What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-08 · 122 added, 276 removed, 402 unchanged (50% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Comprehensive Loss

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share information) 2020 2019 2020 2019

9 unchanged sentences

Total operating expenses 47,924 63,022 125,421 127,974

Loss from equity investment — ( 849 )

Earnings (loss) from equity investment — 570 — ( 279 )

Operating income (loss) ( 35,022 ) 736 ( 90,429 ) 5,033

24 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share information) March 31, 2020 December 31, 2019

(in thousands, except share information) June 30, 2020 December 31, 2019

Current assets

40 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2020 2019

1 unchanged sentence

Net loss $ ( 42,638 ) $ ( 21,622 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation expense 13,296 15,067

9 unchanged sentences

Deferred income taxes 385 6,047

Noncash losses (gains) and other, net ( 734 ) 2,366

Noncash losses and other, net 686 2,471

Changes in operating assets and liabilities

5 unchanged sentences

Billings in excess of costs and estimated profits earned ( 3,089 ) ( 926 )

Net cash provided by operating activities $ 1,567 $ 17,887

Net cash provided by (used in) operating activities $ ( 2,077 ) $ 40,784

Cash flows from investing activities

Capital expenditures for property and equipment ( 1,538 ) ( 9,271 )

Proceeds from sale of equity investment, property and equipment 37 134

Proceeds from sale of business, property and equipment 1,336 425

Net cash used in investing activities $ ( 202 ) $ ( 8,846 )

16 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

(in thousands) Common stock Additional paid-in capital Treasury stock Retained

12 unchanged sentences

Balance at March 31, 2020 $ 1,196 $ 1,235,039 $ ( 134,499 ) $ ( 541,911 ) $ ( 117,763 ) $ 442,062

Stock-based compensation expense — 2,537 — — — 2,537

Restricted stock issuance, net of forfeitures — ( 2 ) — — — ( 2 )

Currency translation adjustment — — — — 1,900 1,900

Change in pension liability — — — — ( 22 ) ( 22 )

Net loss — — — ( 5,494 ) — ( 5,494 )

Balance at June 30, 2020 $ 1,196 $ 1,237,574 $ ( 134,499 ) $ ( 547,405 ) $ ( 115,885 ) $ 440,981

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

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2019

Six Months Ended June 30, 2019

(in thousands) Common stock Additional paid-in capital Treasury stock Retained

12 unchanged sentences

Balance at March 31, 2019 $ 1,183 $ 1,218,963 $ ( 134,482 ) $ 55,800 $ ( 110,405 ) $ 1,031,059

Stock-based compensation expense — 4,352 — — — 4,352

Restricted stock issuance, net of forfeitures — ( 64 ) — — — ( 64 )

Currency translation adjustment — — — — ( 1,407 ) ( 1,407 )

Change in pension liability — — — — 5 5

Net loss — — — ( 13,734 ) — ( 13,734 )

Balance at June 30, 2019 $ 1,183 $ 1,223,251 $ ( 134,482 ) $ 42,066 $ ( 111,807 ) $ 1,020,211

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

12 unchanged sentences

Prior to the sale of our aggregate 40 % interest in the third quarter of 2019, our investment in Ashtead Technology (”Ashtead”) was accounted for using the equity method of accounting as we had the ability to exert significant influence, but did not control operating and financial policies.

Prior to the sale, our share of the net income (loss) from Ashtead was reported in “Loss from equity investment” in the condensed consolidated statements of comprehensive loss and the investment was included in “Investment in unconsolidated subsidiary” in the condensed consolidated balance sheets.

Prior to the sale, our share of the net income (loss) from Ashtead was reported in “Earnings (loss) from equity investment” in the condensed consolidated statements of comprehensive loss and the investment was included in “Investment in unconsolidated subsidiary” in the condensed consolidated balance sheets.

Our share of equity earnings were reported within operating income (loss), as the investee’s operations were integral to the operations of the Company.

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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 three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other interim period.

Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 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.

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On March 11, 2020, the World Health Organization declared the current COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the United States declared a national emergency.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” orders in the areas in which we operate.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities, including quarantine and “stay-at-home” orders in the areas in which we operate.

We have experienced resulting disruptions to our business operations, as these restrictions have significantly impacted many sectors of the economy, with businesses curtailing or ceasing normal operations.

The ultimate impacts will depend on future developments, including, among others, the ultimate geographic spread of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other thirds parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

While we continue to assess the COVID-19 situation and cannot estimate with any degree of certainty the full impact of the COVID-19 outbreak on our liquidity, financial condition and future results of operations, we expect the COVID-19 situation to adversely impact future quarters.

The ultimate impacts will depend on future developments, including, among others, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other thirds parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

While we cannot estimate with any degree of certainty the full impact of the COVID-19 outbreak on our liquidity, financial condition and future results of operations, we expect the adverse impacts on our financial results from COVID-19 to continue in future quarters.

Recent Accounting Pronouncements

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The adoption of this standard resulted in a noncash cumulative effect adjustment to increase our allowance for doubtful accounts and increase our retained deficit by $ 1.4 million.

The new standard did not materially affect our Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2020.

The new standard did not materially affect our unaudited Condensed Consolidated Statement of Comprehensive Loss for the six months ended June 30, 2020.

Accounting for Implementation Costs Related to a Cloud Computing Arrangement .

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This new standard did not have a material impact on our unaudited condensed consolidated financial statements.

Subsidiary Guarantees.

In March 2020, the SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X.

The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements.

We adopted these amendments as of June 30, 2020.

Accordingly, combined summarized financial information has been presented only for the issuers and guarantors of our registered securities for the most recent fiscal year and the year-to-date interim period.

In addition, the previous disclosures have been removed from the Notes to Condensed Consolidated Financial Statements and the new required disclosures are included in Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Accounting Standards Issued But Not Yet Adopted

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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 three months ended March 31, 2020 (in thousands):

March 31, 2020 December 31, 2019 Decrease

The following table reflects the changes in our contract assets and contract liabilities balances for the six months ended June 30, 2020 (in thousands):

June 30, 2020 December 31, 2019 Increase / (Decrease)

Accrued revenue $ 1,303 $ 1,260

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Contract liabilities $ 6,097 $ 10,788 $ ( 4,691 ) ( 43 ) %

During the three months ended March 31, 2020, our contract assets decreased by $ 1.4 million primarily due to a reduction in project revenues within our Production Equipment product line.

During the three months ended March 31, 2020, our contract liabilities decreased by $ 0.2 million.

During the three months ended March 31, 2020, we recognized revenue of $ 5.5 million that was included in the contract liability balance at the beginning of the period.

During the six months ended June 30, 2020, our contract assets increased by $ 0.9 million and our contract liabilities decreased by $ 4.7 million due to the timing of billings for projects within our Subsea product line.

During the six months ended June 30, 2020, we recognized revenue of $ 8.8 million that was included in the contract liability balance at the beginning of the period.

As all of our contracts are less than one year in duration, 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.

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Notes to Condensed Consolidated Financial Statements (Continued)

Our significant components of inventory at March 31, 2020 and December 31, 2019 were as follows (in thousands):

March 31, 2020 December 31, 2019

Our significant components of inventory at June 30, 2020 and December 31, 2019 were as follows (in thousands):

June 30, 2020 December 31, 2019

Raw materials and parts $ 173,725 $ 172,082

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Intangible Assets

Intangible assets consisted of the following as of March 31, 2020 and December 31, 2019, respectively (in thousands):

March 31, 2020

Intangible assets consisted of the following as of June 30, 2020 and December 31, 2019, respectively (in thousands):

June 30, 2020

Gross Carrying Amount Accumulated Amortization Net Intangibles Amortization Period (In Years)

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Intangible Assets Total $ 444,273 $ ( 171,973 ) $ 272,300

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Impairments of Long-Lived Assets

Long-lived assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

During the three months ended March 31, 2020, the COVID-19 pandemic and associated preventative actions taken around the world to mitigate the virus's spread caused oil demand to deteriorate and economic activity to decrease.

As a result, oil prices declined significantly during the period and were exacerbated by aggressive increases in production by Saudi Arabia, Russia and other OPEC+ oil producing nations.

The combination of these shocks in both supply and demand created an extremely challenging market for all sub-sectors of the oil and natural gas industry.

During the six months ended June 30, 2020, the COVID-19 pandemic and associated preventative actions taken around the world to mitigate its spread caused oil demand to deteriorate and economic activity to decrease.

As a result, oil prices declined significantly during the period and created an extremely challenging market for all sub-sectors of the oil and natural gas industry.

In addition, responses to the spread of COVID-19, including significant government restrictions on movement, are continuing to drive sharp declines in global economic activity.

As a result, we determined that certain long-lived assets were impaired as their carrying values exceeded their fair values.

We recognized the following impairment charges during the three months ended March 31, 2020 (in thousands):

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

As a result, and in connection with the preparation of our financial statements, we determined that certain long-lived assets were impaired as their carrying values exceeded their fair values.

We recognized the following impairment charges during the six months ended June 30, 2020 (in thousands):

Impairments of:

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Notes to Condensed Consolidated Financial Statements (Continued)

Notes payable and lines of credit as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

March 31, 2020 December 31, 2019

6.25 % Senior Notes due October 2021

Notes payable and lines of credit as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020 December 31, 2019

6.25 % Notes due October 2021

$ 328,144 $ 400,000

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Long-term debt $ 412,442 $ 398,862

Senior Notes Due 2021

In October 2013, we issued $ 300.0 million of 6.25 % senior unsecured notes due 2021 at par, and in November 2013, we issued an additional $ 100.0 million aggregate principal amount of the notes at a price of 103.25 % of par (the “Senior Notes”).

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.

During the three months ended March 31, 2020, we repurchased an aggregate $ 10.9 million of principal amount of our Senior Notes for $ 3.4 million and recognized a net gain of $ 7.5 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs and unamortized debt premium.

Subsequent to March 31, 2020, we announced a cash tender offer to purchase an aggregate payment amount of up to $ 80.0 million (exclusive of accrued and unpaid interest) of our Senior Notes.

For further discussion, refer to the Liquidity and Capital Resources section in Item 2.

Management’s discussion and analysis of financial condition and results of operations .

6.25 % Notes Due 2021

In October 2013, we issued $ 300.0 million of 6.25 % unsecured notes due 2021 at par, and in November 2013, we issued an additional $ 100.0 million aggregate principal amount of the notes at a price of 103.25 % of par (the “2021 Notes”).

The 2021 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 2021 Notes are unsecured obligations, and are guaranteed on an 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.

During the six months ended June 30, 2020, we repurchased an aggregate $ 71.9 million of principal amount of our 2021 Notes for $ 27.6 million and recognized a net gain of $ 43.7 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs and unamortized debt premium.

During the third quarter, we exchanged $ 315.5 million of the existing 2021 Notes for new 9.00 % convertible secured notes due July 2025 (the “2025 Notes”).

The 2025 Notes pay interest at a rate of 9.00 %, of which 6.25 % will be payable in cash and 2.75 % will be payable at the Company's option in cash or additional notes.

The 2025 Notes are secured by a first lien on substantially all of the Company’s assets, except for Credit Facility collateral, which secures the 2025 Notes on a second lien basis.

A portion of the 2025 Notes equal to $ 150.0 million total principal amount is mandatorily convertible into common stock on a pro rata basis at a conversion price of $ 1.35 per share, subject, however, to the condition that the average of the daily trading prices for the common stock over the preceding 20 -trading day period is at least $ 1.50 per share.

Holders of the 2025 Notes also have optional conversion rights in the event that the Company elects to redeem the 2025 Notes in cash and at the final maturity of the new notes.

Credit Facility

Our credit facility ("Credit Facility") provides revolving credit commitments of $ 300.0 million (with a sublimit of up to $ 45.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries) (the “U.S.

In August 2020, we amended the Credit Facility as further discussed below.

As of June 30, 2020, our credit facility ("Credit Facility") provides revolving credit commitments of $ 300.0 million (with a sublimit of up to $ 45.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries) (the “U.S.

Line”), of which up to $ 30.0 million is available to certain of our Canadian subsidiaries for loans in U.S.

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Le nder 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 Senior 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.

Such eligible accounts receivable and eligible inventory serve as collateral for the Credit Facility.

Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our receivables and inventory.

As of March 31, 2020, our total borrowing base wa s $ 234.0 million, of which $ 55.0 million was drawn and $ 26.4 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 152.6 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.

As of June 30, 2020, our total borrowing base wa s $ 197.4 million, of which $ 85.0 million was drawn and $ 28.2 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 84.2 million.

Forum Energy Technologies, Inc.

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Notes to Condensed Consolidated Financial Statements (Continued)

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.

Borrowings under the U.S.

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 greater 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 in which our total net 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 2.70 % for the three months ended March 31, 2020.

The weighted average interest rate under the Credit Facility was approximately 2.30 % for the six months ended June 30, 2020.

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 %.

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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.

Concurrent with the completion of the 2021 Notes exchange, the Credit Facility was amended to, among other things, reduce the size of the commitments from $ 300.0 million to $ 250.0 million;

allow the holders of the 2025 Notes to hold a second lien on the accounts receivable and inventory assets backing the Credit Facility and a first lien on all other assets;

increase the applicable margin for LIBOR and CDOR loans to 2.50 % per annum and the applicable margin for base rate loans to 1.50 % per annum;

change the maturity date to March 31, 2021, subject to an extension to October 30, 2022 upon the occurrence of certain events;

add a limit on the borrowing base so that the amount of eligible inventory included in the borrowing base is restricted to the lesser of 80 % of the total borrowing base or $ 130 million;

establish a limit on our cash balance if there are outstanding borrowings on the Credit Facility;

add a cross-default to the 2025 Notes;

and modify the financial covenant testing clause to require excess availability under the Credit Facility to be at least the greater of 12.5 % of the borrowing base and $ 31.25 million.

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 Credit Facility.

During the three months ended March 31, 2020, we wrote off $ 1.8 million of deferred loan costs due to the termination of discussions related to a potential exchange offer for our Senior Notes.

We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the 2021 Notes and the Credit Facility.

During the six months ended June 30, 2020, we wrote off $ 2.0 million of deferred loan costs due to the termination of previous discussions related to a potential exchange offer for our 2021 Notes.

Other debt consists primarily of various capital leases.

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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 $ 27.2 million and $ 24.5 million in total outstanding letters of credit as of March 31, 2020 and December 31, 2019, respectively.

For the three months ended March 31, 2020, we recorded a tax benefit of $ 14.4 million compared to tax expense of $ 1.7 million for the three months ended March 31, 2019.

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.

The estimated annual effective tax rates for the three months ended March 31, 2020 and 2019 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

We had $ 29.0 million and $ 24.5 million in total outstanding letters of credit as of June 30, 2020 and December 31, 2019, respectively.

For interim periods, our income tax expense or benefit is computed based on our estimated annual effective tax rate and any discrete items that impact the interim periods.

For the three months and six months ended June 30, 2020, we recorded a tax benefit of $ 0.4 million and $ 14.8 million, respectively, compared to tax expense of $ 8.4 million and $ 10.1 million for the three months and six months ended June 30, 2019, respectively.

On March 27, 2020, President Trump signed the U.S.

Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in response to the COVID-19 pandemic.

The CARES Act provides relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increasing the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerating refunds for minimum tax credit carryforwards, among other provisions.

The CARES Act provides relief to corporate taxpayers by permitting a

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

five-year carryback of 2018-2020 NOLs, increasing the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerating refunds for minimum tax credit carryforwards, among other provisions.

The tax effects of changes in tax laws are recognized in the period in which the law is enacted.

As such, the tax benefit for the three months ended March 31, 2020 includes a $ 16.6 million benefit related to a carryback claim for U.S.

As such, the tax benefit for the six months ended June 30, 2020 includes a $ 16.6 million benefit related to a carryback claim for U.S.

federal tax losses based on new provisions in the CARES Act.

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The provisions in the CARES Act enable the company to now realize these losses and the related valuation allowance has been released.

The estimated annual effective tax rates for the six months ended June 30, 2020 and 2019 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

For the three and six months ended June 30, 2019, tax expense includes an increase in our valuation allowance of $ 5.9 million to write down our deferred tax assets in the U.S.

and Saudi Arabia to what, in our judgment, is more likely than not realizable.

Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company's relative mix of U.S.

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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, tax-planning and recent operating results.

As of March 31, 2020, we do not anticipate being able to fully utilize all of the losses prior to their

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

expiration in the following jurisdictions:

the U.S., the U.K., Germany, Singapore and Saudi Arabia.

As a result, we have certain valuation allowances against our deferred tax assets as of March 31, 2020.

As of June 30, 2020, we do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions:

the U.S., the U.K., Germany, Singapore, Saudi Arabia and China.

As a result, we have certain valuation allowances against our deferred tax assets as of June 30, 2020.

Fair Value Measurements

The Company had $ 55.0 million and zero borrowings outstanding under the Credit Facility at March 31, 2020 and December 31, 2019, respectively.

The Company had $ 85.0 million and zero borrowings outstanding under the Credit Facility at June 30, 2020 and December 31, 2019, respectively.

The Credit Facility incurs interest at a variable interest rate, and therefore, the carrying amount approximates fair value.

The fair value of the debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.

The fair value of 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 March 31, 2020, the fair value and the carrying value of our Senior Notes approximated $ 123.6 million and $ 388.1 million, respectively.

At December 31, 2019, the fair value and the carrying value of our Senior Notes approximated $ 354.0 million and $ 397.5 million, respectively.

There were no other outstanding financial assets as of March 31, 2020 and December 31, 2019 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 three months ended March 31, 2020.

The fair value of our 2021 Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments.

At June 30, 2020, the fair value and the carrying value of our 2021 Notes approximated $ 137.1 million and $ 325.9 million, respectively.

At December 31, 2019, the fair value and the carrying value of our 2021 Notes approximated $ 354.0 million and $ 397.5 million, respectively.

There were no other outstanding financial assets as of June 30, 2020 and December 31, 2019 that required measuring the amounts at fair value.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Business Segments

The Company reports is results of operations in the following three reporting segments:

The Company reports results of operations in the following three reporting segments:

Drilling & Downhole, Completions and Production.

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Three Months Ended

June 30, Six Months Ended June 30,

2020 2019 2020 2019

Drilling & Downhole $ 47,183 $ 82,352 123,826 168,292

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Operating income (loss) $ ( 35,022 ) $ 736 $ ( 90,429 ) $ 5,033

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

A summary of consolidated assets by reportable segment is as follows (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Drilling & Downhole $ 351,412 $ 407,779

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Corporate assets primarily include cash, certain prepaid assets and deferred loan costs.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

The following table presents our revenues disaggregated by product line (in thousands):

Three Months Ended

June 30, Six Months Ended June 30,

2020 2019 2020 2019

Drilling Technologies $ 19,971 $ 37,311 $ 56,609 $ 79,237

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Three Months Ended

June 30, Six Months Ended June 30,

2020 2019 2020 2019

United States $ 70,296 $ 183,700 $ 194,186 $ 380,667

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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 March 31, 2020 and December 31, 2019, respectively, are immaterial.

The reserves accrued at June 30, 2020 and December 31, 2019, 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.

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Three Months Ended

June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net loss $ ( 5,494 ) $ ( 13,734 ) ( 42,638 ) ( 21,622 )

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Diluted $ ( 0.05 ) $ ( 0.12 ) $ ( 0.38 ) $ ( 0.20 )

The calculation of diluted loss per share excludes all potentially dilutive shares for the three months ended March 31, 2020 and 2019 as there were net losses for these periods.

The calculation of diluted loss per share excludes all potentially dilutive shares for the three and six months ended June 30, 2020 and 2019 as there were net losses for these periods.

Stockholders' Equity

Stock-based compensation

During the three months ended March 31, 2020, the Company granted 2,250,360 shares of restricted stock units that vest ratably over 3 years.

During the three months ended March 31, 2020, the Company granted performance awards with a market condition that are payable in either cash or shares of the Company's common stock.

During the six months ended June 30, 2020, the Company granted 2,250,360 shares of restricted stock units that vest ratably over 3 years.

During the six months ended June 30, 2020, the Company granted performance awards with a market condition that are payable in either cash or shares of the Company's common stock.

The performance awards granted may settle for between zero and three times the award's cash target amount.

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The dollar amounts related to these related party activities are not material to the Company’s unaudited condensed consolidated financial statements.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

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 loss

Three Months Ended March 31, 2020

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Revenue $ — $ 147,384 $ 52,206 $ ( 16,958 ) $ 182,632

Cost of sales — 133,195 43,928 ( 16,581 ) 160,542

Gross Profit — 14,189 8,278 ( 377 ) 22,090

Operating Expenses

Selling, general and administrative expenses $ — $ 49,691 $ 10,470 $ — $ 60,161

Transaction expenses — 37 — — 37

Impairments of intangible assets, property and equipment — 16,823 497 — 17,320

Loss (gain) on disposal of assets and other — ( 23 ) 2 — ( 21 )

Total operating expenses — 66,528 10,969 — 77,497

Equity earnings (loss) from affiliate, net of tax ( 35,820 ) 1,267 — 34,553 —

Operating loss ( 35,820 ) ( 51,072 ) ( 2,691 ) 34,176 ( 55,407 )

Other expense (income)

Interest expense (income) 6,954 22 ( 252 ) — 6,724

Foreign exchange and other losses (gains), net — 264 ( 5,271 ) — ( 5,007 )

Gain on extinguishment of debt ( 7,459 ) — — — ( 7,459 )

Deferred loan costs written off 1,829 — — — 1,829

Total other (income) expense, net 1,324 286 ( 5,523 ) — ( 3,913 )

Income (loss) before income taxes ( 37,144 ) ( 51,358 ) 2,832 34,176 ( 51,494 )

Income tax expense (benefit) — ( 15,538 ) 1,188 — ( 14,350 )

Net income (loss) ( 37,144 ) ( 35,820 ) 1,644 34,176 ( 37,144 )

Other comprehensive income (loss), net of tax:

Net income (loss) ( 37,144 ) ( 35,820 ) 1,644 34,176 ( 37,144 )

Change in foreign currency translation, net of tax of $0 ( 8,846 ) ( 8,846 ) ( 8,846 ) 17,692 ( 8,846 )

Gain on pension liability 21 21 21 ( 42 ) 21

Comprehensive loss $ ( 45,969 ) $ ( 44,645 ) $ ( 7,181 ) $ 51,826 $ ( 45,969 )

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Condensed consolidating statements of comprehensive income (loss)

Three Months Ended March 31, 2019

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Revenue $ — $ 236,806 $ 50,213 $ ( 15,177 ) $ 271,842

Cost of sales — 175,854 40,093 ( 14,203 ) 201,744

Gross Profit — 60,952 10,120 ( 974 ) 70,098

Operating Expenses

Selling, general and administrative expenses — 57,410 11,558 — 68,968

Contingent consideration benefit — ( 4,629 ) — — ( 4,629 )

Transaction Expenses — 543 50 — 593

Loss (gain) on disposal of assets and other — 78 ( 58 ) — 20

Total operating expenses — 53,402 11,550 — 64,952

Loss from equity investment — ( 471 ) ( 378 ) — ( 849 )

Equity earnings (loss) from affiliate, net of tax 358 ( 6,608 ) — 6,250 —

Operating income (loss) 358 471 ( 1,808 ) 5,276 4,297

Other expense (income)

Interest expense (income) 8,246 ( 11 ) ( 54 ) — 8,181

Foreign exchange and other losses, net — 72 2,205 — 2,277

Total other expense 8,246 61 2,151 — 10,458

Income (loss) before income taxes ( 7,888 ) 410 ( 3,959 ) 5,276 ( 6,161 )

Income tax expense — 52 1,675 — 1,727

Net income (loss) ( 7,888 ) 358 ( 5,634 ) 5,276 ( 7,888 )

Other comprehensive income (loss), net of tax:

Net income (loss) ( 7,888 ) 358 ( 5,634 ) 5,276 ( 7,888 )

Change in foreign currency translation, net of tax of $0 4,834 4,834 4,834 ( 9,668 ) 4,834

Loss on pension liability ( 9 ) ( 9 ) ( 9 ) 18 ( 9 )

Comprehensive income (loss) $ ( 3,063 ) $ 5,183 $ ( 809 ) $ ( 4,374 ) $ ( 3,063 )

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Condensed consolidating balance sheets

March 31, 2020

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Current assets

Cash and cash equivalents $ — $ 88,122 $ 20,827 $ — $ 108,949

Accounts receivable—trade, net — 106,526 38,866 — 145,392

Inventories, net — 330,613 71,035 ( 8,704 ) 392,944

Prepaid expenses and other current assets — 44,141 868 — 45,009

Accrued revenue — — 1,226 — 1,226

Costs and estimated profits in excess of billings — 2,606 133 — 2,739

Total current assets — 572,008 132,955 ( 8,704 ) 696,259

Property and equipment, net of accumulated depreciation — 117,741 18,710 — 136,451

Operating lease assets — 22,802 14,018 — 36,820

Deferred financing costs, net 1,036 — — — 1,036

Intangible assets — 234,398 24,684 — 259,082

Deferred income taxes, net — 80 61 — 141

Other long-term assets — 6,449 9,254 — 15,703

Investment in affiliates 303,976 209,553 ( 513,529 ) —

Long-term advances to affiliates 594,318 — 114,089 ( 708,407 ) —

Total assets $ 899,330 $ 1,163,031 $ 313,771 $ ( 1,230,640 ) $ 1,145,492

Liabilities and equity

Current liabilities

Current portion of long-term debt $ — $ 877 $ 144 $ — $ 1,021

Accounts payable—trade — 75,793 23,057 — 98,850

Accrued liabilities 14,164 25,897 34,693 — 74,754

Deferred revenue — 1,998 3,710 — 5,708

Billings in excess of costs and profits recognized — 722 4,154 — 4,876

Total current liabilities 14,164 105,287 65,758 — 185,209

Long-term debt, net of current portion 443,104 1,651 181 — 444,936

Deferred income taxes, net — — 2,229 — 2,229

Operating lease liabilities — 28,779 17,603 — 46,382

Other long-term liabilities — 14,931 9,743 — 24,674

Long-term payables to affiliates — 708,407 — ( 708,407 ) —

Total liabilities 457,268 859,055 95,514 ( 708,407 ) 703,430

Total equity 442,062 303,976 218,257 ( 522,233 ) 442,062

Total liabilities and equity $ 899,330 $ 1,163,031 $ 313,771 $ ( 1,230,640 ) $ 1,145,492

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Condensed consolidating balance sheets

December 31, 2019

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Current assets

Cash and cash equivalents $ — $ 32,387 $ 25,524 $ — $ 57,911

Accounts receivable—trade, net — 116,862 37,320 — 154,182

Inventories, net — 344,920 78,047 ( 8,327 ) 414,640

Prepaid expenses and other current assets — 31,485 2,335 — 33,820

Accrued revenue — 428 832 — 1,260

Costs and estimated profits in excess of billings — 4,029 75 — 4,104

Total current assets — 530,111 144,133 ( 8,327 ) 665,917

Property and equipment, net of accumulated depreciation — 133,974 20,862 — 154,836

Operating lease assets — 29,518 19,164 — 48,682

Deferred financing costs, net 1,243 — — — 1,243

Intangible assets — 245,507 26,793 — 272,300

Deferred income taxes, net — — 654 — 654

Other long-term assets — 6,682 9,683 — 16,365

Investment in affiliates 348,623 218,228 — ( 566,851 ) —

Long-term advances to affiliates 541,351 — 116,053 ( 657,404 ) —

Total assets $ 891,217 $ 1,164,020 $ 337,342 $ ( 1,232,582 ) $ 1,159,997

Liabilities and equity

Current liabilities

Current portion of long-term debt $ — $ 566 $ 151 $ — $ 717

Accounts payable—trade — 75,999 22,721 — 98,720

Accrued liabilities 7,640 35,746 43,239 — 86,625

Deferred revenue — 1,616 3,261 — 4,877

Billings in excess of costs and profits recognized — 787 5,124 — 5,911

Total current liabilities 7,640 114,714 74,496 — 196,850

Long-term debt, net of current portion 397,538 1,128 196 — 398,862

Deferred income taxes, net — — 2,465 — 2,465

Operating Lease Liabilities — 29,896 20,042 — 49,938

Other long-term liabilities — 12,255 13,588 — 25,843

Long-term payables to affiliates — 657,404 — ( 657,404 ) —

Total liabilities 405,178 815,397 110,787 ( 657,404 ) 673,958

Total equity 486,039 348,623 226,555 ( 575,178 ) 486,039

Total liabilities and equity $ 891,217 $ 1,164,020 $ 337,342 $ ( 1,232,582 ) $ 1,159,997

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Condensed consolidating statements of cash flows

Three Months Ended March 31, 2020

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Cash flows from operating activities $ ( 1,105 ) $ 9,488 $ ( 5,702 ) $ ( 1,114 ) $ 1,567

Cash flows from investing activities

Capital expenditures for property and equipment — ( 756 ) ( 202 ) — ( 958 )

Proceeds from sale of equity investment, property and equipment — 37 — — 37

Long-term loans and advances to affiliates ( 50,100 ) — 3,038 47,062 —

Net cash provided by (used in) investing activities $ ( 50,100 ) $ ( 719 ) $ 2,836 $ 47,062 $ ( 921 )

Cash flows from financing activities

Borrowings of debt 55,000 — — — 55,000

Repayments of debt ( 3,362 ) ( 96 ) ( 5 ) — ( 3,463 )

Repurchases of stock ( 179 ) — — — ( 179 )

Deferred financing costs ( 254 ) — — — ( 254 )

Long-term loans and advances from affiliates — 47,062 — ( 47,062 ) —

Dividend paid to affiliates — — ( 1,114 ) 1,114 —

Net cash provided by (used in) financing activities $ 51,205 $ 46,966 $ ( 1,119 ) $ ( 45,948 ) $ 51,104

Effect of exchange rate changes on cash — — ( 712 ) — ( 712 )

Net increase (decrease) in cash, cash equivalents and restricted cash — 55,735 ( 4,697 ) — 51,038

Cash, cash equivalents and restricted cash at beginning of period — 32,387 25,524 — 57,911

Cash, cash equivalents and restricted cash at end of period $ — $ 88,122 $ 20,827 $ — $ 108,949

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Condensed consolidating statements of cash flows

Three Months Ended March 31, 2019

FET (Parent) Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated

(in thousands)

Cash flows from operating activities $ 3,037 $ 18,284 $ ( 3,434 ) $ — $ 17,887

Cash flows from investing activities

Capital expenditures for property and equipment — ( 3,294 ) ( 393 ) — ( 3,687 )

Proceeds from sale of business, property and equipment — 134 — — 134

Long-term loans and advances to affiliates 27,936 799 — ( 28,735 ) —

Net cash provided by (used in) investing activities $ 27,936 $ ( 2,361 ) $ ( 393 ) $ ( 28,735 ) $ ( 3,553 )

Cash flows from financing activities

Borrowings of debt 20,000 — — — 20,000

Repayments of debt ( 50,000 ) ( 1,063 ) — — ( 51,063 )

Repurchases of stock ( 973 ) — — — ( 973 )

Long-term loans and advances to affiliates — ( 27,936 ) ( 799 ) 28,735 —

Net cash used in financing activities $ ( 30,973 ) $ ( 28,999 ) $ ( 799 ) $ 28,735 $ ( 32,036 )

Effect of exchange rate changes on cash — — 155 — 155

Net decrease in cash, cash equivalents and restricted cash — ( 13,076 ) ( 4,471 ) — ( 17,547 )

Cash, cash equivalents and restricted cash at beginning of period — 24,977 22,264 — 47,241

Cash, cash equivalents and restricted cash at end of period $ — $ 11,901 $ 17,793 $ — $ 29,694

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements