Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended September 30, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-35504
FORUM ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
61-1488595
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
920 Memorial City Way, Suite 1000
Houston, Texas 77024
(Address of principal executive offices)
(281) 949-2500
(Registrant’s telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 þ
 
Accelerated filer o
Non-accelerated filer o
 
(Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of October 30, 2018 there were 109,166,939 common shares outstanding.


 


Table of Contents



2

 

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
  
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share information)
2018
 
2017
 
2018
 
2017
Revenue
$
267,037

 
$
198,709

 
$
791,271

 
$
570,920

Cost of sales
192,496

 
151,150

 
576,774

 
435,127

Gross profit
74,541

 
47,559

 
214,497

 
135,793

Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
71,790

 
63,191

 
215,369

 
185,760

Transaction expenses
769

 
882

 
2,164

 
1,755

Goodwill and intangible asset impairments
—

 
638

 
14,477

 
68,642

Loss (gain) on disposal of assets and other
205

 
128

 
(1,495
)
 
1,517

Total operating expenses
72,764

 
64,839

 
230,515

 
257,674

Earnings from equity investment
659

 
3,361

 
46

 
7,391

Operating income (loss)
2,436

 
(13,919
)
 
(15,972
)
 
(114,490
)
Other expense (income)
 
 
 
 
 
 
 
Interest expense
7,923

 
6,366

 
23,871

 
19,331

Foreign exchange and other losses (gains), net
(1,325
)
 
2,360

 
(3,634
)
 
6,508

Gain on contribution of subsea rentals business
—

 
—

 
(33,506
)
 
—

Total other (income) expense, net
6,598

 
8,726

 
(13,269
)
 
25,839

Loss before income taxes
(4,162
)
 
(22,645
)
 
(2,703
)
 
(140,329
)
Income tax benefit
(1,108
)
 
(7,817
)
 
(12,366
)
 
(31,860
)
Net income (loss)
(3,054
)
 
(14,828
)
 
9,663

 
(108,469
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
108,856

 
96,275

 
108,666

 
96,103

Diluted
108,856

 
96,275

 
110,801

 
96,103

Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
(0.15
)
 
$
0.09

 
$
(1.13
)
Diluted
(0.03
)
 
(0.15
)
 
0.09

 
(1.13
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net income (loss)
(3,054
)
 
(14,828
)
 
9,663

 
(108,469
)
Change in foreign currency translation, net of tax of $0
(1,536
)
 
11,547

 
(13,884
)
 
34,094

Gain (loss) on pension liability
7

 
(36
)
 
78

 
(133
)
Comprehensive loss
$
(4,583
)
 
$
(3,317
)
 
$
(4,143
)
 
$
(74,508
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3

 

Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share information)
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
26,940

 
$
115,216

Accounts receivable—trade, net
214,719

 
202,914

Inventories, net
503,452

 
443,177

Prepaid expenses and other current assets
27,915

 
19,490

Accrued revenue
1,769

 
—

Costs and estimated profits in excess of billings
10,485

 
9,584

Total current assets
785,280

 
790,381

Property and equipment, net of accumulated depreciation
179,760

 
197,281

Deferred financing costs, net
2,278

 
2,900

Intangible assets
390,489

 
443,064

Goodwill
752,361

 
755,245

Investment in unconsolidated subsidiary
41,351

 
—

Deferred income taxes, net
8,317

 
3,344

Other long-term assets
9,672

 
3,013

Total assets
$
2,169,508

 
$
2,195,228

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
948

 
$
1,156

Accounts payable—trade
142,540

 
137,684

Accrued liabilities
69,846

 
66,765

Deferred revenue
7,726

 
8,819

Billings in excess of costs and profits recognized
5,160

 
1,881

Total current liabilities
226,220

 
216,305

Long-term debt, net of current portion
465,969

 
506,750

Deferred income taxes, net
21,799

 
31,232

Other long-term liabilities
34,769

 
31,925

Total liabilities
748,757

 
786,212

Commitments and contingencies

 


Equity
 
 
 
Common stock, $0.01 par value, 296,000,000 shares authorized, 117,226,234 and 116,343,656 shares issued
1,172

 
1,163

Additional paid-in capital
1,212,355

 
1,195,339

Treasury stock at cost, 8,200,477 and 8,190,362 shares
(134,434
)
 
(134,293
)
Retained earnings
447,431

 
438,774

Accumulated other comprehensive loss
(105,773
)
 
(91,967
)
Total equity
1,420,751

 
1,409,016

Total liabilities and equity
$
2,169,508

 
$
2,195,228

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 

Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
(in thousands, except share information)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income (loss)
$
9,663

 
$
(108,469
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation expense
24,975

 
25,212

Amortization of intangible assets
30,905

 
20,030

Goodwill and intangible asset impairments
14,477

 
68,642

Inventory write down
9,180

 
1,376

Share-based compensation expense
17,173

 
15,219

Earnings from unconsolidated subsidiary, net of distributions
(46
)
 
(4,317
)
Gain on contribution of subsea rentals business
(33,506
)
 
—

Deferred income taxes
(14,406
)
 
(31,041
)
Other
2,372

 
4,548

Changes in operating assets and liabilities
 
 
 
Accounts receivable—trade
(19,550
)
 
(43,167
)
Inventories
(67,507
)
 
(44,288
)
Prepaid expenses and other assets
(12,551
)
 
1,684

Income tax receivable
—

 
30,929

Cost and estimated profit in excess of billings
(877
)
 
9

Accounts payable, deferred revenue and other accrued liabilities
12,073

 
49,126

Billings in excess of costs and estimated profits earned
3,279

 
(2,576
)
Net cash used in operating activities
$
(24,346
)
 
$
(17,083
)
Cash flows from investing activities
 
 
 
Capital expenditures for property and equipment
(19,856
)
 
(19,656
)
Acquisition of businesses, net of cash acquired
(8,000
)
 
(47,890
)
Investment in unconsolidated subsidiary
—

 
(1,041
)
Proceeds from sale of business, property and equipment
9,194

 
1,849

Net cash used in investing activities
$
(18,662
)
 
$
(66,738
)
Cash flows from financing activities
 
 
 
Borrowings of debt
100,000

 
—

Repayments of debt
(141,866
)
 
(1,140
)
Repurchases of stock
(2,499
)
 
(4,667
)
Proceeds from stock issuance
150

 
2,896

Net cash used in financing activities
$
(44,215
)
 
$
(2,911
)
 
 
 
 
Effect of exchange rate changes on cash
(1,053
)
 
8,702

 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(88,276
)
 
(78,030
)
Cash, cash equivalents and restricted cash at beginning of period
115,216

 
234,422

Cash, cash equivalents and restricted cash at end of period
$
26,940

 
$
156,392

 
 
 
 
Noncash investing activities
 
 
 
Acquisition via issuance of stock
$
—

 
$
4,500

Assets contributed for equity method investment
$
18,070

 
$
—

Note receivable related to equity method investment transaction
$
4,067

 
$
—

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 

Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Forum Energy Technologies, Inc. (the “Company,” “we,” “our,” or “us”), a Delaware corporation, is a global oilfield products company, serving the drilling, subsea, completion, production and infrastructure sectors of the oil and natural gas industry. The Company designs, manufactures and distributes products and engages in aftermarket services, parts supply and related services that complement the Company’s product offering.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Our investments in operating entities where we have the ability to exert significant influence, but do not control operating and financial policies, are accounted for using the equity method of accounting, with our share of the net income reported in “Earnings from equity investment” in the condensed consolidated statements of comprehensive loss. These investments are included in “Investment in unconsolidated subsidiary” in the condensed consolidated balance sheets. The Company’s share of equity earnings are reported within operating income (loss), as the investee’s operations are integral to the operations of the Company.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position, results of operations and cash flows have been included. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other interim period.
These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017, which are included in the Company’s 2017 Annual Report on Form 10-K filed with the SEC on February 27, 2018 (the “Annual Report”).
2. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Accounting Standards Adopted in 2018
Revenue Recognition. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes existing revenue recognition guidance and requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to contracts that were not completed as of that date. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Refer to Note 3 Revenues for additional information related to our revenue recognition policies and incremental disclosures following the adoption of Topic 606.
Modification Accounting for Stock Compensation. In May 2017, the FASB issued ASU No. 2017-09 Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share based payment award as a modification. Under the new ASU, an entity should apply modification accounting unless the fair value, the vesting conditions, and the classification as equity or liability of the modified award all remain the same as the original award. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no material impact on our unaudited condensed consolidated financial statements.

6
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Clarifying the Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805) - Clarifying the Definition of a Business, in an effort to clarify the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no material impact on our unaudited condensed consolidated financial statements.
Deferred Taxes on Intra-Entity Asset Transfers. In October 2016, the FASB issued ASU No. 2016-16 Income Tax (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. Previous GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an outside party. This new guidance eliminated this exception and requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs. As required, we applied this update on a modified retrospective basis resulting in a $1.0 million direct cumulative-effect adjustment to retained earnings as of January 1, 2018.
Statement of Cash Flows. In August 2016, the FASB issued ASU No. 2016-15 Cash Flow Statement (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. We adopted this new guidance in the first quarter of 2018. The only issue currently relevant to the Company is distributions received from equity method investees, where the new guidance allows an accounting policy election between the cumulative earnings approach and the nature of the distribution approach. We will continue to use the cumulative earnings approach. Therefore, the adoption of this guidance did not have a material impact on our unaudited condensed consolidated financial statements.
Restricted Cash Presentation. In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230) - Restricted Cash, a consensus of the FASB Emerging Issues Task Force. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance did not have a material impact on our unaudited condensed consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
Accounting for Implementation Costs Related to a Cloud Computing Arrangement. In August 2018, the FASB issued ASU No. 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred by an entity related to a cloud computing arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, this guidance requires an entity to capitalize certain implementation costs incurred and then amortize them over the term of the cloud hosting arrangement. Furthermore, this guidance also requires an entity to present the expense, cash flows, and capitalized implementation costs in the same financial statement line items as the associated hosting service. This new guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact of adopting this guidance.
Fair Value Measurement Disclosure. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (topic 820) - Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement.  This new guidance eliminated, modified and added certain disclosure requirements related to fair value measurements. The amended disclosure requirements are effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We are evaluating the impact of adopting this guidance. However, we currently expect that the adoption of this guidance will not have a material impact on our unaudited condensed consolidated financial statements.

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Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Stranded Tax Effects from the Tax Cuts and Jobs Act. In February 2018, the FASB issued ASU No. 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. U.S. GAAP requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates, with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (referred to as “stranded tax effects”). The amendments in this ASU allow a specific exception for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. In addition, the amendments in this update also require certain disclosures about stranded tax effects. The standard will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases.  Under this new guidance, lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases (financing and operating) with terms greater than twelve months. The classification as either a financing or operating lease will determine whether lease expense is recognized on an effective interest method basis or on a straight-line basis over the term of the lease, respectively.
We are continuing to evaluate the impact of the pending adoption of the new guidance and have put in place an implementation team responsible for:
•
reviewing existing lease contracts and identifying the relevant accounting impacts of the new standard;
•
providing internal training and awareness related to the new lease standard to key stakeholders throughout our organization;
•
implementing new processes and controls in anticipation of adopting the new guidance; and
•
inputting lease information into a new cloud based lease software management system.
This guidance is effective for us in the first quarter of 2019 and we plan to adopt this new standard using the modified retrospective transition method. Based on our current lease portfolio, we anticipate the new guidance will require us to reflect additional assets and liabilities on our consolidated balance sheet; however, we have not yet finalized our estimation of such amount, and we are still evaluating the overall impact of the new guidance on our consolidated financial statements and related disclosures.

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Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

3. Revenues
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, we adopted Topic 606 using the modified retrospective transition method applied to contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic revenue recognition guidance.
The adoption of Topic 606 did not have a material impact on our consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the three and nine months ended September 30, 2018. Furthermore, we expect the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis.
The following table summarizes the impacts of adopting Topic 606 on our consolidated financial statements as of January 1, 2018:
 
As Reported
 
Adjustments due to
 
As Adjusted
(in thousands, unaudited)
Dec. 31, 2017
 
ASC 606
 
Jan. 1, 2018
Accounts receivable—trade, net
$
202,914

 
$
(3,235
)
 
$
199,679

Accrued revenue
—

 
3,235

 
3,235

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statement of comprehensive income and balance sheet is shown in the tables below.
As of September 30, 2018, there were no contracts in progress that were impacted by the change in timing of revenue recognition required by the adoption of ASC 606. As such, there was no impact to the income statement for the three and nine months ended September 30, 2018. The following table shows the change in balance sheet presentation as of September 30, 2018:
 
September 30, 2018
(in thousands, unaudited)
As Reported
 
Amount Without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Balance Sheet
 
 
 
 
 
Accounts receivable—trade, net
$
214,719

 
$
216,488

 
$
(1,769
)
Accrued revenue
1,769

 
—

 
1,769

Revenue Recognition Policies
Revenue is recognized in accordance with ASC Topic 606 when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Contract Identification. We account for a contract when it is approved, both parties are committed, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collection of consideration is probable.
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. In accordance with Topic 606, we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. We have elected to apply the practical expedient to account for shipping and handling costs associated with outbound freight after control of a product has transferred to a customer as a fulfillment cost which is included in Cost of Sales. Furthermore, since our customer payment terms are short-term in nature, we have also elected to apply the practical expedient which allows an entity to not adjust for the effects of a significant financing component if it expects that the customer’s payment period will be less than one year in duration.

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Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Contract Value. Revenue is measured based on the amount of consideration specified in the contracts with our customers and excludes any amounts collected on behalf of third parties. We have elected the practical expedient to exclude amounts collected from customers for all sales (and other similar) taxes.
The estimation of total revenue from a customer contract is subject to elements of variable consideration. Certain customers may receive rebates or discounts which are accounted for as variable consideration. We estimate variable consideration as the most likely amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historic, current, forecast) that is reasonably available to us.
Timing of Recognition. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer. Our performance obligations are satisfied at a point in time or over time as work progresses.
Revenue from goods transferred to customers at a point in time accounted for 98% and 97% of revenues for the three and nine months ended September 30, 2018, respectively. The majority of this revenue is product sales, which are generally recognized when items are shipped from our facilities and title passes to the customer. The amount of revenue recognized for products is adjusted for expected returns, which are estimated based on historical data.
Revenue from goods transferred to customers over time accounted for 2% and 3% of revenues for the three and nine months ended September 30, 2018, respectively, which is primarily related to contracts in our Subsea and Production Equipment product lines. Recognition over time for these contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date.
We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount of revenue recognized is calculated based on the ratio of costs incurred to-date compared to total estimated costs which requires management to calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized during the period.
Accounting estimates during the course of projects may change, primarily related to our remotely operated vehicles (“ROVs”) which may take longer to manufacture. The effect of such a change, which can be upward as well as downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a prospective basis.
Contracts are sometimes modified to account for changes in product specifications or requirements. Most of our contract modifications are for goods and services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis. No adjustment to any one contract was material to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018.
We sell our products through a number of channels including a direct sales force, marketing representatives, and distributors. We have elected to expense sales commissions when incurred as the amortization period would be less than one year. These costs are recorded within cost of sales.
Portfolio Approach. We have elected to apply the new revenue standard to a portfolio of contracts with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within that portfolio.
Disaggregated Revenue
Refer to Note 10 Business Segments for disaggregated revenue by product line and geography.

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Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Contract Balances
Contract balances are determined on a contract by contract basis. Contract assets represent revenue recognized for goods and services provided to our customers when payment is conditioned on something other than the passage of time. Similarly, when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record a contract liability. Such contract liabilities typically result from billings in excess of costs incurred on construction contracts and advance payments received on product sales.
The following table reflects the changes in our contract assets and contract liabilities balances for the nine months ended September 30, 2018:
 
September 30, 2018
 
January 1, 2018
 
Increase / (Decrease)
 
 
 
$
 
%
Accrued revenue
$
1,769

 
$
3,235

 
 
 
 
Costs and estimated profits in excess of billings
10,485

 
9,584

 
 
 
 
Contract assets
$
12,254

 
$
12,819

 
$
(565
)
 
(4
)%
 
 
 
 
 
 
 
 
Deferred revenue
$
7,726

 
$
8,819

 
 
 
 
Billings in excess of costs and profits recognized
5,160

 
1,881

 
 
 
 
Contract liabilities
$
12,886

 
$
10,700

 
$
2,186

 
20
 %
During the nine months ended September 30, 2018, our contract assets decreased by $0.6 million primarily due to the timing of billings in our Production Equipment product line and our contract liabilities increased by $2.2 million primarily due to a down payment received for a customer order in our subsea product line.
During the nine months ended September 30, 2018, we recognized revenue of $7.5 million that was included in the contract liability balance at the beginning of the period.
During the three months ended June 30, 2018, our Subsea Technologies product line received an order to supply a submarine rescue vehicle and related equipment which we expect to deliver in 2020. We use the cost-to-cost method to measure progress on this contract to recognize revenue over time. Other than this contract, all of our other contracts are less than one year in duration. As such, we have elected to apply the practical expedient which allows an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
4. Acquisitions & Dispositions
2018 Acquisition of ESP Completion Technologies LLC
On July 2, 2018, we acquired certain assets of ESP Completion Technologies LLC ("ESPCT"), a subsidiary of C&J Energy Services, for cash consideration of $8.0 million. ESPCT consists of a portfolio of early stage technologies that maximize the run life of artificial lift systems, primarily electric submersible pumps. This acquisition is included in the Completions segment. The fair values of the assets acquired and liabilities assumed as well as the pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated financial statements.
2018 Disposition of Forum Subsea Rentals
On January 3, 2018, we contributed our subsea rentals business to Ashtead Technology to create a leading independent provider of subsea survey and equipment rental services. In exchange, we received a 40% interest in the combined business (“Ashtead”), a cash payment of £2.7 million British Pounds and a note receivable from Ashtead of £3.0 million British Pounds. Our 40% interest in Ashtead is accounted for as an equity method investment and reported as Investment in unconsolidated subsidiary in our unaudited condensed consolidated balance sheets. In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business, which is classified as Gain on contribution of subsea rentals business in the unaudited condensed consolidated statements of comprehensive income (loss). This gain is equal to the sum of the consideration received, which includes the fair value of our 40% interest in Ashtead, £2.7 million British Pounds in cash, and the £3.0 million British Pounds

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

note receivable from Ashtead, less the $18.1 million carrying value of the Forum subsea rentals assets at the time of closing. The fair value of our 40% interest in Ashtead was determined based on the present value of estimated future cash flows of the combined entity as of January 3, 2018. The difference between the fair value of our 40% interest in Ashtead of $43.8 million and the book value of the underlying net assets resulted in a basis difference, which was allocated to fixed assets, intangible assets and goodwill based on their respective fair values as of January 3, 2018. The basis difference allocated to fixed assets and intangible assets will be amortized through equity earnings (loss) over the estimated life of the respective assets.
Pro forma results of operations for this transaction have not been presented because the effects were not material to the consolidated financial statements.
2017 Acquisition of Global Tubing
On October 2, 2017, we acquired all of the remaining ownership interests of Global Tubing, LLC (“Global Tubing”) from our joint venture partner and management for total consideration of approximately $290.3 million. We originally invested in Global Tubing with the joint venture partner and management in 2013. Prior to acquiring the remaining ownership interest in Global Tubing, we reported this investment using the equity method of accounting. The financial results for Global Tubing are reported in the Completions segment. Located in Dayton, Texas, Global Tubing provides coiled tubing, coiled line pipe and related services to customers worldwide. We believe that this strategic acquisition will further enhance our focus and strategy of expansion in the North American completions market. Global Tubing contributed revenues of $36.2 million and $112.7 million respectively during the three and nine months ended September 30, 2018. Refer to Note 4. Acquisitions in our Annual Report for pro forma results of operations for this acquisition.
The following table summarizes the consideration transferred to acquire the remaining ownership interests of Global Tubing (in thousands other than stock price and shares issued):
 
Purchase Consideration
Forum Energy Technologies' closing stock price on October 2, 2017
$
15.10

Multiplied by number of shares issued for acquisition
11,488,208

Value of common shares
$
173,472

Cash
31,764

Repayment of Global Tubing debt at acquisition
85,084

Total consideration paid for the acquisition
$
290,320

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
Accounts receivable
$
28,044

Inventory
40,005

Other current assets
3,141

Property and equipment
51,585

Intangible assets (primarily developed technologies and customer relationships)
228,190

Tax-deductible goodwill
69,423

Non-tax deductible goodwill
64,491

Current liabilities
(16,005
)
Long term liabilities
(54
)
Total net assets
468,820

Fair value of equity method investment previously held
(178,500
)
Net assets acquired
$
290,320

The goodwill is attributable to the workforce of the acquired business and synergies expected to arise following the acquisition of the remaining ownership interests of Global Tubing. The goodwill associated with the previously owned

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

equity interests is not deductible for tax purposes. All of the goodwill was assigned to the Company’s Completions segment.
2017 Acquisition of Multilift
On July 3, 2017, we acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, “Multilift”) for approximately $39.2 million in cash consideration. These acquisitions are included in the Completions segment. Based in Houston, Texas, Multilift manufactures the patented SandGuardTM and CycloneTM completion tools. This acquisition increases our product offering related to artificial lift to our completions customers. We intend to utilize our distribution system to increase Multilift’s sales with additional customers and through geographic expansion. Pro forma results of operations for this acquisition have not been presented because the effects were not material to the condensed consolidated financial statements. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
Current assets, net of cash acquired
$
3,763

Property and equipment
96

Intangible assets (primarily customer relationships)
17,090

Tax-deductible goodwill
16,472

Non-tax deductible goodwill
3,099

Current liabilities
(1,329
)
Net assets acquired
$
39,191

2017 Acquisition of Cooper Valves
On January 9, 2017, we acquired substantially all of the assets of Cooper Valves, LLC as well as 100% of the general partnership interests of Innovative Valve Components (collectively, “Cooper”) for total aggregate consideration of $14.0 million, after settlement of working capital adjustments. The aggregate consideration included the issuance of stock valued at $4.5 million and certain contingent stock issuances. These acquisitions are included in the Production & Infrastructure segment. The acquired Cooper brands include Accuseal® metal seated ball valves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line of Cooper Alloy® cast and forged gate, globe, and check valves. Innovative Valve Components, in partnership with Cooper Valves, commercialized critical service valves and components for the power generation, mining and oil and natural gas industries. The fair values of the assets acquired and liabilities assumed and pro forma results of operations have not been presented because they are not material to the consolidated financial statements.

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

5. Inventories
Our significant components of inventory at September 30, 2018 and December 31, 2017 were as follows (in thousands):
 
September 30,
2018
 
December 31,
2017
Raw materials and parts
$
203,774

 
$
160,093

Work in process
42,108

 
51,941

Finished goods
308,508

 
305,461

Gross inventories
554,390

 
517,495

Inventory reserve
(50,938
)
 
(74,318
)
Inventories
$
503,452

 
$
443,177

6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2017 to September 30, 2018, were as follows (in thousands):
 
Drilling & Subsea
 
Completions
 
Production & Infrastructure
 
Total
Goodwill Balance at December 31, 2017
$
251,454

 
$
484,345

 
$
19,446

 
$
755,245

Acquisition
—

 
1,478

 
—

 
1,478

Impact of non-U.S. local currency translation
(3,334
)
 
(960
)
 
(68
)
 
(4,362
)
Goodwill Balance at September 30, 2018
$
248,120

 
$
484,863

 
$
19,378

 
$
752,361

We perform our annual impairment tests of goodwill as of October 1, or when there is an indication an impairment may have occurred.
There was no impairment of goodwill during the three and nine months ended September 30, 2018.
In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins would be sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication of further delays in the recovery of the offshore market, we performed an impairment test and determined that the carrying value of the goodwill in our Subsea reporting unit was impaired resulting in a $68.0 million charge in the second quarter 2017. Following this impairment charge, the Subsea reporting unit has no remaining balance in goodwill. There was no indication an impairment may have occurred in the other reporting units.
The fair values used in the impairment analysis were determined using the net present value of the expected future cash flows for the Subsea reporting unit. For the goodwill impairment analysis, we determine the fair value of the reporting unit as a whole using a discounted cash flow analysis, which requires significant assumptions and estimates about future operations. The assumptions about future cash flows and growth rates are based on our current budget as well as our strategic plans and management’s beliefs about future activity levels. The discount rate we used for future periods could change substantially if the cost of debt or equity were to significantly increase or decrease, or if we were to choose different comparable companies in determining the appropriate discount rate for our reporting units. Forecasted cash flows in future periods were estimated using a terminal value calculation, which considered long-term earnings growth rates. 
Accumulated impairment losses on goodwill were $236.8 million as of September 30, 2018 and December 31, 2017.


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Notes to condensed consolidated financial statements (continued)
(Unaudited)

Intangible assets
Intangible assets consisted of the following as of September 30, 2018 and December 31, 2017, respectively (in thousands):
 
September 30, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amortizable Intangibles
 
Amortization Period (In Years)
Customer relationships
$
388,367

 
$
(138,722
)
 
$
249,645

 
4-15
Patents and technology
109,520

 
(21,077
)
 
88,443

 
5-17
Non-compete agreements
5,944

 
(5,614
)
 
330

 
3-6
Trade names
62,561

 
(25,344
)
 
37,217

 
10-15
Distributor relationships
22,160

 
(17,286
)
 
4,874

 
8-15
Trademarks
10,319

 
(339
)
 
9,980

 
15 - Indefinite
Intangible Assets Total
$
598,871

 
$
(208,382
)
 
$
390,489

 
 
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amortizable Intangibles
 
Amortization Period (In Years)
Customer relationships
$
428,544

 
$
(138,566
)
 
$
289,978

 
4-15
Patents and technology
110,910

 
(16,733
)
 
94,177

 
5-17
Non-compete agreements
6,625

 
(6,041
)
 
584

 
3-6
Trade names
64,359

 
(22,090
)
 
42,269

 
10-15
Distributor relationships
22,160

 
(16,338
)
 
5,822

 
8-15
Trademarks
10,319

 
(85
)
 
10,234

 
15 - Indefinite
Intangible Assets Total
$
642,917

 
$
(199,853
)
 
$
443,064

 
 
Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In the second quarter 2018, we made the decision to exit specific products within the Subsea and Downhole product lines. As a result, we recognized $14.5 million of impairment losses on certain intangible assets (primarily customer relationships).
7. Debt
Notes payable and lines of credit as of September 30, 2018 and December 31, 2017 consisted of the following (in thousands): 
 
September 30,
2018
 
December 31,
2017
6.25% Senior Notes due October 2021
$
400,000

 
$
400,000

Unamortized debt premium
1,278

 
1,583

Debt issuance cost
(3,396
)
 
(4,222
)
Senior secured revolving credit facility
68,000

 
108,446

Other debt
1,035

 
2,099

Total debt
466,917

 
507,906

Less: current maturities
(948
)
 
(1,156
)
Long-term debt
$
465,969

 
$
506,750


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Notes to condensed consolidated financial statements (continued)
(Unaudited)

Senior Notes Due 2021
The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. The Senior Notes are senior unsecured obligations, and are guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.
Credit Facility
On October 30, 2017, we amended and restated our existing credit facility (such amended and restated credit facility, the “Credit Facility”) to, among other things, increase revolving credit commitments from $140.0 million to $300.0 million (with a sublimit of up to $25.0 million available for the issuance of letters of credit for the account of the Company and certain of our domestic subsidiaries) (the “U.S. Line”), of which up to $30.0 million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $3.0 million available for the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”). Lender commitments under the Credit Facility, subject to certain limitations, may be increased by an additional $100.0 million. The Credit Facility matures in July 2021, but if our outstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the Credit Facility will automatically extend to October 2022.
Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our balances of receivables and inventory. As of September 30, 2018, our total borrowing base was $299.4 million, of which $68.0 million was drawn and $12.4 million was used for security of outstanding letters of credit, resulting in availability of $219.0 million.
Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in San Francisco, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus an applicable margin. Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) a base rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from time to time by Thomson Reuters and (ii) the CDOR rate plus 1.00%, in each case plus an applicable margin. The applicable margin for LIBOR and CDOR loans will initially range from 1.75% to 2.25%, depending upon average excess availability under the Credit Facility. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the applicable margin for LIBOR and CDOR loans will range from 1.50% to 2.00%, depending upon average excess availability under the Credit Facility. The weighted average interest rate under the Credit Facility was approximately 3.96% for the nine months ended September 30, 2018.
The Credit Facility also provides for a commitment fee in the amount of (a) 0.375% per annum on the unused portion of commitments if average usage of the Credit Facility is greater than 50% and (b) 0.500% per annum on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50%. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the commitment fees will range from 0.25% to 0.375%, depending upon average usage of the Credit Facility.
If excess availability under the Credit Facility falls below the greater of 10% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.
Deferred Loan Costs
We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the Senior Notes and the Amended Credit Facility. 
Other Debt
Other debt consists primarily of various capital leases of equipment.

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

Letters of Credit and Guarantees
We execute letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to guarantee our fulfillment of performance obligations relating to certain large contracts. We had $12.9 million and $7.9 million in total outstanding letters of credit as of September 30, 2018 and December 31, 2017, respectively.
8. Income Taxes
We recorded a tax benefit of $1.1 million for the three months ended September 30, 2018 compared to a tax benefit of $7.8 million for the three months ended September 30, 2017. For the nine months ended September 30, 2018, we recorded a $12.4 million tax benefit as compared to a tax benefit of $31.9 million for the nine months ended September 30, 2017.
For interim periods, our income tax expense or benefit is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods. Our estimated annual effective tax rate differs from the U.S. federal statutory rates of 21% and 35% for the periods in 2018 and 2017, respectively, primarily as a result of the impact of U.S. Tax Reform as discussed further below, losses in the U.K. for which the recording of a tax benefit is not available and higher projected state income taxes. The nine months ended September 30, 2018 included a $15.6 million income tax benefit from adjusting the provisional impact of tax reform initially recorded in the fourth quarter of 2017. For the nine months ended September 30, 2017, the tax benefit was negatively impacted by a $68.0 million impairment loss related to non-tax deductible goodwill. Furthermore, the tax benefit or expense recorded can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), a comprehensive U.S. tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries.
In the fourth quarter of 2017, we recorded provisional amounts related to the effects of U.S. Tax Reform including the recognition of liabilities for taxes on mandatory deemed repatriation of non-U.S. earnings and re-measurement of deferred taxes based on the new U.S. corporate income tax rate of 21%. We updated these provisional amounts in the first nine months of 2018 based on additional guidance issued by the U.S. Internal Revenue Service resulting in an income tax benefit of $15.6 million. This adjustment to our provisional estimate of the effects of U.S. Tax Reform results in an overall net benefit of $5.5 million.
As we do not have all the necessary information to analyze all income tax effects of the new rules, these amounts remain provisional and we believe they represent a reasonable estimate of the accounting implications of U.S. Tax Reform. The ultimate impact of U.S. Tax Reform continues to be subject to adjustment as further guidance is provided by the U.S. Internal Revenue Service regarding the application of the new U.S. corporate income tax laws. We expect to complete our detailed analysis no later than the fourth quarter of 2018.
We have deferred tax assets related to net operating loss carryforwards in the U.S and in certain states and foreign jurisdictions. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, including the effect of U.S. tax reform, tax-planning and recent operating results.
We continue to provide for a valuation allowance for our U.K. deferred tax assets, as it is more likely than not that they will not be realized, and we have determined that our other deferred tax assets are currently more likely than not realizable. In a future period, if we were to determine that we would not be able to realize some or all of our deferred tax assets in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance which would increase the provision for income taxes.

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

9. Fair Value Measurements
At September 30, 2018 and December 31, 2017, the Company had $68.0 million and $108.4 million, respectively, of debt outstanding under the Credit Facility which incurs interest at a variable interest rate, and therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.
The fair value of our Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At September 30, 2018, the fair value and the carrying value of our Senior Notes approximated $402.0 million and $401.3 million, respectively. At December 31, 2017, the fair value and the carrying value of our Senior Notes approximated $402.0 million and $401.6 million, respectively.
There were no other outstanding financial assets as of September 30, 2018 and December 31, 2017 that required measuring the amounts at fair value. We did not change our valuation techniques associated with recurring fair value measurements from prior periods, and there were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2018.

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

10. Business Segments
The Company reports its results of operations in the following three reportable segments: Drilling & Subsea, Completions and Production & Infrastructure. The amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments. Summary financial data by segment follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Drilling & Subsea
$
54,542

 
$
54,700

 
$
166,797

 
$
180,607

Completions
118,533

 
60,037

 
357,640

 
156,938

Production & Infrastructure
95,286

 
84,980

 
270,306

 
235,676

Eliminations
(1,324
)
 
(1,008
)
 
(3,472
)
 
(2,301
)
Total revenue
$
267,037

 
$
198,709

 
$
791,271

 
$
570,920

 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
Drilling & Subsea
$
(8,498
)
 
$
(8,872
)
 
$
(24,618
)
 
$
(23,580
)
Completions
15,425

 
1,614

 
36,866

 
(1,223
)
Production & Infrastructure
5,299

 
4,258

 
13,165

 
7,124

Corporate
(8,816
)
 
(9,271
)
 
(26,239
)
 
(24,897
)
Segment operating income (loss)
3,410

 
(12,271
)
 
(826
)
 
(42,576
)
Transaction expenses
769

 
882

 
2,164

 
1,755

Goodwill and intangible asset impairments
—

 
638

 
14,477

 
68,642

Loss (gain) on disposal of assets and other
205

 
128

 
(1,495
)
 
1,517

Operating income (loss)
$
2,436

 
$
(13,919
)
 
$
(15,972
)
 
$
(114,490
)
A summary of consolidated assets by reportable segment is as follows (in thousands):
 
September 30,
2018
 
December 31,
2017
Drilling & Subsea
$
619,620

 
$
645,254

Completions
1,238,658

 
1,202,379

Production & Infrastructure
268,135

 
251,685

Corporate
43,095

 
95,910

Total assets
$
2,169,508

 
$
2,195,228

Corporate assets include, among other items, cash, prepaid assets and deferred financing costs.

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Notes to condensed consolidated financial statements (continued)
(Unaudited)

The following table presents our revenues disaggregated by product line (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Drilling Technologies
$
43,326

 
$
38,221

 
$
132,489

 
$
130,531

Subsea Technologies
11,216

 
16,479

 
34,308

 
50,076

Downhole Technologies
27,484

 
20,010

 
78,582

 
53,637

Stimulation and Intervention
54,849

 
40,027

 
166,341

 
103,301

Coiled Tubing
36,200

 
—

 
112,717

 
—

Production Equipment
37,413

 
32,275

 
104,138

 
89,293

Valve Solutions
57,873

 
52,705

 
166,168

 
146,383

Eliminations
(1,324
)
 
(1,008
)
 
(3,472
)
 
(2,301
)
Total revenue
$
267,037

 
$
198,709

 
$
791,271

 
$
570,920

The following table presents our revenues disaggregated by geography (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
United States
$
208,595

 
$
151,400

 
$
602,625

 
$
434,649

Canada
18,135

 
14,818

 
53,840

 
40,343

Europe & Africa
12,023

 
14,968

 
43,150

 
48,092

Middle East
12,360

 
5,084

 
39,318

 
14,771

Asia-Pacific
9,391

 
7,799

 
32,328

 
19,694

Latin America
6,533

 
4,640

 
20,010

 
13,371

Total Revenue
$
267,037

 
$
198,709

 
$
791,271

 
$
570,920


11. Commitments and Contingencies
In the ordinary course of business, the Company is, and in the future could be, involved in various pending or threatened legal actions that may or may not be covered by insurance. Management has reviewed such pending judicial and legal proceedings and the availability and limits of insurance coverage, and has established reserves that are believed to be appropriate in light of those outcomes that are considered to be probable and can be reasonably estimated. The reserves accrued at September 30, 2018 and December 31, 2017, respectively, are immaterial. It is management’s opinion that the Company’s ultimate liability, if any, with respect to these actions is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

20
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

12. Earnings Per Share
The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(3,054
)
 
$
(14,828
)
 
$
9,663

 
$
(108,469
)
 
 
 
 
 
 
 
 
Basic - weighted average shares outstanding
108,856

 
96,275

 
108,666

 
96,103

Dilutive effect of stock options and restricted stock
—

 
—

 
2,135

 
—

Diluted - weighted average shares outstanding
108,856

 
96,275

 
110,801

 
96,103

 
 
 
 
 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
(0.15
)
 
$
0.09

 
$
(1.13
)
Diluted
$
(0.03
)
 
$
(0.15
)
 
$
0.09

 
$
(1.13
)
The calculation of diluted earnings per share excludes approximately 3.8 million shares that were anti-dilutive for the nine months ended September 30, 2018. The calculation of diluted loss per share excludes all potentially dilutive shares for the three months ended September 30, 2018 and the three and nine months ended September 30, 2017 because there were net losses for these periods.
13. Stockholders' Equity
Share-based compensation
During the nine months ended September 30, 2018, the Company granted 504,930 stock options, 1,220,694 shares of restricted stock and restricted stock units and 160,010 performance share awards with a market condition.
The stock options granted have an exercise price of $12.00 per share and vest ratably over 4 years. The 1,220,694 shares of restricted stock and restricted stock units include 1,108,194 shares granted to employees that vest ratably over 4 years and 112,500 shares granted to non-employee members of the Board of Directors that have a vesting period of 12 months.
The performance share awards granted may settle for between zero and two shares of the Company’s common stock. The number of shares issued pursuant to the performance share award agreements will be determined based on the total shareholder return of the Company’s common stock as compared to a group of peer companies, measured annually over a one year, two year and three year performance period.
14. Related Party Transactions
The Company has sold and purchased equipment and services to and from certain affiliates of our directors. The dollar amounts related to these related party activities are not material to the Company’s unaudited condensed consolidated financial statements.
15. Subsequent Event

On October 8, 2018, we acquired 100% of the stock of Houston Global Heat Transfer LLC (“GHT”) for $52.0 million in cash consideration, subject to customary adjustments for actual working capital conveyed. In addition, the acquisition agreement contains an earn-out arrangement whereby additional cash consideration will be due to the former owners of GHT if certain conditions are met in 2019 and 2020. This acquisition will be included in the Completions segment. Based in Houston, Texas, GHT designs, engineers, and manufactures premium industrial heat exchanger and cooling systems used primarily on hydraulic fracturing equipment. GHT’s flagship product, the Jumbotron, is an innovative cube-style radiator that substantially reduces customer maintenance expense.


21
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

16. Condensed Consolidating Financial Statements
The Senior Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The guarantees are full and unconditional, joint and several, and on an unsecured basis.
Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenue
 
$
—

 
$
238,224

 
$
44,552

 
$
(15,739
)
 
$
267,037

Cost of sales
 
—

 
173,795

 
35,063

 
(16,362
)
 
192,496

Gross Profit
 
—

 
64,429

 
9,489

 
623

 
74,541

Operating Expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
56,530

 
15,260

 
—

 
71,790

Goodwill and intangible assets impairment
 
—

 
—

 
—

 
—

 
—

Transaction Expenses
 
—

 
491

 
278

 
—

 
769

Loss (gain) on disposal of assets and other
 
—

 
(15
)
 
220

 
—

 
205

Total operating expenses
 
—

 
57,006

 
15,758

 
—

 
72,764

Earnings from equity investment
 
—

 
332

 
327

 
—

 
659

Equity earnings (loss) from affiliate, net of tax
 
3,164

 
(3,226
)
 
—

 
62

 
—

Operating income (loss)
 
3,164

 
4,529

 
(5,942
)
 
685

 
2,436

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense
 
7,870

 
40

 
13

 
—

 
7,923

Foreign exchange and other gains, net
 
—

 
(156
)
 
(1,169
)
 
—

 
(1,325
)
Total other (income) expense, net
 
7,870

 
(116
)
 
(1,156
)
 
—

 
6,598

Income (loss) before income taxes
 
(4,706
)
 
4,645

 
(4,786
)
 
685

 
(4,162
)
Income tax expense (benefit)
 
(1,652
)
 
1,481

 
(937
)
 
—

 
(1,108
)
Net income (loss)
 
(3,054
)
 
3,164

 
(3,849
)
 
685

 
(3,054
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
(3,054
)
 
3,164

 
(3,849
)
 
685

 
(3,054
)
Change in foreign currency translation, net of tax of $0
 
(1,536
)
 
(1,536
)
 
(1,536
)
 
3,072

 
(1,536
)
Gain on pension liability
 
7

 
7

 
7

 
(14
)
 
7

Comprehensive income (loss)
 
$
(4,583
)
 
$
1,635

 
$
(5,378
)
 
$
3,743

 
$
(4,583
)


22
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenue
 
$
—

 
$
171,031

 
$
43,121

 
$
(15,443
)
 
$
198,709

Cost of sales
 
—

 
133,503

 
32,877

 
(15,230
)
 
151,150

Gross Profit
 
—

 
37,528

 
10,244

 
(213
)
 
47,559

Operating Expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
51,127

 
12,064

 
—

 
63,191

Transaction Expenses
 
—

 
882

 
—

 
—

 
882

Goodwill and intangible asset impairments
 
—

 
638

 
—

 
—

 
638

Loss on disposal of assets and other
 
—

 
91

 
37

 
—

 
128

Total operating expenses
 
—

 
52,738

 
12,101

 
—

 
64,839

Earnings from equity investment
 
—

 
3,361

 
—

 
—

 
3,361

Equity loss from affiliate, net of tax
 
(10,467
)
 
(3,959
)
 
—

 
14,426

 
—

Operating loss
 
(10,467
)
 
(15,808
)
 
(1,857
)
 
14,213

 
(13,919
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
6,710

 
(188
)
 
(156
)
 
—

 
6,366

Foreign exchange and other losses (gains), net
 
—

 
(110
)
 
2,470

 
—

 
2,360

Total other (income) expense, net
 
6,710

 
(298
)
 
2,314

 
—

 
8,726

Loss before income taxes
 
(17,177
)
 
(15,510
)
 
(4,171
)
 
14,213

 
(22,645
)
Income tax benefit
 
(2,349
)
 
(5,043
)
 
(425
)
 
—

 
(7,817
)
Net loss
 
(14,828
)
 
(10,467
)
 
(3,746
)
 
14,213

 
(14,828
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net loss
 
(14,828
)
 
(10,467
)
 
(3,746
)
 
14,213

 
(14,828
)
Change in foreign currency translation, net of tax of $0
 
11,547

 
11,547

 
11,547

 
(23,094
)
 
11,547

Loss on pension liability
 
(36
)
 
(36
)
 
(36
)
 
72

 
(36
)
Comprehensive income (loss)
 
$
(3,317
)
 
$
1,044

 
$
7,765

 
$
(8,809
)
 
$
(3,317
)


23
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenue
 
$
—

 
$
698,300

 
$
136,292

 
$
(43,321
)
 
$
791,271

Cost of sales
 
—

 
510,190

 
110,762

 
(44,178
)
 
576,774

Gross Profit
 
—

 
188,110

 
25,530

 
857

 
214,497

Operating Expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
175,342

 
40,027

 
—

 
215,369

Goodwill and intangible assets impairment
 
—

 
—

 
14,477

 
—

 
14,477

Transaction Expenses
 
—

 
1,879

 
285

 
—

 
2,164

Loss (gain) on disposal of assets and other
 
—

 
(2,349
)
 
854

 
—

 
(1,495
)
Total operating expenses
 
—

 
174,872

 
55,643

 
—

 
230,515

Earnings (loss) from equity investment
 
—

 
337

 
(291
)
 
—

 
46

Equity earnings from affiliate, net of tax
 
28,413

 
6,781

 
—

 
(35,194
)
 
—

Operating income (loss)
 
28,413

 
20,356

 
(30,404
)
 
(34,337
)
 
(15,972
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
23,734

 
414

 
(277
)
 
—

 
23,871

Foreign exchange and other gains, net
 
—

 
(265
)
 
(3,369
)
 
—

 
(3,634
)
(Gain) loss on contribution of subsea rentals business
 
—

 
5,856

 
(39,362
)
 
—

 
(33,506
)
Total other (income) expense, net
 
23,734

 
6,005

 
(43,008
)
 
—

 
(13,269
)
Income (loss) before income taxes
 
4,679

 
14,351

 
12,604

 
(34,337
)
 
(2,703
)
Income tax expense (benefit)
 
(4,984
)
 
(14,062
)
 
6,680

 
—

 
(12,366
)
Net income
 
9,663

 
28,413

 
5,924

 
(34,337
)
 
9,663

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
9,663

 
28,413

 
5,924

 
(34,337
)
 
9,663

Change in foreign currency translation, net of tax of $0
 
(13,884
)
 
(13,884
)
 
(13,884
)
 
27,768

 
(13,884
)
Gain on pension liability
 
78

 
78

 
78

 
(156
)
 
78

Comprehensive income (loss)
 
$
(4,143
)
 
$
14,607

 
$
(7,882
)
 
$
(6,725
)
 
$
(4,143
)








24
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenue
 
$
—

 
$
486,683

 
$
133,798

 
$
(49,561
)
 
$
570,920

Cost of sales
 
—

 
375,990

 
108,390

 
(49,253
)
 
435,127

Gross Profit
 
—

 
110,693

 
25,408

 
(308
)
 
135,793

Operating Expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
149,030

 
36,730

 
—

 
185,760

Transaction Expenses
 
—

 
1,644

 
111

 
—

 
1,755

Goodwill and intangible asset impairments
 
—

 
32,881

 
35,761

 
—

 
68,642

Loss on disposal of assets and other
 
—

 
1,433

 
84

 
—

 
1,517

Total operating expenses
 
—

 
184,988

 
72,686

 
—

 
257,674

Earnings from equity investment
 
—

 
7,391

 
—

 
—

 
7,391

Equity loss from affiliate, net of tax
 
(95,415
)
 
(48,535
)
 
—

 
143,950

 
—

Operating loss
 
(95,415
)
 
(115,439
)
 
(47,278
)
 
143,642

 
(114,490
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
20,083

 
(374
)
 
(378
)
 
—

 
19,331

Foreign exchange and other losses (gains), net
 
—

 
(297
)
 
6,805

 
—

 
6,508

Total other (income) expense, net
 
20,083

 
(671
)
 
6,427

 
—

 
25,839

Loss before income taxes
 
(115,498
)
 
(114,768
)
 
(53,705
)
 
143,642

 
(140,329
)
Income tax benefit
 
(7,029
)
 
(19,353
)
 
(5,478
)
 
—

 
(31,860
)
Net loss
 
(108,469
)
 
(95,415
)
 
(48,227
)
 
143,642

 
(108,469
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net loss
 
(108,469
)
 
(95,415
)
 
(48,227
)
 
143,642

 
(108,469
)
Change in foreign currency translation, net of tax of $0
 
34,094

 
34,094

 
34,094

 
(68,188
)
 
34,094

Loss on pension liability
 
(133
)
 
(133
)
 
(133
)
 
266

 
(133
)
Comprehensive loss
 
$
(74,508
)
 
$
(61,454
)
 
$
(14,266
)
 
$
75,720

 
$
(74,508
)


25
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
11,758

 
$
15,182

 
$
—

 
$
26,940

Accounts receivable—trade, net
 
—

 
186,235

 
28,484

 
—

 
214,719

Inventories, net
 
—

 
439,961

 
71,438

 
(7,947
)
 
503,452

Prepaid expenses and other current assets
 
—

 
21,111

 
6,804

 
—

 
27,915

Accrued revenue
 
—

 
631

 
1,138

 
—

 
1,769

Costs and estimated profits in excess of billings
 
—

 
8,589

 
1,896

 
—

 
10,485

Total current assets
 
—

 
668,285

 
124,942

 
(7,947
)
 
785,280

Property and equipment, net of accumulated depreciation
 
—

 
158,496

 
21,264

 
—

 
179,760

Deferred financing costs, net
 
2,278

 
—

 
—

 
—

 
2,278

Intangible assets
 
—

 
358,033

 
32,456

 
—

 
390,489

Goodwill
 
—

 
601,298

 
151,063

 
—

 
752,361

Investment in unconsolidated subsidiary
 
—

 
2,416

 
38,935

 
—

 
41,351

Deferred income taxes, net
 
—

 
4,973

 
3,344

 
—

 
8,317

Other long-term assets
 
—

 
4,416

 
5,256

 
—

 
9,672

Investment in affiliates
 
1,264,192

 
387,847

 
—

 
(1,652,039
)
 
—

Long-term advances to affiliates
 
633,096

 
—

 
92,275

 
(725,371
)
 
—

Total assets
 
$
1,899,566

 
$
2,185,764

 
$
469,535

 
$
(2,385,357
)
 
$
2,169,508

Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
—

 
$
924

 
$
24

 
$
—

 
$
948

Accounts payable—trade
 
—

 
123,061

 
19,479

 
—

 
142,540

Accrued liabilities
 
12,933

 
38,825

 
18,088

 
—

 
69,846

Deferred revenue
 
—

 
5,042

 
2,684

 
—

 
7,726

Billings in excess of costs and profits recognized
 
—

 
206

 
4,954

 
—

 
5,160

Total current liabilities
 
12,933

 
168,058

 
45,229

 
—

 
226,220

Long-term debt, net of current portion
 
465,882

 
69

 
18

 
—

 
465,969

Deferred income taxes, net
 
—

 
13,978

 
7,821

 
—

 
21,799

Other long-term liabilities
 
—

 
14,096

 
20,673

 
—

 
34,769

Long-term payables to affiliates
 
—

 
725,371

 
—

 
(725,371
)
 
—

Total liabilities
 
478,815

 
921,572

 
73,741

 
(725,371
)
 
748,757

 
 
 
 
 
 
 
 
 
 
 
Total equity
 
1,420,751

 
1,264,192

 
395,794

 
(1,659,986
)
 
1,420,751

Total liabilities and equity
 
$
1,899,566

 
$
2,185,764

 
$
469,535

 
$
(2,385,357
)
 
$
2,169,508


26
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
73,981

 
$
41,235

 
$
—

 
$
115,216

Accounts receivable—trade, net
 
—

 
168,162

 
34,752

 
—

 
202,914

Inventories, net
 
—

 
374,527

 
77,454

 
(8,804
)
 
443,177

Prepaid expenses and other current assets
 
—

 
12,679

 
6,811

 
—

 
19,490

Costs and estimated profits in excess of billings
 
—

 
9,584

 
—

 
—

 
9,584

Total current assets
 
—

 
638,933

 
160,252

 
(8,804
)
 
790,381

Property and equipment, net of accumulated depreciation
 
—

 
167,407

 
29,874

 
—

 
197,281

Deferred financing costs, net
 
2,900

 
—

 
—

 
—

 
2,900

Intangible assets
 
—

 
390,752

 
52,312

 
—

 
443,064

Goodwill
 
—

 
599,677

 
155,568

 
—

 
755,245

Deferred income taxes, net
 
—

 
—

 
3,344

 
—

 
3,344

Other long-term assets
 
—

 
2,086

 
927

 
—

 
3,013

Investment in affiliates
 
1,250,593

 
418,799

 
—

 
(1,669,392
)
 
—

Long-term advances to affiliates
 
667,968

 
—

 
90,524

 
(758,492
)
 
—

Total assets
 
$
1,921,461

 
$
2,217,654

 
$
492,801

 
$
(2,436,688
)
 
$
2,195,228

Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
—

 
$
1,048

 
$
108

 
$
—

 
$
1,156

Accounts payable—trade
 
—

 
117,158

 
20,526

 
—

 
137,684

Accrued liabilities
 
6,638

 
46,962

 
13,165

 
—

 
66,765

Deferred revenue
 
—

 
4,455

 
4,364

 
—

 
8,819

Billings in excess of costs and profits recognized
 
—

 
1,394

 
487

 
—

 
1,881

Total current liabilities
 
6,638

 
171,017

 
38,650

 
—

 
216,305

Long-term debt, net of current portion
 
505,807

 
908

 
35

 
—

 
506,750

Deferred income taxes, net
 
—

 
22,737

 
8,495

 
—

 
31,232

Other long-term liabilities
 
—

 
13,907

 
18,018

 
—

 
31,925

Long-term payables to affiliates
 
—

 
758,492

 
—

 
(758,492
)
 
—

Total liabilities
 
512,445

 
967,061

 
65,198

 
(758,492
)
 
786,212

 
 
 
 
 
 
 
 
 
 
 
Total equity
 
1,409,016

 
1,250,593

 
427,603

 
(1,678,196
)
 
1,409,016

Total liabilities and equity
 
$
1,921,461

 
$
2,217,654

 
$
492,801

 
$
(2,436,688
)
 
$
2,195,228




27
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Cash flows from operating activities
 
$
7,613

 
$
(9,720
)
 
$
1,711

 
$
(23,950
)
 
$
(24,346
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property and equipment
 
—

 
(16,698
)
 
(3,158
)
 
—

 
(19,856
)
Acquisition of businesses, net of cash acquired
 
—

 
(8,000
)
 
—

 
—

 
(8,000
)
Proceeds from sale of business, property and equipment
 
—

 
5,128

 
4,066

 
—

 
9,194

Long-term loans and advances to affiliates
 
35,539

 
3,569

 
—

 
(39,108
)
 
—

Net cash provided by (used in) investing activities
 
$
35,539

 
$
(16,001
)
 
$
908

 
$
(39,108
)
 
$
(18,662
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Borrowings of debt
 
100,000

 
—

 
—

 
—

 
100,000

Repayments of debt
 
(140,803
)
 
(963
)
 
(100
)
 
—

 
(141,866
)
Repurchases of stock
 
(2,499
)
 
—

 
—

 
—

 
(2,499
)
Proceeds from stock issuance
 
150

 
—

 
—

 
—

 
150

Long-term loans and advances to affiliates
 
—

 
(35,539
)
 
(3,569
)
 
39,108

 
—

Dividend paid to affiliates
 
—

 
—

 
(23,950
)
 
23,950

 
—

Net cash used in financing activities
 
$
(43,152
)
 
$
(36,502
)
 
$
(27,619
)
 
$
63,058

 
$
(44,215
)
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
 
—

 
—

 
(1,053
)
 
—

 
(1,053
)
 
 
 
 
 
 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
 
—

 
(62,223
)
 
(26,053
)
 
—

 
(88,276
)
Cash, cash equivalents and restricted cash at beginning of period
 
—

 
73,981

 
41,235

 
—

 
115,216

Cash, cash equivalents and restricted cash at end of period
 
$
—

 
$
11,758

 
$
15,182

 
$
—

 
$
26,940


28
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Cash flows from operating activities
 
$
(7,671
)
 
$
2,262

 
$
(11,674
)
 
$
—

 
$
(17,083
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property and equipment
 
—

 
(14,625
)
 
(5,031
)
 
—

 
(19,656
)
Acquisition of businesses, net of cash acquired
 
—

 
(42,204
)
 
(5,686
)
 
—

 
(47,890
)
Investment in unconsolidated subsidiary
 
—

 
(1,041
)
 
—

 
—

 
(1,041
)
Proceeds from sale of business, property and equipment
 
—

 
1,849

 
—

 
—

 
1,849

Long-term loans and advances to affiliates
 
9,790

 
7,902

 
—

 
(17,692
)
 
—

Net cash provided by (used in) investing activities
 
$
9,790

 
$
(48,119
)
 
$
(10,717
)
 
$
(17,692
)
 
$
(66,738
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Repayments of debt
 
—

 
(1,076
)
 
(64
)
 
—

 
(1,140
)
Repurchases of stock
 
(4,667
)
 
—

 
—

 
—

 
(4,667
)
Proceeds from stock issuance
 
2,896

 
—

 
—

 
—

 
2,896

Long-term loans and advances to affiliates
 
—

 
(9,790
)
 
(7,902
)
 
17,692

 
—

Net cash used in financing activities
 
$
(1,771
)
 
$
(10,866
)
 
$
(7,966
)
 
$
17,692

 
$
(2,911
)
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
 
—

 
—

 
8,702

 
—

 
8,702

 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
348

 
(56,723
)
 
(21,655
)
 
—

 
(78,030
)
Cash, cash equivalents and restricted cash at beginning of period
 
65

 
143,275

 
91,082

 
—

 
234,422

Cash, cash equivalents and restricted cash at end of period
 
$
413

 
$
86,552

 
$
69,427

 
$
—

 
$
156,392



29

 

Item 2. Management’s discussion and analysis of financial condition and results of operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Forward-looking statements may include statements about:
•business strategy;
•cash flows and liquidity;
•the volatility and impact of fluctuations in oil and natural gas prices;
•
the availability of raw materials and specialized equipment, including as a result of the application of tariffs by governmental authorities;
•our ability to accurately predict customer demand;
•customer order cancellations or deferrals;
•competition in the oil and gas industry;
•governmental regulation and taxation of the oil and natural gas industry;
•environmental liabilities;
•political, social and economic issues affecting the countries in which we do business;
•our ability to deliver our backlog in a timely fashion;
•our ability to implement new technologies and services;
•availability and terms of capital;
•general economic conditions;
•
our ability to successfully manage our growth, including risks and uncertainties associated with integrating and retaining key employees of the businesses we acquire;
•benefits of our acquisitions;
•availability of key management personnel;
•availability of skilled and qualified labor;
•operating hazards inherent in our industry;
•the continued influence of our largest shareholder;
•the ability to establish and maintain effective internal control over financial reporting;
•effects of remediation efforts to address the material weakness discussed in “Item 4. Controls and Procedures;”
•financial strategy, budget, projections and operating results;
•uncertainty regarding our future operating results; and
•plans, objectives, expectations and intentions contained in this report that are not historical.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2018, and elsewhere in this Quarterly Report on Form 10-Q. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

30

Overview
We are a global oilfield products company, serving the drilling, subsea, completion, production and infrastructure sectors of the oil and natural gas industry. We design, manufacture and distribute products, and engage in aftermarket services, parts supply and related services that complement our product offering. Our product offering includes a mix of frequently replaced consumable products and highly engineered capital products that are used in the exploration, development, production and transportation of oil and natural gas. Our consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineered capital products are directed at: drilling rig equipment for new rigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on new producing wells; pressure pumping equipment; and downstream capital projects. For the nine months ended September 30, 2018, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.
We seek to design, manufacture and supply reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators.
We operate three business segments that cover all stages of the well cycle. A summary of the products and services offered by each segment is as follows:
•
Drilling & Subsea segment. This segment designs and manufactures products and provides related services to the drilling, energy subsea construction and services markets, and other markets such as alternative energy, defense and communications. The products and related services consist primarily of: (i) capital equipment and a broad line of expendable drilling products consumed in the drilling process; and (ii) subsea remotely operated vehicles and trenchers, specialty components and tooling, products used in subsea pipeline infrastructure, and a broad suite of complementary subsea technical services and rental items.
•
Completions segment. This segment designs, manufactures and supplies products and provides related services to the well construction, completion, stimulation and intervention markets. The products and related services consist primarily of: (i) well construction casing and cementing equipment, protectors for artificial lift equipment and cables used in completions, composite plugs used for zonal isolation in hydraulic fracturing and wireline flow-control products; and (ii) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, pump consumables, cooling systems and flow iron as well as coiled tubing, wireline cable, and pressure control equipment used in the well completion and intervention service markets.
•
Production & Infrastructure segment. This segment designs, manufactures and supplies products and provides related equipment and services for production and infrastructure markets. The products and related services consist primarily of: (i) engineered process systems, production equipment and related field services, as well as oil and produced water treatment equipment; and (ii) a wide range of industrial valves focused on serving upstream, midstream, and downstream oil and natural gas customers as well as power and other general industries.
Market Conditions
The level of demand for our products is directly related to activity levels and the capital and operating budgets of our customers, which in turn are heavily influenced by energy prices and the expectation as to future price trends. In addition, the availability of existing capital equipment adequate to serve exploration and production requirements, or lack thereof, drives demand for our capital equipment products.
The probability of any cyclical change in energy prices and the extent and duration of such a change are difficult to predict. In November 2016, the Organization of Petroleum Exporting Countries (“OPEC”) and other unaffiliated countries announced that their production levels would be capped or reduced. In June 2018, the OPEC coalition agreed to a measured lifting of the reductions. Oil prices have strengthened in 2018 and risen to levels last seen in 2014. These increases in current prices have led to higher drilling and completions activity and higher spending by our customers, primarily in North America, compared to the last few years. The volume of rigs drilling for oil and natural gas in North America and the resulting level of well completions are drivers for our revenue from this region. The number of active rigs has increased substantially from the low point reached in the second quarter of 2016, and the intensity of hydraulic fracturing and other completion activity has also increased substantially. Exploration and production operators continue to have improved well economics derived from concentrating activity in basins with the best returns on investment and employing enhanced drilling and completion techniques. This heightened level of activity led to our increased revenues and orders in 2017 through the third quarter of 2018, principally from the sale of consumable products. More recently, these favorable results have been tempered due to pipeline capacity constraints in the Permian basin. The inability of

31

operators to transport additional production from this basin is causing a reduction in activity. Additional pipeline capacity is projected to come online sometime in 2019.
Although the demand for capital equipment in the completions space has increased, the availability of newer or upgraded onshore and offshore drilling rigs has limited demand for drilling capital equipment. Drilling and completions activity in higher cost areas, especially offshore and in some international regions, has lagged the North America onshore activity recovery. Early signs of an increase in drilling and completions activity in international areas are beginning to emerge, but offshore and subsea activity remains at historically low levels. The revenue of our Valve Solutions product line is also influenced by energy prices, but to a lesser extent than the remainder of our business. As a result, their operating and financial results tend to be less cyclical.
In March 2018, the President of the United States issued a proclamation imposing a global tariff on imports of select steel products. The President subsequently proposed an additional tariff on imports from China. The government of China and the European Union have each responded with tariffs on U.S. goods. These tariffs have caused our cost of raw materials to increase and their ultimate impact on our business and operations is uncertain. However, in response, we are taking actions to mitigate the impact including diversifying our supply chain.
The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (“WTI”), United Kingdom Brent crude oil (“Brent”), and Henry Hub natural gas:
 
 
Three Months Ended
 
 
September 30,
 
June 30,
 
September 30,
 
 
2018
 
2018
 
2017
Average global oil, $/bbl
 
 
 
 
 
 
West Texas Intermediate
 
$
69.69

 
$
68.07

 
$
48.18

United Kingdom Brent
 
$
75.07

 
$
74.53

 
$
52.10

 
 
 
 
 
 
 
Average North American Natural Gas, $/Mcf
 
 
 
 
 
 
Henry Hub
 
$
2.93

 
$
2.85

 
$
2.95

Average WTI and Brent oil prices in the third quarter of 2018 were essentially the same as compared to the second quarter of 2018, and were 45% and 44% higher, respectively, compared to the third quarter of 2017. Average natural gas prices were essentially unchanged in the third quarter of 2018 compared to the second quarter of 2018 and the third quarter of 2017.

32

The table below shows the average number of active drilling rigs, based on the weekly Baker Hughes Incorporated rig count, operating by geographic area and drilling for different purposes.
 
 
Three Months Ended
 
 
September 30,
 
June 30,
 
September 30,
 
 
2018
 
2018
 
2017
Active Rigs by Location
 
 
 
 
 
 
United States
 
1,051

 
1,039

 
946

Canada
 
209

 
108

 
208

International
 
1,003

 
968

 
947

Global Active Rigs
 
2,263

 
2,115

 
2,101

 
 
 
 
 
 
 
Land vs. Offshore Rigs
 
 
 
 
 
 
Land
 
2,031

 
1,898

 
1,883

Offshore
 
232

 
217

 
218

Global Active Rigs
 
2,263

 
2,115

 
2,101

 
 
 
 
 
 
 
U.S. Commodity Target
 
 
 
 
 
 
Oil/Gas
 
863

 
842

 
759

Gas
 
186

 
195

 
186

Unclassified
 
2

 
2

 
1

Total U.S. Active Rigs
 
1,051

 
1,039

 
946

 
 
 
 
 
 
 
U.S. Well Path
 
 
 
 
 
 
Horizontal
 
921

 
914

 
799

Vertical
 
63

 
58

 
70

Directional
 
67

 
67

 
77

Total U.S. Active Rigs
 
1,051

 
1,039

 
946

The average U.S. rig count for the third quarter of 2018 was basically unchanged compared to the second quarter of 2018 and 11% higher compared to the third quarter of 2017. The U.S. rig count reached a trough of 404 rigs in the second quarter of 2016. Since then, the number of working rigs has increased to 1,054 rigs as of September 30, 2018. A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. While the U.S. land rig count has continued to recover, it remains low compared to historical norms.
The table below shows the amount of total inbound orders by segment:
(in millions of dollars)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
September 30,
 
September 30,
September 30,
 
2018
 
2018
 
2017
 
2018
2017
Drilling & Subsea
$
60.2

 
$
90.0

 
$
49.3

 
$
203.3

$
170.1

Completions
114.7

 
121.2

 
72.4

 
347.0

190.8

Production & Infrastructure
99.6

 
98.8

 
108.7

 
295.2

277.5

Total Orders
$
274.5

 
$
310.0

 
$
230.4

 
$
845.5

$
638.4


33

Results of operations
Three months ended September 30, 2018 compared with three months ended September 30, 2017
 
Three Months Ended September 30,
 
Favorable / (Unfavorable)
 
2018
 
2017
 
$
 
%
(in thousands of dollars, except per share information)
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Drilling & Subsea
$
54,542

 
$
54,700

 
$
(158
)
 
(0.3
)%
Completions
118,533

 
60,037

 
58,496

 
97.4
 %
Production & Infrastructure
95,286

 
84,980

 
10,306

 
12.1
 %
Eliminations
(1,324
)
 
(1,008
)
 
(316
)
 
*

Total revenue
267,037

 
198,709

 
68,328

 
34.4
 %
Operating income (loss):
 
 
 
 
 
 
 
Drilling & Subsea
$
(8,498
)
 
$
(8,872
)
 
$
374

 
4.2
 %
Operating margin %
(15.6
)%
 
(16.2
)%
 
 
 
 
Completions
15,425

 
1,614

 
13,811

 
*

Operating margin %
13.0
 %
 
2.7
 %
 
 
 
 
Production & Infrastructure
5,299

 
4,258

 
1,041

 
24.4
 %
Operating margin %
5.6
 %
 
5.0
 %
 
 
 
 
Corporate
(8,816
)
 
(9,271
)
 
455

 
4.9
 %
Total segment operating income (loss)
3,410

 
(12,271
)
 
15,681

 
127.8
 %
Operating margin %
1.3
 %
 
(6.2
)%
 
 
 
 
Transaction expenses
769

 
882

 
113

 
12.8
 %
Goodwill and intangible asset impairments
—

 
638

 
638

 
*

Loss on disposal of assets and other
205

 
128

 
(77
)
 
*

Operating income (loss)
2,436

 
(13,919
)
 
16,355

 
117.5
 %
Interest expense
7,923

 
6,366

 
(1,557
)
 
(24.5
)%
Foreign exchange losses (gains) and other, net
(1,325
)
 
2,360

 
3,685

 
*

Total other expense
6,598

 
8,726

 
2,128

 
24.4
 %
Loss before income taxes
(4,162
)
 
(22,645
)
 
18,483

 
81.6
 %
Income tax benefit
(1,108
)
 
(7,817
)
 
(6,709
)
 
(85.8
)%
Net loss
$
(3,054
)
 
$
(14,828
)
 
$
11,774

 
79.4
 %
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
108,856

 
96,275

 
 
 
 
Diluted
108,856

 
96,275

 
 
 
 
Loss per share
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
(0.15
)
 
 
 
 
Diluted
$
(0.03
)
 
$
(0.15
)
 
 
 
 
* not meaningful
 
 
 
 
 
 
 

We made one acquisition in the nine months ended September 30, 2018 and two acquisitions in the nine months ended September 30, 2017. In addition, we contributed our subsea rentals business to Ashtead in exchange for a 40% interest in the combined business in the first quarter of 2018. Due to these changes, our results of operations for the third quarter of 2018 may not be comparable to historical results of operations for the third quarter of 2017. Refer to Note 4 Acquisitions & Dispositions for additional information.

34

Revenue
Our revenue for the three months ended September 30, 2018 increased $68.3 million, or 34.4%, to $267.0 million compared to the three months ended September 30, 2017. In general, the increase in revenue is due to the higher market activity resulting from higher oil prices. For the three months ended September 30, 2018, our Drilling & Subsea, Completions, and Production & Infrastructure segments comprised 20.4%, 43.9%, and 35.7% of our total revenue, respectively, which compared to 27.5%, 29.7%, and 42.8% of total revenue, respectively, for the three months ended September 30, 2017. The changes in revenue by operating segment consisted of the following:
Drilling & Subsea segment — Revenue decreased $0.2 million, or 0.3%, to $54.5 million in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. This change includes a $5.3 million decrease in revenue for our subsea product line primarily due to the contribution of our subsea rentals business to Ashtead in exchange for a 40% interest in the combined business. This decrease was mostly offset by a $5.1 million increase in revenues for our drilling product line attributable to higher sales volumes for consumable products as a result of the 11% increase in U.S. rig count compared to the third quarter of 2017.
Completions segment — Revenue increased $58.5 million, or 97.4%, to $118.5 million during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Segment revenue in 2018 includes $36.2 million of revenue from Global Tubing which was acquired in the fourth quarter of 2017. Refer to Note 4 Acquisitions & Dispositions for additional information. Sales of our well stimulation and intervention products increased $14.8 million due to higher sales volumes of pressure pumping products and revenue contributions from new products. The remaining $7.5 million increase in revenues was related to higher sales for our Downhole product line primarily attributable to continued growth in sales volumes for our artificial lift products including the revenue contribution from ESPCT which was acquired in the third quarter of 2018.
Production & Infrastructure segment — Revenue increased $10.3 million, or 12.1%, to $95.3 million during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase in oil and natural gas operators’ budgets and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment. Approximately half of the increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators as a result of higher well completions activity. The remaining increase is due to higher sales volumes of valve products, particularly sales into the North America oil and gas market.
Segment operating income (loss) and segment operating margin percentage
Segment operating income (loss) for the three months ended September 30, 2018 improved $15.7 million from a loss of $12.3 million for the three months ended September 30, 2017 to income of $3.4 million for the three months ended September 30, 2018. For the three months ended September 30, 2018, the segment operating margin percentage of 1.3% represents an improvement from the (6.2)% operating margin percentage for three months ended September 30, 2017. The segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period. The change in operating margin percentage for each segment is explained as follows:
Drilling & Subsea segment — The operating margin percentage for this segment was (15.6)% for the three months ended September 30, 2018 which is relatively flat compared to the (16.2)% margin for the three months ended September 30, 2017. Operating margins were negatively impacted by approximately $4.8 million and $2.0 million of restructuring charges related to severance and facility closures for the three months ended September 30, 2018 and 2017, respectively. This increase in restructuring costs was more than offset by a decrease in employee related costs and facilities expenses resulting from the cost reduction actions implemented in the third quarter of 2018.
Completions segment — The operating margin percentage for this segment improved to 13.0% for the three months ended September 30, 2018, from 2.7% for the three months ended September 30, 2017. The improvement in operating margins is due to increased operating leverage on higher volumes, especially on higher sales of our well stimulation and intervention and downhole products as discussed above. In addition, operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of Global Tubing which was previously reported as an equity method investment in the third quarter of 2017.
Production & Infrastructure segment — The operating margin percentage for this segment was 5.6% for the three months ended September 30, 2018 which was consistent with the comparable three months ended September 30, 2017. The 24.4% increase in segment operating income was driven by the increase in revenue described above.

35

Corporate — Selling, general and administrative expenses for Corporate decreased by $0.5 million, or 4.9%, to $8.8 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017, primarily due to a decrease in variable compensation expense partially offset by an increase in employee severance costs. Corporate costs include, among other items, payroll related costs for general management and management of finance and administration, legal, human resources; professional fees for legal, accounting and related services; and marketing costs.
Other items not included in segment operating loss
Several items are not included in segment operating loss, but are included in total operating loss. These items include transaction expenses, goodwill and intangible asset impairments and losses on the disposal of assets. Transaction expenses relate to legal and other advisory costs incurred in acquiring businesses and are not considered to be part of segment operating loss. These costs were $0.8 million for the three months ended September 30, 2018 and $0.9 million for the three months ended September 30, 2017.
In the third quarter of 2017, we made the decision to exit a specific product within the Subsea product line and recognized a $0.6 million impairment charge to write-off the related intangible assets. There were no goodwill or intangible asset impairment losses recognized in the three months ended September 30, 2018.
Other income and expense
Other income and expense includes interest expense and foreign exchange losses (gains). We incurred $7.9 million of interest expense during the three months ended September 30, 2018, an increase of $1.6 million from the three months ended September 30, 2017, primarily due to an increase in outstanding borrowings under our revolving line of credit. The foreign exchange losses (gains) are primarily the result of movements in the British pound and the Euro relative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S. dollar.
Taxes
We recorded a tax benefit of $1.1 million for the three months ended September 30, 2018 compared to a $7.8 million tax benefit for the three months ended September 30, 2017. The estimated annual effective tax rate for 2018 is different than the comparable period in 2017 primarily due to the reduction in the U.S. corporate income tax rate as a result of U.S. Tax Reform, losses in the U.K. for which the recording of a tax benefit is not available and higher projected state income taxes. See Note 8 Income Taxes for additional information on the impact of U.S. Tax Reform. The tax benefit or expense recorded can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.

36

Nine months ended September 30, 2018 compared with nine months ended September 30, 2017
 
Nine Months Ended September 30,
 
Favorable / (Unfavorable)
 
2018
 
2017
 
$
 
%
(in thousands of dollars, except per share information)
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Drilling & Subsea
$
166,797

 
$
180,607

 
$
(13,810
)
 
(7.6
)%
Completions
357,640

 
156,938

 
200,702

 
127.9
 %
Production & Infrastructure
270,306

 
235,676

 
34,630

 
14.7
 %
Eliminations
(3,472
)
 
(2,301
)
 
(1,171
)
 
*

Total revenue
791,271

 
570,920

 
220,351

 
38.6
 %
Operating loss:
 
 
 
 
 
 
 
Drilling & Subsea
(24,618
)
 
(23,580
)
 
(1,038
)
 
(4.4
)%
Operating margin %
(14.8
)%
 
(13.1
)%
 
 
 
 
Completions
36,866

 
(1,223
)
 
38,089

 
*

Operating margin %
10.3
 %
 
(0.8
)%
 
 
 
 
Production & Infrastructure
13,165

 
7,124

 
6,041

 
84.8
 %
Operating margin %
4.9
 %
 
3.0
 %
 
 
 
 
Corporate
(26,239
)
 
(24,897
)
 
(1,342
)
 
(5.4
)%
Total segment operating loss
(826
)
 
(42,576
)
 
41,750

 
98.1
 %
Operating margin %
(0.1
)%
 
(7.5
)%
 
 
 
 
Transaction expenses
2,164

 
1,755

 
(409
)
 
(23.3
)%
Goodwill and intangible asset impairments
14,477

 
68,642

 
54,165

 
*

Loss (gain) on disposal of assets and other
(1,495
)
 
1,517

 
3,012

 
*

Operating loss
(15,972
)
 
(114,490
)
 
98,518

 
86.0
 %
Interest expense
23,871

 
19,331

 
(4,540
)
 
(23.5
)%
Foreign exchange losses (gains) and other, net
(3,634
)
 
6,508

 
10,142

 
155.8
 %
Gain on contribution of subsea rentals business
(33,506
)
 
—

 
33,506

 
*

Total other (income) expense, net
(13,269
)
 
25,839

 
39,108

 
*

Loss before income taxes
(2,703
)
 
(140,329
)
 
137,626

 
98.1
 %
Income tax benefit
(12,366
)
 
(31,860
)
 
(19,494
)
 
(61.2
)%
Net income (loss)
$
9,663

 
$
(108,469
)
 
$
118,132

 
108.9
 %
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
108,666

 
96,103

 
 
 
 
Diluted
110,801

 
96,103

 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
0.09

 
$
(1.13
)
 
 
 
 
Diluted
$
0.09

 
$
(1.13
)
 
 
 
 
* not meaningful
 
 
 
 
 
 
 
We made one acquisition in the nine months ended September 30, 2018 and two acquisitions in the nine months ended September 30, 2017. In addition, we contributed our subsea rentals business into Ashtead in exchange for a 40% interest in the combined business in the first quarter of 2018. Due to these changes, our results of operations for the nine months ended September 30, 2018 may not be comparable to historical results of operations for the nine months ended September 30, 2017. Refer to Note 4 Acquisitions & Dispositions for additional information.

37

Revenue
Our revenue for the nine months ended September 30, 2018 increased $220.4 million, or 38.6%, to $791.3 million compared to the nine months ended September 30, 2017. In general, the increase in revenue is due to the higher market activity resulting from higher oil prices. For the nine months ended September 30, 2018, our Drilling & Subsea, Completions, and Production & Infrastructure segments comprised 21.1%, 44.7%, and 34.2% of our total revenue, respectively, which compared to 31.6%, 27.1%, and 41.3% of total revenue, respectively, for the nine months ended September 30, 2017. The changes in revenue by operating segment consisted of the following:
Drilling & Subsea segment — Revenue decreased $13.8 million, or 7.6%, to $166.8 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Approximately $15.8 million of the decrease relates to lower sales in our subsea product line primarily due to the contribution of our subsea rentals business to Ashtead in exchange for a 40% interest in the combined business as well as lower sales volumes for our specialty subsea products attributable to reduced investment in global offshore projects. This decrease was partially offset by a $2.0 million increase in sales of our drilling products related to the increase in U.S. rig count in the first nine months of 2018.
Completions segment — Revenue increased $200.7 million, or 127.9%, to $357.6 million in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Segment revenue in 2018 includes $112.7 million of revenue from Global Tubing which was acquired in the fourth quarter of 2017 as well as incremental revenue from Multilift and ESPCT which were acquired in the second quarter of 2017 and third quarter of 2018, respectively. Refer to Note 4 Acquisitions & Dispositions for additional information. The remaining increase was driven by a $63.0 million increase in sales of our well stimulation and intervention products due to higher sales volumes of pressure pumping products attributable to higher completions spending by exploration and production companies in the U.S. market.
Production & Infrastructure segment — Revenue increased $34.6 million, or 14.7%, to $270.3 million in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in oil and gas operators budgets and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment. Approximately $19.8 million of the increase is due to higher sales volumes of valve products, particularly sales into the North America oil and gas market. The remaining $14.8 million increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators.
Segment operating loss and segment operating margin percentage
Segment operating loss for the nine months ended September 30, 2018 improved $41.8 million from a loss of $42.6 million for the nine months ended September 30, 2017 to a loss of $0.8 million for the nine months ended September 30, 2018. For the nine months ended September 30, 2018, the segment operating margin percentage of (0.1)% represents an improvement from the (7.5)% operating margin percentage for nine months ended September 30, 2017. The segment operating margin percentage is calculated by dividing segment operating loss by revenue for the period. The change in operating margin percentage for each segment is explained as follows:
Drilling & Subsea segment — The operating margin percentage for this segment was (14.8)% for the nine months ended September 30, 2018 compared to (13.1)% for the nine months ended September 30, 2017. Operating margins were negatively impacted by approximately $6.4 million and $2.6 million of restructuring related charges for the nine months ended September 30, 2018 and 2017, respectively. This increase in restructuring costs was partially offset by a decrease in employee related costs and facilities expenses resulting from cost reduction actions.
Completions segment — The operating margin percentage for this segment improved to 10.3% for the nine months ended September 30, 2018, from (0.8)% for the nine months ended September 30, 2017. The improvement in operating margin percentage is due to increased operating leverage on higher volumes, especially on higher sales of our well stimulation and intervention products as discussed above. In addition, operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of Global Tubing which was previously reported as an equity method investment for the first nine months of 2017. The improvement in operating margins was partially offset by $4.9 million of charges to write-down obsolete product inventory in the nine months ended September 30, 2018.
Production & Infrastructure segment — The operating margin percentage for this segment improved to 4.9% for the nine months ended September 30, 2018, from 3.0% for the nine months ended September 30, 2017. The slight improvement in operating margin percentage was driven by increased operating leverage on higher sales volumes for our valves products partially offset by incremental costs associated with international expansion and lower margins on sales of surface production equipment.

38

Corporate — Selling, general and administrative expenses for Corporate increased by $1.3 million, or 5.4%, to $26.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, primarily due to an increase in employee payroll and severance costs partially offset by a decrease in variable compensation expense. Corporate costs include, among other items, payroll related costs for general management and management of finance and administration, legal, human resources; professional fees for legal, accounting and related services; and marketing costs.
Other items not included in segment operating loss
Several items are not included in segment operating loss, but are included in total operating loss. These items include transaction expenses, goodwill and intangible asset impairments and losses (gains) on the disposal of assets. Transaction expenses relate to legal and other advisory costs incurred in acquiring businesses and are not considered to be part of segment operating loss. These costs were $2.2 million for the nine months ended September 30, 2018 and $1.8 million for the nine months ended September 30, 2017.
In the second quarter of 2018, we made the decision to exit specific products within the Subsea and Downhole product lines. As a result, we recognized $14.5 million of impairment losses on certain intangible assets (primarily customer relationships).
In the second quarter 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins would be sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication of further delays in the recovery of the offshore market, we performed an impairment test and determined that the carrying value of the goodwill in our Subsea reporting unit was impaired resulting in a $68.0 million charge in the second quarter 2017.
In addition, in the third quarter of 2017, we made the decision to exit a specific product within the Subsea product line and recognized a $0.6 million impairment charge to write-off the related intangible assets.
Other income and expense
Other income and expense includes interest expense, foreign exchange losses (gains) and a gain recognized on the contribution of our subsea rentals business. We incurred $23.9 million of interest expense during the nine months ended September 30, 2018, an increase of $4.5 million from the nine months ended September 30, 2017 primarily due to an increase in outstanding borrowings under our revolving line of credit. The foreign exchange losses (gains) are primarily the result of movements in the British pound and the Euro relative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S. dollar. In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business. Refer to Note 4 Acquisitions & Dispositions for additional information.
Taxes
We recorded a $12.4 million tax benefit for the nine months ended September 30, 2018 as compared to a tax benefit of $31.9 million for the nine months ended September 30, 2017. The tax benefit for 2018 is significantly different than the comparable period in 2017 primarily due to the reduction in the U.S. corporate income tax rate as a result of U.S. Tax Reform, losses in the U.K. for which the recording of a tax benefit is not available and higher projected state income taxes. In addition, the tax benefit for the nine months ended September 30, 2018 included a $15.6 million income tax benefit from adjusting the provisional impact of tax reform initially recorded in the fourth quarter of 2017. See Note 8 Income Taxes for additional information on the impact of U.S. Tax Reform. For the nine months ended September 30, 2017, the tax benefit was negatively impacted by a $68.0 million impairment loss related to non-tax deductible goodwill. Furthermore, the tax benefit or expense recorded can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.


39

Liquidity and capital resources
Sources and uses of liquidity
Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit and our credit facility and senior notes described below. Our primary uses of capital have been for acquisitions, ongoing maintenance and growth capital expenditures, inventories and sales on credit to our customers. We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outside sources of capital.
At September 30, 2018, we had cash and cash equivalents of $26.9 million, availability under our Credit Facility of $219.0 million and total debt of $466.9 million. Our 2018 capital expenditures consist of, among other items, investments in certain manufacturing facilities, replacing end of life machinery and equipment, and continuing the implementation of our enterprise resource planning solution globally. This budget does not include expenditures for potential business acquisitions. We believe that cash on hand and cash generated from operations will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations for the foreseeable future.
Although we do not budget for acquisitions, pursuing growth through acquisitions is a significant part of our business strategy. We expanded and diversified our product portfolio with the acquisition of three businesses in 2017 for total cash and stock consideration of approximately $340.7 million, net of cash acquired. In addition, we completed one acquisition in the third quarter of 2018 and one acquisition in October of 2018. For additional information, see Note 4 Acquisitions & Dispositions and Note 15 Subsequent Event. We continue to actively review acquisition opportunities on an ongoing basis, and we may fund future acquisitions with cash and/or equity. Our ability to make significant additional acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.
Our cash flows for the nine months ended September 30, 2018 and 2017 are presented below (in millions):
  
Nine Months Ended September 30,
 
2018
 
2017
Net cash used in operating activities
$
(24.3
)
 
$
(17.1
)
Net cash used in investing activities
(18.7
)
 
(66.7
)
Net cash used in financing activities
(44.2
)
 
(2.9
)
Effect of exchange rate changes on cash
(1.1
)
 
8.7

Net decrease in cash, cash equivalents and restricted cash
$
(88.3
)
 
$
(78.0
)
Net cash used in operating activities
Net cash used in operating activities was $24.3 million for the nine months ended September 30, 2018 compared to $17.1 million for the nine months ended September 30, 2017. Due to improved operating results, net income adjusted for non-cash items provided $60.8 million of cash for the nine months ended September 30, 2018 as compared to $8.8 million of cash used for the same period in 2017. However, higher investments in working capital used cash of $85.1 million for the nine months ended September 30, 2018 compared to $8.3 million for the same period in 2017. The increase in working capital in the first nine months of 2018 is primarily due to increases in inventory to support revenue growth.
Net cash used in investing activities
Net cash used in investing activities was $18.7 million and $66.7 million for the nine months ended September 30, 2018 and 2017, respectively. Net cash used in investing activities for the nine months ended September 30, 2018 includes $8 million of cash consideration paid for one acquisition which was more than offset by $9.2 million of proceeds from the sale of business, property and equipment. In comparison, net cash used in investing activities for the nine months ended September 30, 2017 included $47.9 million of cash consideration paid for two acquisitions. Capital expenditures were $19.9 million and $19.7 million for the nine months ended September 30, 2018 and 2017, respectively.

40

Net cash used in financing activities
Net cash used in financing activities was $44.2 million and $2.9 million for the nine months ended September 30, 2018 and 2017, respectively. The increase primarily resulted from a $40.7 million increase in net repayments of debt in the nine months ended September 30, 2018 as compared to the same period in 2017.
Senior Notes Due 2021
The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. The Senior Notes are senior unsecured obligations guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.
Credit Facility
On October 30, 2017, we amended and restated the Credit Facility to, among other things, increase revolving credit commitments from $140.0 million to $300.0 million, including up to $30.0 million available to certain Canadian subsidiaries of the Company for loans in United States or Canadian dollars, $25.0 million available for letters of credit issued for the account of the Company and certain of its domestic subsidiaries and $3.0 million available for letters of credit issued for the account of Canadian subsidiaries of the Company. Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the United States, Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the United States and Canada. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future receivables and fluctuations in our inventory. The Credit Facility matures in July 2021, but if our outstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the 2017 Credit Facility will automatically extend to October 2022.
If excess availability under the Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.
Off-balance sheet arrangements
As of September 30, 2018, we had no off-balance sheet instruments or financial arrangements, other than operating leases and letters of credit entered into in the ordinary course of business.
Contractual obligations
Except for net repayments under the Credit Facility, as of September 30, 2018, there have been no material changes in our contractual obligations and commitments disclosed in the Annual Report.
Critical accounting policies and estimates
Beginning January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers.  Although the new revenue standard is not expected to have a material impact on our ongoing net income, we did implement new policies based on the five-step model provided in the new revenue standard and changes to our processes related to revenue recognition. There have been no other material changes in our critical accounting policies and procedures during the nine months ended September 30, 2018.
For a detailed discussion of our critical accounting policies and estimates, refer to our 2017 Annual Report on Form 10-K. For recent accounting pronouncements, refer to Note 2 Recent Accounting Pronouncements.

Item 3. Quantitative and qualitative disclosures about market risk
We are currently exposed to market risk from changes in foreign currency and changes in interest rates. From time to time, we may enter into derivative financial instrument transactions to manage or reduce our market risk, but we do not enter into derivative transactions for speculative purposes.
There have been no significant changes to our market risk since December 31, 2017. For a discussion of our exposure to market risk, refer to Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2017 Annual Report on Form 10-K.

41

 

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act). The Company’s disclosure controls and procedures have been designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of September 30, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2018 due to a previously disclosed material weakness in internal control over financial reporting as discussed below. This material weakness was identified and discussed in “Part II - Item 9A - Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2017.
Notwithstanding this material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.
In conducting management's evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2018, we have excluded Global Tubing, LLC, because it was acquired by the Company in a purchase business combination in the fourth quarter of 2017. The total assets and total revenues of Global Tubing, LLC, a wholly-owned subsidiary, constituted approximately 9% of our total consolidated assets as of September 30, 2018 and approximately 14% of our total consolidated revenues for the nine months ended September 30, 2018.
Material Weakness in Internal Control Over Financial Reporting
We identified the following material weakness in the operation of our internal control over financial reporting:
As previously disclosed in our 2017 Annual Report on Form 10-K, we did not maintain effective controls over the development of fair value measurements utilized in the application of the acquisition method of accounting for business combinations, and for purposes of testing goodwill for impairment. Specifically, our review procedures over the development and application of inputs, assumptions, and calculations used in fair value measurements associated with business combinations and goodwill impairment testing did not operate at an appropriate level of precision commensurate with our financial reporting requirements. This control deficiency resulted in an adjustment to the gain realized upon the consolidation of Global Tubing, LLC which was recorded prior to the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2017. Additionally, this control deficiency could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. This material weakness did not result in a restatement of any of the Company’s previously filed consolidated financial statements. As of the end of the period covered by this Form 10-Q, the identified material weakness has not been remediated; however, management has taken steps towards the remediation plan outlined below.
Remediation Plans
Our management, with oversight from our Audit Committee, has initiated a plan to remediate the material weakness previously identified in the Annual Report on Form 10-K for the period ended December 31, 2017. These plans include the implementation of additional controls and procedures to address the development of fair value measurements utilized in the application of the acquisition method of accounting for business combinations, and for purposes of testing goodwill for impairment. These new controls and procedures are in the process of being implemented and will be tested when we perform our annual goodwill impairment testing for the year ending December 31, 2018 and upon completion of valuation procedures associated with business acquisitions in 2018. Until management has tested the

42

 

remediation and concluded that the controls are operating effectively as designed, the material weakness will continue to exist.
Changes in Internal Control over Financial Reporting
Except for the material weakness remediation efforts identified above, there were no other changes in our internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Information related to Item 1. Legal Proceedings is included in Note 11 Commitments and Contingencies, which is incorporated herein by reference.
Item 1A. Risk Factors
For additional information about our risk factors, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of our repurchases of our common stock during the three months ended September 30, 2018.
Period
 
Total number of shares purchased (a)
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plan or programs (b)
 
Maximum value of shares that may yet be purchased under the plan or program
(in thousands) (b)
July 1, 2018 - July 31, 2018
 
2,376

 
$
12.35

 
—

 
$
49,752

August 1, 2018 - August 31, 2018
 
—

 
$
—

 
—

 
$
49,752

September 1, 2018 - September 30, 2018
 
—

 
$
—

 
—

 
$
49,752

Total
 
2,376

 
$
12.35

 
—

 
 
(a) All of the 2,376 shares purchased during the three months ended September 30, 2018 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from the vesting of restricted stock grants. These shares were not part of a publicly announced program to purchase common stock.
(b) In October 2014, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $150 million. From the inception of this program through September 30, 2018, we have repurchased approximately 4.5 million shares of our common stock for aggregate consideration of approximately $100.2 million. Remaining authorization under this program is $49.8 million.



43

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
 
 
Number
 
DESCRIPTION
 
 
 
 
Retirement agreement dated as of July 31, 2018 (incorporated herein by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K, filed on August 2, 2018) (File No. 001-35504).

 
 
 
—
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS**
—
XBRL Instance Document.
 
 
 
101.SCH**
—
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL**
—
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.LAB**
—
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE**
—
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
101.DEF**
—
XBRL Taxonomy Extension Definition Linkbase Document.
*Previously filed.
**Filed herewith.
***Furnished herewith.

44

 

SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned authorized individuals.
 
 
 
 
 
 
 
FORUM ENERGY TECHNOLOGIES, INC. 
 
 
Date:
October 31, 2018
By:
/s/ Pablo G. Mercado
 
 
 
 
Pablo G. Mercado
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
(As Duly Authorized Officer and Principal Financial Officer)
 
 
 
 
 
 
 
 
By:
/s/ Tylar K. Schmitt
 
 
 
 
Tylar K. Schmitt
 
 
 
 
Vice President and Chief Accounting Officer
 
 
 
 
(As Duly Authorized Officer and Principal Accounting Officer)
 



45