Focused
On Our Future
2017 ANNUAL REPORT
2017 Financial Highlights
Year Ended December 31,
(In thousands, except per share data)
2017
2016
2015
2014
Revenue
Net Income (Loss)
Adjusted EBITDA(1)
Diluted earnings (loss) per common share
Net cash provided by (used in) operating activities
Capital Expenditures
Debt
Total Assets
$ 454,795
$ 487,531
$ 974,600
$ 1,152,632
$
(159,457)
$ (156,079)
$ 106,110
$ 229,312
$
$
$
$
$
5,715
(0.72)
$
$
25,031
$ 317,441
$ 450,376
(0.77)
$
0.50
$
1.03
24,774
$
(10,831)
$ 427,758
$ 368,860
21,905
$
42,127
$
99,723
$ 172,952
4,721
$
276
$
7,321
$
304
$ 1,261,769
$ 1,588,061
$ 1,726,838
$ 1,758,681
Total stockholders’ equity
$ 1,115,901
$ 1,311,319
$ 1,451,426
$ 1,472,536
Total Recordable Incident Rate (TRIR)
Lost Time Incident Rate (LTIR)
(1) Adjusted EBITDA is a non-GAAP financial measure
0.57
0.25
0.87
0.30
0.76
0.21
1.27
0.36
BEST
S A F E T Y R E C O R D I N
50%
R E V E N U E G R O W T H
CASH
F R E E C A S H F L O W
C O M P A N Y H I S T O R Y
O F $ 1 7 M M
O N S H O R E T U B U L A R
R U N N I N G S E R V I C E S
— F O C U S E D O N O U R F U T U R E —
1
A Vision for the Future
As Frank’s International celebrates its 80th year as a company,
we take pride in all that our employees have accomplished over the
decades. The past few years have been challenging for our industry
and our Company, however we have a renewed focus and a clear
vision for our future. The markets for our services and products are
beginning to recover and we continue to be there for our customers
with the people, technology and offering to help them accomplish
their goals and create value for our shareholders.
P E O P L E
P O R T F O L I O
T E C H N O L O G Y
P R O F I T A B I L I T Y
Our people are the foundation
of our long history of success.
We are focused on putting the
right people in the right
positions, with the right training,
under the right leadership to
win in the marketplace and
drive accountability to think
like owners when performing
their roles.
We are determined to optimize
our products and services
across our global footprint by
focusing on opportunities that
maximize our technology,
exploring strategic alternatives
for underperforming services
or geographies, and evaluating
potential acquisitions to expand
our customer offering.
The pursuit of innovation and
technology is critical to defining
our future. We will listen to our
customers to understand their
needs. In response, we will
invest in the next generation
of equipment that will solve
their problems and add value
by improving the safety,
reliability and efficiency of
their operations.
Frank’s exists to serve our
customers and create value
for our shareholders. We believe
in offering superior service at a
fair price. Our focus is to identify
the best opportunities to deploy
our teams and technology and
minimize our cost of delivery
to achieve a win-win for our
customers and shareholders.
2
— 2017 A N N UA L R E P O R T —
Fellow Shareholders:
2017 was a year of new beginnings for Frank’s
International. We opened new facilities
and commercialized new technologies designed to better
service our customers. We achieved new records in safety
and quality performance and ushered in new leadership
to set the strategic course for growth and profitability in
the years ahead. Having entered 2018, we continue
serving our customers with the highest levels of safety,
quality and reliability that have made us the premier
tubular running services company in the world. We are
celebrating our 80th year as a company this year, and
embrace a renewed focus on performance-driven results
that will ensure our future success together.
Michael C. Kearney
Chairman, President and
Chief Executive Officer
Make no mistake, the industry, as well as
Frank’s, faced challenges as we navigated the
worst industry downturn in three decades.
2017 marked the end of this period of industry
contraction and retrenchment. These times
make great companies stronger, and weaker
ones fade away. We take great pride in
maintaining a conservative financial position,
which has proven especially important in
times like we have experienced over the last
few years. Frank’s International has emerged
healthy and poised for growth.
On a macro level, the path toward a recovery
took another step forward in 2017. The oil
market supply and demand fundamentals
showed signs of moving into balance as oil
prices during the year experienced steady
improvement. As a result, many of our
customers are becoming more confident
and have reconfigured their operations in a
leaner fashion to make more development
projects economic at lower commodity
prices.
As the new Chief Executive Officer of
Frank’s International, I am excited about
the opportunities that lie ahead for our
customers, our employees, and our
shareholders. Although our 2017 financial
results did not meet our expectations as
a company, we laid the foundation for a
return to profitability and generating
positive returns for shareholders.
2017 Achievements
In looking at our accomplishments in 2017,
I want to start with an achievement of which
I am extremely proud. Our most important
priority as a company is to operate safely.
We instill our core value of safety in all our
employees around the globe with the goal
of zero accidents. I am pleased to say 2017
was a record safety year for Frank’s in terms
of the lowest incident rate. The total
recordable incident rate (TRIR) fell 35 percent
year-over-year. Additionally, our program
of identifying and reporting potential
safety hazards has been a great success
and brought about tremendous company-
wide safety awareness.
— F O C U S E D O N O U R F U T U R E —
3
35%
Our total recordable
incident rate (TRIR)
fell 35 percent year-
over-year to a record
low for the company.
O U R A W A R D S F O R 2 0 1 7
2017 Woelfel Best
Mechanical Engineering
Achievement Award for
the Combination Drill
Pipe/Casing Spider &
Elevator
2017 NOIA Safety in
Seas Safety Practice
Award for the Jet
String™ Elevator
Blackhawk SKYHOOK™
Device awarded Occupational
Health & Safety 2017 New
Product of the Year Award in
the Safety Barriers Category
Several regions had their lowest TRIR ever
recorded, including the Africa region, which
achieved our target of zero incidents for
the year.
On the quality service delivery front,
we implemented a new reliability program
that uses real-time data to improve
preventative maintenance to ensure our
equipment and personnel get the job right
the first time, every time. This program,
combined with our attention to detail and
commitment to quality, led to a 30 percent
reduction in quality issues at the wellsite.
Our customers continue to demand reliable
equipment and dependable personnel to
perform the services they need, and Frank’s
remains a leader in quality assurance.
We also experienced significant success in
the commercialization of new technologies
in our tubular running, drilling tool, well
construction, well intervention, and tubular
products and fabrication businesses.
Maintaining our technological edge is
essential to our continued position as a leader
in our services. These new technologies
will pave the way for further development
of strong relationships with our customers
as we add value through safer operations,
improve efficiency and increase well integrity
and performance.
Recently commercialized new technologies
accounted for nearly 10 percent of our
revenues across all regions in 2017, and in some
regions comprised more than 20 percent.
These tools and products are not only allowing
us to meet our customers’ needs, but also
earned recognition by the broader industry
as the recipient of several prestigious awards
for technology innovation, engineering
achievement and safety.
2018 Initiatives
As we look back and celebrate our success
over the past 80 years as a company, we
also turn our attention to the opportunities
that lie ahead. My first priority after assuming
the chief executive role at Frank’s was to
establish a clear vision for the future;
a vision that inspires employees, cultivates
technological innovation and improves
profitability. These concepts are not new
for Frank’s; however, after the downturn
of the last several years, it appeared some
of the historical enthusiasm may have been
dampened. My goal is to make sure that every
employee knows how important they are
to the success of the Company. They are
valued and will be enabled with all of the
necessary tools to succeed personally and
professionally, while continuing to amaze
our customers and exceed their expectations.
Our historical culture of being the best is
alive and well.
Shareholder Letter continued on page 6
4
— 2017 A N N UA L R E P O R T —
Focused On
Technology
— F O C U S E D O N O U R F U T U R E —
5
2017 Technology
Deployments
Blackhawk
Specialty Tools
One Year of Progress
In November, we celebrated the one-year anniversary of the
acquisition of Blackhawk Specialty Tools. Since the time of the
acquisition, we have made significant progress in helping our
customers by offering a broader range of products and services.
Operators increasingly benefit from the Blackhawk technologies,
allowing them to operate more safely and efficiently. We have
witnessed great teamwork and collaboration across sales,
engineering, and operations that has led to revenue synergies
both in the U.S. and internationally. 2018 will mark another
significant step forward in realizing the full value of this
important acquisition.
VERSAFLO™ Tool
The VERSAFLO™ Casing and Drill Pipe Flowback and Circulation
Tool offers a single solution for fluid management, preventing the
need for multiple tools. This tool saves rig time by completing
applications more efficiently, and can also be used to pump out
bottom hole assemblies to avoid swabbing. In some cases, the
tool has achieved an average time savings of six hours (depending
on landing depth) from rig up to rig down by eliminating the extra
rig up step needed when using traditional tools for casing and
drill pipe.
SKYHOOK™ Device
The Blackhawk SKYHOOK™ Cement Line Make Up Device
allows customers to establish cement line connections in harsh
environments by eliminating the need to send rig personnel above
the rig floor. The SKYHOOK™ device features the most advanced
wireless automation system available and incorporates a vast array
of industry-exclusive technologies focused on safety and efficiency
in the make-up of cement iron and hoses in offshore applications.
DSTR™ Sub
The Drill String Torque Reducer (DSTR™) Sub is a drill string tool
intended for use in deviated wells where excessive rotary torque
causes drilling and casing wear problems. For a given deviation
profile, the applications program assists in maximizing the tool’s
performance by determining the deployment in the critical sections
of the borehole. However, for the most extended reach drilling
applications, the tools are used in the build and lateral sections
of the borehole, helping to extend the envelope of rotary drilling.
DISPLAY™ Application
The DISPLAY™ digital application by Frank’s International is a
real-time make-up graph viewing system that allows users to
remotely access live and historical torque-turn data using their
computer, tablet or smart phone and analyze connections made
throughout the tubular run. This technology improves safety,
optimizes efficiency, and ensures well integrity by enabling skilled
staff to monitor connection make-up activities and make important
decisions in real-time. The DISPLAY™ digital application also
reduces operational costs by enabling the ability to monitor and
review make-up graphs for multiple jobs from a single location.
6
— 2017 A N N UA L R E P O R T —
10%
New technologies
accounted for nearly
10 percent of our
revenues across
all regions in 2017
Frank’s International has a well-deserved
reputation for being a provider of great
service and products as well as being a great
place to work. We know that continuing
this legacy means we must hire the best
people and position them to be successful.
We are equipping them with the training and
tools to excel, and offer the opportunity for
personal growth and career advancement.
Investing in people also means empowering
them to think like owners and holding them
accountable for results. Some of the enterprise
support functions are being redeployed to
the business unit level. Business unit leaders
will now have full authority, responsibility,
and accountability for their business results.
Our corporate general and administrative
support functions must be lean, targeted
and effective. We will excel at planning and
forecasting our businesses so our front-line
resources—be they people, tools or
systems—are deployed on a timely and
cost-effective basis.
The industry is changing, and we will change
with it by continuing our technological
leadership. We will provide equipment that
meets the needs of our customers through
increased rig integration and automation.
We will grow through organic innovation
and selective, targeted acquisitions, when
available. We are committed to retaining
our position as the leader in technology for
our current and future service offerings.
In the fourth quarter of 2017, I led a
strategic review of the entire company
to determine the best opportunities for
profitable growth. We evaluated products
and services across tubular running, drilling
tools, tubular products, well construction,
and well intervention. The process led to
an operational plan that prioritizes capital
spending and engineering efforts toward
the business opportunities that offer us
a competitive advantage, improve cost-
efficiency and position us to earn better
returns. Our strategic themes revolve
around having highly skilled and enabled
employees, fresh and innovative technology,
and a portfolio of great products and services
which will allow Frank’s to resume a
trajectory of profitable growth.
I am very optimistic we will grow our
businesses and control our costs as we
execute on our strategic initiatives. The
longstanding tubular running business
has a global footprint and a platform
which we are now leveraging to rapidly
grow our Blackhawk, Tubulars and Drilling
Tools businesses. We now, as a company,
think strategically every day and are
developing an ownership mindset that
will generate sustained value creation for
our shareholders.
Sincerely,
Sincerely,
Michael C. Kearney
Chairman, President and
Chief Executive Officer
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as a company, we also
turn our attention to
the opportunities
that lie ahead”
— M I C H A E L C . K E A R N E Y
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, 2017
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)
Mastenmakersweg 1
98-1107145
(IRS Employer
Identification number)
1786 PB Den Helder, the Netherlands
(Address of principal executive offices)
Not Applicable
(Zip Code)
Registrant’s telephone number, including area code: +31 (0)22 367 0000
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, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of June 30, 2017, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was
approximately $473.4 million.
As of February 19, 2018, there were 223,390,309 shares of common stock, €0.01 par value per share, outstanding.
Portions of the Proxy Statement in connection with the 2018 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.
DOCUMENTS INCORPORATED BY REFERENCE
FRANK'S INTERNATIONAL N.V.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017
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.
Item 16.
Exhibits and Financial Statement Schedules
Form 10–K Summary
Signatures
Page
5
12
31
31
32
32
33
36
37
52
55
100
100
100
101
101
101
101
101
102
102
108
3
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 "anticipate," "believe," "estimate,"
"expect," "goal," "plan," "potential," "predict," "project," 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, including those resulting from weak global demand;
the timing, magnitude, probability and/or sustainability of any oil and gas price recovery;
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;
•
• weather conditions and natural disasters; and
•
policy changes domestically in the United States.
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 Securities and Exchange Commission ("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.
4
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"), Blackhawk Group Holdings, LLC ("Blackhawk") and their 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, tubular fabrication
and specialty well construction and well intervention solutions 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 deepwater 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.
On November 1, 2016, we completed our acquisition of Blackhawk, the ultimate parent company of Blackhawk Specialty
Tools, LLC, a leading provider of well construction and well intervention services and products. The merger consideration
was comprised of a combination of $150.4 million of cash on hand and the issuance of 12.8 million shares of our common
stock, for total consideration of $294.6 million (based on our closing share price on October 31, 2016 of $11.25 and including
the working capital adjustments). The acquisition of this company resulted in a new segment for us and will allow us to
combine Blackhawk’s cementing tool expertise and well intervention services with our global tubular services. We will be
able to offer our customers an integrated well construction solution across land, shelf and deepwater.
We offer our tubular services, tubular sales, and other well construction and well intervention services and products
through our four operating segments: (1) International Services, (2) U.S. Services, (3) Tubular Sales and (4) Blackhawk,
each of which is described in more detail in "Description of Business Segments."
5
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):
International Services
U.S. Services
Tubular Sales
Blackhawk (1)
Total
2017
Year Ended December 31,
2016
2015
Revenue
Percent
Revenue
Percent
Revenue
Percent
$
$
206,746
118,815
58,210
71,024
454,795
45.5% $
26.1%
12.8%
15.6%
100.0% $
237,207
152,827
87,515
9,982
487,531
48.7% $
31.3%
18.0%
2.0%
100.0% $
442,107
326,437
206,056
—
974,600
45.3%
33.5%
21.2%
—%
100.0%
(1) We purchased Blackhawk in November 2016, which resulted in a new segment for us. As such, 2016 revenues are for
the two months ended December 31, 2016.
Our Corporate Structure
We are a publicly traded company on the New York Stock Exchange ("NYSE"). As part of our initial public offering
("IPO") in August 2013, we issued 52,976,000 shares of our Series A convertible preferred stock (the “Preferred Stock”) and
a 25.7% limited partnership interest in FICV, our subsidiary, to Mosing Holdings, LLC ("Mosing Holdings"), a Delaware
limited liability company and affiliate of the Company with Mosing family entities as its shareholders. Under our Amended
Articles of Association in effect at time of the IPO, upon the written election of Mosing Holdings, each Preferred Share,
together with a unit in FICV, our subsidiary, was convertible into a share of our common stock on a one-for-one basis.
On August 19, 2016, we received notice from Mosing Holdings exercising its right to exchange (the “Exchange Right”)
for an equivalent number of each of the following securities for common shares: (i) 52,976,000 Preferred Shares and (ii)
52,976,000 units in FICV. We issued 52,976,000 common shares to Mosing Holdings on August 26, 2016. As a result, there
are no remaining issued Preferred Shares and the Mosing family beneficially owns approximately 68% of our common shares
as of February 19, 2018. Mosing Holdings no longer has a minority interest holding 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 50 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, and other oilfield services companies.
U.S. Services
The U.S. Services segment provides tubular services in the active onshore oil and gas drilling regions in the U.S.,
including the Permian Basin, Eagle Ford Shale, Haynesville Shale, Marcellus Shale, Niobrara 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.
6
Blackhawk
The Blackhawk segment provides well construction and well intervention services and products, in addition to cementing
tool expertise, in the U.S. and Mexican Gulf of Mexico, onshore U.S. and other select international locations. Blackhawk’s
customer base consists primarily of major and independent oil and gas companies as well as other oilfield services companies.
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 21 - Segment Information of the Notes to Consolidated Financial Statements.
Suppliers and Raw Materials
We acquire component parts, products and raw materials from suppliers, including foundries, forge shops, and original
equipment manufacturers. The prices we pay for our raw materials may be affected by, among other things, energy, steel and
other commodity prices, tariffs and duties on imported materials and foreign currency exchange rates. Certain of our product
lines (primarily pipe) are only available from a limited number of suppliers (primarily in the Tubular and Blackhawk segments).
Our ability to source low cost raw materials and components, such as steel castings and forgings, is critical to our ability
to manufacture our casing products competitively and, in turn, our ability to provide onshore and offshore casing 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 domestic 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 or comparable 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. In 2017
and 2016, one customer accounted for 10% and 13% of our revenues, respectively. For both years, all four of our segments
generated revenue from this customer. No single customer accounted for more than 10% of our revenue for the year ended
December 31, 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, quality assurance 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
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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, specialty well construction and well intervention services and
products on an aggregate, global basis.
Market Environment
Despite a meaningful improvement in commodity prices and increases in U.S. onshore activity and profitability, our
customers have not yet allocated material levels of capital toward deepwater projects, particularly in the markets of West
Africa and the U.S. Gulf of Mexico. For 2018, we expect to see some improvement in activity levels offshore, but pricing
of our services offshore is unlikely to increase materially during the year. International markets are showing signs of
stabilization or improvement in some regions, but lower pricing is expected to offset activity increases. We expect to see
strong growth in our Blackhawk segment both in the U.S. onshore and in select international markets during the next several
quarters as we expand its operational footprint. In order to offset some of the lower realized pricing, we continue to look for
ways to optimize our operational footprint and improve efficiency. We also continue to evaluate potential acquisitions which
introduce new technologies that broaden our portfolio of products and services and seek to improve efficiency and profitability.
Inventories and Working Capital
An important consideration for many of our customers in selecting a vendor is timely availability of the product or
service. 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 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.
Inventories are required to be stated at the lower of cost or net realizable value. During 2017, we recorded an impairment
of $51.2 million related to a lower of cost or net realizable value adjustment for our pipe and connectors inventory, which
is included in the financial statement line item severance and other charges on our consolidated statements of operations.
The factors that led to this impairment included new technology (external and internal), oil and gas prices below levels
necessary for our customers to sanction a significant amount of new offshore projects in the near-term and a change in
customers' preferences for newer technologies, all of which significantly impacted the net realizable value of our connectors
inventory.
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. 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.
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, occupational health and safety aspects of our operations, or otherwise relating to
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 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.
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The following is a summary of the more significant existing environmental, health and safety laws and regulations to
which our business operations are subject and for which compliance 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 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. Certain petroleum exploration and production wastes are excluded from RCRA’s hazardous
waste regulations. However, it is possible that these wastes will in the future be designated as hazardous wastes and therefore
be subject to more rigorous and costly disposal requirements. For example, in December 2016, the EPA and environmental
groups entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations
exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes. The consent
decree requires EPA to propose a rulemaking no later than March 15, 2019 for any revisions relating to oil and gas wastes
or to sign a determination that revision of the regulations is not necessary. Any such changes in the laws and regulations
could have a material adverse effect on our operating expenses or the operating expenses of our customers, which could
result in decreased demand for our services.
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.
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
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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, such as source registration and recordkeeping requirements.
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 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 and offshore oil and gas production
facilities, on an annual basis.
While the U.S. Congress has yet to adopt legislation to reduce emissions of greenhouse gases, 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 or our customers to incur increased operating costs, such as costs to purchase and operate emissions
control systems, to acquire emissions allowances, pay carbon taxes, or comply with new regulatory or reporting requirements.
For example, the EPA had previously finalized standards in June 2016 designed to reduce methane emissions from certain
oil and gas facilities. However, in June 2017, the EPA published a proposed rule to stay certain portions of these 2016
standards for two years and reconsider the entirety of the 2016 standards. As a result of these actions, the 2016 methane
standards are currently in effect but future implementation of the standards is uncertain at this time. The federal Bureau of
Land Management (“BLM”) finalized similar rules in November 2016 but, following the change in U.S. Presidential
Administrations, finalized a rule in December 2017 delaying implementation of the BLM methane rules for one year.
Environmental groups and some states have announced their intent to challenge the actions of both the EPA and BLM, and
future implementation of methane rules at the federal level is uncertain at this time. These rules, to the extent implemented
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 encourage the use of alternative fuels or otherwise 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 extreme weather events. Offshore operations are particularly susceptible
to damage from extreme weather events. If any of the potential effects of climate change 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. While we may provide supporting products through Blackhawk, we do not perform hydraulic fracturing, but
many of our onshore 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. In December 2016, the EPA released its final report on the potential
impacts of hydraulic fracturing on drinking water resources, which concluded "water cycle" activities associated with
hydraulic fracturing may impact drinking water sources "under some circumstances," noting that the following hydraulic
fracturing water cycle activities and local - or regional - scale factors are more likely than others to result in more frequent
or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during
the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate
10
mechanical integrity; injection of fracturing fluids directly into groundwater resources; discharge of inadequately treated
fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits. Based on the report's
findings, additional regulation of hydraulic fracturing by the EPA appears unlikely at this time. In addition, the BLM finalized
rules in March 2015 that impose new or more stringent standards for performing hydraulic fracturing on federal and American
Indian lands, but this rule was repealed in December 2017. 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 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 legal requirements. 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, 2017, we had approximately 2,900 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 Mastenmakersweg 1, 1786 PB Den Helder, the Netherlands, and our
telephone number at that address is +31 (0)22 367 0000. 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 charters for the Audit Committee,
Compensation Committee and Nominating and Governance Committee of our Board of Supervisory 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 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
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Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we
file electronically with the SEC.
Item 1A. Risk Factors
Risks Related to Our Business
You should carefully consider the risks described below together with the other information contained in this Form
10-K. Realization of any of the following risks could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
Our business depends on the level of activity in the oil and gas industry, which is significantly affected by 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 or well
construction and completion 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 products and 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 the Organization of the Petroleum Exporting Countries ("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 has been reduced as compared to the historic highs experienced prior to 2015,
resulting in a material adverse effect on our business, financial condition and results of operations.
Oil and gas prices are extremely volatile and have fluctuated during the year ended December 31, 2017, with
average daily prices for New York Mercantile Exchange West Texas Intermediate ranging from a low of approximately
$42/Bbl in June 2017 to a high of approximately $60/Bbl in December 2017. Although average daily prices increased
through the end of 2017 and the beginning of 2018, any 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 capital
budget reductions by our customers compared to prior years. Prolonged lower oil prices have resulted in softer demand
for our products and 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 products and 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 deepwater 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, 2017, 2016 and 2015, international operations accounted for approximately 46%, 49% and 45%,
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
and other well construction 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 and other well construction 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
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to develop new products 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 third parties on an integrated basis, 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 and other well construction 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 and
well construction 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
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also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit
transactions involving such countries, persons and entities, and we are also subject to the U.S. anti-boycott law. In
addition, certain anti-dumping regulations in the foreign countries in which we operate may prohibit us from purchasing
pipe from certain suppliers.
The laws and regulations concerning import and export activity, recordkeeping and reporting, import and export
control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted,
amended, enforced or interpreted in a manner materially impacting our operations. A global economic downturn may
increase some foreign governments’ efforts to enact, enforce, amend or interpret laws and regulations as a method to
increase revenue. Materials that we import can be delayed and denied for varying reasons, some of which are outside
our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping
delays or denials could cause unscheduled operational downtime. Any failure to comply with these applicable legal
and regulatory obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment,
debarment from government contracts, seizure of shipments and loss of import and export privileges.
We may be exposed to unforeseen risks in our services and product manufacturing, which could adversely affect
our results of operations.
We operate a number of manufacturing facilities to support our tubular and other well construction 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 and other well construction 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
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savings generated by our technology by reducing prices and by introducing competing technologies. Our competitors
may also have the ability to offer bundles of products and services to customers that we do not offer. We have limited
resources to sustain prolonged price competition and maintain the level of investment required to continue the
commercialization and development of our new technologies. Any failure to continue to do so could adversely affect
our business, financial condition or results of operations.
Our business depends upon our ability to source low cost raw materials and components, such as steel castings
and forgings. Increased costs of raw materials and other components may result in increased operating expenses.
Our ability to source low cost raw materials and components, such as steel castings and forgings, is critical to our
ability to manufacture our drilling products competitively and, in turn, our ability to provide onshore and offshore
drilling services. Should our current suppliers be unable to provide the necessary raw materials or components or
otherwise fail to deliver such materials and components timely and in the quantities required, resulting delays in the
provision of products or services to customers could have a material adverse effect on our business.
In particular, we have experienced increased costs in recent years due to rising steel prices. There is also strong
demand within the industry for forgings, castings and outsourced coating services necessary for us to make our products.
We cannot assure that we will be able to continue to purchase these raw materials on a timely basis or at historical
prices. Our results of operations may be adversely affected by our inability to manage the rising costs and availability
of raw materials and components used in our products.
We are subject to the risk of supplier concentration.
Certain of our product lines (in the Tubular Sales Segment - 12.8% of revenue for the year ended December 31,
2017 and Blackhawk Segment - 15.6% of revenue for the year ended December 31, 2017) depend on a limited number
of third party suppliers. The suppliers for the Tubular Sales Segment are concentrated in Japan (2) and Germany (2)
and are vendors for pipe (driven by customer requirements) while the two suppliers for the Blackhawk Segment are
concentrated in the U.S. 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. 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 and other well construction 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 and other well construction 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 deepwater operations. 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 deepwater or shallow water environments, can cause personal injury,
loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to
or destruction of property, surface water and drinking water resources, equipment and the environment. If our services
fail to meet specifications or are involved in accidents or failures, we could face warranty, contract, fines or other
litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage,
loss of oil and gas production, pollution and other environmental damages. Our insurance policies may not be adequate
to cover all liabilities. Further, insurance may not be generally available in the future or, if available, insurance premiums
may make such insurance commercially unjustifiable. Moreover, even if we are successful in defending a claim, it
could be time-consuming and costly to defend.
In addition, the frequency and severity of such incidents will affect operating costs, insurability and relationships
with customers, employees and regulators. In particular, our customers may elect not to purchase our services if they
view our safety record as unacceptable, which could cause us to lose customers and substantial revenues. In addition,
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these risks may be greater for us because we may acquire companies that have not allocated significant resources and
management focus to safety and have a poor safety record requiring rehabilitative efforts during the integration process
and we may incur liabilities for losses before such rehabilitation occurs.
The imposition of stringent restrictions or prohibitions on offshore drilling by any governing body may have a
material adverse effect on our business.
Events in recent years have heightened environmental and regulatory concerns about the oil and gas industry. From
time to time, governing bodies have enacted and may propose legislation or regulations that would materially limit or
prohibit offshore drilling in certain areas. If laws are enacted or other governmental action is taken that restrict or
prohibit offshore drilling in our expected areas of operation, our expected future growth in offshore services could be
reduced and our business could be materially adversely affected.
For example, in April 2016 the U.S. Bureau of Safety and Environmental Enforcement (“BSEE”) finalized more
stringent standards relating to well control equipment used in connection with offshore well drilling operations. The
standards focus on blowout preventers, along with well design, well control, casing, cementing, real-time well
monitoring, and subsea containment requirements. During 2017, however, following the issuance of a Presidential
Executive Order, the BSEE has been directed to reconsider a number of regulatory initiatives governing offshore oil
and gas safety and performance-related activities, including, for example, the rules relating to blow-out preventers and
well control, and provide recommendations on whether such regulatory initiatives should continue to be implemented.
In addition, in December 2017, the BSEE published proposed revisions to its regulations regarding offshore drilling
safety equipment, which proposal includes the removal of the requirement for offshore operators to certify through an
independent third party that their critical safety and pollution prevent equipment (e.g., subsea safety equipment,
including blowout preventers) is operational and functioning as designed in the most extreme conditions. The December
2017 proposed rule has not been finalized and there remains substantial uncertainty as to the scope and extent of any
revisions to existing oil and gas safety and performance-related regulations and other regulatory initiatives that may
ultimately be adopted by the BSEE. If these regulations, to the extent they continue to be implemented, along with any
changes in 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.
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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
or other well construction services, we may incur civil 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 and other well construction services to a large number of major oil companies,
any such failure could adversely affect our business, financial condition and results of operations.
Our business is dependent on our ability to provide highly reliable and safe equipment. If our equipment does not
meet statutory regulations and/or our clients do not accept the quality of our equipment, we could encounter loss of
contracts and/or loss of reputation, which could materially impact our operations and profitability. Further, the failure
of our equipment could subject us to litigation, regulatory fines and/or adverse customer reaction. In addition, equipment
certification requirements vary by region and changes in these requirements could impact our ability to operate in
certain markets if our tools do not comply with these requirements.
The industry in which we operate is undergoing continuing consolidation that may impact results of operations.
Some of our largest customers have consolidated in recent years 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:
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federal, state and local and non-U.S. laws and other regulations relating to oilfield operations, worker safety
and protection of the environment and natural resources;
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 services and products 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.
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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.
Our business is dependent on capital spending by our customers, and reductions in capital spending could have
a material adverse effect on our business.
Any change in capital expenditures by our customers or reductions in their capital spending could directly impact
our business by reducing demand for our products and services and could have a material adverse effect on our business.
Our customers are subject to risks which, in turn, could impact our business, including volatile oil and gas prices,
difficulty accessing capital on economically advantageous terms and adverse developments in their own business or
operations. With respect to national oil company customers, we are also subject to risk of policy, regime and budgetary
changes.
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 and other well construction 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
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 limit or 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.
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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 or demanded. 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 anticorruption laws. 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 anticorruption 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 also poses a risk to us. We cannot provide products or services to
certain countries subject to U.S. or other international 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 50 countries that can be impacted by expected and unexpected
changes in the legal and business environments in which we operate. Political instability and regional issues in many
of the areas in which we operate may contribute to such changes with greater significance or frequency. Our ability to
manage our compliance costs and compliance programs will impact our business, financial condition and results of
operations. Compliance-related issues could also limit our ability to do business in certain countries. Changes that could
impact the legal environment include new legislation, new regulations, new policies, investigations and legal
proceedings and new interpretations of existing legal rules and regulations, in particular, changes in export control laws
or exchange control laws, additional restrictions on doing business in countries subject to sanctions and changes in
laws in countries where we operate or intend to operate.
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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 May 2016, the EPA finalized rules that establish new
controls for emissions of methane for new, modified or reconstructed sources in the oil and natural gas source category,
including production, processing, transmission and storage activities. The rules include first-time standards to address
emissions of methane from equipment and processes across the source category, including hydraulically fractured oil
and natural gas well completions. However, in June 2017, the EPA published a proposed rule to stay certain portions
of these 2016 standards for two years and reconsider the entirety of the 2016 standards. As a result of these actions,
the 2016 methane standards are currently in effect but future implementation of the standards is uncertain at this time.
The BLM finalized similar rules in November 2016 but, following the change in U.S. Presidential Administrations,
finalized a rule in December 2017 delaying implementation of the BLM methane rules for one year. Environmental
groups and some states have announced their intent to challenge the actions of both the EPA and BLM and, as a result,
future implementation of these federal methane rules remains uncertain at this time. To the extent implemented, 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 or pay carbon taxes. 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 extreme weather events. Offshore operations are
particularly susceptible to damage from extreme weather events. If any of the potential effects of climate change were
to occur, they could have an adverse effect on our business, financial condition and results of operations.
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 Houma
and Lafayette, Louisiana as well as in various places throughout the Gulf Coast region of the United States. These
offices and facilities are particularly susceptible to severe tropical storms and hurricanes, which may disrupt our
operations. If one or more manufacturing facilities we own are damaged by severe weather or any other disaster,
accident, catastrophe or event, our operations could be significantly interrupted. Similar interruptions could result from
damage to production or other facilities that provide supplies or other raw materials to our plants or other stoppages
arising from factors beyond our control. These interruptions might involve significant damage to, among other things,
property, and repairs might take from a week or less for a minor incident to many months or more for a major interruption.
In addition, a portion of our business involves the movement of people and certain parts and supplies to or from
foreign locations. Any restrictions on travel or shipments to and from foreign locations, due to the occurrence of natural
disasters such as earthquakes, floods or hurricanes, or an epidemic or outbreak of diseases, including the H1N1 virus
and the avian flu, in these locations, could significantly disrupt our operations and decrease our ability to provide
services to our customers. In addition, our local workforce could be affected by such an occurrence or outbreak which
could also significantly disrupt our operations and decrease our ability to provide services to our customers.
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Our business could be negatively affected by cybersecurity threats and other disruptions.
We rely heavily on information systems to conduct and protect our business. These information systems are
increasingly subject to sophisticated cybersecurity threats such as unauthorized access to data and systems, loss or
destruction of data (including confidential customer information), computer viruses, or other malicious code, phishing
and cyberattacks, and other similar events. These threats arise from numerous sources, not all of which are within our
control, including fraud or malice on the part of third parties, accidental technological failure, electrical or
telecommunication outages, failures of computer servers or other damage to our property or assets, or outbreaks of
hostilities or terrorist acts.
Given the rapidly evolving nature of cyber threats, there can be no assurance that the systems we have designed
and implemented to prevent or limit the effects of cyber incidents or attacks will be sufficient in preventing all such
incidents or attacks, or avoiding a material impact to our systems when such incidents or attacks do occur. If we were
to be subject to a cyber incident or attack, it could result in the disclosure of confidential or proprietary customer
information, theft or loss of intellectual property, damage to our reputation with our customers and the market, failure
to meet customer requirements or customer dissatisfaction, theft or exposure to litigation, damage to equipment (which
could cause environmental or safety issues) and other financial costs and losses. In addition, as cybersecurity threats
continue to evolve, we may be required to devote additional resources to continue to enhance our protective measures
or to investigate or remediate any cybersecurity vulnerabilities.
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 or well construction services. For the year ended December 31,
2017, on a U.S. dollar-equivalent basis, approximately 25% 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 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. While we may provide supporting products through Blackhawk, 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
23
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 December 2016, the EPA released its final report on the potential
impacts of hydraulic fracturing on drinking water resources, which concluded that "water cycle" activities associated
with hydraulic fracturing may impact drinking water sources "under some circumstances," noting that the following
hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result in
more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability;
surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids
into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwater resources;
discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing
wastewater in unlined pits. The EPA has also taken steps to regulate certain aspects of hydraulic fracturing. In addition,
the BLM finalized rules in March 2015 that impose new or more stringent standards for performing hydraulic fracturing
on federal and American Indian lands but this rule was repealed in December 2017. 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 and similar international
laws. Any material nonpayment or nonperformance by our key customers could adversely affect our business, financial
condition and results of operations.
If our long-lived assets, goodwill, other intangible assets and other assets are impaired, we may be required to
record significant non-cash charges to our earnings.
We recognize impairments of goodwill when the fair value of any of our reporting units becomes less than its
carrying value. Our estimates of fair value are based on assumptions about future cash flows of each reporting unit,
discount rates applied to these cash flows and current market estimates of value. Based on the uncertainty of future
revenue growth rates, gross profit performance, and other assumptions used to estimate our reporting units’ fair value,
future reductions in our expected cash flows could cause a material non-cash impairment charge of goodwill, which
could have a material adverse effect on our results of operations and financial condition.
We also have certain long-lived assets, other intangible assets and other assets which could be at risk
of impairment or may require reserves based upon anticipated future benefits to be derived from such assets. Any
change in the valuation of such assets could have a material effect on our profitability.
We may be unable to identify or complete acquisitions or strategic alliances.
We expect that acquisitions and strategic alliances 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 or negotiate with
suitable venture partners 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
24
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 who possess extensive expertise, talent and leadership and 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 and
other well construction 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 Corporate Structure
We are a holding company and our sole material assets are our direct and indirect equity interests in our
operating subsidiaries, and we are accordingly dependent upon distributions from such subsidiaries to pay taxes,
make payments under the tax receivable agreement ("TRA"), and pay dividends.
We are a holding company and have no material assets other than our direct and indirect equity interests in our
operating subsidiaries. We have no independent means of generating revenue. We intend to cause our subsidiaries to
make distributions in an amount sufficient to cover (i) all applicable taxes at assumed tax rates, (ii) payments under
the TRA we entered into with Mosing Holdings in connection with the IPO and (iii) dividends, if any, declared by us.
To the extent that we need funds and our subsidiaries are 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.
25
The Mosing family holds a majority of the total voting power of the Company's common stock (the "FINV
Stock") and, accordingly, has substantial control over our management and affairs.
The Mosing family (through Mosing Holdings and the various holding entities of the Mosing family members)
currently controls approximately 68% of the total voting power entitled to vote at annual or special meetings. The
Mosing family members have entered into a voting agreement with respect to the shares they own. Accordingly, the
Mosing family has the ability (but not the requirement) to dictate on an annual basis who will comprise our Board of
Supervisory Directors nominated to the shareholders, thus being able to 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 eight 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.
The Mosing family may have conflicting interests with other 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 TRA 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 TRA to pay Mosing Holdings or its permitted transferees for certain tax benefits we
may claim, and the amounts we may pay could be significant.
We entered into the TRA with FICV and Mosing Holdings in connection with the IPO. This agreement generally
provides for the payment by us of 85% of actual reductions, if any, in payments of U.S. federal, state and local income
tax or franchise tax in periods 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
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.
The payment obligations under the TRA are our obligations and are not obligations of FICV. The term of the TRA
continues until all such tax benefits have been utilized or expired, unless we exercise our sole right to terminate the
TRA early.
Estimating the timing of payments that may be made under the TRA is by its nature imprecise, insofar as the
calculation of amounts payable depends on a variety of factors. The timing of any payments under the TRA will vary
depending upon a number of factors, including 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 TRA constituting
imputed interest or depreciable or amortizable basis. We expect that the payments that we will be required to make
under the TRA will be substantial. There may be a substantial negative impact on our liquidity if, as a result of timing
26
discrepancies or otherwise, (i) the payments under the TRA exceed the actual benefits we realize in respect of the tax
attributes subject to the TRA or (ii) distributions to us by FICV are not sufficient to permit us to make payments under
the TRA subsequent to the payment of our taxes and other obligations. The payments under the TRA are not conditioned
upon a holder of rights under a TRA having a continued ownership interest in either FICV or us. While we may defer
payments under the TRA 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 TRA 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 TRA to Mosing Holdings or its permitted transferees may be accelerated
or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the TRA.
The TRA provides that we may terminate it early. If we elect to exercise our sole right to terminate the TRA early,
we are required to make an immediate payment equal to the present value of the anticipated future tax benefits subject
to the TRA (based upon certain assumptions and deemed events set forth in the TRA, including the assumption that
we have sufficient taxable income to fully utilize such benefits and that any interests in FICV that Mosing Holdings
or its transferees own on the termination date are deemed to be exchanged on the termination date). Any early termination
payment may be made significantly in advance of the actual realization, if any, of such future benefits. In addition,
payments due under the TRA are similarly accelerated following certain mergers or other changes of control. In these
situations, our 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, 2017, the estimated termination payment
would be approximately $60.7 million (calculated using a discount rate of 5.58%). 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 TRA. If we were unable to finance our obligations due under the TRA, 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 TRA 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 TRA, the holders of rights under the TRA will not reimburse us for any payments previously
made under the TRA 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.
In August 2016, we received a notice from Mosing Holdings exercising its Exchange Right for an equivalent
number of each of the following securities for common shares: (i) 52,976,000 Preferred Shares and (ii) 52,976,000
units in FICV. We issued 52,976,000 common shares to Mosing Holdings on August 26, 2016. As a result, there are no
remaining issued Preferred Shares. Mosing Holdings also transferred its limited partnership interest in FICV to FINV
as Mosing Holdings has withdrawn as limited partner of FICV and FINV has been admitted in Mosing Holdings' place.
As of February 19, 2018, we had 223,390,309 outstanding shares of our common stock. We may sell additional
shares of common stock in subsequent public offerings. Members of the Mosing family own, both directly and indirectly
(through Mosing Holdings), approximately 68% of our total outstanding FINV Stock. All of these shares may be sold
into the market in the future.
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
27
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.
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 representing at least a majority of the outstanding voting power
in FINV, we may 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. Please note that our
supervisory board is currently comprised of 50% independent directors, as well as a compensation committee and
nominating and governance committee comprised entirely of independent directors. However, the significant ownership
interest held by the Mosing family could adversely affect investors’ perceptions of our corporate governance.
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 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. agencies.
We are a Dutch 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
28
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.
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 (which
ends on May 19, 2022, unless extended) to issue common stock, including for defensive purposes, 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.
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
29
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 all of the above situations, we note the following rules as applied by Dutch courts:
• where all other elements relevant to the situation at the time of the choice are located in a country other than
the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions
of the law of that other country which cannot be derogated from by agreement;
•
•
•
the overriding mandatory provisions of the law of the courts remain applicable (irrespective of the law chosen);
effect may be given to overriding mandatory provisions of the law of the country where the obligations arising
out of the relevant transaction documents have to be or have been performed, insofar as those overriding
mandatory provisions render the performance of the contract unlawful; and
the application of the law of any jurisdiction may be refused if such application is manifestly incompatible
with the public policy (openbare orde) of the courts.
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.
Tax Risks
Changes in tax laws, treaties or regulations or adverse outcomes resulting from examination of our tax returns
could adversely affect our financial results.
Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both in
the United States and internationally. Tax laws, treaties and regulations are highly complex and subject to interpretation.
Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we
operate or are resident. Our income tax expense is based upon the interpretation of the tax laws in effect in various
countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the
interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide
earnings. If any country successfully challenges our income tax filings based on our structure, or if we otherwise lose
a material tax dispute, our effective tax rate on worldwide earnings could increase substantially and our financial results
could be materially adversely affected.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S.
federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income
tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive
income” or (2) at least 50% of the average value of the corporation’s assets for any taxable year produce or are held
for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends,
interest and gains from the sale or exchange of investment property and rents and royalties other than certain rents and
royalties which are received from unrelated parties in connection with the active conduct of a trade or business, but
does not include income derived from the performance of services. U.S. shareholders of a PFIC are subject to a
30
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.
We acquired the assets of Mosing Holdings (a Delaware limited liability company); however, the ownership of
Mosing Holdings in our stock, taking into account common stock that Mosing Holdings is deemed to own under the
“stock equivalent” rules, is 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 and other well construction
services, 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 50 countries.
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The following table details our material facilities by segment, owned or leased by us as of December 31, 2017.
Location
All Segments
Houston, Texas
Den Helder, the Netherlands
U.S. Services and Tubular Sales Segments
Leased or
Owned
Leased
Owned
Principal/Most Significant Use
Corporate office
Regional operations and administration
Lafayette, Louisiana
Owned/Leased Regional operations, manufacturing, engineering and administration
International Services Segment
Aberdeen, Scotland
Dubai, United Arab Emirates
Norway
Singapore
India
Blackhawk Segment
Houma, Louisiana
Owned
Owned
Owned
Owned
Owned
Regional operations, engineering and administration
Regional operations and administration
Local operations and administration
Regional operations and administration
Administration
Leased
Regional operations, manufacturing and administration
Our largest manufacturing facility is located in Lafayette, Louisiana, where we manufacture a substantial portion of our
tubular 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 175 acres. The main facility occupies 148 acres and consists of manufacturing, operations, pipe storage, training
and administration. The remaining 27 acres located off of the main campus consists of manufacturing, warehousing and
administration. There is a total of 16 buildings onsite and 17 buildings offsite. Our manufacturing operations occupy 16 of
the 33 buildings, with the remaining buildings dedicated to administration, training and other operational tasks. The main
administrative building within the facility is approximately 172,636 square feet. We believe the facilities that we currently
occupy are suitable for their intended use.
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, 2017. 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 18 - Commitments and Contingencies 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.
We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa
including possible violations of the FCPA, our policies and other applicable laws. In June 2016, we voluntarily disclosed
the existence of our extensive internal review to the SEC, the United States Department of Justice and other governmental
entities. It is our intent to fully cooperate with these agencies and any other applicable authorities in connection with
any further investigation that may be conducted in connection with this matter. While our review has not indicated that
there has been any material impact on our previously filed financial statements, we have continued to collect information
and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with
these agencies. In addition, during the course of the investigation, we discovered historical business transactions (and
bids to enter into business transactions) in certain countries that may have been subject to U.S. and other international
sanctions. We have disclosed this information to various governmental entities (including those involved in our ongoing
investigation), but at this time are unable to predict the ultimate resolution of these matters with these agencies, including
any financial impact to us. Our board and management are committed to continuously enhancing our internal controls
that support improved compliance and transparency throughout our global operations.
Item 4. Mine Safety Disclosures
Not applicable.
32
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, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Dividends
Per Share
$
$
$
$
13.00
10.66
9.15
7.80
17.07
17.73
15.44
14.86
$
$
9.20
7.02
6.04
5.79
12.34
14.05
10.91
10.47
0.075
0.075
0.075
—
0.150
0.150
0.075
0.075
On February 19, 2018, we had 223,390,309 shares of common stock outstanding. The common shares outstanding
at February 19, 2018 were held by approximately 30 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
The declaration and payment of future dividends will be at the discretion of the Board of Supervisory 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 pay dividends. On October 27,
2017, the Board of Managing Directors of the Company, with the approval of the Board of Supervisory Directors of
the Company, approved a plan to suspend the Company's quarterly dividend in order to preserve capital for various
purposes, including to invest in growth opportunities.
Unregistered Sales of Equity Securities
As part of our IPO in August 2013, we issued 52,976,000 shares of Preferred Stock to Mosing Holdings. Under
our Amended Articles of Association, upon the written election of Mosing Holdings, each Preferred Share, together
with a unit in FICV, our subsidiary, was convertible into a share of our common stock on a one-for-one basis.
On August 19, 2016, we received notice from Mosing Holdings exercising its Exchange Right for an equivalent
number of each of the following securities for common shares: (i) 52,976,000 Preferred Shares and (ii) 52,976,000
units in FICV. We issued 52,976,000 common shares to Mosing Holdings on August 26, 2016. As a result, there are no
remaining issued Preferred Shares and the Mosing family beneficially owns approximately 68% of our common shares.
33
The issuance of the common shares to Mosing Holdings in connection with the exercise of the Exchange Right
was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2)
thereof.
Issuer Purchases of Equity Securities
None.
34
Performance Graph
The following performance graph compares the performance of our common stock to the PHLX Oil Service Sector
Index, the Russell 1000 Index, Russell 2000 Index and to a peer group established by management. The peer group
consists of the following companies: Baker Hughes Inc., Core Laboratories N.V., Diamond Offshore Drilling, Inc.,
Dril-Quip, Inc., Ensco plc, 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.
During 2017, we moved from inclusion in the Russell 1000 Index to inclusion in the Russell 2000 Index. For
comparative purposes, both the Russell 2000 and the Russell 1000 indices are reflected in the following performance
graph. Going forward, we plan to use the most comparable of these two indices based on our market capitalization and
inclusion.
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, Russell 2000 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, 2017. 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, 2017. The shareholder return set forth herein is not necessarily indicative of
future performance.
*$100 invested on 8/9/13 in stock or 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.
35
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 (loss) from continuing
operations
Total assets
Debt
Total equity
2017
Year Ended December 31,
2015
2014
2016
(in thousands, except per share amounts)
2013
$
454,795
$
487,531
$
974,600
$ 1,152,632
$ 1,077,722
(159,457)
1,261,769
(156,079)
1,588,061
106,110
229,312
308,195
1,726,838
1,758,681
1,561,195
4,721
276
7,321
304
376
1,115,901
1,311,319
1,451,426
1,472,536
1,333,327
Earnings Per Share Information:
Basic income (loss) per common share:
Continuing operations
Discontinued operations
Total
Diluted income (loss) 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)
$
$
$
$
$
$
(0.72) $
—
(0.72) $
(0.77) $
—
(0.77) $
(0.72) $
—
(0.72) $
(0.77) $
—
(0.77) $
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
222,940
222,940
176,584
176,584
154,662
209,152
153,814
207,828
132,257
185,506
0.225
$
0.450
$
0.600
$
0.450
$
0.075
5,715
$
25,031
$
319,086
$
451,513
$
438,739
(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."
36
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," Part I, Item 1A, "Risk
Factors" and elsewhere in this Form 10-K.
Overview of Business
We are a global provider of highly engineered tubular services, tubular fabrication and specialty well construction and
well intervention solutions 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 four operating segments:
•
International Services. We currently provide our services in approximately 50 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, and other oilfield services companies.
• U.S. Services. We service customers in the offshore areas of the U.S. Gulf of Mexico. In addition, we have a presence
in the active onshore oil and gas drilling regions in the U.S., including the Permian Basin, Eagle Ford Shale,
Haynesville Shale, Marcellus Shale, Niobrara 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.
• Blackhawk. We provide well construction and well intervention services and products, in addition to cementing tool
expertise, in the U.S. and Mexican Gulf of Mexico, onshore U.S. and other select international locations. Blackhawk’s
customer base consists primarily of major and independent oil and gas companies as well as other oilfield services
companies.
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 and other well construction services for our customers; and rates we charge for the suite of products
and equipment that our employees use to perform these 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.
Our Blackhawk revenues are derived from well construction and well intervention services and products. The revenues
have historically been split evenly between service revenue and product revenue.
Outlook
In 2018, we expect to see increased customer spending globally on oil and natural gas exploration and production in
response to the improvement in commodity prices in recent months. However, much of the anticipated increase in spending
37
will likely continue to be associated with onshore projects that contribute lower revenue and margins to the Company than
offshore projects. Activity in the deep and ultra-deep offshore markets is not projected to see significant improvement in
2018 and pricing of newly sanctioned projects is estimated to be approximately in-line with recent trends. In response, we
are expanding products and services historically weighted to the U.S. market to international markets, reducing costs through
operational efficiency gains and prioritizing projects that improve market share and profitability.
Our offshore businesses, both in the U.S. and internationally, continue to trend toward less predictable, shorter-term
projects. We expect to see share gains in certain markets, but competitive pricing is likely to persist that could result in low
growth in both revenue and margins.
Our onshore operations are expected to see sequential improvement, particularly in the U.S. onshore market, as drilling
activity levels remain strong. The increase in demand for our services combined with a leaner cost structure is expected to
result in higher revenues and improved profitability for this business in 2018.
The Tubular Sales segment is primarily driven by specialized needs of our customers and the timing of projects,
specifically in the Gulf of Mexico. We expect to benefit from increased sales in select international markets that are predicted
to supplement our modest activity growth outlook in the offshore Gulf of Mexico.
The Blackhawk product and service lines are expected to see meaningful improvement in 2018. The U.S. onshore
products and services will likely improve from higher activity levels and the expansion of product and services to markets
outside of the U.S. should lead to sequential increases in revenue for this segment. However, some of these increases could
be at risk if activity levels in the U.S. Gulf of Mexico were to materially decrease as it represents a primary market for revenue
generation.
Overall, our market outlook is modestly improved. The onshore markets in the U.S. are expected to continue to grow
and we are expecting higher activity and international share growth from Blackhawk and Tubular Sales segments. However,
we could face continued headwinds in the global offshore market in the near-term as customers look for commodity prices
to remain at current levels for an extended period of time prior to allocating substantial financial resources to these projects.
We remain in a very strong position financially with a significant cash balance relative to our debt.
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 net income (loss) before interest income, net, depreciation and amortization, income
tax benefit or expense, asset impairments, gain or loss on disposal of assets, foreign currency gain or loss, equity-based
compensation, unrealized and realized gain or loss, the effects of the TRA, other non-cash adjustments and other 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), items outside the control of our management team (such as income tax
and foreign currency exchange rates) and other charges outside the normal course of business. Adjusted EBITDA and Adjusted
EBITDA margin have limitations as analytical tools and should not be considered as an alternative to net income (loss),
operating income (loss), cash flow from operating activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles in the U.S. ("GAAP").
38
The following table presents a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to net income (loss)
for each of the periods presented (in thousands):
Net income (loss)
Interest income, net
Depreciation and amortization
Income tax expense (benefit)
(Gain) loss on disposal of assets
Foreign currency (gain) loss
Derecognition of TRA liability (1)
Charges and credits (2)
Adjusted EBITDA
Adjusted EBITDA margin
Year Ended December 31,
2016
2015
2017
$
$
(159,457)
(2,309)
122,102
72,918
(2,045)
(2,075)
(122,515)
99,096
5,715
$
$
(156,079)
(2,073)
114,215
(25,643)
1,117
10,819
—
82,675
25,031
$
$
106,110
(341)
108,962
37,319
(1,038)
6,358
—
61,716
319,086
1.3%
5.1%
32.7%
(1) Please see Note 13 - Related Party Transactions in the Notes to the Consolidated Financial Statements for further discussion.
(2) Comprised of Equity-based compensation expense (2017: $13,862; 2016: $15,978; 2015: $26,318), Mergers and acquisition expense (2017: $459;
2016: $13,784; 2015: none), Severance and other charges (2017: $75,354; 2016: $46,406; 2015: $35,484), Changes in value of contingent consideration
(2017: none; 2016: none; 2015: $(1,532)) Unrealized and realized losses (2017: $2,791; 2016: $110; 2015: none), Investigation-related matters (2017:
$6,143; 2016: $6,397; 2015: $1,446) and Other adjustments (2017: $487; 2016: none; 2015: none).
Safety Performance
Safety is our primary core value. Maintaining a strong safety record is a critical component of our operational success.
Many of our customers have safety standards we must satisfy before we can perform services. As a result, we continually
monitor and improve our safety performance through the evaluation of safety observations, job and customer surveys, and
safety data. The primary measure for our safety performance is the tracking of the Total Recordable Incident Rate ("TRIR").
TRIR is a measure of the rate of recordable workplace injuries, normalized on the basis of 100 full time employees 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 hours actually worked in the year. A recordable injury includes occupational death, nonfatal
occupational illness, and other occupational injuries that involve loss of consciousness, lost time injuries, restriction of work
or motion cases, transfer to another job, or medical treatment cases other than first aid.
The table below presents our worldwide TRIR for the years ended December 31, 2017, 2016 and 2015:
TRIR
Year Ended December 31,
2016
2015
2017
0.57
0.87
0.76
39
Results of Operations
The following table presents our consolidated results for the periods presented (in thousands):
Revenues:
Services
Products
Total revenue
Operating expenses:
Cost of revenues, exclusive of depreciation and amortization
Services (1)
Products (1)
General and administrative expenses (1)
Depreciation and amortization
Severance and other charges
Changes in contingent consideration
(Gain) loss on disposal of assets
Operating income (loss)
Other income (expense):
Derecognition of the TRA liability (2)
Other income
Interest income, net
Mergers and acquisition expense
Foreign currency gain (loss)
Total other income (expense)
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Frank's International N.V.
Year Ended December 31,
2016
2015
2017
$
$
364,061
90,734
454,795
$
397,369
90,162
487,531
766,252
208,348
974,600
223,222
87,200
163,704
122,102
75,354
—
(2,045)
(214,742)
122,515
1,763
2,309
(459)
2,075
128,203
(86,539)
72,918
(159,457)
—
$
(159,457) $
246,652
70,616
171,887
114,215
46,406
—
1,117
(163,362)
—
4,170
2,073
(13,784)
(10,819)
(18,360)
(181,722)
(25,643)
(156,079)
(20,741)
(135,338) $
384,842
129,748
174,479
108,962
35,484
(1,532)
(1,038)
143,655
—
5,791
341
—
(6,358)
(226)
143,429
37,319
106,110
27,000
79,110
(1) For the year ended December 31, 2016, $45,336 and $11,579 have been reclassified from general and administrative
expenses to services and products, respectively, and $80,369 and $15,830, respectively, for the year ended December 31,
2015. See Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial
Statements.
(2) Please see Note 13 - Related Party Transactions in the Notes to Consolidated Financial Statements for further discussion.
40
Consolidated Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2017
decreased by $32.7 million, or 6.7%, to $454.8 million from $487.5 million for the year ended December 31, 2016.
The decrease was primarily attributable to lower revenues in the majority of our segments due to declining activity as
depressed oil and gas prices resulted in reduced rig count in offshore markets, downward pricing pressures, rig
cancellations and delays as well as deferred work scopes in the International and offshore U.S. Services regions. Tubular
Sales decreased due to lower international demand and decreased deepwater fabrication revenue. The decreased
revenues were partially offset by an increase in revenues from our Blackhawk segment of $61.0 million resulting from
our acquisition of Blackhawk in November 2016 and improved U.S. onshore revenues. See Note 3 - Acquisition and
Divestitures in the Notes to Consolidated Financial Statements for additional information on our Blackhawk acquisition.
Revenues 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,
2017 decreased by $6.8 million, or 2.2%, to $310.4 million from $317.3 million for the year ended December 31, 2016.
The decrease was primarily due to lower cost of product sales in our Tubular Sales segment driven by lower activity
volumes and cost cutting initiatives, partially offset by $26.6 million in additional cost of revenues related to our
Blackhawk acquisition, which was acquired in November 2016.
General and administrative expenses. General and administrative ("G&A") expenses for the year ended
December 31, 2017 decreased by $8.2 million, or 4.8%, to $163.7 million from $171.9 million for the year ended
December 31, 2016, primarily due to the bad debt expense related to Venezuelan receivables in 2016, a reduction in
compensation and benefit related expenses, and one-time property tax credits earned in 2017, partially offset by higher
IT expenses and increased G&A expense related to the Blackhawk acquisition. Expense related to the write-off of
Venezuelan receivables in 2017 is included in severance and other charges.
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2017 increased
by $7.9 million, or 6.9%, to $122.1 million from $114.2 million for the year ended December 31, 2016. The increase
was primarily attributable to our Blackhawk acquisition, partially offset by a lower depreciable base as a result of asset
retirements during the fourth quarter of 2016.
Severance and other charges. Severance and other charges for the year ended December 31, 2017 increased $28.9
million, or 62.4%, to $75.4 million, primarily due to impairments of our pipe and connectors inventory of $51.2 million
and accounts receivable write offs of $15.0 million related to Venezuela, Nigeria and Angola. During the fourth quarter
of 2017, management decided to significantly reduce our footprint in Nigeria and Angola by exiting certain bases and
temporarily abandoning our investment in Venezuela. This was partially offset by lower severance and other costs of
$13.8 million and lower fixed asset retirements and abandonments of $23.4 million as compared to the prior year. See
Note 19 - Severance and Other Charges in the Notes to Consolidated Financial Statements for additional information.
Foreign currency gain (loss). Foreign currency gain (loss) for the year ended December 31, 2017 changed by $12.9
million to a gain of $2.1 million from a loss of $(10.8) million for the year ended December 31, 2016. The change was
primarily due to the devaluation of the Nigerian Naira during 2016.
Income tax expense (benefit). Income tax expense (benefit) for the year ended December 31, 2017 changed by
$98.6 million to an expense of $72.9 million from a benefit of $(25.6) million for the year ended December 31, 2016.
The effective income tax rate was (84.3)% and 14.1% for the years ended December 31, 2017 and December 31, 2016,
respectively. The change from 2016 to 2017 was primarily because of recording valuation allowances against our net
deferred tax assets, and the reversal of deferred taxes associated with the derecognition of the TRA. Excluding these
one-time items, the effective income tax rate and income tax expense (benefit) for 2017 would have been 57.4% and
$(49.7) million, respectively. The change from 2016 to 2017, excluding one-time items, is primarily due to changes in
the jurisdictional mix of earnings.
41
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.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. Among the significant changes
made by the Act was the reduction of the federal income tax rate from 35% to 21% as well as the imposition of a one-
time repatriation tax on deemed repatriated earnings of certain foreign subsidiaries. US GAAP requires that the impact
of the Tax Act be recognized in the period in which the law was enacted. Because of the change in tax rate, the Company
recorded a $23.8 million reduction in the value of its deferred tax assets and liabilities. The reduction in value was fully
offset by a corresponding change in valuation allowance. The net effect on total tax expense was zero. Due to its legal
structure, the Company does not expect to incur any material liability with respect to the repatriation tax. These
provisional amounts are the Company’s best estimates based on its current interpretation of the Tax Act and may change
as the Company receives additional clarification of the Tax Act and or guidance on its implementation as part of its
2017 income tax compliance process.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2016
decreased by $487.1 million, or 50.0%, to $487.5 million from $974.6 million for the year ended December 31, 2015.
The decrease was primarily attributable to lower revenues in the majority of our segments due to declining activity as
depressed oil and gas prices resulted in reduced rig count, downward pricing pressures, rig cancellations and delays as
well as deferred work scopes in the International and U.S. Services regions while revenues for Tubular Sales decreased
due to lower international demand and decreased deep water fabrication revenue. The decreased revenues were partially
offset by revenues in our Blackhawk segment of $10.0 million resulting from our acquisition in November 2016. See
Note 3 - Acquisition and Divestitures in the Notes to Consolidated Financial Statements for additional information on
our Blackhawk acquisition. Revenues 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,
2016 decreased by $197.3 million, or 38.3%, to $317.3 million from $514.6 million for the year ended December 31,
2015. The decrease was due to lower activity volumes, offset by cost actions taken throughout 2016. We also incurred
additional costs of $8.9 million related to our Blackhawk acquisition in November 2016.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2016
decreased by $2.6 million, or 1.5%, to $171.9 million from $174.5 million for the year ended December 31, 2015.
Excluding the bad debt expense of $11.3 million related primarily to the collectability of receivables in Venezuela and
the bankrupt customer in Nigeria, G&A expenses for the year ended December 31, 2016 decreased by $13.9 million,
or 8.0%, primarily as a result of declining activity and pricing pressures, offset by internal cost initiatives, which included
workforce reductions and lease terminations. Also, equity-based compensation expense decreased by $10.3 million as
the IPO grants for retirement-eligible employees had a two year service requirement, which was completed during the
third quarter of 2015. The decreased costs were partially offset by an increase in professional fees, which included costs
related to our ongoing global corporate initiatives and the investigation mentioned in Note 18 - Commitments and
Contingencies in the Notes to Consolidated Financial Statements.
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2016 increased
by $5.3 million, or 4.8%, to $114.2 million from $109.0 million for the year ended December 31, 2015. The increase
was primarily attributable to our acquisitions of Timco Services, Inc. and Blackhawk, 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, 2016 were $46.4
million as we continued to take steps to adjust our workforce to meet the depressed demand in the industry in addition
to the retirement of fixed assets of $29.9 million.
42
Mergers and acquisition expense. Mergers and acquisition expense for the year ended December 31, 2016 were
$13.8 million as a result of our Blackhawk acquisition as mentioned in Note 3 - Acquisition and Divestitures in the
Notes to Consolidated Financial Statements.
Foreign currency loss. Foreign currency loss for the year ended December 31, 2016 increased by $4.5 million to
$10.8 million from $6.4 million for the year ended December 31, 2015. The increase was primarily due to the devaluation
of the Nigerian Naira.
Income tax expense (benefit). Income tax expense (benefit) for the year ended December 31, 2016 decreased by
$63.0 million, or 168.7%, to $(25.6) million from $37.3 million for the year ended December 31, 2015 primarily as a
result of a decrease in taxable income and a change in jurisdictional mix. 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.
Operating Segment Results
The following table presents revenues and Adjusted EBITDA by segment (in thousands):
Revenue:
International Services
U.S. Services
Tubular Sales
Blackhawk
Total
Segment Adjusted EBITDA: (1)
International Services
U.S. Services (2)
Tubular Sales
Blackhawk
Total
Year Ended December 31,
2016
2015
2017
$
$
$
$
206,746
118,815
58,210
71,024
454,795
30,801
(39,357)
3,181
11,090
5,715
$
$
$
$
237,207
152,827
87,515
9,982
487,531
33,264
(11,012)
1,741
1,038
25,031
$
$
$
$
442,107
326,437
206,056
—
974,600
182,475
95,612
40,999
—
319,086
(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 reconciliation
of our Adjusted EBITDA, see "—Adjusted EBITDA and Adjusted EBITDA Margin.")
(2) Amounts previously reported as Corporate and other of $478 and $96 for 2016 and 2015, respectively, have been
reclassified to U.S. Services to conform to the current presentation.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
International Services
Revenue for the International Services segment decreased by $30.5 million, or 12.8%, compared to 2016, primarily
due to lower offshore rig counts globally and increased pricing pressure on new contracts. Revenue declines in our
Africa, Europe, and Asia Pacific regions were mostly attributable to our major customers reducing the amount of work
they do in the regions, which was partially offset by our attempts to expand into countries with drilling activity where
43
we have historically had a smaller presence and increases in Canada and the Middle East due to higher activity with
key customers.
Adjusted EBITDA for the International Services segment decreased by $2.5 million, or 7.4%, compared to 2016,
primarily due to the 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 $34.0 million, or 22.3%, compared to 2016 primarily due to
a decrease in offshore services revenue of $51.4 million as a result of overall lower activity from weaknesses seen in
the Gulf of Mexico due to rig cancellations and delays, coupled with downward pricing pressures. This was partially
offset by an increase in onshore services revenue of $17.4 million as a result of improved activity due to increased oil
prices, which has led to higher rig counts and more favorable pricing.
Adjusted EBITDA for the U.S. Services segment decreased by $28.3 million, or 257.4%, compared to 2016
primarily due to higher pricing concessions, increased asset related expenses and higher labor costs to support increased
land activity, as well as higher corporate and other costs, which were attributable to ongoing global corporate initiatives.
Tubular Sales
Revenue for the Tubular Sales segment decreased by $29.3 million, or 33.5%, compared to 2016, primarily as a
result of lower deepwater activity in the Gulf of Mexico.
Adjusted EBITDA for the Tubular Sales segment increased by $1.4 million, or 82.7%, compared to 2016, due to
cost cutting measures and lower product costs, offset by an increase in freight costs associated with project work.
Blackhawk
The Blackhawk segment is comprised solely of the assets we acquired on November 1, 2016. Revenues and
Adjusted EBITDA for the segment were $71.0 million and $11.1 million, respectively, for the year ended December 31,
2017, compared to $10.0 million and $1.0 million, respectively, for the two months ended December 31, 2016. See
Note 3 - Acquisition and Divestitures in the Notes to Consolidated Financial Statements for additional information on
our Blackhawk acquisition.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
International Services
Revenue for the International Services segment decreased by $204.9 million, or 46.3%, compared to 2015, primarily
due to depressed oil and gas prices, which challenged the economics of current development projects 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.
Adjusted EBITDA for the International Services segment decreased by $149.2 million, or 81.8%, compared to
2015, primarily due to the decrease in revenue and $11.3 million of bad debt expense related to the collectability of
receivables in Venezuela and Nigeria, which were 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 $173.6 million, or 53.2%, compared to 2015 primarily due
to depressed oil and gas prices. Onshore services revenue decreased by $51.3 million as a result of lower activity from
declining rig counts and pricing discounts. The offshore business saw a decrease in revenue of $125.9 million as a
44
result of overall lower activity from weaknesses seen in the Gulf of Mexico due to rig cancellations and delays, coupled
with downward pricing pressures.
Adjusted EBITDA for the U.S. Services segment decreased by $106.5 million, or 111.5%, compared to 2015
primarily due to higher pricing concessions and lower activity of $94.6 million and higher corporate and other costs
of $11.9 million primarily due to increased professional fees, which were attributable to ongoing global corporate
initiatives.
Tubular Sales
Revenue for the Tubular Sales segment decreased by $118.5 million, or 57.5%, compared to 2015, primarily as a
result of lower international demand and decreased deepwater fabrication revenue.
Adjusted EBITDA for the Tubular Sales segment decreased by $39.3 million, or 95.8%, compared to 2015, as it
was negatively impacted by fixed costs associated with the manufacturing division and decreased revenues.
Blackhawk
The Blackhawk segment is comprised solely of the assets we acquired on November 1, 2016. Revenues and
Adjusted EBITDA for the segment were $10.0 million and $1.0 million, respectively, for the year ended December 31,
2016. See Note 3 - Acquisition and Divestitures in the Notes to Consolidated Financial Statements for additional
information on our Blackhawk acquisition.
Liquidity and Capital Resources
Liquidity
At December 31, 2017, we had cash and cash equivalents and short-term investments of $294.0 million and debt
of $4.7 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 $48.0 million for 2018. We expect approximately $38.0 million for
the purchase and manufacture of equipment and $10.0 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, 2017, 2016 and 2015, capital expenditures
were $21.9 million, $42.1 million and $99.7 million, respectively, all of which were funded from internally generated
sources. We believe our cash on hand and cash flows from operations will be sufficient to fund our capital expenditure
and liquidity requirements for the next twelve months.
We paid dividends on our common stock of $50.2 million, or an aggregate of $0.225 per common share during
the year ended December 31, 2017. 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. On October 27, 2017, the Board of Managing Directors of the Company, with the approval from the Board of
Supervisory Directors of the Company, approved a plan to suspend the Company's quarterly dividend in order to preserve
capital for various purposes, including to invest in growth opportunities.
On August 19, 2016, we received notice from Mosing Holdings that it was exercising its right to exchange, for
52,976,000 common shares, each of the following securities: (i) 52,976,000 Preferred Shares and (ii) 52,976,000
units in FICV. We issued 52,976,000 common shares to Mosing Holdings on August 26, 2016. As a result, there are
45
no remaining issued or outstanding Preferred Shares and the Mosing family beneficially owns approximately 68% of
our common shares. In addition, our obligation to make payments to our noncontrolling interest pursuant to the
Limited Partnership Agreement of Frank's International C.V. ceased as of the effective date of the exchange.
Credit Facility
We have a $100.0 million revolving credit facility with certain financial institutions, including up to $20.0 million
in 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 Facility, we have the ability to increase the commitments to $150.0 million. At
December 31, 2017 and 2016, we did not have any outstanding indebtedness under the Credit Facility. At December 31,
2017 and 2016, we had $2.8 million and $3.7 million, respectively, in letters of credit outstanding. As of December 31,
2017, our ability to borrow under the Credit Facility has been reduced to approximately $14.3 million less letters of
credit outstanding under the Credit Facility as a result of our decreased Adjusted EBITDA. Our borrowing capacity
under the Credit Facility could be reduced or eliminated depending on our future Adjusted EBITDA. If this were to
occur, our overall liquidity would be diminished.
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 (i) the prime rate as published
in the Wall Street Journal, (ii) the Federal Funds Effective Rate plus 0.50% or (iii) 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 the Credit Facility)
of not more than 2.5 to 1.0; and (ii) a ratio of EBITDA to interest expense of not less than 3.0 to 1.0.
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.
On April 28, 2017, the Company obtained a limited waiver under its Revolving Credit Agreement, dated August
14, 2013, by and among FICV (as borrower), Amegy Bank National Association (as administrative agent), Capital One,
National Association (as syndication agent) and the other lenders party thereto (the "Credit Agreement"), of its leverage
ratio and interest coverage ratio for the fiscal quarters ending March 31, 2017 and June 30, 2017 (the “Waiver”) in
order to not be in default for the first quarter of 2017. The Company agreed to comply with the following conditions
during the period from the effective date of the Waiver until the delivery of its compliance certificate with respect to
the fiscal quarter ending September 30, 2017: (i) maintain no less than $250.0 million in liquidity; (ii) abide by certain
restrictions regarding the issuance of senior unsecured debt; and (iii) pay interest and commitment fees based on the
highest “Applicable Margin” (as defined in the Credit Agreement) level. In connection with the Waiver, the Company
paid a waiver fee to each lender that executed the Waiver equal to five basis points of the respective lender’s commitment
under the Credit Agreement. As of December 31, 2017, we were in compliance with the covenants included in the
Credit Agreement.
46
Citibank Credit Facility
In 2016, we entered into a three-year credit facility with Citibank N.A., UAE Branch in the amount of $6.0 million
for the issuance of standby letters of credit and guarantees. The credit facility also allows for open ended guarantees.
Outstanding amounts under the credit facility bear interest of 1.25% per annum for amounts outstanding up to one year.
Amounts outstanding more than one year bear interest at 1.5% per annum. As of December 31, 2017 and 2016, we had
$2.6 million and $2.2 million, respectively, in letters of credit outstanding.
Insurance Notes Payable
In 2017, we entered into three notes to finance our annual insurance premiums totaling $5.1 million. The notes
bear interest at an annual rate of 2.3% with a final maturity date in October 2018. At December 31, 2017, the total
outstanding balance was $4.7 million.
Cash Flows from Operating, Investing and Financing Activities
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in
thousands):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash activities
Increase (decrease) in cash and cash equivalents
Year Ended December 31,
2016
2015
2017
$
$
$
24,774
(77,709)
(52,471)
(105,406)
(1,105)
(106,511) $
(10,831) $
(178,915)
(96,765)
(286,511)
3,678
(282,833) $
427,758
(174,689)
(141,209)
111,860
1,145
113,005
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 provided by (used in) operating activities was $24.8 million for the year ended December 31, 2017 as
compared to $(10.8) million in 2016. The increase in cash provided by operating activities in 2017 of $35.6 million as
compared to 2016 was primarily a result of positive changes to working capital and other long-term assets and liabilities
of $39.8 million, partially offset by an increase in net loss of $3.4 million. Most of the increase in working capital
during 2017 was due to tax refunds of $29.7 million.
The decrease in cash flow provided by (used in) operating activities for the year ended December 31, 2016 of
$438.6 million as compared to the year ended December 31, 2015 was primarily due to a net loss as a result of lower
activity due to depressed oil and gas prices, the impact of deferred taxes and working capital changes primarily related
to accounts receivable and accrued expense and other liabilities.
47
Investing Activities
Cash flow used in investing activities was $77.7 million for the year ended December 31, 2017 as compared to
$178.9 million for the year ended December 31, 2016. The decrease of $101.2 million period over period was primarily
related to the acquisition of Blackhawk during 2016, for which $150.4 million in cash was used. In addition, lower
purchases of property plant and equipment of $20.2 million and higher proceeds from sale of assets of $10.2 million
also contributed to the decrease. These changes were partially offset by a net increase in purchase of investments of
$79.8 million, primarily related to net purchases of investments with original maturities greater than three months but
less than twelve months.
Cash flow used in investing activities was $178.9 million for the year ended December 31, 2016 as compared to
$174.7 million for the year ended December 31, 2015. The increase of $4.2 million period over period was primarily
related to an increase in cash used for acquisitions of $71.8 million, offset by lower purchases of property plant and
equipment of $57.6 million and an increase of $11.1 million in proceeds from the sale of investments related to our
executive deferred compensation plan, which was used to make payments to former key employees.
Financing Activities
Cash flow used in financing activities was $52.5 million for the year ended December 31, 2017 as compared to
$96.8 million for the year ended December 31, 2016. The decrease of $44.3 million period over period is primarily
related to lower dividends paid on common stock of $28.9 million, the absence of a payment to our noncontrolling
interest of $8.0 million and lower repayments on borrowings of $6.5 million.
Cash flow used in financing activities was $96.8 million for the year ended December 31, 2016 as compared to
$141.2 million for the year ended December 31, 2015. The decrease of $44.4 million period over period was primarily
due to lower dividend payments of $13.8 million as a result of a reduction in the dividends per share amount and lower
noncontrolling interest payments of $35.5 million. These decreases were partially offset by higher repayments on
borrowings of $6.4 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, 2017 (in
thousands):
Long-term debt
Noncancellable operating leases
Purchase obligations (1)
Total
Payments Due by Period
Total
4,721
37,390
22,147
64,258
$
$
$
$
Less than
1 year
1-3 years
3-5 years
More than
5 years
4,721
10,563
12,578
27,862
$
$
— $
— $
11,020
9,569
20,589
$
7,882
—
7,882
$
—
7,925
—
7,925
(1)
Includes purchase commitments primarily related to connectors, pipe and other inventory. We enter into purchase
commitments as needed.
Not included in the table above are uncertain tax positions of $0.2 million.
48
Tax Receivable Agreement
We entered into a TRA with FICV and Mosing Holdings in connection with our IPO. The TRA generally provides
for the payment by us to Mosing Holdings 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 our 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
the conversion of shares of Preferred Stock into shares of our common stock on August 26, 2016 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 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 execute our sole right 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 Mosing Holdings 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
Mosing Holdings. In most circumstances, these payments will be associated with the actual cash savings that we
recognize in connection with the conversion of Preferred Stock, which would reduce the actual tax benefit to us. If we
were to elect to exercise our sole right 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 13 - Related Party Transactions in the Notes to Consolidated
Financial Statements.
Off-Balance Sheet Arrangements
At December 31, 2017, we had no off-balance sheet arrangements with the exception of operating leases and
purchase obligations.
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.
49
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 and other well construction 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 as services are performed or rendered.
International service hours are billed per man hour, per day or similar basis.
•
• U.S. services are billed on,
i) Offshore - per day or similar basis.
ii) Land - per man hour or on a project basis.
• Blackhawk services are billed primarily on a per day basis for both domestic and international.
We design and manufacture a suite of highly technical equipment and products that we use in connection with
providing our services to our customers, including high-end, proprietary tubular handling or well construction
equipment. Substantially all equipment has a service element for personnel operating the equipment. We provide our
equipment either under direct agreements or with customers with agreements in place. Revenue from equipment
agreements is recognized as earned over the relevant period.
International equipment is billed on a per month or similar basis.
•
• U.S. equipment is billed on,
i) Offshore - per day or similar basis.
ii) Land - on completion of a job or project basis.
• Blackhawk services are billed on,
i) Offshore and Land - per day basis with some minimum days requirements.
ii) International - negotiated contracts but are primarily based on monthly rates.
For customers contracted under direct service purchase orders and direct agreements, an accrual is recorded in
unbilled accounts receivable for revenue earned but not yet invoiced.
Tubular Sales and Blackhawk Product Revenue. Revenue on tubular and Blackhawk product 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.
Some of our tubular sales and well construction customers have requested that we store pipe, connectors and other
products 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 $4.7 million and $18.1 million was deferred at December 31, 2017 and 2016,
respectively until delivery and significant risks of ownership have passed to the customer.
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 the deferred tax assets will not be realized. In determining the need for
valuation allowances, we have made judgments and estimates regarding 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
50
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 50 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 open tax periods are subject to audit by the tax authorities . These audits may result in assessments
of additional taxes that are resolved either with the tax authorities or through the courts. 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 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 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 an event occurs necessitating a change to the reserves such as changes in the
facts or law, judicial decisions regarding the application of existing law or a favorable audit outcome. We believe that
the resolution of tax matters will not have a material effect on our consolidated financial condition, although a resolution
could have a material impact on our consolidated statements of operations for a particular period and on our effective
tax rate for any period in which such resolution occurs.
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 a quantitative impairment test is performed. The quantitative goodwill impairment test
is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value
of a reporting unit with its carrying amount, including goodwill. The amount of impairment for goodwill is measured
as the excess of its carrying value over its fair value.
During the fourth quarter of 2017, we elected to change the timing of our annual goodwill impairment testing from
December 31 to October 31 for our U.S Services, International Services, Tubular Sales and Manufacturing reporting
units. This accounting change is considered to be preferable because it allows for additional time to complete the annual
goodwill impairment test, better aligns with our planning process, and synchronizes the testing date for all of our
reporting units as October 31, which is the Blackhawk reporting unit's annual impairment testing date. This change did
not result in adjustments to previously issued financial statements.
51
No goodwill impairment was recorded for years ended December 31, 2017, 2016 and 2015. Our goodwill is
allocated to our operating segments as follows: U.S. Services - approximately $16.2 million; Tubular Sales -
approximately $2.4 million; Blackhawk - approximately $192.4 million. The inputs used in the determination of fair
value are generally level 3 inputs.
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.
We have experienced payment delays from certain customers in Nigeria, Angola and Venezuela. During 2016, we
recorded an allowance of $9.6 million for trade accounts receivable from our national oil company customer in Venezuela
due to the uncertainty of collection. During the fourth quarter of 2017 management decided to significantly reduce our
footprint in Nigeria and Angola by exiting certain bases and temporarily abandoning our investment in Venezuela,
primarily consisting of accounts receivable, which we believe will diminish our ability to collect amounts owed. As a
result, we wrote off the previously reserved trade accounts receivable of $9.6 million. In addition, we wrote off trade
accounts receivables of $15.0 million for Nigeria, Angola and Venezuela, which is included in the financial statement
line item severance and other charges during the year ended December 31, 2017. Our allowance for doubtful accounts
at December 31, 2017 and 2016 was $4.8 million and $14.3 million, respectively.
Recent Accounting Pronouncements
See Note 1 - Basis of Presentation and Significant Accounting Policies 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, Africa 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, 2017, on a U.S. dollar-equivalent basis, approximately 25% 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
52
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 2.2% decrease in our overall revenues for the year ended December 31, 2017.
We enter into short-duration foreign currency forward contracts 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
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 operations.
As of December 31, 2017 and 2016, we had the following foreign currency derivative contracts outstanding in
U.S. dollars (in thousands):
Foreign Currency
Canadian dollar
Euro
Norwegian krone
Pound sterling
Foreign Currency
Canadian dollar
Euro
Euro
Norwegian krone
Pound sterling
Notional Amount
Contractual
Exchange Rate
Fair Value at
December 31, 2017
$
6,226
5,326
6,212
6,039
1.2850
$
1.1836
8.3704
1.3419
$
(165)
(101)
(157)
(64)
(487)
Notional Amount
Contractual
Exchange Rate
Fair Value at
December 31, 2016
$
4,553
4,753
2,558
3,643
3,908
1.3179
$
1.0563
1.0659
8.5101
1.2607
$
74
(11)
(24)
38
69
146
Based on the derivative contracts that were in place as of December 31, 2017, a simultaneous 10% weakening of
the U.S. dollar as compared to the Canadian dollar, Euro, Norwegian krone, and Pound sterling would result in a $2.6
million decrease in the market value of our forward contracts.
Interest Rate Risk
As of December 31, 2017, 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. International sales also present various risks
including governmental activities that may limit or disrupt markets and restrict the movement of funds. We operate in
approximately 50 countries and, as a result, our accounts receivables are spread over many countries and customers.
53
We are also exposed to credit risk because our customers are concentrated in the oil and natural gas industry. This
concentration of customers may impact overall exposure to credit risk, either positively or negatively, because our
customers may be similarly affected by changes in economic and industry conditions, including sensitivity to commodity
prices. While current energy prices are important contributors to positive cash flow for our customers, expectations
about future prices and price volatility are generally more important for determining future spending levels. However,
any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and
production activity, as well as the entire health of the oil and natural gas industry and can therefore negatively impact
spending by our customers.
54
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, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016
and 2015
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Page
56
57
59
60
61
62
63
64
55
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,
2017 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, 2017.
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is
included herein.
56
Report of Independent Registered Public Accounting Firm
To the Board of Supervisory Directors and Stockholders of Frank’s International N.V.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Frank’s International N.V. and its subsidiaries as
of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income
(loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,
including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2)
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the accompanying consolidated financial statements, the Company changed the manner in
which it accounts for goodwill impairment in 2017, and changed the impairment testing date for two of its reporting
units from December 31 to October 31.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. 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.
57
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (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 27, 2018
We have served as the Company’s auditor since 2008.
58
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivables, net
Inventories, net
Assets held for sale
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred tax assets, net
Other assets
Total assets
Liabilities and Equity
Current liabilities:
Short-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 18)
Stockholders' equity:
Common stock, €0.01 par value, 798,096,000 shares authorized, 224,228,071 and
223,161,356 shares issued and 223,289,389 and 222,401,427 shares outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock (at cost), 938,682 and 759,929 shares
Total stockholders' equity
Total liabilities and equity
December 31,
2017
2016
$
$
$
213,015
81,021
127,210
76,420
3,792
10,437
511,895
469,646
211,040
33,895
—
35,293
1,261,769
4,721
33,912
4,703
74,973
118,309
229
27,330
145,868
319,526
—
167,417
139,079
—
14,027
640,049
567,024
211,063
45,083
79,309
45,533
1,588,061
276
16,081
18,072
64,950
99,379
20,951
156,412
276,742
2,814
1,050,873
106,923
(30,972)
(13,737)
1,115,901
1,261,769
$
2,802
1,036,786
317,270
(32,977)
(12,562)
1,311,319
1,588,061
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues:
Services
Products
Total revenue
Operating expenses:
Cost of revenues, exclusive of depreciation and amortization
Services
Products
General and administrative expenses
Depreciation and amortization
Severance and other charges
Changes in contingent consideration
(Gain) loss on disposal of assets
Operating income (loss)
Other income (expense):
Derecognition of the tax receivable agreement liability
Other income, net
Interest income, net
Mergers and acquisition expense
Foreign currency gain (loss)
Total other income (expense)
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Frank's International N.V.
Preferred stock dividends
Net income (loss) attributable to Frank's International N.V.
common shareholders
Dividends per common share:
Income (loss) per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2016
2015
2017
$
$
364,061
90,734
454,795
$
397,369
90,162
487,531
766,252
208,348
974,600
223,222
87,200
163,704
122,102
75,354
—
(2,045)
(214,742)
122,515
1,763
2,309
(459)
2,075
128,203
(86,539)
72,918
(159,457)
—
$
(159,457) $
—
246,652
70,616
171,887
114,215
46,406
—
1,117
(163,362)
—
4,170
2,073
(13,784)
(10,819)
(18,360)
(181,722)
(25,643)
(156,079)
(20,741)
(135,338) $
(1)
384,842
129,748
174,479
108,962
35,484
(1,532)
(1,038)
143,655
—
5,791
341
—
(6,358)
(226)
143,429
37,319
106,110
27,000
79,110
(2)
$
$
$
$
(159,457) $
(135,339) $
79,108
0.225
$
0.45
$
0.60
(0.72) $
(0.72) $
(0.77) $
(0.77) $
0.51
0.50
222,940
222,940
176,584
176,584
154,662
209,152
The accompanying notes are an integral part of these consolidated financial statements.
60
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Marketable securities:
Unrealized gain (loss) on marketable securities
Reclassification to net income
Deferred tax asset / liability change
Unrealized gain (loss) on marketable securities, net of tax
Total other comprehensive income (loss)
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to
noncontrolling interest
Add: Transfer of Mosing Holdings interest to FINV attributable to
comprehensive loss (See Note 13)
Comprehensive income (loss) attributable to Frank's
International N.V.
Year Ended December 31,
2016
2015
2017
$
(159,457) $
(156,079) $
106,110
2,345
546
(14,039)
(103)
(395)
158
(340)
2,005
(157,452)
1,214
—
(418)
796
1,342
(154,737)
(1,500)
—
314
(1,186)
(15,225)
90,885
—
—
(20,180)
23,120
(8,203)
—
$
(157,452) $
(142,760) $
67,765
The accompanying notes are an integral part of these consolidated financial statements.
61
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Balances at December 31, 2014
Net income
Foreign currency translation adjustments
Unrealized loss on marketable securities
Equity-based compensation expense
Distributions to noncontrolling interest
Common stock dividends ($0.60 per
share)
Preferred stock dividends
Common shares issued upon vesting of
share-based awards
Common shares issued for employee
stock purchase plan (ESPP)
Treasury shares withheld
Balances at December 31, 2015
Net loss
Foreign currency translation adjustments
Unrealized gain on marketable securities
Equity-based compensation expense
Distributions to noncontrolling interest
Common stock dividends ($0.45 per
share)
Preferred stock dividends
Transfer of Mosing Holdings interest to
FINV
Common shares issued on conversion of
Series A preferred stock
Common shares issued upon vesting of
share-based awards
TRA and associated deferred taxes
Common shares issued for ESPP
Blackhawk acquisition
Treasury shares withheld
Balances at December 31, 2016
Net loss
Foreign currency translation adjustments
Unrealized loss on marketable securities
Equity-based compensation expense
Common stock dividends ($0.225 per
share)
Common shares issued upon vesting of
share-based awards
Common shares issued for ESPP
Treasury shares issued upon vesting of
share-based awards
Treasury shares issued for ESPP
Treasury shares withheld
Balances at December 31, 2017
Common Stock
Value
Shares
$ 2,033
154,327
—
—
—
—
—
—
—
—
1,070
20
(271)
—
—
—
—
—
—
12
—
—
Additional
Paid-In
Capital
$ 683,611
—
—
—
28,600
—
—
—
(12)
287
—
Retained
Earnings
$ 545,357
79,110
—
—
—
—
(92,844)
(2)
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
$
Treasury
Stock
Non-
controlling
Interest
(14,210) $ (4,801) $ 260,546
27,000
—
—
(10,462)
(883)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,497)
(3,577)
(303)
—
(43,539)
—
—
—
—
—
Total
Stockholders'
Equity
1,472,536
106,110
$
(14,039)
(1,186)
28,600
(43,539)
(92,844)
(2)
—
287
(4,497)
155,146
$ 2,045
$ 712,486
$ 531,621
$
(25,555) $ (9,298) $ 240,127
$
1,451,426
—
—
—
—
—
—
—
—
52,976
1,644
—
76
12,804
(245)
—
—
—
—
—
—
—
—
597
19
—
1
140
—
— (135,338)
—
—
15,978
—
—
—
239,871
—
(19)
(76,409)
972
143,907
—
—
—
—
—
(79,012)
(1)
—
—
—
—
—
—
—
—
165
616
—
—
—
—
(8,203)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,264)
(20,741)
(156,079)
381
180
—
(8,027)
—
—
546
796
15,978
(8,027)
(79,012)
(1)
(211,920)
19,748
—
—
—
—
—
—
597
—
(76,409)
973
144,047
(3,264)
222,401
$ 2,802
$1,036,786
$ 317,270
$
(32,977) $ (12,562) $
— $
1,311,319
—
—
—
—
—
1,017
50
4
105
(288)
—
—
—
—
—
11
1
—
—
—
— (159,457)
—
—
13,825
—
—
—
—
(50,154)
(11)
523
(84)
(166)
—
—
—
—
(736)
—
—
2,345
(340)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
66
1,642
(2,883)
—
—
—
—
—
—
—
—
—
—
(159,457)
2,345
(340)
13,825
(50,154)
—
524
(18)
740
(2,883)
223,289
$ 2,814
$1,050,873
$ 106,923
$
(30,972) $ (13,737) $
— $
1,115,901
The accompanying notes are an integral part of these consolidated financial statements.
62
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2016
2015
2017
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities
$
(159,457) $
(156,079) $
106,110
Derecognition of the TRA liability
Depreciation and amortization
Equity-based compensation expense
Loss on asset write-off and retirements
Amortization of deferred financing costs
Deferred tax provision (benefit)
Reversal of deferred tax assets associated with the TRA
Provision for bad debts
(Gain) loss on disposal of assets
Changes in fair value of investments
Change in value of contingent consideration
Unrealized (gain) loss on derivative
Realized loss on sale of investment
Other
Changes in operating assets and liabilities, net of effects from acquisitions
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 (used in) operating activities
Cash flows from investing activities
Acquisition of Blackhawk (net of acquired cash)
Acquisition of Timco Services, Inc. (net of acquired cash)
Purchase of property, plant and equipment
Proceeds from sale of assets and equipment
Purchase of investments
Proceeds from sale of investments
Other
Net cash used in investing activities
Cash flows from financing activities
Repayments of borrowings
Proceeds from borrowings
Cost of Series A convertible preferred stock conversion to common stock
Dividends paid on common stock
Dividends paid on preferred stock
Distribution to noncontrolling interest
Treasury shares withheld
Proceeds from the issuance of ESPP shares
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(122,515)
122,102
13,825
71,942
267
15,543
46,874
950
(2,045)
(2,627)
—
634
478
(1,876)
21,271
12,102
8,677
674
7,336
(13,373)
8,438
(4,446)
24,774
—
—
(21,905)
14,030
(123,048)
53,299
(85)
(77,709)
(680)
—
—
(50,154)
—
—
(2,901)
1,264
(52,471)
(1,105)
(106,511)
319,526
213,015
$
—
114,215
15,978
29,881
164
(27,536)
—
11,581
1,117
(1,123)
—
64
—
—
70,388
27,379
4,039
(692)
(3,485)
(39,659)
(43,583)
(13,480)
(10,831)
(150,437)
—
(42,127)
3,858
(1,003)
11,101
(307)
(178,915)
(7,201)
363
(595)
(79,013)
(1)
(8,027)
(3,264)
973
(96,765)
3,678
(282,833)
602,359
319,526
$
—
108,962
28,600
—
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
$
The accompanying notes are an integral part of these consolidated financial statements.
63
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, tubular fabrication and specialty well construction and well
intervention solutions 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, 2017, 2016 and 2015 include
the activities of Frank's International C.V. ("FICV"), Blackhawk Group Holdings, LLC ("Blackhawk") and their 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, these consolidated financial statements reflect all adjustments 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. Our functional currency is primarily the United States dollar.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current year’s presentation. These
reclassifications had no impact on our net income (loss), working capital, cash flows or total equity previously reported.
Historically, and through December 31, 2016, certain direct and indirect costs related to operations and
manufacturing were classified and reported as general and administrative expenses ("G&A"). The historical
classification was consistent with the information used by the Company’s chief operating decision maker ("CODM")
to assess performance of the Company’s segments and make resource allocation decisions, and the classification of
such costs within the consolidated statements of income was aligned with the segment presentation. Effective January
1, 2017, the company changed the classification of certain of these costs in its segment reporting disclosures and within
the consolidated statements of income to reflect a change in the presentation of the information used by the Company’s
CODM.
This reclassification of costs between cost of revenue and G&A has no net impact to the consolidated statements
of income or to total segment reporting. The change reflects the CODM's philosophy on assessing performance and
allocating resources, as well as improves comparability to the Company's peer group. This is a change in costs
classification and has been reflected retrospectively for all periods presented.
64
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of reclassifications to previously reported amounts (in thousands):
Year Ended December 31, 2016
Year Ended December 31, 2015
As previously
reported
Reclassifications
As currently
reported
As previously
reported
Reclassifications
As currently
reported
Consolidated Statements of
Operations
Cost of revenues, exclusive of
depreciation and amortization
Services
Products
General and administrative expenses
$
201,316
$
45,336
$
246,652
$
304,473
$
80,369
$
384,842
59,037
228,802
11,579
(56,915)
70,616
171,887
113,918
270,678
15,830
(96,199)
129,748
174,479
Significant Accounting Policies
Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates.
Accounts Receivable
We establish an allowance for doubtful accounts based on various factors including historical experience, the
current aging status of our customer accounts, the financial condition of our customers and the business and political
environment in which our customers operate. Provisions for doubtful accounts are recorded when it becomes probable
that customer accounts are uncollectible.
Cash and Cash Equivalents
We consider all highly liquid financial instruments purchased with an original maturity of three months or less to
be cash equivalents. Throughout the year, we have cash balances in excess of federally insured limits deposited with
various financial institutions. We have not experienced any losses in such accounts and believe we are not exposed to
any significant credit risk on cash and cash equivalents.
Comprehensive Income
Accounting standards on reporting comprehensive income require that certain items, including foreign currency
translation adjustments and unrealized gains and losses on marketable securities be presented as components of
comprehensive income. The cumulative amounts recognized by us under these standards are reflected in the consolidated
balance sheet as accumulated other comprehensive income, a component of 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.
65
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 operations.
Income (Loss) Per Share
Basic income (loss) per share excludes dilution and is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted income (loss) per
share reflects the potential dilution that could occur if securities to issue common stock were exercised or converted
to common stock.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, short-term investments, trade accounts
receivable, available-for-sale securities, derivative financial instruments, obligations under trade accounts payable and
short -term debt. Due to their short-term nature, the carrying values for cash and cash equivalents, short-term investments,
trade accounts receivable, trade accounts payable and short-term debt approximate fair value. Refer to Note 10 – Fair
Value Measurements 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
operations as incurred. Gains and losses resulting from transactions denominated in a foreign currency are also included
in the consolidated statements of operations 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
66
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test
is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value
of a reporting unit with its carrying amount, including goodwill. The amount of impairment for goodwill is measured
as the excess of its carrying value over its fair value.
During the fourth quarter of 2017, we elected to change the timing of our annual goodwill impairment testing from
December 31 to October 31 for our U.S Services, International Services, Tubular Sales and Manufacturing reporting
units. This accounting change is considered to be preferable because it allows for additional time to complete the annual
goodwill impairment test, better aligns with our planning process, and synchronizes the testing date for all of our
reporting units as October 31, which is the Blackhawk reporting unit's annual impairment testing date. This change did
not result in adjustments to previously issued financial statements.
No goodwill impairment was recorded for years ended December 31, 2017, 2016 and 2015. Our goodwill is
allocated to our operating segments as follows: U.S. Services - approximately $16.2 million; Tubular Sales -
approximately $2.4 million; Blackhawk - approximately $192.4 million. The inputs used in the determination of fair
value are generally level 3 inputs. See Note 10 – Fair Value Measurements 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 the fair value of the asset.
Income Taxes
We operate under many legal forms in approximately 50 countries. As a result, we are subject to many U.S. and
foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities. Our operations in
these different jurisdictions are taxed on various bases such as income before taxes, deemed profits (which is generally
determined using a percentage of revenues rather than profits), and withholding taxes based on revenues. Determination
of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of
estimates and assumptions regarding significant future events. Changes in tax laws, regulations, agreements and treaties,
foreign currency exchange restrictions, or our level of operations or profitability in each taxing jurisdiction could have
an impact upon the amount of income taxes that we provide during any given year.
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 tax rates and laws expected to be in effect when the differences are projected to reverse. 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 made judgments and estimates
regarding future taxable income. 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. The
ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable
taxing jurisdictions. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities and
associated valuation allowances 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.
67
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
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 asset group 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, 2017 and 2016 (in
thousands):
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Total
Gross
Carrying
Amount
Accumulated
Amortization
Total
Customer relationships
$
39,050
$
(17,577) $ 21,473
$
38,681
$
Trade name
Intellectual property
Non-compete agreement
11,407
9,892
1,160
(6,494)
(2,463)
(1,080)
4,913
7,429
80
11,733
9,748
1,160
Total intangible assets
$
61,509
$
(27,614) $ 33,895
$
61,322
$
(11,452) $ 27,229
(3,648)
8,085
(379)
(760)
400
(16,239) $ 45,083
9,369
Amortization expense for intangibles assets was $11.4 million, $3.5 million and $1.8 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017, estimated amortization expense for the intangible assets for each of the next five
years was as follows (in thousands):
Period
2018
2019
2020
2021
2022
Thereafter
Total
Inventories
Amount
10,698
10,111
6,920
5,503
118
545
33,895
$
$
Inventories are stated at the lower of cost (primarily average cost) or net realizable 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 and Cash Surrender Value of Life Insurance Policies
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 7 – Other Assets. Unrealized gains and losses
are reported as a component of stockholders’ equity.
68
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also have cash surrender value of life insurance policies that are held within a Rabbi Trust for the purpose of
paying future executive deferred compensation benefit obligations. Unrealized and realized gains and losses on
marketable securities are included in other income on our consolidated statements of operations, 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 $2.4 million, $1.1 million and $(0.7) million for the years
ended December 31, 2017, 2016 and 2015, 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 operations.
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. Depreciation expense was $110.7 million, $110.7 million and $107.2 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
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 and other well construction 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 as services are performed or rendered.
International service hours are billed per man hour, per day or similar basis.
•
• U.S. services are billed on,
i) Offshore - per day or similar basis.
ii) Land - per man hour or on a project basis.
• Blackhawk services are billed primarily on a per day basis for both domestic and international.
We design and manufacture a suite of highly technical equipment and products that we use in connection with
providing our services to our customers, including high-end, proprietary tubular handling or well construction
equipment. Substantially all equipment has a service element for personnel operating the equipment. We provide our
equipment either under direct agreements or with customers with agreements in place. Revenue from equipment
agreements is recognized as earned over the relevant period.
International equipment is billed on a per month or similar basis.
•
• U.S. equipment is billed on,
i) Offshore - per day or similar basis.
ii) Land - on completion of a job or project basis.
• Blackhawk services are billed on,
i) Offshore and Land - per day basis with some minimum days requirements.
ii) International - negotiated contracts but are primarily based on monthly rates.
69
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For customers contracted under direct service purchase orders and direct agreements, an accrual is recorded in
unbilled accounts receivable for revenue earned but not yet invoiced.
Tubular Sales and Blackhawk Product Revenue. Revenue on tubular and Blackhawk product 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.
Some of our tubular sales and well construction customers have requested that we store pipe, connectors and other
products 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 $4.7 million and $18.1 million was deferred at December 31, 2017 and 2016,
respectively.
Short term investments
Short term investments consist of commercial paper, classified as held-to-maturity and a fund that primarily invests
in short-term debt securities. These investments have original maturities of greater than three months but less than
twelve months. At December 31, 2017, the carrying amount of our short-term investments was $81.0 million.
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"), performance restricted stock units ("PRSUs"), 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. Stock-
based compensation expense is recognized on a straight-line basis over the vesting period and is included in general
and administrative expense in the consolidated statements of operations.
Our stock-based compensation currently consists of RSUs and PRSUs. 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. The grant date fair value and compensation expense of PRSU grants is estimated based on the
Company's closing stock price as of the day before the grant date using a Monte Carlo simulation.
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 were either
determined to be not applicable or are expected to have immaterial impact on our consolidated financial position, results
of operations or cash flows.
In May 2017, the FASB issued guidance to clarify and reduce both (i) diversity in practice and (ii) cost and
complexity when accounting for a change to the terms and conditions of a share-based payment award. The guidance
is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The
amendments in this guidance should be applied prospectively to an award modified on or after the adoption date. We
adopted the guidance on January 1, 2018 and the adoption did not have an impact on our consolidated financial
statements.
In January 2017, the FASB issued guidance that simplifies the accounting for goodwill impairment. The guidance
removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill
impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the
70
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. The new standard
is effective for public companies for their annual or any interim goodwill impairment tests for fiscal years beginning
after December 15, 2019. Early adoption is permitted for any impairment tests performed after January 1, 2017. The
Company has adopted the provisions of this new accounting guidance for the Company's annual goodwill impairment
analysis for the year ended December 31, 2017.
In January 2017, the FASB issued new accounting guidance for business combinations clarifying the definition of
a business. The objective of the guidance is to help companies and other organizations which have acquired or sold a
business to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
For public entities, the guidance is effective for annual periods beginning after December 15, 2017, including interim
periods within those periods. We adopted the guidance on January 1, 2018 and the adoption did not have an impact on
our consolidated financial statements.
In August 2016, the FASB issued new accounting guidance for classification of certain cash receipts and cash
payments in the statement of cash flows. The objective of the guidance is to reduce the existing diversity in practice
related to the presentation and classification of certain cash receipts and cash payments. The guidance addresses eight
specific cash flow issues including but not limited to, debt prepayment or extinguishment costs, contingent consideration
payments made after a business combination, proceeds from the settlement of insurance claims and proceeds from the
settlement of corporate-owned life insurance policies. For public entities, the guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years and is retrospective for all periods presented. We adopted the guidance on December 31, 2017 and the adoption
did not have an impact on our consolidated financial statements.
In June 2016, the FASB issued new accounting guidance for credit losses on financial instruments. The guidance
includes the replacement of the “incurred loss” approach for recognizing credit losses on financial assets, including
trade receivables, with a methodology that reflects expected credit losses, which considers historical and current
information as well as reasonable and supportable forecasts. For public entities, the guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal
years. Early application is permitted for all entities for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Management is evaluating the provisions of this new accounting guidance, including
which period to adopt, and has not determined what impact the adoption will have on our consolidated financial
statements.
In February 2016, the FASB issued accounting guidance for leases. The main objective of the accounting guidance
is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing arrangements. The main difference between previous
GAAP and the new guidance is the recognition of lease assets and lease liabilities by lessees for those leases classified
as operating leases. The new guidance requires lessees to recognize assets and liabilities arising from leases on the
balance sheet and further defines a lease as a contract that conveys the right to control the use of identified property,
plant, or equipment for a period of time in exchange for consideration. Control over the use of the identified asset means
that the customer has both (1) the right to obtain substantially all of the economic benefit from the use of the asset and
(2) the right to direct the use of the asset. The accounting guidance requires disclosures by lessees and lessors to meet
the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising
from leases. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. For public entities, the guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years; early application is permitted. We are currently evaluating the impact of this accounting standard update on our
consolidated financial statements and plan to adopt the new standard effective January 1, 2019.
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, 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. The standard creates a five step model that requires
71
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. The
standard allows for two transition methods: (a) a full retrospective adoption in which the standard is applied to all of
the periods presented, or (b) a modified retrospective adoption in which the standard is applied only to the most current
period presented in the financial statements, including additional disclosures of the standard’s application impact to
individual financial statement line items. In July 2015, the FASB deferred the effective date to December 15, 2017 for
annual periods, and interim reporting periods within those fiscal years, beginning after that date.
We will adopt the new standard effective January 1, 2018 utilizing the modified retrospective method. Based on
our ongoing analysis of the impacts of the new standard, we anticipate that recognition of revenue under the new revenue
standard is consistent with the previous revenue standard, except for revenues from certain product sales with bill-and-
hold arrangements in our Tubular Sales segment. Because of the change in accounting guidance related to bill-and-
hold arrangements, we expect to recognize an immaterial increase to the opening balance of retained earnings as of
January 1, 2018.
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.
We recorded a noncontrolling interest on our consolidated balance sheet with respect to the remaining economic
interest in FICV held by Mosing Holdings. Net income (loss) attributable to noncontrolling interest on the statements
of operations represented the portion of earnings or losses attributable to the economic interest in FICV held by Mosing
Holdings. The allocable domestic income (loss) from FICV to FINV is subject to U.S. taxation. Effective with the
August 2016 conversion of all of Mosing Holdings' Series A preferred stock (see Note 12 – Preferred Stock), Mosing
Holdings transferred all its interest in FICV to us and the noncontrolling interest was eliminated. As a result, the amount
included in net income (loss) attributable to noncontrolling interest for the year ended December 31, 2016 is through
August 26, 2016.
A reconciliation of net income (loss) attributable to noncontrolling interest is detailed as follows (in thousands):
Net income (loss)
Add: Net loss after Mosing Holdings contributed interest to FINV (1)
Add: Provision (benefit) for U.S. income taxes of FINV (2)
Less: (Income) loss of FINV (3)
Net income (loss) subject to noncontrolling interest
Noncontrolling interest percentage (4)
Net income (loss) attributable to noncontrolling interest
Year Ended December 31,
2016
$ (156,079)
84,541
(10,414)
23
(81,929)
25.2%
(20,741)
$
$
2015
106,110
—
6,585
(6,824)
105,871
25.4%
$
27,000
(1) Represents net loss after August 26, 2016 when Mosing Holdings transferred its interest to FINV.
(2) Represents income tax expense (benefit) 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 as of August 26, 2016.
(3) Represents results of operations for entities outside of FICV as of August 26, 2016.
(4) Represents the economic interest in FICV held by Mosing Holdings before the preferred stock conversion on
August 26, 2016. This percentage changed as additional shares of FINV common stock were issued. Effective
August 26, 2016, Mosing Holdings delivered its economic interest in FICV to us.
72
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3—Acquisition and Divestitures
Blackhawk Acquisition
On November 1, 2016, we completed a transaction to acquire all outstanding shares in Blackhawk, the ultimate
parent company of Blackhawk Specialty Tools LLC, pursuant to the terms of a definitive merger agreement ("Merger
Agreement") dated October 6, 2016. Blackhawk is a leading provider of well construction and well intervention services
and products. In conjunction with the acquisition, FI Tools Holdings, LLC, our newly formed subsidiary, merged with
and into Blackhawk with Blackhawk, surviving the Merger as our wholly-owned subsidiary. The merger consideration
was comprised of a combination of $150.4 million of cash on hand and 12.8 million shares of our common stock
("Common Stock"), on a cash-free, debt-free basis, for total consideration of $294.6 million (based on our closing share
price on October 31, 2016 of $11.25 and including working capital adjustments).
Accordingly, the results of Blackhawk's operations from November 1, 2016 are included in our consolidated
financial statements. For the year ended December 31, 2016, Blackhawk contributed revenue of $10.0 million and
operating losses of $7.4 million.
In accordance with accounting guidance for business combinations, the unaudited pro forma financial information
presented below assumes the acquisition was completed January 1, 2015, the first day of the fiscal year 2015. This
unaudited pro forma financial information does not necessarily represent what would have occurred if the transaction
had taken place on the date presented and should not be taken as representative of our future consolidated results of
operations. The unaudited pro forma financial information includes adjustments for amortization expense for identified
intangible assets and depreciation expense based on the fair value and estimated lives of acquired property, plant and
equipment. In addition, acquisition related costs are excluded from the unaudited pro forma financial information.
The following table shows our unaudited financial information for the years ended December 31, 2016 and 2015,
respectively (in thousands, except per share amounts):
Revenue
Net income (loss) applicable to common shares
Income (loss) per common share:
Basic
Diluted
Pro Forma (Unaudited)
Year Ended December 31,
2016
2015
544,798
$
(161,527) $
1,109,559
68,215
(0.86) $
(0.86) $
0.41
0.42
$
$
$
$
The Blackhawk acquisition was accounted for as a business combination. As described in Note 10 - Fair Value
Measurements, the purchase price was allocated to the fair value of assets acquired and liabilities assumed based on a
discounted cash flow model and goodwill was recognized for the excess consideration transferred over the fair value
of the net assets.
73
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the preliminary and final purchase price allocations of the fair values of the assets
acquired and liabilities assumed as part of the Blackhawk acquisition as of November 1, 2016 as determined in
accordance with business combination accounting guidance (in thousands):
Preliminary
purchase
price
allocation
Measurement
period
adjustments
Final
purchase
price
allocation
Current assets, excluding cash
Property, plant and equipment
Other long-term assets
Intangible assets
Assets acquired
Current liabilities assumed
Other long-term liabilities
Liabilities assumed
Fair value of net assets acquired
Total consideration transferred
Goodwill
$
23,626
$
— $
45,091
3,139
41,972
$
113,828
$
11,132
542
55
—
153
208
185
—
23,626
45,146
3,139
42,125
$
114,036
11,317
542
$
11,674
$
185
$
11,859
102,154
294,563
$
192,409
$
23
—
(23) $
102,177
294,563
192,386
The amount allocated to intangible assets was attributed to the following categories (in thousands):
Intellectual property
Customer relationships
Trade name
December 31, 2016
Estimated Useful
Lives in Years
$
$
9,741
24,024
8,207
41,972
1-10
5
3
These intangible assets are amortized on a straight-line basis, which is presented in depreciation and amortization
in our consolidated statements of operations.
The intention of this transaction was to augment our tubular services business by providing us the opportunity to
diversify our offerings and emerge as a leader in a new business line and a significantly larger addressable market. In
addition to what we believe is a line of well-regarded, market leading, technically differentiated specialty cementation
tools, Blackhawk also provides well intervention products through its line of brute packers and related products, and
is continuing its development of products for onshore and offshore applications. In conjunction with the merger, we
created a fourth segment, Blackhawk, and recorded goodwill of $192.4 million in that segment.
Divestitures
In March 2017, we sold a fully depreciated aircraft for a total sales price of $1.3 million and recorded a gain on
sale of $1.3 million.
In August 2017, we sold an additional aircraft for a net sales price of $4.9 million and recorded an immaterial loss.
In September 2017, we sold a building in the Middle East for a net sales price of $2.7 million and recorded a gain
on sale of $0.6 million.
74
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2017, we sold a building in Canada for a total sales price of $2.4 million and recorded a gain on sale
of $0.3 million. We also sold our third and last aircraft for a total sales price of $0.7 million to a related party and
recorded a gain on sale of $0.7 million. See Note 13 - Related Party Transactions for additional information.
Note 4—Accounts Receivable, net
Accounts receivable at December 31, 2017 and 2016 were as follows (in thousands):
Trade accounts receivable, net of allowance of $4,777 and $14,337, respectively
Unbilled receivables
Taxes receivable
Affiliated (1)
Other receivables
Total accounts receivable, net
December 31,
2017
2016
83,482
25,670
11,305
716
6,037
127,210
$
$
89,096
30,882
42,870
717
3,852
167,417
$
$
(1) Amounts represent expenditures on behalf of non-consolidated affiliates and receivables for aircraft charter income.
Note 5—Inventories, net
Inventories at December 31, 2017 and 2016 were as follows (in thousands):
Pipe and connectors, net of allowance of $20,064 and $2,108, respectively
Finished goods, net of allowance of $1,520 and $2,518, respectively
Work in progress
Raw materials, components and supplies
Total inventories, net
December 31,
2017
2016
$
$
33,620
14,541
9,206
19,053
76,420
$
$
102,360
14,257
7,099
15,363
139,079
Inventories are required to be stated at the lower of cost or net realizable value. During 2017, we recorded charges
of $51.2 million to the financial statement line item severance and other charges related to a net realizable value
adjustment, which impacted our Tubular Sales segment. The factors that led to these charges included new technology
(external and internal), oil and gas prices below levels necessary for our customers to sanction a significant amount of
new offshore projects in the near-term and a change in customers' preferences for newer technologies which significantly
impacted the net realizable value of our connectors inventory during 2017. Please see Note 19 - Severance and other
charges for further discussion.
75
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6—Property, Plant and Equipment
The following is a summary of property, plant and equipment at December 31, 2017 and 2016 (in thousands):
Estimated Useful
Lives in Years
2017
2016
December 31,
Land
Land improvements (1)
Buildings and improvements (1)
Rental machinery and equipment
Machinery and equipment - other
Furniture, fixtures and computers
Automobiles and other vehicles
Aircraft
Leasehold improvements (1)
Construction in progress - machinery and equipment and
buildings (1)
Less: Accumulated depreciation
Total property, plant and equipment, net
—
8-15
$
39
7
7
5
5
7
7-15, or lease term
if shorter
—
$
15,314
14,594
119,380
898,146
55,049
27,259
29,971
—
15,730
9,379
73,211
933,667
60,182
19,073
36,796
16,267
10,030
8,027
61,836
1,231,579
(761,933)
469,646
$
120,937
1,293,269
(726,245)
567,024
$
(1) See Note 13 - Related Party Transactions for additional information.
During the third quarter of 2017, we committed to sell certain buildings in the Middle East region and determined
those assets met the criteria to be classified as held for sale in our consolidated balance sheet. As a result, we reclassified
the buildings, with a net book value of $4.1 million, from property, plant and equipment to assets held for sale and
recognized a $0.3 million loss.
No impairments were recognized during the years ended December 31, 2017, 2016 or 2015.
The following table presents the depreciation and amortization associated with each line for the periods ended
December 31, 2017, 2016 and 2015 (in thousands):
Cost of revenues
Services
Products
General and administrative expenses
Total
December 31,
2017
2016
2015
$
102,212
$
101,260
$
95,825
4,971
14,919
4,254
8,701
4,233
8,904
$
122,102
$
114,215
$
108,962
76
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7—Other Assets
Other assets at December 31, 2017 and 2016 consisted of the following (in thousands):
Cash surrender value of life insurance policies (1)
Deposits
Other
Total other assets
(1) See Note 10 – Fair Value Measurements.
Note 8—Accrued and Other Current Liabilities
December 31,
2017
2016
$
$
30,351
2,564
2,378
35,293
$
$
36,269
2,343
6,921
45,533
Accrued and other current liabilities at December 31, 2017 and 2016 consisted of the following (in thousands):
Accrued compensation
Accrued property and other taxes
Accrued severance and other charges
Income taxes
Accrued purchase orders and other
Total accrued and other current liabilities
Note 9—Debt
Credit Facility
December 31,
2017
2016
$
$
25,510
16,908
1,444
8,091
23,020
74,973
$
$
10,854
19,740
6,150
6,857
21,349
64,950
We have a $100.0 million revolving credit facility with certain financial institutions, including up to $20.0 million
in 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 Facility, we have the ability to increase the commitments to $150.0 million. At
December 31, 2017 and 2016, we had no outstanding indebtedness under the Credit Facility. In addition, we had $2.8
million and $3.7 million in letters of credit outstanding as of December 31, 2017 and 2016, respectively. Our borrowing
capacity is equal to 2.5x our Adjusted EBITDA less letters of credit outstanding under the Credit Facility. Our borrowing
capacity under the Credit Facility could be reduced or eliminated depending on our future Adjusted EBITDA.
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 (i) the prime rate as published
in the Wall Street Journal, (ii) the Federal Funds Effective Rate plus 0.50% or (iii) 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
77
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2.5 to 1.0; and (ii) a ratio of EBITDA to interest expense of not less than 3.0 to 1.0.
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.
On April 28, 2017, the Company obtained a limited waiver under its Revolving Credit Agreement, dated August
14, 2013, by and among FICV (as borrower), Amegy Bank National Association (as administrative agent), Capital One,
National Association (as syndication agent) and the other lenders party thereto (the "Credit Agreement"), of its leverage
ratio and interest coverage ratio for the fiscal quarters ending March 31, 2017 and June 30, 2017 (the “Waiver”) in
order to not be in default for the first quarter of 2017. The Company agreed to comply with the following conditions
during the period from the effective date of the Waiver until the delivery of its compliance certificate with respect to
the fiscal quarter ending September 30, 2017: (i) maintain no less than $250.0 million in liquidity; (ii) abide by certain
restrictions regarding the issuance of senior unsecured debt; and (iii) pay interest and commitment fees based on the
highest “Applicable Margin” (as defined in the Credit Agreement) level. In connection with the Waiver, the Company
paid a waiver fee to each lender that executed the Waiver equal to five basis points of the respective lender’s commitment
under the Credit Agreement. As of December 31, 2017, we were in compliance with all financial covenants under the
Credit Facility.
Citibank Credit Facility
In 2016, we entered into a three-year credit facility with Citibank N.A., UAE Branch in the amount of $6.0 million
for issuance of standby letters of credit and guarantees. The credit facility also allows for open ended guarantees.
Outstanding amounts under the credit facility bear interest of 1.25% per annum for amounts outstanding up to one year.
Amounts outstanding more than one year bear interest at 1.5% per annum. As of December 31, 2017 and 2016, we had
$2.6 million and $2.2 million in letters of credit outstanding.
Insurance Notes Payable
In 2017, we entered into three notes to finance our annual insurance premiums totaling $5.1 million. The notes
bear interest at an annual rate of 2.3% with a final maturity date in October 2018. At December 31, 2017, the total
outstanding balance was $4.7 million.
Note 10—Fair Value Measurements
We follow fair value measurement authoritative accounting guidance for measuring fair values of assets and
liabilities in financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. 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.
78
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• 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.
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,
2017 and 2016 were as follows (in thousands):
Quoted Prices
in Active
Markets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
December 31, 2017
Assets:
Investments:
Cash surrender value of life insurance
policies - deferred compensation plan
Marketable securities - other
$
Liabilities:
Derivative financial instruments
Deferred compensation plan
— $
113
$
30,351
—
—
—
487
26,797
— $
—
—
—
30,351
113
487
26,797
$
— $
146
$
— $
146
December 31, 2016
Assets:
Derivative financial instruments
Investments:
Cash surrender value of life insurance
policies - deferred compensation plan
Marketable securities - other
Liabilities:
Deferred compensation plan
—
30,307
—
3,692
36,269
—
—
—
—
36,269
3,692
30,307
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. At
December 31, 2017 and 2016, derivative financial instruments are included in the financial statement line items accrued
and other current liabilities and accounts receivable, net, respectively, in our consolidated balance sheets.
Our investments associated with our deferred compensation plan consist primarily of the cash surrender value of
life insurance policies and is included in other assets on the consolidated balance sheets. The liability associated with
our deferred compensation plan is included in other liabilities on the consolidated balance sheets. Our investments
change as a result of contributions, payments, and fluctuations in the market. 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. We also have marketable securities in publicly traded equity securities
79
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as an indirect result of strategic investments. They are reported at fair value based on the price of the stock and are
included in other assets on the consolidated balance sheets.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements
including business combinations as well as impairment related to goodwill and other long-lived assets. For business
combinations (see Note 3 - Acquisition and Divestitures), 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 perform our goodwill impairment assessment for each reporting unit by comparing the estimated fair value
of each reporting unit to the reporting unit’s carrying value, including goodwill. We estimate the fair value for each
reporting unit using a discounted cash flow analysis based on management’s short-term and long-term forecast of
operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth
rates, expected profitability margins, forecasted capital expenditures and the timing of expected future cash flows
based on market conditions. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of
the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair
value, an impairment loss is measured and recorded.
When conducting an impairment test on long-lived assets, other than goodwill, we first compare estimated future
undiscounted cash flows associated with the asset to the asset’s carrying amount. If the undiscounted cash flows are
less than the asset’s carrying amount, we then determine the asset's fair value by using a discounted cash flow analysis.
These analyses are based on estimates such as management’s short-term and long-term forecast of operating
performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life
and service potential of the asset, and a discount rate based on our weighted average cost of capital.
The impairment assessments discussed above incorporate inherent uncertainties, including projected commodity
pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile
economic environments and could result in impairment charges in future periods if actual results materially differ from
the estimated assumptions utilized in our forecasts. If crude oil prices decline significantly and remain at low levels
for a sustained period of time, we could be required to record an impairment of the carrying value of our long-lived
assets in the future which could have a material adverse impact on our operating results. Given the unobservable nature
of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.
Other Fair Value Considerations
The carrying values on our consolidated balance sheet of our cash and cash equivalents, short-term investments,
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 11— Derivatives
We enter 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 operations.
80
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2017 and 2016, we had the following foreign currency derivative contracts outstanding in
U.S. dollars (in thousands):
Derivative Contracts
Canadian dollar
Euro
Norwegian krone
Pound sterling
Derivative Contracts
Canadian dollar
Euro
Euro
Norwegian krone
Pound sterling
Notional
Amount
Notional
Amount
$
$
December 31, 2017
Contractual
Settlement
Exchange Rate
1.2850
1.1836
8.3704
1.3419
Date
3/15/2018
3/15/2018
3/15/2018
3/15/2018
December 31, 2016
Contractual
Settlement
Exchange Rate
1.3179
1.0563
1.0659
8.5101
1.2607
Date
3/14/2017
3/14/2017
1/13/2017
3/14/2017
3/14/2017
6,226
5,326
6,212
6,039
4,553
4,753
2,558
3,643
3,908
The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated
balance sheets as of December 31, 2017 and 2016 (in thousands):
Derivatives not designated as
Hedging Instruments
Consolidated Balance Sheet
Location
December 31,
2017
December 31,
2016
Foreign currency contracts
Foreign currency contracts
Accounts receivable, net
$
Accrued and other current liabilities
— $
(487)
146
—
The following table summarize the location and amounts of the unrealized and realized gains and losses on derivative
contracts in the consolidated statements of operations as of December 31, 2017, 2016 and 2015 (in thousands):
Derivatives not designated
as Hedging Instruments
Unrealized gain (loss) on
foreign currency contracts
Realized loss on foreign
currency contracts
Total net gain (loss) on
foreign currency contracts
Location of gain (loss)
recognized in income on
derivative contracts
Other income, net
Other income, net
December 31,
2017
December 31,
2016
December 31,
2015
$
$
(634) $
(64) $
(1,699)
(296)
(2,333) $
(360) $
210
—
210
Our derivative transactions are governed through International Swaps and Derivatives Association 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.
81
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the gross and net fair values of our derivatives as of December 31, 2017 and 2016
(in thousands):
Derivative Asset Positions
Derivative Liability Positions
December 31,
December 31,
2017
2016
2017
2016
$
$
— $
—
— $
181
(35)
146
$
$
(487) $
—
(487) $
(35)
35
—
Gross position - asset / (liability)
Netting adjustment
Net position - asset / (liability)
Note 12—Preferred Stock
On August 19, 2016, we received notice from Mosing Holdings that it was exercising its right to exchange, for
52,976,000 common shares, each of the following securities: (i) 52,976,000 shares of Preferred Stock and (ii) 52,976,000
units in FICV. On August 26, 2016, we issued 52,976,000 common shares to Mosing Holdings. Each share of Preferred
Stock had a liquidation preference equal to its par value of €0.01 per share and was entitled to an annual dividend equal
to 0.25% of its par value. Additionally, each share of Preferred Stock entitled its holder to one vote. Preferred stockholders
voted with the common stockholders as a single class on all matters presented to FINV's shareholders for their vote.
Upon conversion of the Preferred Stock, we had no issued or outstanding convertible preferred shares and the
number of common shares of authorized capital was increased by 52,976,000 shares, equal to the number of convertible
preferred shares that were converted into common shares. Additionally, upon the exchange of the convertible preferred
stock, Mosing Holdings was entitled to receive an amount in cash equal to the nominal value of each convertible
preferred share plus any accrued but unpaid dividends with respect to such stock. The cash payment of $0.6 million
was paid on September 23, 2016. In conjunction with the conversion, Mosing Holdings delivered its interest in FICV
to us and no longer owns any interest in FICV. As a result of the transaction, we have also reallocated the accumulated
other comprehensive loss attributable to the noncontrolling interest.
Note 13—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 facilities from these affiliated companies. The majority of these lease obligations
expire in 2018 and, at our discretion, may be extended for an additional 36 months subject to agreement on pricing of
the extension. These leases may be extended or allowed to expire by us depending on operational needs, market prices
and the ability for us to negotiate and secure, at our discretion, alternative leases or replacement locations. Rent expense
associated with our related party leases was $6.9 million, $8.0 million and $7.6 million for the years ended December 31,
2017, 2016 and 2015, respectively.
In certain cases, we have made improvements to properties subject to related party leases referenced above,
including the construction of buildings. As of December 31, 2017, the net book value associated with buildings we
constructed on properties subject to related party leases was $59.6 million. We are depreciating the costs associated
with these buildings over their estimated remaining useful lives of approximately 38 years, which exceeds the remaining
lease terms that primarily expire in 2018. Upon expiration of the leases, leasehold improvements could be construed
as becoming the property of the related party lessors. As of December 31, 2017, the net book value associated with
other leasehold and land improvements we constructed on properties subject to related party leases was $17.8 million,
a portion of which is in construction in progress. We are depreciating the costs associated with these leasehold and land
improvements over their estimated remaining lives of approximately 12 years, which exceeds the remaining lease terms
that primarily expire in 2018. It is our intent to extend, renew, or replace the related party property leases such that we
have unrestricted use of the buildings and improvements throughout their estimated useful lives. Extension, renewal
or replacement of the related party property leases is dependent on negotiations with related parties, the failure of which
could result in material disputes with the related parties. In the event we do not extend, renew, or replace these related
82
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
party property leases, we will revise the remaining estimated useful lives of the buildings and other improvements
accordingly.
We were a party to certain agreements relating to the rental of aircraft to Western Airways ("WA"), an entity owned
by the Mosing family. The WA agreements reflected both dry lease and wet lease rental, whereby we were charged a
flat monthly fee primarily for crew, hangar, maintenance and administration costs in addition to other variable costs
for fuel and maintenance. We also earned charter income from third party usage through a revenue sharing agreement.
We recorded net charter expense of $1.1 million, $1.3 million and $2.0 million for the years ended December 31, 2017,
2016 and 2015, respectively. In August 2017, we paid WA a $0.2 million commission for brokering the sale of a plane.
In December 2017, we sold a plane to Mosing Aviation, LLC, an entity owned by the Mosing family, for $0.7 million.
The rental agreements were terminated with WA effective December 29, 2017 upon the sale of our last aircraft.
Tax Receivable Agreement
Mosing Holdings and its permitted transferees converted all of their Preferred Stock into shares of our common
stock on a one-for-one basis on August 26, 2016, subject to customary conversion rate adjustments for stock splits,
stock dividends and reclassifications and other similar transactions, by delivery of an equivalent portion of their interests
in FICV to us (the “Conversion”). FICV made an election under Section 754 of the Internal Revenue Code. Pursuant
to the Section 754 election, the Conversion resulted in an adjustment to the tax basis of the tangible and intangible
assets of FICV with respect to the portion of FICV now held by FINV. These adjustments are allocated to FINV. The
adjustments to the tax basis of the tangible and intangible assets of FICV described above would not have been available
absent this Conversion. The basis adjustments may 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 TRA that we entered into with FICV and Mosing Holdings in connection with our initial public offering
("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 Conversion 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 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. The payments under the TRA will not be conditioned upon a holder of
rights under the TRA having a continued ownership interest in either FICV or FINV. We will retain the remaining 15%
of cash savings, if any.
The estimation of the liability under the TRA is by its nature imprecise and subject to significant assumptions
regarding the amount and timing of future taxable income. As of December 31, 2016, our estimated TRA liability
was $124.6 million, which was included in other non-current liabilities on our consolidated balance sheet. As of
December 31, 2017, FINV has a cumulative loss over the prior 36 month period. Based on this history of losses, as
well as uncertainty regarding the timing and amount of future taxable income, we are no longer able to conclude that
there will be future cash savings that will lead to additional payouts under the TRA beyond the estimated $2.1 million
as of December 31, 2017. Additional TRA liability may be recognized in the future based on changes in expectations
regarding the timing and likelihood of future cash savings.
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 FINV elects to exercise its sole right to
terminate the TRA early. If FINV elects to terminate the TRA early, which it may do so in its sole discretion, 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 Mosing Holdings or its transferees
own on the termination date are deemed to be exchanged on the termination date). Any early termination payment may
be made significantly in advance of the actual realization, if any, of such future benefits. In addition, payments due
under the TRA will be similarly accelerated following certain mergers or other changes of control. In these situations,
83
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017, the estimated termination payment would
be approximately $60.7 million (calculated using a discount rate of 5.58%). 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 or 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 14—Income (Loss) Per Common Share
Basic income (loss) per common share is determined by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Diluted income (loss) per share is determined by dividing income
(loss) 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. Through August 26, 2016, the date of the conversion of all of Mosing
Holdings' Preferred Stock and Mosing Holdings' transfer of interest in FICV to us, the diluted income (loss) per share
calculation assumed the conversion of 100% of our outstanding Preferred Stock on an as if converted basis. Accordingly,
the numerator was also adjusted to include the earnings allocated to the noncontrolling interest after taking into account
the tax effect of such exchange.
84
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the basic and diluted income (loss) per share calculations (in thousands, except
per share amounts):
Year Ended December 31,
2016
2015
2017
Numerator - Basic
Net income (loss)
Less: Net (income) loss attributable to noncontrolling interest
Less: Preferred stock dividends
Net income (loss) available to common shareholders
Numerator - Diluted
Net income (loss) attributable to common shareholders
Add: Net income attributable to noncontrolling interest (1), (2)
Add: Preferred stock dividends (2)
Dilutive net income (loss) available to common shareholders
$
(159,457) $
—
—
(156,079) $
20,741
(1)
$
$
(159,457) $
(135,339) $
(159,457) $
(135,339) $
—
—
—
—
$
(159,457) $
(135,339) $
Denominator
Basic weighted average common shares
Exchange of noncontrolling interest for common stock (Note 12) (2)
Restricted stock units (2)
Stock to be issued pursuant to ESPP (2)
Diluted weighted average common shares
222,940
176,584
—
—
—
—
—
222,940
—
176,584
106,110
(27,000)
(2)
79,108
79,108
24,784
2
103,894
154,662
52,976
1,512
2
209,152
Income (loss) per common share:
Basic
Diluted
(1) Adjusted for the additional tax expense upon the assumed conversion of
the Preferred Stock
(2) Approximate number of shares of potentially convertible preferred stock
to common stock up until the time of conversion on August 26, 2016,
unvested restricted stock units and stock to be issued pursuant to the
ESPP have been excluded from the computation of diluted income (loss)
per share as the effect would be anti-dilutive when the results from
operations are at a net loss.
Note 15—Stock-Based Compensation
2013 Long-Term Incentive Plan
$
$
$
(0.72) $
(0.72) $
(0.77) $
(0.77) $
0.51
0.50
— $
— $
2,216
648
35,556
—
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, 2017,
14,015,471 shares remained available for issuance.
85
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 one to three years. Our treasury stock consists of shares that
were withheld from employees to settle personal tax obligations that arose as a result of restricted stock units that
vested. 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, 2017, 2016 and 2015 was $12.1 million, $11.6 million and $14.6 million,
respectively. Compensation expense is recognized ratably over the vesting period. Forfeitures are recorded as they
occur.
Stock-based compensation expense relating to RSUs included in general and administrative expenses on the
consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 was $12.8 million, $15.6
million and $26.1 million, respectively. The total fair value of RSUs vested during the years ended December 31, 2017,
2016 and 2015 was $9.9 million, $22.6 million and $17.4 million, respectively. Unamortized stock compensation
expense as of December 31, 2017 relating to RSUs totaled approximately $9.5 million, which will be expensed over
a weighted average period of 1.75 years.
Non-vested RSUs outstanding as of December 31, 2017 and the changes during the year were as follows:
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Performance Restricted Stock Units
Number of
Shares
Weighted Average
Grant Date
Fair Value
1,633,478
1,368,999
(995,845)
(141,332)
1,865,300
$
$
14.40
8.83
14.66
9.46
10.55
The purpose of the PRSUs is to closely align the incentive compensation of the executive leadership team for the
duration of the three-year performance cycle with returns to FINV's shareholders and thereby further motivate the
executive leadership team to create sustained value to FINV shareholders. The design of the PRSU grants effectuates
this purpose by placing a material amount of incentive compensation for each executive at risk by offering an
extraordinary reward for the attainment of extraordinary results. Design features of the PRSU grant that in furtherance
of this purpose include the following: (1) The vesting of the PRSUs is based on total shareholder return ("TSR") based
on a comparison to the returns of a peer group. (2) TSR is computed over the entire three-year Performance Period
(using a 30-day averaging period for the first 30 calendar days and the last 30 calendar days of the Performance Period
to mitigate the effect of stock price volatility). The TSR calculation will assume reinvestment of dividends. (3) The
ultimate number of shares to be issued pursuant to the PRSU awards will vary in proportion to the actual TSR achieved
as a percentile compared to the peer group during the Performance Period as follows: (i) no shares will be issued if the
Company's performance falls below the 25th percentile; (ii) 50% of the Target Level if the Company achieves a rank
in the 25th percentile (the threshold level); (iii) 100% of the Target Level if the Company achieves a rank in the 50th
percentile (the target level); and (iv) 150% of the Target Level if the Company achieves a rank in the 75th percentile
and above (the maximum level). (4) Unless there is a qualifying termination as defined in the PRSU award agreement,
the PRSU's of an executive will be forfeited upon an executive's termination of employment during the Performance
Period.
86
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Though the value of the PRSU grant may change for each participant, the compensation expense recorded by the
Company is determined on the date of grant. Expected volatility is based on historical equity volatility of our stock
based on 50% of historical and 50% of implied volatility weighting commensurate with the expected term of the PRSU.
The expected volatility considers factors such as the historical volatility of our share price and our peer group companies,
implied volatility of our share price, length of time our shares have been publicly traded, and split- and dividend-
adjusted closing stock prices. We assumed no forfeiture rate for the PRSUs.
In 2017, we granted PRSUs with a fair value of $2.6 million or 293,083 units ("Target Level"). The performance
period for these grants is a three-year period from either January 1, 2017 to December 31, 2019 or September 27, 2017
to September 26, 2020 ("Performance Period").
The weighted average assumptions for the PRSUs granted in 2017 are as follows:
Expected term (in years)
Expected volatility
Risk-free interest rate
Correlation range
2017
2.92
42.1%
1.51%
26.8% to 76.0%
In 2016, we granted PRSUs with a fair value of $2.8 million or 199,168 units ("Target Level"). The performance
period for these grants is a three-year period from January 1, 2016 to December 31, 2018 ("Performance Period").
The weighted average assumptions for the PRSUs granted in 2016 are as follows:
Expected term (in years)
Expected volatility
Risk-free interest rate
Correlation range
2016
2.86
42.7%
0.88%
24.4% to 71.0%
In the event of death, the restrictions related to forfeiture as defined in the performance awards agreement will
lapse with respect to 100% of the PRSUs at the target level effective on the date of such death. In the event of involuntary
termination except for cause, the Company will enter into a special vesting agreement with the executive under which
the restrictions for forfeiture will not lapse upon such termination. In the event of a termination for any other reason
prior to the end of the Performance Period, all PRSUs will be forfeited.
Stock-based compensation expense related to PRSUs included in general and administrative expenses on the
consolidated statements of operations for the years ended December 31, 2017 and 2016 was $0.6 million and $0.8
million, respectively. We had no stock-based compensation expense related to PRSUs for the year ended December
31, 2015. The total fair value of PRSUs vested during the year ended December 31, 2017 was $0.2 million. Unamortized
stock compensation expense as of December 31, 2017 relating to PRSUs totaled approximately $2.2 million, which
will be expensed over a weighted average period of 2.29 years.
87
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-vested PRSUs outstanding as of December 31, 2017 and the changes during the year were as follows:
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Employee Stock Purchase Plan
Number of
Shares
Weighted Average
Grant Date
Fair Value
199,168
293,083
(26,126)
(81,880)
384,245
$
$
14.21
8.74
6.99
9.60
9.01
Under the Frank's International N.V. 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 3.0 million shares of our common
stock for issuance under the ESPP, of which 2.7 million shares were available for issuance as of December 31, 2017.
Shares issued to our employees under the ESPP totaled 155,673 in 2017 and 75,974 shares in 2016. For the years ended
December 31, 2017, 2016 and 2015, we recognized $0.4 million, $0.3 million and $0.2 million of compensation expense
related to stock purchased under the ESPP, respectively.
In January 2017, we issued 50,141 shares of our common stock to our employees under this plan to satisfy the
employee purchase period from July 1, 2016 to December 31, 2016, which increased our common stock outstanding.
In July 2017, we issued 105,532 shares out of treasury stock to our employees under this plan to satisfy the employee
purchase period from January 1, 2017 to June 30, 2017.
Note 16—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 are required to complete one month of service before
becoming eligible to participate in the Plan. Under the terms of the Plan, we match 100% of the first 3% of eligible
compensation an employee contributes to the Plan up to the annual allowable IRS limit. Additionally, the Company
provides a 50% match on any employee contributions between 4% to 6% of eligible compensation. Our matching
contributions to the Plan totaled $3.7 million, $3.8 million and $3.4 million for the years ended December 31, 2017,
2016 and 2015, respectively.
Executive Deferred Compensation Plan. In December 2004, we and certain affiliates adopted the Frank’s Executive
Deferred Compensation Plan (the “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 7 - Other Assets).
We recorded compensation expense related to the vesting of the Company’s contribution of $1.7 million and $1.9
million for the years ended December 31, 2016 and 2015, respectively. No compensation expense related to the vesting
88
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Company's contribution was recorded for the year ended December 31, 2017. The total liability recorded at
December 31, 2017 and 2016, related to the EDC Plan was $26.8 million and $31.1 million, respectively, and was
included in other noncurrent liabilities on the consolidated balance sheets.
Note 17—Income Taxes
Income (loss) before income tax expense (benefit) was comprised of the following for the periods indicated (in
thousands):
United States
Foreign
Income (loss) before income tax expense (benefit)
Year Ended December 31,
2017
2016
2015
$
$
(167,908) $
81,369
(86,539) $
(128,396) $
(53,326)
(181,722) $
30,795
112,634
143,429
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 (benefit) 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 (benefit)
Year Ended December 31,
2017
2016
2015
$
$
— $
(15)
10,516
10,501
(13,389) $
379
14,903
1,893
56,621
2,420
3,376
62,417
72,918
$
(25,838)
(1,512)
(186)
(27,536)
(25,643) $
3,141
(1,424)
30,734
32,451
8,138
(3,042)
(228)
4,868
37,319
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. Among the significant changes
made by the Act was the reduction of the U.S. federal income tax rate from 35% to 21% as well as the imposition of a
one-time repatriation tax on deemed repatriated earnings of certain foreign subsidiaries. US GAAP requires that the
impact of the Tax Act be recognized in the period in which the law was enacted. Because of the change in tax rate, the
Company recorded a $23.8 million reduction in the value of its deferred tax assets and liabilities. The reduction in value
was fully offset by a corresponding change in valuation allowance. The net effect on total tax expense was zero. Due
to its legal structure, the Company does not expect to incur any material liability with respect to the repatriation tax.
These provisional amounts are the Company’s best estimates based on its current interpretation of the Tax Act and may
change as the Company receives additional clarification of the Tax Act and/or guidance on its implementation as part
of its 2017 income tax compliance process.
89
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2017
2016
2015
$
$
5,469
3,243
1,633
1,348
1,388
812
13,893
$
$
1,159
3,687
1,880
5,132
1,364
1,495
14,717
$
$
6,077
8,413
5,474
3,317
1,454
5,771
30,506
A reconciliation of the differences between the income tax provision computed at the 35% U.S. statutory rate in
effect at December 31, 2017 and the reported provision for income taxes for the periods indicated is as follows (in
thousands):
Income tax expense (benefit) at statutory rate
Branch profits tax
State taxes, net of federal benefit
Restricted stock units tax shortfall
Taxes on foreign earnings at less than the U.S. statutory rate
Effect of tax rate change
Tax effect of TRA derecognition
Establishment of valuation allowances
Return-to-provision adjustments
Noncontrolling interest
Other
Total income tax expense (benefit)
Year Ended December 31,
2017
2016
2015
$
$
(30,289) $
(4,871)
2,405
1,651
(22,464)
23,843
46,874
51,911
3,551
—
307
72,918
$
(63,603) $
(3,805)
(674)
2,758
30,737
—
—
2,644
(1,130)
7,367
63
(25,643) $
50,200
4,654
(2,758)
1,152
(15,367)
—
—
2,798
(854)
(2,991)
485
37,319
A reconciliation using the Netherlands statutory rate was not provided as there are no significant operations in the
Netherlands.
90
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 and are measured using the tax rates and laws
expected to be in effect when the differences are projected to reverse. A valuation allowance is recorded when it is not
more likely than not that some or all 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
Foreign net operating loss
U.S. net operating loss
Research and development credit
TRA
Intangibles
Inventory
Investment in partnership
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Investment in partnership
Property and equipment
Goodwill
Other
Total deferred liabilities
$
December 31,
2017
2016
$
13,023
52,289
297
566
5,935
1,488
20,248
419
(60,524)
33,741
(23,594)
(4,293)
(5,854)
(229)
(33,970)
5,442
42,578
297
49,775
6,939
1,161
16,713
1,240
(5,442)
118,703
(45,022)
(7,898)
(7,147)
(278)
(60,345)
Net deferred tax assets (liabilities)
$
(229) $
58,358
The valuation allowance increased from $5.4 million to $60.5 million during 2017 as a result of accumulated tax
losses in both the U.S. and various foreign tax jurisdictions. We evaluated all available evidence and determined that
it is more likely than not that these losses will not be realized.
It is our intention that all cash and earnings of our subsidiaries as of December 31, 2017 are permanently reinvested
and will be used to meet operating cash flow needs. Existing plans do not demonstrate a need to repatriate foreign cash
to fund parent company activity, however, should we determine that parent company funding is required, we estimate
that any such cash needs may be met without adverse tax consequences.
As of both December 31, 2017 and 2016, we had total gross unrecognized tax benefits of $0.2 million. 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 the U.S. and various international tax jurisdictions. As of December 31, 2017, our
U.S. tax returns remain open to examination for the tax years 2013 through 2016, and the major foreign taxing
jurisdictions to which we are subject are open to examination for the tax years 2010 through 2016.
91
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18—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, 2017, are as follows
(in thousands):
Year Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total future lease commitments
Amount
10,563
6,175
4,845
4,276
3,606
7,925
37,390
$
$
Total rent expense incurred under operating leases was $18.7 million, $19.1 million, and $19.6 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
We also have purchase commitments primarily related to inventory in the amount of $22.1 million. We enter into
purchase commitments as needed.
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 reasonably estimated. We had no material accruals for loss
contingencies, individually or in the aggregate, as of December 31, 2017 and December 31, 2016. 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.
We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa
including possible violations of the U.S. Foreign Corrupt Practices Act, our policies and other applicable laws. In June
2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the United States Department
of Justice and other governmental entities. It is our intent to fully cooperate with these agencies and any other applicable
authorities in connection with any further investigation that may be conducted in connection with this matter. While
our review has not indicated that there has been any material impact on our previously filed financial statements, we
have continued to collect information and cooperate with the authorities, but at this time are unable to predict the
ultimate resolution of these matters with these agencies. In addition, during the course of the investigation, we discovered
historical business transactions (and bids to enter into business transactions) in certain countries that may have been
subject to U.S. and other international sanctions. We have disclosed this information to various governmental entities
(including those involved in our ongoing investigation), but at this time are unable to predict the ultimate resolution of
these matters with these agencies, including any financial impact to us.
Note 19—Severance and Other Charges
We recognize severance and other charges for costs associated with workforce reductions, facility closures, exiting
or reducing our footprint in certain countries, inventory impairment and the retirement of excess machinery and
equipment based on economic utility. As a result of the downturn in the industry that began in 2015 and its impact on
our business outlook, we continue to take actions to adjust our operations and cost structure to reflect current and
92
FRANK’S INTERNATIONAL N.V.
expected activity levels. Depending on future market conditions, further actions may be necessary to adjust our
operations, which may result in additional charges.
Our severance and other charges are summarized below (in thousands):
Severance and other costs
Fixed asset retirements and abandonments
Inventory impairment
Accounts receivable write-offs
Year Ended December 31,
2017
2016
2015
$
$
2,697
6,454
51,181
15,022
75,354
$
$
16,525
$
35,484
29,881
—
—
—
—
—
46,406
$
35,484
Severance and other costs: During the year ended December 31, 2015, we incurred costs of $35.5 million due to
executing a workforce reduction plan which included closing certain facilities and terminating leases. Also, the then
Chairman of the Board of Supervisory Directors (who also held the role of Executive Chairman of our company)
transitioned to a non-executive director of the supervisory board effective as of December 31, 2015. During the years
ended December 31, 2017 and 2016, we incurred $2.7 million and $16.5 million, respectively, due to a continued effort
to adjust our workforce to meet the depressed demand in the industry.
Fixed asset retirements and abandonments: During the year ended December 31, 2016, we identified certain
equipment that based on specifications and current market conditions no longer had economic utility and therefore had
reached the end of its useful life. Accordingly, management decided to retire this equipment, which resulted in charges
of $29.9 million. During the year ended December 31, 2017, we retired additional equipment prior to the end of its
originally estimated useful lives, as well as abandoned capital projects, which resulted in a charge of $6.5 million.
Inventory impairment: As further discussed in Note 5 – Inventories, we determined the cost of our connector
inventory exceeded its net realizable value, which resulted in a charge of $51.2 million.
Accounts receivable write-offs: We have experienced payment delays from certain customers in Nigeria, Angola
and Venezuela. During the fourth quarter of 2017 management decided to significantly reduce our footprint in Nigeria
and Angola and temporarily cease operations in Venezuela, which we believe will diminish our ability to collect amounts
owed. As a result, we wrote off trade accounts receivable of $15.0 million during the year ended December 31, 2017.
Note 20—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 (received) for income taxes, net of refunds
Non-cash transactions:
Change in accounts payable related to capital expenditures
Insurance premium financed by note payable
Net transfers from inventory to property, plant and equipment
Value of shares issued for Blackhawk Group acquisition
Conversion of Preferred Stock
TRA liability
Deferred tax impact of TRA
Year Ended December 31,
2017
2016
2015
$
$
$
$
296
(20,732)
5,761
5,125
4,689
—
—
—
—
$
$
447
8,754
1,658
—
—
144,047
55,941
124,531
68,590
180
20,499
(3,534)
7,630
—
—
—
—
—
93
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21—Segment Information
Reporting Segments
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 four reportable segments: International Services, U.S. Services, Tubular Sales
and Blackhawk.
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, and other oilfield
services companies.
The U.S. Services segment provides tubular services in the active onshore oil and gas drilling regions in the U.S.,
including the Permian Basin, Eagle Ford Shale, Haynesville Shale, Marcellus Shale, Niobrara 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 Blackhawk segment provides well construction and well intervention services and products, in addition to
cementing tool expertise, in the U.S. and Mexican Gulf of Mexico, onshore U.S. and other select international locations.
Blackhawk’s customer base consists primarily of major and independent oil and gas companies as well as other oilfield
services companies.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest income, net, depreciation and amortization,
income tax benefit or expense, asset impairments, gain or loss on disposal of assets, foreign currency gain or loss,
equity-based compensation, unrealized and realized gain or loss, the effects of the TRA, other non-cash adjustments
and other charges or credits. 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), income tax, foreign currency exchange rates and other
charges and credits. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative
to net income (loss), operating income (loss), cash flow from operating activities or any other measure of financial
performance presented in accordance with GAAP.
Our CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.
94
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of Segment Adjusted EBITDA to net income (loss) (in thousands):
Segment Adjusted EBITDA:
International Services
U.S. Services (1)
Tubular Sales
Blackhawk
Total
Interest income, net
Income tax (expense) benefit
Depreciation and amortization
Gain (loss) on disposal of assets
Foreign currency gain (loss)
Derecognition of the TRA liability (2)
Charges and credits (3)
Net income (loss)
Year Ended December 31,
2017
2016
2015
$
$
$
30,801
(39,357)
3,181
11,090
5,715
2,309
(72,918)
(122,102)
2,045
2,075
122,515
(99,096)
(159,457) $
$
33,264
(11,012)
1,741
1,038
25,031
2,073
25,643
(114,215)
(1,117)
(10,819)
—
(82,675)
(156,079) $
182,475
95,612
40,999
—
319,086
341
(37,319)
(108,962)
1,038
(6,358)
—
(61,716)
106,110
(1) Amounts previously reported as Corporate and other of $478 and $96 for 2016 and 2015, respectively, have been reclassified to U.S. Services
to conform to the current presentation.
(2) Please see Note 13 - Related Party Transactions for further discussion.
(3) Comprised of Equity-based compensation expense (2017: $13,862; 2016: $15,978; 2015: $26,318), Mergers and acquisition expense (2017:
$459; 2016: $13,784; 2015: none), Severance and other charges (2017: $75,354; 2016: $46,406; 2015: $35,484), Changes in value of contingent
consideration (2017: none; 2016: none; 2015: $(1,532)), Unrealized and realized losses (2017: $2,791; 2016: $110; 2015: none), Investigation-
related matters (2017: $6,143; 2016: $6,397; 2015: $1,446) and Other adjustments (2017: $487; 2016: none; 2015: none).
95
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 (in thousands):
International
Services
U.S.
Services
Tubular
Sales
Blackhawk Eliminations
Total
$
$
$
Year Ended December 31, 2017
Revenue from external customers
Inter-segment revenues
Operating income (loss)
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2016
Revenue from external customers
Inter-segment revenues
Operating income (loss)
Adjusted EBITDA (1)
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2015
Revenue from external customers
Inter-segment revenues
Operating income (loss)
Adjusted EBITDA (1)
Depreciation and amortization
Property, plant and equipment
Capital expenditures
206,746
23
(44,199)
30,801
54,873
197,305
7,042
$ 118,815
17,071
(101,602)
(39,357)
38,151
173,501
9,618
237,207
68
(41,668)
33,264
59,435
247,913
23,461
$ 152,827
19,590
(116,603)
(11,012)
47,438
201,772
18,112
$
$
58,210
14,132
(51,397)
3,181
3,697
66,153
268
87,515
19,456
(2,884)
1,741
4,087
73,316
540
442,107
754
118,235
182,475
58,163
288,089
42,772
$ 326,437
25,844
(10,783)
95,612
46,548
248,153
28,881
$ 206,056
35,927
36,203
40,999
4,251
88,717
28,070
$
$
$
$
$
71,024
129
(17,544)
11,090
25,381
32,687
4,977
9,982
—
(2,207)
1,038
3,255
44,023
14
— $
—
—
—
—
—
—
(31,355)
— $ 454,795
—
— (214,742)
—
—
—
—
122,102
469,646
21,905
*
(39,114)
— $ 487,531
—
— (163,362)
—
—
—
—
114,215
567,024
42,127
*
— $ 974,600
—
143,655
*
108,962
624,959
99,723
(62,525)
—
—
—
—
—
(1) Amounts previously reported as Corporate and other of $478 and $96 for 2016 and 2015, respectively, have been reclassified to U.S. Services
to conform to the current presentation.
* Non-GAAP financial measure not disclosed.
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.
96
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. For the years ended December 31, 2017 and 2016, one customer accounted for 10% and
13% of our revenues, respectively. In both years, all four of our segments generated revenue from this customer. No
single customer accounted for more than 10% of our revenue for the year ended December 31, 2015.
Geographic Areas
Revenue:
United States
Europe/Middle East/Africa
Latin America
Asia Pacific
Other countries
Year Ended December 31,
2017
2016
2015
$
244,684
$
247,864
$
138,304
160,651
33,131
20,573
18,103
35,390
30,325
13,301
530,133
314,173
56,515
55,995
17,784
$
454,795
$
487,531
$
974,600
The revenue generated in the Netherlands was immaterial for the years ended December 31, 2017, 2016 and 2015.
Other than the United States, no individual country represented more than 10% of our revenue for the years ended
December 31, 2017 and December 31, 2016. For the year ended December 31, 2015, the United States as well as the
United Arab Emirates, which had revenues of $140.4 million, represented more than 10% of our revenue. Revenue is
based on the location where services are provided and products are sold.
Long-Lived Assets (PP&E)
United States
International
December 31,
2017
2016
$
$
272,342
197,304
469,646
$
$
319,111
247,913
567,024
Based on the unique nature of our operating structure, revenue generating assets are interchangeable between two
categories: (i) offshore and (ii) onshore. In addition, some onshore assets can only be used in the U.S. based upon
certification. Long-lived assets in the Netherlands were insignificant in each of the years presented.
97
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22—Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 2017 and 2016 is set forth below (in
thousands, except per share data).
2017
Revenue
Gross profit (1)
Operating loss (2)
Net income (loss) attributable to Frank's International
N.V. common shareholders (3)
Income (loss) per common share: (4)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
110,731
8,827
(36,610)
117,659
11,811
(33,966)
$
108,083
9,411
(35,080)
$
118,322
7,141
(109,086)
$
454,795
37,190
(214,742)
(26,663)
(25,950)
2,296
(109,140)
(159,457)
Basic and diluted
$
(0.12) $
(0.12) $
0.01
$
(0.49) $
(0.72)
2016
Revenue
Gross profit (1)
Operating loss
Net loss
Net loss attributable to Frank's International N.V.
common shareholders
Loss per common share: (4)
$
153,486
$
120,946
$
105,114
$
107,985
$
487,531
41,945
(2,882)
(2,408)
10,168
(50,678)
(45,287)
6,919
(48,932)
(42,198)
5,717
(60,870)
(66,186)
64,749
(163,362)
(156,079)
(772)
(31,398)
(36,982)
(66,186)
(135,338)
Basic and diluted
$
— $
(0.20) $
(0.21) $
(0.30) $
(0.77)
(1) Gross profit is defined as total revenue less cost of revenues less depreciation and amortization attributed to cost of revenues.
(2)
Fourth quarter includes inventory impairments of $51.2 million and accounts receivable write-offs of $15.0 million. Please see Note 19 –
Severance and Other Charges in these Notes to Consolidated Financial Statements.
Third quarter includes the impact of the derecognition of the TRA liability. Please see Note 13 – Related Party Transactions in these Notes to
Consolidated Financial Statements.
The sum of the individual quarterly income (losses) per share amounts may not agree with year-to-date net income (loss) per common share
as each quarterly computation is based on the weighted average number of common shares outstanding during that period.
(3)
(4)
98
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our financial statements for the periods ended September 30, June 30 and March 31, 2017 will be revised to correct
for immaterial misclassifications resulting in a decrease cost of revenues, services and increase cost of revenues, products
by the following amounts associated with Blackhawk product cost. While the revisions do impact two financial statement
line items, the revisions had no impact on our net income (loss), working capital, cash flows or total equity previously
reported (in thousands). The 2017 quarterly revisions will be effected in connection with the 2018 unaudited interim
financial statements filings on Form 10-Q.
Three Months Ended
Six Months
Ended
Nine Months
Ended
March 31,
2017
June 30,
2017
September 30,
2017
June 30,
2017
September 30,
2017
Cost of revenues, exclusive of depreciation
and amortization
Services, as previously reported
$
57,107
$
60,777
$
60,981
$
117,884
$
Blackhawk adjustment
Services, as revised
(5,424)
51,683
(5,460)
55,317
(5,480)
55,501
(10,884)
107,000
Products, as previously reported
$
16,845
$
17,567
$
10,750
$
34,412
$
Blackhawk adjustment
Products, as revised
5,424
22,269
5,460
23,027
5,480
16,230
10,884
45,296
178,865
(16,364)
162,501
45,162
16,364
61,526
99
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, 2017 at the reasonable
assurance level.
Management's Report Regarding Internal Control
See Management’s Report on Internal Control Over Financial Reporting under Part II, Item 8, "Financial
Statements and Supplementary Data" of this Form 10-K.
Attestation Report of the Registered Public Accounting Firm
See Report of Independent Registered Public Accounting Firm under Part II, Item 8, "Financial Statements and
Supplementary Data" 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, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
100
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, 2017.
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, 2017.
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, 2017.
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, 2017.
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, 2017.
101
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
Our Consolidated Financial Statements are included under Part II, Item 8, "Financial Statements and Supplementary
Data" of this Form 10-K. For a listing of these statements and accompanying footnotes, see "Index to Consolidated
Financial Statements" at page 55.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules are listed on page 103. 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 Item 8, "Financial
Statements and Supplementary Data" or notes thereto.
(a)(3) Exhibits
Exhibits are listed in the exhibit index beginning on page 104.
Item 16. Form 10-K Summary
None.
102
FRANK'S INTERNATIONAL N.V.
Schedule II - Valuation and Qualifying Accounts
(In thousands)
Balance at
Beginning of
Period
Additions /
Charged to
Expense
Deductions
Other
Balance at
End of
Period
Year Ended December 31, 2017
Allowance for doubtful accounts
$
14,337
$
346
$
Allowance for excess and obsolete inventory
Allowance for deferred tax assets
4,626
5,442
19,727
53,399
(9,725) $
(2,769)
(1,125)
(181) $
—
—
4,777
21,584
57,716
Year Ended December 31, 2016
Allowance for doubtful accounts
Allowance for excess and obsolete inventory (1)
Allowance for deferred tax assets
$
2,528
$
10,374
$
(761) $
2,196
$
14,337
2,200
2,798
1,762
2,644
(1,855)
—
2,519
—
4,626
5,442
Year Ended December 31, 2015
Allowance for doubtful accounts
Allowance for excess and obsolete inventory (1)
Allowance for deferred tax assets
$
2,477
$
570
$
5,005
—
1,312
2,798
$
(751) $
(703)
—
232
(3,414)
—
2,528
2,200
2,798
(1)
"Other" includes allowances acquired through business combinations and reductions in the allowance credited to
expense.
103
#2.2
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
Exhibit Index
Agreement and Plan of Merger by and among Frank's International N.V., FI Tools Holdings, LLC,
Blackhawk Group Holdings, Inc. and Bain Capital Private Equity, LP (solely in its capacity as
Stakeholder Representative) dated October 6, 2016 (incorporated by reference to Exhibit 2.2 to
the Annual Report on Form 10-K (File No. 001-36053), filed on February 24, 2017).
Deed of Amendment to Articles of Association of Frank's International N.V., dated May 19, 2017
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-36053),
filed on May 25, 2017).
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 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 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-
K (File No. 001-36053), filed on February 29, 2016).
Indemnification Agreement dated August 4, 2015, by and between Frank's International N.V. and
Alejandro Cestero (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-
K (File No. 001-36053), filed on February 29, 2016).
Indemnification Agreement dated October 19, 2015, by and between Frank's International N.V.
and Ozong E. Etta (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-
K (File No. 001-36053), filed on February 29, 2016).
Indemnification Agreement dated May 20, 2016, by and between Frank's International N.V. and
Michael E. McMahon.
Indemnification Agreement dated May 20, 2016, by and between Frank's International N.V. and
Alexander Vriesendorp.
104
†10.16
†10.17
†10.18
*†10.19
*†10.20
†10.21
†10.22
†10.23
†10.24
†10.25
†10.26
†10.26
†10.28
†10.29
†10.30
†10.31
†10.32
†10.33
Indemnification Agreement dated November 15, 2016, by and between Frank's International N.V.
and Douglas Stephens (incorporated by reference to Exhibit 10.15 to the Annual Report on Form
10-K (File No. 001-36053), filed on February 24, 2017).
Indemnification Agreement dated March 2, 2017, by and between Frank's International N.V. and
Kyle McClure (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
(File No. 001-36053), filed on August 7, 2017).
Indemnification Agreement dated March 19, 2017, by and between Frank's International N.V.
and Robert Drummond (incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q (File No. 001-36053), filed on August 7, 2017).
Indemnification Agreement dated February 19, 2018, by and between Frank's International N.V.
and Scott A. McCurdy.
Employee Confidentiality and Restrictive Covenant Agreement dated October 4, 2016 between
Burney J. Latiolais, Jr. and Frank's International, LLC.
Employment Offer for Burney J. Latiolais, Jr. effective as of October 5, 2016 (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K (File No. 001-36053), filed on
February 24, 2017).
Separation, Consulting, and General Release Agreement by and between Gary P. Luquette,
Frank’s International, LLC and Frank’s International N.V., effective as of November 11, 2016
(incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K (File No.
001-36053), filed on February 24, 2017).
Separation Agreement and Release dated as of January 25, 2017 and effective as of January 25,
2017, by and between Frank's International, LLC and Daniel Allinger (incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-36053), filed on May 2,
2017).
Employment Offer Letter for Douglas Stephens effective as of November 15, 2016 (incorporated
by reference to Exhibit 10.19 to the Annual Report on Form 10-K (File No. 001-36053), filed on
February 24, 2017).
Employment Offer Letter for Kyle McClure effective as of June 5, 2017 (incorporated by reference
to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-36053), filed on August 7,
2017).
Separation Agreement by and between Douglas G. Stephens, Frank's International, LLC and
Frank's International NV, dated October 5, 2017 (incorporated by reference to Exhibit 10.3 to
the Quarterly Report on Form 10-Q (File No. 01-36053), filed on November 2, 2017).
Employment Offer Letter for Michael C. Kearney effective as of September 26, 2017
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File no.
001-36053), filed on November 2, 2017).
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).
105
†10.34
†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
10.48
10.49
10.50
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).
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) (incorporated by reference to Exhibit 10.36 to the Annual Report
on Form 10-K (File No. 001-36053), filed on February 29, 2016).
Frank's International N.V. 2013 Long-Term Incentive Plan Employee Restricted Stock Unit
Agreement (Performance Based Form) (incorporated by reference to Exhibit 10.37 to the Annual
Report on Form 10-K (File No. 001-36053), filed on February 29, 2016).
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Non-Employee Director Form) (incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q (File No. 001-36053), filed on July 28, 2016).
Frank's International N.V. 2013 Long-Term Incentive Plan Employee Restricted Stock Unit
Agreement (Special Incentives and Retention Form) (incorporated by reference to Exhibit 10.37
to the Annual Report on Form 10-K (File No. 001-36053), filed on February 24, 2017).
Frank's International N.V. 2013 Long-Term Incentive Plan Employee Restricted Stock Unit
Agreement (Supplemental Grant Form) (incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q (File No. 001-36053), filed on November 2, 2017).
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).
106
10.51
10.52
10.53
10.54
*10.55
10.56
*18.1
*21.1
*23.1
*31.1
*31.2
**32.1
**32.2
*101.INS
*101.SCH
*101.CAL
*101.DEF
*101.LAB
*101.PRE
Form of Limited Waiver of Registration Rights to that certain Registration Rights Agreement,
dated as of August 14, 2013, with Mosing Holdings, LLC, FWW B.V., and the other parties
thereto (incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K (File No.
001-36053), filed on February 24, 2017).
Registration Rights Agreement, dated as of November 1, 2016, among Frank's International N.V.,
the Bain Capital Investors and certain other investors named therein (incorporated by reference
to Exhibit 10.1 to the Registration Statement on Form S-3 (File No. 333-214509), filed on
November 8, 2016).
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).
Amendment No. 10 to the Limited Partnership Agreement of Frank's International C.V., effective
as of December 1, 2017.
Limited Waiver of Financial Covenants 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
10.2 to the Quarterly Report on Form 10-Q (File No. 001-36053), filed on May 2, 2017).
Preferability Letter from PricewaterhouseCoopers LLP
List of Subsidiaries of Frank's International N.V.
Consent of PricewaterhouseCoopers LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Calculation Linkbase Document.
XBRL Taxonomy Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
† Represents management contract or compensatory plan or arrangement.
# 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.
107
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 27, 2018
By:
/s/ Kyle McClure
Kyle McClure
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 27, 2018.
Signature
Title
/s/ Michael C. Kearney
Michael C. Kearney
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kyle McClure
Kyle McClure
/s/ Ozong E. Etta
Ozong E. Etta
/s/ William B. Berry
William B. Berry
/s/ Robert W. Drummond
Robert W. Drummond
/s/ Michael E. McMahon
Michael E. McMahon
/s/ D. Keith Mosing
D. Keith Mosing
/s/ Kirkland D. Mosing
Kirkland D. Mosing
/s/ S. Brent Mosing
S. Brent Mosing
/s/ Alexander Vriesendorp
Alexander Vriesendorp
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Supervisory Lead Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
108
Directors and Officers
Stock Information
Forward-Looking Statements
SUPERVISORY BOARD
Michael C. Kearney
Chairman of the Supervisory Board
President and Chief Executive Officer
Frank’s International
William B. Berry
Lead Supervisory Director
Former Executive Vice President,
Exploration and Production
ConocoPhillips Company
Robert W. Drummond
President and Chief Executive Officer
Key Energy Services, Inc.
Michael E. McMahon
Founder and Former Partner
Pine Brook Partners LLC
Keith Mosing
Retired Executive Chairman,
President and Chief Executive Officer
Frank’s International
Kirkland D. Mosing
Supervisory Director
S. Brent Mosing
Supervisory Director
Alexander Vriesendorp
Partner
Shamrock Partners B.V.
MANAGEMENT
Michael C. Kearney
Chairman, President and
Chief Executive Officer
Kyle McClure
Senior Vice President and
Chief Financial Officer
In addition to statements of historical
fact, this report contains forward-looking
statements within the meaning of the
Private Securities Litigation Reform Act of
1995. Statements that are not historical in
nature or that relate to future events and
conditions are, or may be deemed to be,
forward-looking statements. These “forward-
looking statements” are based on our current
projections about us and our industry, and
our management’s beliefs and assumptions
concerning future events and financial
trends affecting our financial condition and
results of operations. 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. These
statements are only predictions and are
subject to substantial risks and uncertainties
and are not guarantees of performance.
Future actions, events and conditions and
future results of operations may differ
materially from those expressed in these
statements. In evaluating those statements,
you should keep in mind the risk factors
and other cautionary statements included
in our 2017 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 consider the disclosures
made in this report and other filings with
the Securities and Exchange Commission
regarding the risks and factors that may
affect our business.
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 23, 2018 at:
Burney J. Latiolais, Jr.
President, Tubular Running Services
Scott A. McCurdy
President, Blackhawk Specialty Tools
Alejandro (Alex) Cestero
Senior Vice President, General Counsel,
Secretary and Chief Compliance Officer
Hotel Sofitel Legend
The Grand Amsterdam
Oudezijds Voorburgwal 197
1012 EX Amsterdam,
The Netherlands
Information above as of March 19, 2018
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