
(2) 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.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
International Services
Revenue for the International Services segment decreased by $95.9 million, or 17.8%, compared to 2014, primarily
due to depressed oil and gas prices, which challenged the economics of current development projects in our Africa and
Asia Pacific areas, and caused the termination of ongoing drilling campaigns and the delay in the commencement of
new projects, as well as cancellations or deferred work scopes. The Africa region was also affected by poor results of
pre-salt exploratory wells. The decrease was partially offset by an increase in Latin America revenues due to higher
activity that started in the middle of 2014 and continued through the first half of 2015 in addition to an increase in
contract work among various customers.
39
Adjusted EBITDA for the International Services segment decreased by $49.0 million, or 21.2%, compared to 2014,
primarily due to the $95.9 million decrease in revenue, which was partially offset by lower expenses due to reduced
activity and cost-cutting measures.
U.S. Services
Revenue for the U.S. Services segment decreased by $111.1 million, or 24.0%, compared to 2014 primarily due
to depressed oil and gas prices. Onshore services revenue decreased by $71.5 million as a result of lower activity from
declining rig counts and pricing discounts. The offshore business saw a smaller decrease in revenue of $39.6 million
as a result of operational rig delays due to operational and down-hole issues, weather related delays caused by unusually
strong ocean loop currents in the Gulf of Mexico and some rig cancellations in the latter half of the year coupled with
downward pricing pressure.
Adjusted EBITDA for the U.S. Services segment decreased by $86.7 million, or 48.0%, compared to 2014 as a
result of lower revenues from activity and pricing concessions in the onshore and offshore business of $73.1 million
as well as higher corporate and other costs of $13.3 million primarily due to increased professional fees for acquisition
costs. This was partially offset by declining cost of revenues and operating expenses, as the U.S. Services' operational
footprint was reduced due to decreased activity, in addition to savings from the effect of cost rationalization actions
taken throughout the year.
Tubular Sales
Revenue for the Tubular Sales segment increased by $1.7 million, or 0.7%, compared to 2014, primarily from
contracted orders in addition to being able to meet urgent unscheduled customer requests for products.
Adjusted EBITDA for the Tubular Sales segment increased by $2.6 million, or 6.9%, compared to 2014, primarily
due to higher Tubular sales and improved productivity of $8.0 million. This was partially offset by lower volumes in
manufacturing operations of $5.4 million.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
International Services
Revenue for the International Services segment increased by $60.2 million, or 12.6%, compared to 2013, primarily
as a result of extended and renewed contracts in West Africa, expansion of our product placement in Europe and
increasing our market share in Asia Pacific and Middle East, partially offset by a decrease in Latin America due to the
termination of certain contracts in late 2013.
Adjusted EBITDA for the International Services segment increased $31.8 million, or 16.0%, compared to 2013,
primarily due to the revenue increase of $60.2 million and a $16.4 million decrease in bad debt expense, partially offset
by increases in compensation related costs of $17.9 million, freight and transportation costs of $5.0 million, product
costs of $4.6 million, equipment rentals of $3.5 million, custom duty charges of $3.4 million, business and travel
expenses of $3.1 million, rent and warehouse expense of $2.5 million, crew expenses of $1.8 million, employee benefits
and insurance of $0.9 million as well as smaller increases in various other costs of $2.1 million.
U.S. Services
Revenue for the U.S. Services segment increased $7.9 million, or 1.7%, compared to 2013. Our offshore revenue
increased $9.9 million as a result of increased activity from our customers but was partially offset by drilling delays,
rig-related issues and ocean currents lasting longer than previous years. Onshore revenue decreased $2.0 million due
to delays in the renewal of contracts in the first half of 2014 and the exit of customers who switched their concentration
to other regions in the U.S.
Adjusted EBITDA for the U.S. Services segment decreased by $17.9 million, or 9.0%, compared to 2013 as a
result of higher compensation related costs of $14.7 million, repairs and maintenance of $5.3 million, medical claims
40
of $4.2 million, rent expense of $0.9 million and smaller increases in several other costs of $0.7 million. These increases
were partially offset by the $7.9 million increase in revenue.
Tubular Sales
Revenue for the Tubular Sales segment increased by $1.5 million, or 0.6%, compared to 2013, primarily due to
an increase in customer external pipe sales of $8.2 million offset by a decrease in manufactured equipment sales to the
International Services and U.S. Services segments of $6.7 million.
Adjusted EBITDA for the Tubular Sales segment decreased by $2.3 million, or 5.6%, compared to 2013, primarily
as a result of higher tool inspection costs of $1.3 million, rent expense of $1.2 million and repairs and maintenance of
$0.9 million, as well as various other costs of $0.4 million, partially offset by the revenue increase of $1.5 million.
Liquidity and Capital Resources
Liquidity
At December 31, 2015, we had cash and cash equivalents of $602.4 million and debt of $7.3 million. Our primary
sources of liquidity to date have been cash flows from operations. 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 $75.0 million for 2016. We expect approximately $25.0 million for
the purchase and manufacture of equipment and $50.0 million for other property, plant and equipment, inclusive of the
purchase or construction of facilities. The actual amount of capital expenditures for the manufacture of equipment may
fluctuate based on market conditions. During the years ended December 31, 2015, 2014 and 2013, capital expenditures
were $99.7 million, $173.0 million and $184.5 million, respectively, all of which were funded from internally generated
sources. We believe our cash on hand, cash flows from operations and potential borrowings under our Credit Facility
(as defined below), will be sufficient to fund our capital expenditure and liquidity requirements for 2016.
We paid dividends on our common stock of $92.8 million, or an aggregate of $0.60 per common share, in addition
to $43.5 million in distributions to our noncontrolling interests during the year ended December 31, 2015. The timing,
declaration, amount of, and payment of any dividends is within the discretion of our board of managing directors subject
to the approval of our board of supervisory directors and will depend upon many factors, including our financial
condition, earnings, capital requirements, 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 our board of managing directors and our board of supervisory 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. The timing of distributions to our
noncontrolling interests is pursuant to the Limited Partnership Agreement of Frank's International C.V. for the tax
arising from their membership interests in FICV.
Credit Facility
We have a $100.0 million revolving credit facility with certain financial institutions, 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 “Credit Facility”).
Subject to the terms of our credit agreement, we have the ability to increase the commitments under the Credit Facility
by $150.0 million. As of December 31, 2015 and 2014, we did not have any outstanding indebtedness under the Credit
Facility. We had $4.7 million in letters of credit outstanding as of December 31, 2015.
Borrowings under the Credit Facility bear interest, at our option, at either a base rate or an adjusted Eurodollar
rate. Base rate loans under the Credit Facility 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 Facility bear interest at
41
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 Credit Facility is subject to a commitment fee ranging
from 0.250% to 0.375% based on certain leverage ratios.
The Credit Facility contains various covenants that, among other things, limit our ability to grant certain liens,
make certain loans and investments, enter into mergers or acquisitions, 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.
The Credit Facility also contains 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 agreement)
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. At December 31,
2015, we were in compliance with all financial covenants under the Credit Facility.
In addition, the Credit Facility contains customary events of default, including, among others, the failure to make
required payments, failure to comply with certain covenants or other agreements, breach of the representations and
covenants contained in the agreements, default of certain other indebtedness, certain events of bankruptcy or insolvency
and the occurrence of a change in control (as defined in our credit agreement).
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 in cash and cash equivalents
Year Ended December 31,
2014
2013
2015
$
$
427,758
(174,689)
(141,209)
111,860
1,145
113,005
$
$
368,860
(173,643)
(115,750)
79,467
4,940
84,407
$
$
277,431
(137,500)
110,234
250,165
1,837
252,002
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 $427.8 million for the year ended December 31, 2015 as compared to
$368.9 million in 2014 and $277.4 million in 2013. The increase in 2015 was due primarily to working capital changes,
primarily in accounts receivable and inventory. The overall increase was partially offset by a decrease in net income.
The changes were primarily a result of lower activity due to depressed oil and gas prices. The increase in 2014 was
due primarily to changes in inventory, accounts receivable and accrued expenses, partially offset by an increase in tax
expense resulting from our U.S. operations becoming taxable subsequent to our IPO as well as lower deferred revenue.
42
Investing Activities
Cash flow used in investing activities was $174.7 million for the year ended December 31, 2015 as compared to
$173.6 million in 2014 and $137.5 million in 2013. Our investing activities in 2015 were primarily related to the Timco
acquisition, which was partially offset by lower capital expenditures for property, plant and equipment in comparison
to 2014 as a result of a reduction in the need for additional equipment and machinery to service our customers due to
declining rig activity caused by lower oil prices. Our investing activities in 2014 were primarily related to capital
expenditures for property, plant and equipment and reflected lower proceeds from the sale of assets and equipment than
in 2013.
Financing Activities
Cash flow used in financing activities was $141.2 million for the year ended December 31, 2015 as compared to
$115.8 million and cash provided by financing activities of $110.2 million for the years ended December 31, 2014 and
2013, respectively. The increase in 2015 was primarily due to higher dividend payments of $23.5 million. The decrease
in 2014 was primarily due to activities in 2013, which included net proceeds of $711.5 million from our IPO partially
offset by $464.0 million of note repayments to FWW B.V. and distributions to stockholders of $105.4 million that did
not reoccur in 2014. In 2014, we made dividend payments of $69.3 million and distributions to the noncontrolling
interests of $41.6 million.
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, 2015 (in
thousands):
Long-term debt
Noncancellable operating leases
Purchase obligations (1)
Total
Payments Due by Period
Total
7,321
52,878
11,864
72,063
$
$
$
$
Less than
1 year
1-3 years
3-5 years
More than
5 years
7,321
11,575
11,864
30,760
$
$
— $
— $
16,993
—
16,993
$
7,637
—
7,637
$
—
16,673
—
16,673
(1) Includes purchase commitments for connectors and pipe for existing orders from our customers. We enter into
purchase commitments as needed.
Not included in the table above are uncertain tax positions of $0.1 million that we have accrued as of December 31,
2015, as the amounts and timing of payment, if any, are uncertain. See Note 19 in the Notes to Consolidated Financial
Statements.
Tax Receivable Agreement
We entered into a tax receivable agreement (the “TRA”) with FICV and MHI in connection with the IPO. The
TRA generally provides for the payment by us to MHI of 85% of the amount of the actual reductions, if any, in payments
of U.S. federal, state and local income tax or franchise tax in periods after the IPO (which reductions we refer to as
"cash savings") as a result of (i) the tax basis increases resulting from the transfer of FICV interests to us in connection
with a 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. We will retain the remaining 15% of cash savings, if any. The payment obligations under the TRA are our
43
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.
If we elect to terminate the TRA early, we would be required to make an immediate payment equal to the present
value of the anticipated future tax benefits subject to the TRA (based upon certain assumptions and deemed events set
forth in the TRA, including the assumption that it has sufficient taxable income to fully utilize such benefits and that
any FICV interests that MHI or its transferees own on the termination date are deemed to be exchanged on the termination
date). In addition, payments due under the TRA will be similarly accelerated following certain mergers or other changes
of control.
In certain circumstances, we may be required to make payments under the TRA that we have entered into with
MHI. In most circumstances, these payments will be associated with the actual cash savings that we recognize in
connection with a conversion of Preferred Stock, which would reduce the actual tax benefit to us. If we were to choose
to terminate the TRA early or enter into certain change of control transactions, we may incur payment obligations prior
to the time we actually incur any tax benefit. In those circumstances, we would need to pay the amounts out of cash
on hand, finance the payments or refrain from triggering the obligation. Though we do not have any present intention
of triggering an advance payment under the TRA, based on our current liquidity and our expected ability to access debt
and equity financing, we believe we would be able to make such a payment if necessary. Any such payment could
reduce our cash on hand and our borrowing availability, however, which would also reduce the amount of cash available
to operate our business, to fund capital expenditures and to be paid as dividends to our stockholders, among other
things. Please see Note 15 in the Notes to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
At December 31, 2015, 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 to 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.
44
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 the return period has expired.
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
45
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,
we establish or adjust allowances for specific clients and the accounts receivable as a whole. Our allowance for doubtful
accounts at December 31, 2015 and 2014 was $2.5 million for each year, 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, Canada, 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.
For the year ended December 31, 2015, on a U.S. dollar-equivalent basis, approximately 20% 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 1.9% decrease in our overall revenues for the year ended December 31, 2015.
In December 2015, we began entering into short-duration foreign currency forward contracts. We use these
instruments to mitigate our exposure to non-local currency operating working capital. We are also exposed to market
risk on our forward contracts related to potential non-performance by our counterparty. It is our policy to enter into
derivative contracts with counterparties that are creditworthy institutions.
We account for our derivative activities under the accounting guidance for derivatives and hedging. Derivatives
are recognized on the consolidated balance sheet at fair value. Although the derivative contracts will serve as an economic
hedge of the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts
46
for hedge accounting treatment. Accordingly, any changes in the fair value of the derivative instruments during a period
will be included in our consolidated statements of income.
As of December 31, 2015, we had the following foreign currency derivative contracts outstanding:
Forward Contracts to Purchase or Sell Foreign Currencies in U.S. Dollars (in thousands)
Foreign Currency
Canadian dollar
Euro
Norwegian kroner
Pound sterling
Notional
Amount
Contractual
December 31,
Exchange Rate
2015
Fair Value at
$
5,091
19,706
11,498
7,516
1.3751
$
1.0948
8.6973
1.5031
$
48
(106)
162
106
210
Based on the derivative contracts that were in place as of December 31, 2015, a simultaneous 5% devaluation of
the Canadian dollar, Euro, Norwegian kroner, and Pound sterling compared to the U.S. dollar would result in a $0.2
million increase in the market value of our forward contracts.
During 2014, Venezuela enacted certain changes to its foreign exchange system such that, in addition to the official
rate of 6.3 Venezuelan Bolivar Fuertes ("Bolivars") per U.S. Dollar, there were two other legal exchange rates that may
be obtained via different exchange rate mechanisms. These changes included the expansion of what is known as the
SICAD I auction rate and the introduction of the SICAD II auction process. On February 10, 2015, the Venezuelan
government announced that the transactions for the sale or purchase of foreign currency under the SICAD II exchange
system would no longer be available and created a new open market foreign exchange system ("SIMADI").
During 2015, we concluded that it was appropriate to apply the SIMADI exchange rate as we believed that this
rate best represented the economics of our business activity in Venezuela. At December 31, 2015, we had approximately
$0.2 million in net monetary assets denominated in Bolivars using the SIMADI rate, which was approximately 198.7
Bolivars to the U.S. dollar. In the event of a devaluation of the current exchange mechanism in Venezuela or any other
new exchange mechanism that might emerge for financial reporting purposes, it would result in our recording an
additional devaluation charge in our consolidated statements of income.
Interest Rate Risk
As of December 31, 2015, we did not have an outstanding funded debt balance under the Credit Facility. If we
borrow under the Credit Facility in the future, we will be exposed to changes in interest rates on our floating rate
borrowings under the Credit Facility. 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
47
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.
48
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Income for the Years Ended
December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2015, 2014 and 2013
Notes to the Consolidated Financial Statements
Page
50
51
52
53
54
55
56
57
49
Management's Report on Internal Control
Over Financial Reporting
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15
(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed
by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit the preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial statements.
We conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2015 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013. Based on our evaluation, management has concluded that our internal control over
financial reporting was effective as of December 31, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is
included herein.
50
Report of Independent Registered Public Accounting Firm
To the Board of Supervisory Directors and Stockholders of Frank’s International N.V.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of Frank’s International N.V. and its subsidiaries at December 31, 2015 and 2014, and
the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015
in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15 (a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related consolidated financial statements. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over
financial reporting based on our audits which were integrated audits in 2015 and 2014. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included 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. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 29, 2016
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
Accounts payable
Deferred revenue
Accrued and other current liabilities
Total current liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 21)
Series A preferred stock, €0.01 par value, 52,976,000 shares authorized,
issued and outstanding
Stockholders' equity
Common stock, €0.01 par value, 745,120,000 shares authorized; 155,661,150 shares
issued and 155,146,338 shares outstanding at December 31, 2015 and 154,571,229
shares issued and 154,327,383 shares outstanding at December 31, 2014
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury shares (at cost), 514,812 and 243,846 at December 31, 2015 and 2014
respectively
Total stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2015
2014
$
$
$
$
$
$
602,359
246,191
161,263
13,923
1,023,736
624,959
25,210
52,933
1,726,838
7,321
12,784
57,637
111,884
189,626
40,257
44,824
274,707
489,354
390,977
204,008
23,080
1,107,419
580,142
14,163
56,957
1,758,681
304
16,496
76,112
114,227
207,139
35,321
42,980
285,440
705
705
2,045
712,486
531,621
(25,555)
2,033
683,611
545,357
(14,210)
(9,298)
1,211,299
240,127
1,451,426
1,726,838
$
(4,801)
1,211,990
260,546
1,472,536
1,758,681
$
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
Severance and other charges
Change in value of contingent consideration
(Gain) loss 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 of tax
Net income
Net income attributable to noncontrolling interest
Net income attributable to Frank's International N.V.
Preferred stock dividends
Net income attributable to Frank's International N.V.
common shareholders
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,
2014
2013
2015
$
766,252
208,348
974,600
$
969,703
182,929
1,152,632
$
902,960
174,762
1,077,722
304,473
113,918
270,678
108,962
35,484
(1,532)
(1,038)
143,655
5,791
341
(6,358)
(226)
143,429
37,319
106,110
—
106,110
27,000
79,110
(2)
$
369,855
110,126
267,378
90,041
—
—
289
314,943
6,735
87
(17,041)
(10,219)
304,724
75,412
229,312
—
229,312
70,275
159,037
(1)
$
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
—
79,108
$
159,036
$
255,462
0.51
—
0.51
0.50
—
0.50
$
$
$
$
1.03
—
1.03
1.03
—
1.03
$
$
$
$
1.69
0.24
1.93
1.62
0.23
1.85
154,662
209,152
153,814
207,828
132,257
185,506
$
$
$
$
$
$
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 (loss) 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,
2014
2013
2015
$
106,110
$
229,312
$
350,830
(14,039)
(11,104)
(11,240)
(1,186)
(15,225)
90,885
(4,782)
(15,886)
213,426
3,658
(7,582)
343,248
23,120
66,216
93,423
$
67,765
$
147,210
$
249,825
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)
Balance at December 31, 2012
Net income
Distribution of net assets
to Mosing Holdings
Capital contribution by NCI
equity holders to subsidiary
Issuance of common stock
Common Stock
Shares
119,024
—
Value
$ 1,561
—
Additional
Paid-In
Capital
$
Retained
Earnings
651
$ 327,436
— 255,462
—
—
—
—
—
—
upon IPO, net of offering costs
34,500
458
634,239
Accumulated
Other
Comprehensive
Income (Loss)
3,254
$
—
Treasury
Stock
Non-
controlling
Interest
Total
Stockholders'
Equity
$
— $ 114,086
95,368
—
$
446,988
350,830
—
—
—
(8,357)
2,720
—
—
—
—
—
(2,383)
—
—
(8,266)
(3,561)
—
—
—
—
—
—
(14,210)
—
(10,462)
(883)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12,907)
(50,319)
3,002
3,002
76,814
711,511
(2,883)
(11,240)
938
—
(27,027)
3,658
7,220
(105,367)
(11,496)
(11,496)
—
—
235,895
70,275
—
(11,514)
54
1,333,327
229,312
3,093
(2,838)
(11,104)
(1,221)
—
(4,782)
38,368
(41,565)
(41,565)
—
—
(69,311)
(1)
—
(4,801)
(4,801)
—
—
—
260,546
27,000
—
(4,801)
1,472,536
106,110
—
—
—
—
—
—
—
(3,577)
(14,039)
(303)
—
—
(1,186)
28,402
198
(43,539)
(43,539)
—
—
(92,844)
(2)
(37,412)
—
—
—
—
—
(78,340)
—
—
7,220
—
—
—
—
54
642,164
(11,514)
—
455,632
— 159,037
—
3,093
—
—
38,368
—
—
—
(14)
—
683,611
—
—
—
28,402
198
—
—
—
—
—
—
—
(69,311)
(1)
—
—
545,357
79,110
—
—
—
—
—
(92,844)
(2)
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
Net income
Tax benefits due to offering costs
Foreign currency translation
adjustments
Unrealized loss on marketable
securities
Stock-based compensation expense
Distribution to noncontrolling
interest
Common stock dividends
($0.45 per share)
Preferred stock dividends
Common shares issued upon
vesting of restricted stock units
Treasury shares withheld
Balance at December 31, 2014
Net income
Foreign currency translation
adjustments
Unrealized loss on marketable
securities
Stock-based compensation expense
Amount withheld for employee
stock purchase plan ("ESPP")
Distribution to noncontrolling
interest
Common stock dividends
($0.60 per share)
Preferred stock dividends
Common shares issued upon
—
—
—
—
—
—
—
—
—
—
—
—
153,524
—
—
—
—
2,019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,047
(244)
154,327
—
14
—
2,033
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
vesting of restricted stock units
Common shares issued for ESPP
Treasury shares withheld
Balance at December 31, 2015
1,070
20
(271)
155,146
12
—
—
$ 2,045
(12)
287
—
$ 712,486
—
—
—
$ 531,621
$
—
—
—
—
—
—
—
—
(4,497)
(25,555) $ (9,298) $ 240,127
—
287
(4,497)
$ 1,451,426
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)
Year Ended December 31,
2014
2013
2015
$
106,110
$
229,312
$
350,830
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
ESPP expense
Amortization of deferred financing costs
Venezuelan currency devaluation charge
Deferred tax provision
Provision for (recovery of) bad debts
(Gain) loss on sale of assets
Changes in fair value of marketable securities
Change in value of contingent consideration
Unrealized gain on derivative
Increase in value of life insurance policies
Other
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
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of Timco Services, Inc. (net of acquired cash)
Purchase of property, plant and equipment
Proceeds from sale of assets
Purchase of marketable securities
Premiums on life insurance policies
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
Deferred financing costs
Dividends paid on common stock
Dividends paid on preferred stock
Distribution to noncontrolling interest
Treasury shares withheld
Proceeds from the issuance of ESPP shares
Distributions to stockholders
Net cash provided by (used in) financing activities
108,962
28,402
198
164
—
4,868
228
(1,038)
741
(1,532)
(210)
—
(3,909)
140,657
41,502
16,981
1,333
(3,035)
(18,473)
3,971
1,838
427,758
(78,676)
(99,723)
4,579
(869)
—
(174,689)
—
(765)
151
—
(92,844)
(2)
(43,539)
(4,497)
287
—
(141,209)
—
1,145
113,005
489,354
602,359
$
90,041
38,368
—
235
13,010
27,995
(3,137)
289
(1,403)
—
—
—
—
(43,349)
(30,282)
(7,926)
(1,619)
4,991
13,505
32,915
5,915
368,860
—
(172,952)
848
(1,539)
—
(173,643)
—
(72)
—
—
(69,311)
(1)
(41,565)
(4,801)
—
—
(115,750)
(1,040)
5,980
84,407
404,947
489,354
$
78,226
7,220
—
129
1,755
3,621
12,551
(39,752)
(3,891)
—
—
(815)
—
(82,032)
(85,654)
(1,698)
(1,430)
(5,278)
39,437
(2,744)
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
Effect of exchange rate changes on cash due to Venezuelan devaluation
Effect of exchange rate changes on cash
Net increase 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 N.V. ("FINV"), a limited liability company organized under the laws of The Netherlands, is
a global provider of highly engineered tubular services to the oil and gas industry. FINV 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 FINV for the years ended December 31, 2015, 2014 and 2013 include
the activities of Frank's International C.V. ("FICV") and its wholly owned subsidiaries (collectively, "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.
Out-Of-Period Adjustment
During our review of the three months ended June 30, 2014, we identified a non-cash error that originated in prior
periods. The error related to the attribution of the cost of share-based compensation to the requisite service periods of
retirement-eligible employees. Awards made pursuant to the 2013 Long-Term Incentive Plan generally provided that
the awards vest if the employee retires. The requisite service period for awards does not extend beyond the date an
employee becomes eligible to retire, which causes the requisite service period to be either two years or the period from
grant date to the date the employee becomes retirement eligible. In the second quarter of 2014, we discovered that
share-based compensation expense related to retirement-eligible employees was cumulatively understated through the
first quarter of 2014 by approximately $7.5 million. Because the errors were immaterial both in the periods in which
they arose and in which they were corrected, the correction was recorded as an out-of-period adjustment in the second
quarter of 2014 and is included in general and administrative expenses on the consolidated statements of income.
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.
57
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 stockholders’ 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.
Derivative Financial Instruments
When we deem appropriate, we use foreign currency forward derivative contracts to mitigate the risk of fluctuations
in foreign currency exchange rates. We use these instruments to mitigate our exposure to non-local currency working
capital. We do not hold or issue financial instruments for trading or other speculative purposes. We account for our
derivative activities under the provisions of accounting guidance for derivatives and hedging. Derivatives are recognized
on the consolidated balance sheet at fair value. Although the derivative contracts will serve as an economic hedge of
the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts for hedge
accounting treatment. Accordingly, any changes in the fair value of the derivative instruments during a period will be
included in our consolidated statements of income.
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.
58
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, available-for-
sale securities, derivative financial instruments, 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 11 for the fair values of our available-for-sale securities,
derivative financial instruments, 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 than 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, 2015, 2014 and 2013. Our goodwill is allocated to our operating segments as follows: U.S.
Services - approximately $16.3 million; Tubular Sales - approximately $2.4 million. The inputs used in the determination
of fair value are generally level 3 inputs. See Note 11 in these Notes to Consolidated Financial Statements for a discussion
of fair value measures.
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
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,
59
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
FICV is treated 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 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, trade names, and non-compete agreements.
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.
The following table provides information related to our intangible assets as of December 31, 2015 and 2014 (in
thousands):
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Total
14,658
$
1,160
3,525
4,957
24,300
$
(9,422) $
(440)
(2,925)
(4,957)
(17,744) $
5,236
720
600
—
6,556
December 31, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Total
8,498
$
200
2,725
4,957
16,380
$
(8,498) $
(200)
(2,725)
(4,536)
(15,959) $
—
—
—
421
421
$
$
$
$
Customer relationships
Non-compete agreement
Trade name
License agreement
Total intangible assets
Customer relationships
Non-compete agreement
Trade name
License agreement
Total intangible assets
60
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense for intangibles assets was $1.8 million, $0.7 million and $0.8 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
As of December 31, 2015, estimated amortization expense for the intangible assets for each of the next five years
was as follows (in thousands):
2016
2017
2018
2019
2020
Total
$
$
1,819
1,819
1,379
1,232
307
6,556
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 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 8-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
is determined to be other than temporary. Realized gains (losses) on investments were $(0.7) million, $1.4 million and
$3.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
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 enhance or extend the useful life of the asset. Expenditures
for 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.
61
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 to 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 the return period has expired.
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 $57.6 million and $76.1 million was deferred at December 31, 2015 and 2014, respectively.
Stock-Based Compensation
Our 2013 Long-Term Incentive 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
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
Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting
standards updates ("ASUs") to the FASB’s Accounting Standards Codification.
We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be
either not applicable or are expected to have minimal impact on our consolidated financial position or results of
operations.
62
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2016, the FASB issued accounting guidance on the recognition and measurement of financial assets
and financial liabilities. Under this guidance, equity investments will be measured at fair value with changes in fair
value recognized in net income. The guidance requires public businesses to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and
financial liabilities by measurement category and form of financial asset. The guidance also eliminates the requirement
for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at amortized cost. The guidance is not applicable to equity
investments accounted for under the equity method of accounting. The guidance is effective for interim and annual
periods beginning after December 15, 2017. Management does not believe the adoption will have a material impact
on our consolidated financial statements.
In November 2015, the FASB issued accounting guidance on the classification and presentation of deferred taxes.
The guidance eliminates the current requirement for organizations to present deferred tax liabilities and assets as current
and noncurrent in a classified balance sheet. The guidance requires all deferred tax assets and liabilities be classified
as noncurrent. The guidance is effective for interim and annual periods beginning after December 15, 2016 with early
adoption permitted. The amendments in this guidance may be applied either prospectively to all deferred tax liabilities
and assets or retrospectively to all periods presented. We adopted this guidance on December 31, 2015 and the adoption
did not have a material impact on our consolidated financial statements.
In July 2015, the FASB issued accounting guidance on simplifying the measurement of inventory. Under this
guidance, inventory will be measured at the lower of cost and net realizable value. Options that currently exist for
market value will be eliminated. The guidance defines net realizable value as the estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were
made to the current guidance on inventory measurement. This guidance will be effective for interim and annual periods
beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management
is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the
adoption of the new accounting guidance will have on our consolidated financial statements.
In April 2015, the FASB issued amended guidance on the presentation of debt issuance costs, which requires debt
issuance costs to be presented in the balance sheet as a direct deduction from the related debt liability rather than as an
asset, consistent with debt discounts and premiums. Amortization of the costs will be reported as interest expense. In
August 2015, additional guidance was provided to address the presentation or subsequent measurement of debt issuance
costs related to line-of-credit arrangements. The SEC staff stated that it would not object to an entity deferring and
presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over
the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-
credit arrangement. We adopted this guidance during 2015 and the adoption did not have an impact on our consolidated
financial statements.
In February 2015, the FASB issued guidance on the amendments to the consolidation analysis, which affects
reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities
are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the
evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting
interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect
the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements
and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities
with interest in legal entities that are required to comply with or operate in accordance with requirements that are similar
to those for registered money market funds. This pronouncement is effective for public business entities for fiscal years,
and for interim periods within those fiscal years, beginning after December 15, 2015. We are evaluating the impact that
the adoption of this standard will have on our consolidated financial statements
In January 2015, the FASB issued guidance on the income statement presentation, which eliminates the concept
of extraordinary items while retaining certain presentation and disclosure guidance for items that are unusual in nature
or occur infrequently. The standard is effective prospectively for fiscal years and interim periods within those fiscal
63
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
years, beginning after December 15, 2015, with early adoption permitted provided the guidance is applied from the
beginning of the fiscal year of adoption. We do not expect to adopt this guidance early and do not believe that the
adoption of this guidance will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued amendments to guidance on the recognition of revenue based upon the entity’s
contracts with customers to transfer goods or services. Under the new standard update, an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred
the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB
will also permit early adoption of the standard, but not before the original effective date of December 15, 2016. We are
currently evaluating the impact of this accounting standard update on our consolidated financial statements.
Note 2—Noncontrolling Interest
We hold an 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 economic interest in FICV
held by Mosing Holdings, Inc. ("MHI"). Net income attributable to noncontrolling interest on the statements of income
represents the portion of earnings or losses attributable to the economic interest in FICV held by MHI. The allocable
domestic income from FICV to FINV is 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 income taxes of FINV (1)
Less: (Income) loss in FINV (2)
Net income subject to noncontrolling interest
Noncontrolling interest percentage (3)
Net income attributable to noncontrolling interest
Year Ended December 31,
2014
$ 229,312
45,433
(392)
274,353
2013
$ 350,830
20,750
224
371,804
2015
$106,110
6,585
(6,824)
105,871
25.4%
25.6%
25.7%
$ 27,000
$ 70,275
$ 95,368
(1) Represents income tax expense of entities outside of FICV as well as income tax attributable to our
proportionate share of the U.S. operations of our partnership interests in FICV.
(2) Represents results of operations for entities outside of FICV.
(3) Represents the economic interest in FICV held by MHI. This percentage will change as additional shares of
FINV common stock are issued.
Note 3—Discontinued Operations
On June 14, 2013, we sold a component of our Tubular Sales 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 year ended December 31, 2013, the operations from that
component have been reported as discontinued operations.
64
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
$
$
$
7,554
3,036
39,629
42,665
30
42,635
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 year ended December 31, 2013.
Note 4—Acquisition
On April 1, 2015, Frank’s International, LLC, a Texas limited liability company (“Frank’s LLC”) and an indirect
wholly-owned subsidiary of FICV closed on a transaction, which was an immaterial acquisition, to purchase all of the
outstanding equity interests of Timco Services, Inc. ("Timco"), a Louisiana corporation with a strong presence in the
Permian Basin and Eagle Ford Shale regions, in exchange for consideration consisting of (i) approximately $81.0
million inclusive of a tax reimbursement payment of $8.0 million as well as closing adjustments for normal operating
activity and customary purchase price adjustments and (ii) contingent consideration of up to $20.0 million, payable in
two separate payments of $10.0 million based upon exceeding certain targets of the United States land rotary rig count,
as reported by Baker Hughes, over prescribed time periods, which is revalued each quarter as discussed in Note 11 -
Fair Value Measurements. As of December 31, 2015, the contingent consideration had a fair value of approximately
$7.0 thousand. In addition, each party agreed to indemnify the other for breaches of representations and warranties,
breaches of covenants and certain other matters, subject to certain exceptions.
The Timco acquisition was accounted for as a business combination in accordance with accounting guidance. As
described in Note 11 - Fair Value Measurements, the purchase price is allocated to the fair value of assets acquired and
liabilities assumed based on a discounted cash flow model and goodwill is recognized for the excess consideration
transferred over the fair value of the net assets. We recognized $4.9 million of goodwill. The goodwill is assigned to
the U.S. Services segment and is deductible for tax purposes. The purchase price allocation was finalized during the
fourth quarter of 2015.
In connection with the Timco acquisition, we acquired intangible assets in the amount of $7.9 million related to
customer relationships, trade names and non-compete clauses. The intangible assets will be amortized over their
65
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
estimated useful lives. Amortization expense for the intangible assets for the Timco acquisition was $1.4 million for
the year ended December 31, 2015.
Note 5—Accounts Receivable, net
Accounts receivable at December 31, 2015 and 2014 were as follows (in thousands):
Trade accounts receivable, net of allowance
of $2,528 and $2,477, respectively
Unbilled receivables
Taxes receivable
Affiliated (1)
Other receivables
Total accounts receivable
December 31,
2015
2014
$
$
166,256
40,033
34,163
3,966
1,773
246,191
$
$
291,140
62,993
32,056
3,370
1,418
390,977
(1) Amounts represent expenditures on behalf of non-consolidated affiliates and receivables for aircraft charter income.
Note 6—Inventories
Inventories at December 31, 2015 and 2014 were as follows (in thousands):
Pipe and connectors
Finished goods
Work in progress
Raw materials, components and supplies
Total inventories
December 31,
2015
2014
$
$
137,245
4,020
5,230
14,768
161,263
$
$
185,076
4,291
3,363
11,278
204,008
66
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7—Property, Plant and Equipment
The following is a summary of property, plant and equipment at December 31, 2015 and 2014 (in thousands):
Land and land improvements (1)
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
8 - 15
39
7
7
5
5
7
7-15, or lease term
if shorter
—
$
December 31,
2015
2014
$
19,408
74,152
898,134
60,250
18,240
48,402
16,267
21,804
69,827
763,722
64,648
17,915
37,417
14,868
7,947
6,353
102,432
1,245,232
(620,273)
624,959
$
114,308
1,110,862
(530,720)
580,142
$
(1) The estimated useful life presented is only land improvements. Land does not have a depreciable life.
Depreciation expense was approximately $107.2 million, $89.4 million and $77.3 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Note 8—Other Assets
Other assets at December 31, 2015 and 2014 consisted of the following (in thousands):
Marketable securities held in Rabbi Trust (1)
Deferred tax asset
Deposits
Other
Total other assets
(1) See Note 11 – Fair Value Measurements
December 31,
2015
2014
$
$
45,254
536
2,031
5,112
52,933
$
$
45,126
1,507
4,043
6,281
56,957
67
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9—Accrued and Other Current Liabilities
Accrued and other current liabilities at December 31, 2015 and 2014 consisted of the following (in thousands):
Accrued compensation
Accrued property and other taxes
Accrued severance and other charges
Income taxes
Accrued inventory
Accrued medical claims
Accrued purchase orders
Other
Total accrued and other current liabilities
Note 10—Debt
Credit Facility
December 31,
2015
2014
25,281
23,790
22,244
7,385
5,281
4,141
5,562
18,200
111,884
$
$
35,097
32,190
—
3,362
6,235
3,218
8,081
26,044
114,227
$
$
We have a $100.0 million revolving credit facility with certain financial institutions, 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 “Credit Facility”).
Subject to the terms of our credit agreement, we have the ability to increase the commitments under the Credit Facility
by $150.0 million. At December 31, 2015 and 2014, we did not have any outstanding indebtedness under the Credit
Facility. In addition, we had $4.7 million in letters of credit outstanding as of December 31, 2015.
Borrowings under the Credit Facility bear interest, at our option, at either a base rate or an adjusted Eurodollar
rate. Base rate loans under the Credit Facility 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 Facility 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 Credit Facility is subject to a commitment fee ranging
from 0.250% to 0.375% based on certain leverage ratios.
The Credit Facility contains various covenants that, among other things, limit our ability to grant certain liens,
make certain loans and investments, enter into mergers or acquisitions, 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.
The Credit Facility also contains 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 our credit agreement)
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,
2015, we were in compliance with all financial covenants under the Credit Facility.
In addition, the Credit Facility contains customary events of default, including, among others, the failure to make
required payments, the failure to comply with certain covenants or other agreements, breach of the representations and
covenants contained in the agreements, default of certain other indebtedness, certain events of bankruptcy or insolvency
and the occurrence of a change in control (as defined in our credit agreement).
68
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AFCO Credit Corporation - Insurance Notes Payable
In 2015, we entered into a note to finance annual insurance premiums for $7.6 million. The note bears interest at
an annual rate of 1.9% and will mature in October 2016. At December 31, 2015, the total outstanding balance was $6.9
million.
Note 11—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.
69
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,
2015 and 2014 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, 2015
Assets:
Derivative financial instruments
Investments available-for-sale:
Marketable securities - deferred
compensation plan
Marketable securities - other
Liabilities:
Marketable securities - deferred
compensation plan
Contingent consideration
December 31, 2014
Assets:
Investments available-for-sale:
Marketable securities - deferred
compensation plan
Marketable securities - other
Liabilities:
Marketable securities - deferred
compensation plan
$
$
$
— $
210
$
— $
210
— $
2,387
$
45,254
—
— $
—
45,254
2,387
—
—
43,568
—
—
7
43,568
7
— $
2,257
$
45,126
—
— $
—
45,126
2,257
—
42,968
—
42,968
Our derivative financial instruments consist of short-duration foreign currency forward contracts. The fair value
of derivative financial instruments is based on quoted market values including foreign exchange forward rates and
interest rates. The fair value is computed by discounting the projected future cash flow amounts to present value. The
derivative financial instruments are included in accounts receivable, net in our consolidated balance sheets.
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
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 and investments are included in other assets on the
consolidated balance sheets. Our valuation technique used to estimate the fair value of contingent consideration payable
in connection with our acquisition of Timco (as described in Note 4) is the Monte Carlo simulation lattice option-pricing
model which uses weekly rig count forecasts through June 30, 2017 as a basis for the simulation. The contingent
consideration is included in other non-current liabilities on the balance sheet.
70
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We used the following assumptions in the Monte Carlo simulation lattice option-pricing model:
Assumptions:
Rig count volatility
Cost of debt
Date of first contingent consideration payment
Date of second contingent consideration payment
December 31, 2015
1.85%
5.31%
December 31, 2016
June 30, 2017
The following table sets forth a reconciliation of the changes in the fair value of the contingent consideration
payable, which changed as a result of the significant reduction in the rig count forecast. The contingent consideration
is classified as Level 3 in the fair value hierarchy (in thousands):
Beginning balance, December 31, 2014
Issuance of contingent consideration
Change in value of contingent consideration
Ending Balance, December 31, 2015
Significant
Unobservable
$
$
—
1,539
(1,532)
7
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 approximate fair values
due to their short maturities.
Note 12— Derivatives
In December 2015, we began entering into short-duration foreign currency forward derivative contracts to reduce
the risk of foreign currency fluctuations. We use these instruments to mitigate our exposure to non-local currency
operating working capital. We record these contracts at fair value on our consolidated balance sheets. Although the
derivative contracts will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are
not formally designated as hedge contracts for hedge accounting treatment. Accordingly, any changes in the fair value
of the derivative instruments during a period will be included in our consolidated statements of income.
71
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 we had the following foreign currency derivative contracts outstanding in U.S. Dollars
(in thousands):
Derivative Contracts
Canadian dollar
Euro
Norwegian kroner
Pound sterling
Notional
Amount
$
December 31, 2015
Contractual
Exchange Rate
5,091
19,706
11,498
7,516
1.3751
1.0948
8.6973
1.5031
Settlement
Date
1/13/16
1/13/16
1/13/16
1/13/16
The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated
balance sheets as of December 31, 2015 (in thousands):
Derivatives not designated as Hedging Instruments
Consolidated Balance
Sheet Location
December 31, 2015
Foreign currency contracts
Accounts receivable, net
$
210
The following table summarize the location and amounts of the unrealized gains on derivative contracts in the
consolidated income statement as of December 31, 2015 (in thousands):
Derivatives not designated as Hedging Instruments
Location of gain
recognized in income on
derivative contracts
December 31, 2015
Unrealized gain on foreign currency contracts
Other income
$
210
Our derivative transactions are governed through International Swaps and Derivatives Association ("ISDA") master
agreements. These agreements include stipulations regarding the right of offset in the event that we or our counterparty
default on our performance obligations. If a default were to occur, both parties have the right to net amounts payable
and receivable into a single net settlement between parties. Our accounting policy is to offset derivative assets and
liabilities executed with the same counterparty when a master netting arrangement exists.
The following table presents the gross and net fair values of our derivatives as of December 31, 2015 (in thousands):
Netting Adjustments
Gross position - asset / (liability)
Netting adjustment
Net position - asset / (liability)
Note 13—Preferred Stock
December 31, 2015
Derivative Asset
Positions
Derivative Liability
Positions
$
$
316
(106)
210
$
$
(106)
106
—
At December 31, 2015 and 2014, we had 52,976,000 shares of Series A preferred stock, par value €0.01 per share
(the "Preferred Stock") issued and outstanding, which were held by MHI. 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.
The preferred dividend of $1,506 for the year ended December 31, 2014 was paid on June 30, 2015. We expect to pay
the annual dividend for the year ended December 31, 2015 in May 2016. Additionally, each share of Preferred Stock
72
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
entitles its holder to one vote. Preferred stockholders vote with the common stockholders as a single class on all matters
presented to FINV's shareholders for their vote.
MHI 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
the conversion will decrease the noncontrolling interest in our financial statements that is attributable to MHI's interest
in FICV. As of December 31, 2015, there have been no conversions of the Preferred Stock or exchanges 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 14—Treasury Stock
At December 31, 2015, common shares held in treasury totaled 514,812 with a cost of $9.3 million. These shares
were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock
units that vested.
Note 15—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 office space from an affiliated partnership. Rent expense related to these leases
was $7.6 million, $7.4 million and $5.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
We are a party to certain agreements relating to the rental of aircraft to Western Airways ("WA"), an entity owned
by the Mosing family. Prior to our initial public offering (the "IPO"), we had entered 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 in 2013, we entered
into new agreements with WA for the aircraft that was retained by us whereby we are paid a flat monthly fee for dry
lease rental and charged block hours monthly. In 2015, we amended the agreements to reflect both dry lease and wet
lease rental, whereby we are charged a flat monthly fee and earn charter income from third party usage. We recorded
net charter expense of $2.0 million and $1.5 million for the years ended December 31, 2015 and 2014, respectively,
and net charter income of $1.0 million for the year ended December 31, 2013.
Tax Receivable Agreement
MHI and its permitted transferees may convert all or a portion of its Preferred Stock into shares of our common
stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and
reclassifications and other similar transactions, by delivery of an equivalent portion of its interest in FICV to us (a
“Conversion”). FICV has made an election under Section 754 of the Code. Pursuant to the Section 754 election, each
future Conversion is expected to result in an adjustment to the tax basis of the tangible and intangible assets of FICV,
and these adjustments will be allocated to FINV. Certain of the adjustments to the tax basis of the tangible and intangible
assets of FICV described above would not have been available absent these future Conversions. The anticipated basis
adjustments are expected to reduce the amount of tax that FINV would otherwise be required to pay in the future. These
basis adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the
extent tax basis is allocated to those capital assets.
The tax receivable agreement (the "TRA") that we entered into with FICV and MHI in connection with our IPO
generally provides for the payment by FINV of 85% of the amount of the 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 after
our IPO as a result of (i) the tax basis increases resulting from the Conversions 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
73
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for payment by us of interest earned from the due date (without extensions) of the corresponding tax return to the date
of payment specified by the TRA. We will retain the remaining 15% of cash savings, if any.
The payment obligations under the TRA are our obligations and are not obligations of FICV. The term of the TRA
will continue until all such tax benefits have been utilized or expired, unless we exercise our right to terminate the
TRA.
Estimating the amount of payments that may be made under the TRA is by its nature imprecise. The actual increase
in tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of
factors, including the timing of Conversions, the relative value of our U.S. and international assets at the time of the
Conversion, the price of our common stock at the time of the Conversion, the extent to which such Conversions are
taxable, the amount and timing of the taxable income FINV realizes in the future and the tax rate then applicable,
FINV’s use of loss carryovers and the portion of its payments under the TRA constituting imputed interest or depreciable
or amortizable basis. FINV expects that the payments that it will be required to make under the TRA will be substantial
but that it will be able to fund such payments. There may be a negative impact on our liquidity if, as a result of timing
discrepancies, the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject
to the TRA. The payments under the TRA will not be conditioned upon a holder of rights under a TRA having a continued
ownership interest in either FICV or FINV.
The TRA provides that FINV may terminate it early. If FINV elects to terminate the TRA early, it would be required
to make an immediate payment equal to the present value of the anticipated future tax benefits subject to the TRA
(based upon certain assumptions and deemed events set forth in the TRA, including the assumption that it has sufficient
taxable income to fully utilize such benefits and that any FICV interests that MHI 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 TRA will be
similarly accelerated following certain mergers or other changes of control. In these situations, FINV’s obligations
under the TRA 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 TRA were terminated on December 31, 2015, the estimated termination payment would be approximately $45.5
million (calculated using a discount rate of 5.67%). The foregoing number is merely an estimate and the actual payment
could differ materially.
Because FINV is a holding company with no operations of its own, its ability to make payments under the TRA
is dependent on the ability of FICV to make distributions to it in an amount sufficient to cover FINV’s obligations
under such agreements; this ability, in turn, may depend on the ability of FICV’s subsidiaries to provide payments to
it. The ability of FICV and its subsidiaries to make such distributions will be subject to, among other things, the
applicable provisions of Dutch law that may limit the amount of funds available for distribution and restrictions in our
debt instruments. To the extent that FINV is unable to make payments under the TRA for any reason, except in the case
of an acceleration of payments thereunder occurring in connection with an early termination of the TRA or certain
mergers of change of control, such payments will be deferred and will accrue interest until paid, and FINV will be
prohibited from paying dividends on its common stock.
Note 16—Earnings Per Common Share
Basic earnings per common share is determined by 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 and ESPP shares. The diluted earnings per share calculation assumes the conversion 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.
74
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 available to common shareholders
Numerator - Diluted
Income from continuing operations
attributable 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 13)
Restricted stock units
Stock to be issued pursuant to ESPP
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,
2014
2013
2015
106,110
(27,000)
—
(2)
79,108
—
79,108
79,108
24,784
2
103,894
—
103,894
154,662
52,976
1,512
2
209,152
0.51
—
0.51
0.50
—
0.50
$
$
$
$
$
$
$
$
229,312
(70,275)
—
(1)
159,036
—
159,036
159,036
54,866
1
213,903
—
213,903
153,814
52,976
1,038
—
207,828
1.03
—
1.03
1.03
—
1.03
$
$
$
$
$
$
$
$
308,195
(95,368)
10,935
—
223,762
31,700
255,462
223,762
77,106
—
300,868
42,635
343,503
132,257
52,976
273
—
185,506
1.69
0.24
1.93
1.62
0.23
1.85
$
$
$
$
$
$
$
$
(1)
Adjusted for the additional tax expense upon the assumed
conversion of the Preferred Stock
$
2,216
$
15,409
$
7,327
75
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17—Stock-Based Compensation
2013 Long-Term Incentive Plan
Under our 2013 Long-Term Incentive Plan (the “LTIP”), stock options, 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. As of December 31, 2015,
16,038,580 shares remained available for issuance.
Restricted Stock Units
Upon completion of the IPO and pursuant to the LTIP, we began granting restricted stock units. Substantially all
RSUs granted under the LTIP vest ratably over a period of two to three years. Certain restricted stock unit awards
provide for accelerated vesting for qualifying terminations of employment or service.
Employees granted RSUs are not entitled to dividends declared on the underlying shares while the restricted stock
unit 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 weighted average grant date fair value of RSUs
granted during the years ended December 31, 2015, 2014 and 2013 was $14.6 million, $3.1 million and $74.1 million,
respectively. Compensation expense is recognized ratably over the vesting period. As of December 31, 2015, 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 included in general and administrative expenses on the
consolidated statements of income for the years ended December 31, 2015, 2014 and 2013 was $26.1 million, $38.4
million and $7.2 million, respectively. An additional $2.3 million of stock-based compensation expense was recorded
in severance and other charges as a result of our reduction efforts mentioned in Note 20, bringing the total stock-based
compensation expense recorded to $28.4 million for the year ended December 31, 2015. Unamortized stock
compensation expense as of December 31, 2015 relating to RSUs totaled approximately $15.1 million which will be
expensed over a weighted average period of 1.29 years.
Non-vested RSUs outstanding as of December 31, 2015 and the changes during the year were as follows:
Non-vested at December 31, 2014
Granted
Vested
Forfeited
Non-vested at December 31, 2015
Employee Stock Purchase Plan
Weighted
Number of
Average Grant
Shares
2,577,237
932,202
(1,069,630)
(80,436)
2,359,373
Date Fair Value
20.98
$
15.71
20.94
19.91
18.95
$
In connection with the completion of our IPO, we adopted the Frank's International N.V. ESPP, which became
effective January 1, 2015. Under the ESPP, eligible employees have the right to purchase shares of common stock at
the lesser of (i) 85% of the last reported sale price of our common stock on the last trading date immediately preceding
the first day of the option period, or (ii) 85% of the last reported sale price of our common stock on the last trading
date immediately preceding the last 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
76
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock for issuance under the ESPP. Shares of our common stock issued to our employees under the ESPP totaled 20,291
shares in 2015. For the year ended December 31, 2015, we recognized $0.2 million of compensation expense related
to stock purchased under the ESPP.
In January 2016, we issued 28,454 shares of our common stock to our employees under this plan to satisfy the
employee purchase period from July 1, 2015 to December 31, 2015, which increased our common stock outstanding.
There are currently 2,951,255 shares available under this plan.
Note 18—Employee Benefit Plans
U.S. Benefit Plans
401(k) Savings and Investment Plan. Frank's International, LLC administers a 401(k) savings and investment plan
(the “Plan”) as part of the employee benefits package. Employees were required to complete six months of service
before becoming eligible to participate in the Plan. On October 1, 2015, the Plan was amended to change the service
period to one month. Under the terms of the Plan, we match 75% of employee contributions up to $3,000 annually.
Our matching contributions to the Plan totaled $3.4 million, $3.5 million and $2.9 million for the years ended December
31, 2015, 2014 and 2013, 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 (See Note 8).
We recorded compensation expense related to the vesting of the Company’s contribution of $1.9 million, $2.3
million and $2.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. The total liability recorded
at December 31, 2015 and 2014, related to the EDC Plan was $43.6 million and $43.0 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 $5.5 million, $6.6 million and $4.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Note 19—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,
2015
2014
2013
30,795
112,634
$
144,756
159,968
$
177,244
169,678
143,429
$
304,724
$
346,922
$
$
77
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,
2015
2014
2013
$
$
3,141
(1,424)
30,734
32,451
8,138
(3,042)
(228)
4,868
37,319
$
$
19,152
2,663
25,602
47,417
20,521
3,357
4,117
27,995
75,412
$
$
9,367
630
25,052
35,049
10,696
833
(7,851)
3,678
38,727
Foreign taxes were incurred in the following regions for the periods indicated (in thousands):
Latin America
West Africa
Middle East
Europe
Asia Pacific
Other
Total foreign income tax expense
Year Ended December 31,
2015
2014
2013
$
$
6,077
8,413
5,474
3,317
1,454
5,771
30,506
$
$
2,301
11,247
8,630
1,690
2,032
3,819
29,719
$
$
(4,171)
8,789
4,765
1,842
2,732
3,244
17,201
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,
2015
2014
2013
$
$
54,854
—
(12,569)
(2,991)
(1,975)
37,319
$
$
116,557
—
(31,468)
(14,116)
4,439
75,412
$
$
133,565
(41,644)
(48,154)
(6,869)
1,829
38,727
A reconciliation using the Netherlands statutory rate was not provided as there are no significant operations in the
Netherlands.
78
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):
Deferred tax assets
Current
Other
Noncurrent
Other
Property and equipment
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Current
Other
Noncurrent
Investment in partnership
Other
Total deferred liabilities
Net deferred tax liabilities
December 31,
2015
2014
$
— $
7
296
240
—
536
1,696
187
(376)
1,514
—
(417)
(39,962)
(295)
(40,257)
(35,182)
(139)
(35,738)
$
(39,721) $
(34,224)
Undistributed earnings of certain of our foreign subsidiaries amounted to approximately $500.0 million at
December 31, 2015. 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, 2015 and future plans do
not demonstrate a need to repatriate the foreign amounts to fund parent company activity.
As of December 31, 2015 and 2014, we have total gross unrecognized tax benefits of $0.1 million and $0.3 million,
respectively. 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, 2015, the tax years 2009
through 2015 remain open to examination in the major foreign taxing jurisdictions to which we are subject. We are
currently under audit by the Internal Revenue Service for the tax period ending June 30, 2014. We do not expect any
material adjustments resulting from this audit.
Note 20—Severance and Other Charges
During 2015, we executed a workforce reduction plan as part of our cost savings initiatives due to depressed oil
and gas prices. The reduction was communicated to affected employees on various dates. The plan resulted in a reduction
of approximately 800 employees.
On January 5, 2016, we announced the transition of our Chairman of the board of supervisory directors (who also
held the role of Executive Chairman of the company) to a non-executive director of the supervisory board effective as
of December 31, 2015.
79
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recorded expenses of approximately $35.5 million for the year ended December 31, 2015, which included cash
severance payments, accelerated vesting of RSU grants for certain individuals and other employee-related termination
costs as well as base rationalization and lease termination fees. These costs are reflected in our consolidated statements
of income under severance and other charges. As of December 31, 2015, we had a $22.2 million liability.
Below is a reconciliation of the beginning and ending liability balance (in thousands):
Beginning balance, December 31, 2014
Additions for costs expensed
Other adjustments
Severance and other payments
Reclass to equity for acceleration of RSU awards
Ending balance, December 31, 2015
International
Services
U.S. Services Tubular Sales
Total
$
$
— $
— $
— $
1,500
—
(1,422)
—
78
32,838
(87)
(8,302)
(2,283)
$
22,166
$
1,146
47
(1,193)
—
— $
—
35,484
(40)
(10,917)
(2,283)
22,244
We expect to pay a significant portion of the remaining liability no later than the third quarter of 2016.
Note 21—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, 2015, are as follows
(in thousands):
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total future lease commitments
$
$
11,575
9,773
7,220
3,870
3,767
16,673
52,878
Total rent expense incurred under operating leases was $19.6 million, $17.2 million, and $12.9 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
Contingencies
We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is
accrued when a loss is both probable and can be reasonable estimated. As of December 31, 2015, we had no material
accruals for loss contingencies, individually or in the aggregate. We believe the probability is remote that the ultimate
outcome of these matters would have a material adverse effect on our financial position, results of operations or cash
flows.
80
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22—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
Insurance premium financed by note payable
Distribution of net assets to MHI
Note 23—Segment Information
Reporting Segments
$
$
Year Ended December 31,
2015
2014
2013
$
180
20,499
$
559
28,004
1,542
29,196
(3,534) $
7,630
—
(3,479) $
—
—
3,787
—
50,319
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.
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, Bakken Shale, Barnett Shale, Eagle Ford Shale, Haynesville Shale, Marcellus
Shale and Utica Shale, as well as in the U.S. Gulf of Mexico.
The Tubular Sales segment designs, manufactures and distributes large outside diameter ("OD") pipe, connectors
and casing attachments and sells large OD pipe originally manufactured by various pipe mills. We also provide
specialized fabrication and welding services in support of offshore projects, 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. 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 charges. We review Adjusted
EBITDA on both a consolidated basis and on a segment basis. We use Adjusted EBITDA 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 has
limitations as an analytical tool and should not be considered as an alternative to net income, operating income, cash
81
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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").
Our CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.
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
Total
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
Severance and other costs
Change in value of contingent consideration
IPO transaction-related costs (1)
Income from continuing operations
Year Ended December 31,
2015
2014
2013
$
$
182,475
93,871
40,999
317,345
96
317,441
341
(37,319)
(108,962)
1,038
(6,358)
(26,119)
(35,484)
1,532
—
106,110
$
$
231,469
180,575
38,366
450,410
(34)
450,376
87
(75,412)
(90,041)
(289)
(17,041)
(38,368)
—
—
—
229,312
$
$
199,620
198,442
40,624
438,686
53
438,739
(653)
(38,727)
(78,082)
122
(2,556)
(7,220)
—
—
(3,428)
308,195
(1) Represents charges incurred in connection with our IPO, primarily those amounts attributable to the restructuring
in advance of the IPO.
82
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets 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, 2015
Revenue from external customers
Inter-segment revenues
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2014
Revenue from external customers
Inter-segment revenues
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2013
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
$
$
$
$
$
$
442,107
754
182,475
58,163
288,089
42,772
537,259
1,471
231,469
52,363
314,031
100,483
475,297
3,275
199,620
41,177
278,452
97,120
$
$
$
326,437
25,844
93,871
46,548
248,153
28,881
439,638
23,734
180,575
34,314
149,485
30,215
434,940
20,552
198,442
33,102
132,502
56,586
206,056
35,927
40,999
4,251
88,717
28,070
175,735
64,542
38,366
3,364
116,626
42,254
167,485
71,271
40,624
3,803
100,245
30,798
$
— $
(62,525)
96
—
—
—
$
— $
(89,747)
(34)
—
—
—
$
— $
(95,098)
53
—
—
—
974,600
—
317,441
108,962
624,959
99,723
1,152,632
—
450,376
90,041
580,142
172,952
1,077,722
—
438,739
78,082
511,199
184,504
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.
83
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, 2015, 2014 and 2013.
Geographic Areas
Revenue:
United States
Europe/Middle East/Africa
Latin America
Asia Pacific
Other countries
Year Ended December 31,
2015
2014
2013
$
530,133
$
573,773
$
314,173
385,064
56,515
55,995
17,784
55,021
77,952
60,822
542,562
310,603
78,019
63,709
82,829
$
974,600
$
1,152,632
$
1,077,722
The revenue generated in The Netherlands was immaterial for the years ended December 31, 2015, 2014 and 2013.
Other than the United States and Dubai, which had revenues of $140.4 million, no individual country represented more
than 10% of our revenue for the year ended December 31, 2015. Other than the United States, no individual country
represented more than 10% of our revenue for each of the years ended December 31, 2014 and 2013.
Long-Lived Assets (PP&E)
United States
International
December 31,
2015
2014
$
$
336,870
288,089
624,959
$
$
266,111
314,031
580,142
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.
84
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 24—Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 2015 and 2014 is set forth below (in
thousands, except per share data).
2015
Revenue
Operating income
Net income attributable to Frank's International N.V.
Earnings per common share: (1)
Basic
Diluted
2014
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
$
$
$
$
$
$
277,437
55,035
34,279
0.22
0.21
264,492
74,069
41,863
0.27
0.27
$
$
$
$
$
$
254,304
41,309
20,830
0.14
0.14
272,937
62,838
35,216
0.23
0.23
$
$
$
$
$
$
239,883
39,097
16,565
0.11
0.11
296,183
86,273
47,346
0.31
0.31
$
$
$
$
$
$
202,976
8,214
7,436
0.05
0.04
$
$
$
974,600
143,655
79,110
0.51
0.50
319,020
91,763
34,612
$ 1,152,632
314,943
159,037
0.22
0.22
$
$
1.03
1.03
(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 common shares
outstanding during that period.
85
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 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 submit 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 such information 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, 2015 at the reasonable
assurance level.
Management's Report Regarding Internal Control
See Management’s Report on Internal Control Over Financial Reporting under Item 8 of this Form 10-K.
Attestation Report of the Registered Public Accounting Firm
See Report of Independent Registered Public Accounting Firm under Item 8 of this Form 10-K.
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, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
Item 10 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after
December 31, 2015.
Item 11. Executive Compensation
Item 11 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after
December 31, 2015.
86
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after
December 31, 2015.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 13 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after
December 31, 2015.
Item 14. Principal Accounting Fees and Services
Item 14 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after
December 31, 2015.
87
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 49.
(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 90.
88
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, 2015
Allowance for doubtful accounts
Year Ended December 31, 2014
Allowance for doubtful accounts
Year Ended December 31, 2013
Allowance for doubtful accounts
$
$
$
2,477
$
570
$
(751) $
232
$
2,528
13,614
$
1,062
$
(10,497) $
(1,702) $
2,477
1,697
$
12,050
$
— $
(133) $
13,614
89
Exhibit Index
#2.1 Membership Interest Purchase Agreement by and among Mark L. Guidry, Michael P. Maraist and
Frank's International, LLC, dated March 11, 2015 (incorporated by reference to Exhibit 2.1 to the
Quarterly Report on Form 10-Q (File No. 001-36053), filed on May 1, 2015).
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
Deed of Amendment to Articles of Association of Frank's International N.V., dated May 14, 2014
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-36053),
filed on May 16, 2014).
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).
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
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
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 November 6, 2013, by and between Frank’s International N.V.
and Michael C. Kearney (incorporated by reference to Exhibit 10.11 to the Annual Report on
Form 10-K (File No. 001-36053), filed on March 6, 2015).
Indemnification Agreement dated November 6, 2013, by and between Frank’s International N.V.
and Gary P. Luquette (incorporated by reference to Exhibit 10.12 to the Annual Report on Form
10-K (File No. 001-36053), filed on March 6, 2015).
Indemnification Agreement dated February 3, 2014, by and among Frank's International N.V.
and Burney J. Latiolais, Jr. (incorporated by reference to Exhibit 10.12 to the Annual Report on
Form 10-K (File No. 001-36053), filed on March 4, 2014).
Indemnification Agreement dated December 1, 2014, by and between Frank’s International N.V.
and Jeffrey J. Bird (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-
K (File No. 001-36053), filed on December 1, 2014).
Indemnification Agreement dated January 23, 2015, by and between Frank’s International N.V.
and William B. Berry ((incorporated by reference to Exhibit 10.2 to the Current Report on Form
8-K (File No. 001-36053), filed on January 27, 2015).
Indemnification Agreement dated May 4, 2015, by and between Frank's International N.V. and
Daniel A. Allinger.
Indemnification Agreement dated August 4, 2015, by and between Frank's International N.V. and
Alejandro Cestero.
Indemnification Agreement dated October 19, 2015, by and between Frank's International N.V.
and Ozong E. Etta.
Employment Offer for Jeffrey J. Bird effective as of December 1, 2014 (incorporated by reference
to Exhibit 10.20 to the Annual Report on Form 10-K (File No. 001-36053), filed on March 6,
2015).
90
†10.16
†10.17
†10.18
†10.19
*†10.20
*†10.21
*†10.22
†10.23
†10.24
†10.25
†10.26
†10.27
†10.28
†10.29
†10.30
†10.31
†10.32
†10.33
†10.34
Employment Offer for Gary P. Luquette effective as of January 23, 2015 (incorporated by
reference to Exhibit 10.21 to the Annual Report on Form 10-K (File No. 001-36053), filed on
March 6, 2015).
Addendum to Employment Offer for Gary P. Luquette effective as of January 23, 2015
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.
001-36053), filed on August 5, 2015).
Separation and General Release Agreement, dated as of June 11, 2015, by and between Frank's
International, LLC and Victor Szabo (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K (File No. 001-36053), filed on June 17, 2015).
Separation and General Release Agreement, dated as of June 11, 2015, by and between Frank's
International, LLC and Charles Mike Webre (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K (File No. 001-36053), filed on June 17, 2015).
Separation and General Release Agreement, dated as of June 30, 2015, by and between Frank's
International, LLC and Brian Baird.
Separation and General Release Agreement effective December 31, 2015, by and between Frank's
International, LLC and John Sinders.
Separation Agreement dated December 31, 2015, by and among Frank's International, LLC,
Frank's International N.V. and Donald Keith Mosing.
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 (incorporated by reference to Exhibit 10.16 to the Annual Report on Form
10-K (File No. 001-36053), filed on March 4, 2014).
Second Amendment to Frank's International N.V. Employee Stock Purchase Plan effective as of
November 5, 2014 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q (File No. 001-36053), filed on November 7, 2014).
Third Amendment to Frank's International N.V. Employee Stock Purchase Plan effective as of
January 1, 2016 (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-
Q (File No. 001-36053), filed on August 5, 2015).
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).
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Non-Employee Director Form) (incorporated by reference to Exhibit 10.18 to the Annual Report
on Form 10-K (File No. 001-36053), filed on March 4, 2014).
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).
First Amendment to the Frank's International N.V. 2013 Long-Term Incentive Plan Restricted
Stock Unit Agreement (Employee Form) (incorporated by reference to Exhibit 10.4 to the
Quarterly Report on Form 10-Q (File No. 001-36053), filed on November 7, 2014).
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Employee Form) (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-
K (File No. 001-36053), filed on March 4, 2014).
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Employee Form) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-
K (File No. 001-36053), filed on December 1, 2014).
Amendment to Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit
Agreement (IPO Grants Form) (incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K (File No. 001-36053), filed on June 17, 2015).
91
†10.35
*†10.36
*†10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
*10.47
*21.1
*23.1
*31.1
*31.2
**32.1
**32.2
Amendment to Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit
Agreement (Bonus Grants Form) (incorporated by reference to Exhibit 10.4 to the Current Report
on Form 8-K (File No. 001-36053), filed on June 17, 2015).
Frank's International N.V. 2013 Long-Term Incentive Plan Employee Restricted Stock Unit
Agreement (Time Vested Form).
Frank's International N.V. 2013 Long-Term Incentive Plan Employee Restricted Stock Unit
Agreement (Performance Based Form).
Frank's International N.V. Executive Change-in-Control Severance Plan, dated May 20, 2015
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.
001-36053), filed on May 27, 2015).
Form of Frank's International N.V. Executive Change-in-Control Severance Plan Participation
Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q
(File No. 001-36053), filed on August 5, 2015).
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. 7 to the Limited Partnership Agreement of Frank's International C.V., dated as
of December 31, 2014 (incorporated by reference to Exhibit 10.39 to the Annual Report on Form
10-K (File No. 001-36053), filed on March 6, 2015).
Amendment No. 8 to the Limited Partnership Agreement of Frank's International C.V., dated as
of December 31, 2015.
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.
92
*101.INS
*101.SCH
*101.CAL
*101.DEF
*101.LAB
*101.PRE
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.
# Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted
schedule to the SEC upon request.
* Filed herewith.
** Furnished herewith.
93
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 N.V.
(Registrant)
Date: February 29, 2016
By:
/s/ Jeffrey J. Bird
Jeffrey J. Bird
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 February 29, 2016.
Signature
/s/ Gary P. Luquette
Gary P. Luquette
/s/ Jeffrey J. Bird
Jeffrey J. Bird
/s/ Ozong Etta
Ozong E. Etta
/s/ Michael C. Kearney
Michael C. Kearney
/s/ Donald Keith Mosing
Donald Keith Mosing
/s/ Kirkland D. Mosing
Kirkland D. Mosing
/s/ Steven B. Mosing
Steven B. Mosing
/s/ William B. Berry
William B. Berry
/s/ Sheldon Erikson
Sheldon R. Erikson
Title
President, Chief Executive Officer and
Supervisory Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board of Supervisory Directors
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
94
Directors and Officers
Stock Information
Forward-Looking Statements
Supervisory Board
Financial Information and News Releases
Information updates about us, including
quarterly financial results and current
news releases, are available to the public
on our website at 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
General Meeting of Shareholders
The Company’s annual general meeting
of shareholders will be held at 2:00 p.m.
Central European Time on May 20, 2016 at:
Hotel Sofitel Legend
the Grand Amsterdam
Oudezijds Voorburgwal 197
1012 EX Amsterdam,
The Netherlands
Information above as of March 21, 2016
Michael C. Kearney
Chairman of the Supervisory Board,
Former President and Chief
Executive Officer
DeepFlex, Inc.
William B. Berry
Former Executive Vice President,
Exploration and Production
ConocoPhillips Company
Sheldon R. Erikson
Former Chairman, President and Chief
Executive Officer
Cameron International Corporation
Gary P. Luquette
Supervisory Director and President,
Chief Executive Officer
Frank’s International
D. Keith Mosing
Former Executive Chairman,
President and Chief Executive Officer
Frank’s International
Kirkland D. Mosing
Supervisory Director
S. Brent Mosing
Supervisory Director
Management
Gary P. Luquette
President and Chief Executive Officer
W. John Walker
Executive Vice President, Operations
Jeffrey J. Bird
Executive Vice President and
Chief Financial Officer
Daniel A. Allinger
Senior Vice President,
Global Human Resources
Alejandro Cestero
Senior Vice President,
General Counsel and Secretary
Burney J. Latiolais, Jr.
Senior Vice President,
Global Business Development and Sales
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 affect-
ing our financial condition and results of
operations. Our forward-looking state-
ments 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. 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 state-
ments. In evaluating those statements,
you should keep in mind the risk factors
and other cautionary statements included
in our 2015 Annual Report on Form 10-K
included in this report. We caution you
not to place undue reliance to forward-
looking statements, and we undertake
no obligation to update this information.
We urge you to carefully review and con-
sider 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.
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Frank’s International
Principal Executive Offices
Frank’s International N.V.
Mastenmakersweg 1
1786 PB Den Helder,
The Netherlands
U.S. Headquarters
Frank’s International
10260 Westheimer Road
Suite 700
Houston, Texas 77042
USA
franksinternational.com