What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 198 added, 124 removed, 400 unchanged (45% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Comprehensive Loss

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

Three Months Ended September 30, Nine Months Ended September 30,

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

5 unchanged sentences

Transaction expenses 665 254 852 972

Impairments of intangible assets, property and equipment 112 — 17,432 —

Impairments of goodwill, intangible assets, property and equipment 2,962 532,336 20,394 532,336

Contingent consideration benefit — — — ( 4,629 )

1 unchanged sentence

Total operating expenses 50,157 595,954 175,578 723,928

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

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

Loss from equity investment — ( 39 ) — ( 318 )

Operating loss ( 37,047 ) ( 533,359 ) ( 127,476 ) ( 528,326 )

Other expense (income)

1 unchanged sentence

Foreign exchange and other losses (gains), net 3,445 ( 3,200 ) ( 931 ) ( 3,069 )

Gain realized on previously held equity investment — ( 1,567 ) — ( 1,567 )

Gain on extinguishment of debt ( 28,734 ) — ( 72,478 ) —

14 unchanged sentences

5,942 ( 6,260 ) ( 1,004 ) ( 2,833 )

Gain (loss) on pension liability ( 22 ) 5 ( 1 ) ( 4 )

Loss on pension liability ( 55 ) ( 17 ) ( 56 ) ( 21 )

Comprehensive loss $ ( 15,664 ) $ ( 539,264 ) $ ( 65,249 ) $ ( 557,463 )

3 unchanged sentences

Condensed Consolidated Balance Sheets

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

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

Current assets

40 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2020 2019

1 unchanged sentence

Net loss $ ( 64,189 ) $ ( 554,609 )

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

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

Depreciation expense 19,149 22,873

Amortization of intangible assets 19,934 25,621

Impairments of intangible assets, property and equipment 17,432 —

Impairments of goodwill, intangible assets, property and equipment 20,394 532,336

Impairments of operating lease assets 14,096 2,187

4 unchanged sentences

Gain on extinguishment of debt ( 72,478 ) —

Gain realized on previously held equity investment — ( 1,567 )

Deferred loan costs written off 2,262 —

8 unchanged sentences

Billings in excess of costs and estimated profits earned ( 5,548 ) 1,297

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

Net cash provided by operating activities $ 1,701 $ 75,651

Cash flows from investing activities

1 unchanged sentence

Proceeds from sale of business, property and equipment 4,187 39,805

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

Net cash provided by investing activities $ 2,019 $ 27,198

Cash flows from financing activities

1 unchanged sentence

Repayments of debt ( 113,441 ) ( 217,333 )

Bond exchange early participation payment ( 3,500 ) —

Repurchases of stock ( 182 ) ( 1,050 )

Deferred financing costs ( 9,358 ) —

Net cash provided by (used in) financing activities $ 54,380 $ ( 42,120 )

Net cash used in financing activities $ ( 41,481 ) $ ( 121,383 )

Effect of exchange rate changes on cash ( 130 ) 190

Net increase (decrease) in cash, cash equivalents and restricted cash 51,767 ( 9,876 )

Net decrease in cash, cash equivalents and restricted cash ( 37,891 ) ( 18,344 )

Cash, cash equivalents and restricted cash at beginning of period 57,911 47,241

3 unchanged sentences

Finance lease right of use assets obtained in exchange for lease obligations 1,401 1,478

Note receivable related to equity method investment transaction — 4,725

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

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

7 unchanged sentences

Adjustment for adoption of ASU 2016-13

— — — ( 1,398 ) — ( 1,398 )

Treasury stock — — ( 6 ) — — ( 6 )

9 unchanged sentences

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

Stock-based compensation expense $ — $ 1,966 $ — $ — $ — $ 1,966

Restricted stock issuance, net of forfeitures $ — $ ( 1 ) $ — $ — $ — $ ( 1 )

Currency translation adjustment $ — $ — $ — $ — $ 5,942 $ 5,942

Change in pension liability $ — $ — $ — $ — $ ( 55 ) $ ( 55 )

Net loss $ — $ — $ — $ ( 21,551 ) $ — $ ( 21,551 )

Balance at September 30, 2020 $ 1,196 $ 1,239,539 $ ( 134,499 ) $ ( 568,956 ) $ ( 109,998 ) $ 427,282

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

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

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

earnings Accumulated

earnings (deficit) Accumulated

comprehensive

16 unchanged sentences

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

Stock-based compensation expense $ — $ 3,661 $ — $ — $ — $ 3,661

Restricted stock issuance, net of forfeitures $ — $ ( 8 ) $ — $ — $ — $ ( 8 )

Shares issued in employee stock purchase plan $ 3 $ 864 $ — $ — $ — $ 867

Treasury stock $ — $ — $ ( 5 ) $ — $ — $ ( 5 )

Currency translation adjustment $ — $ — $ — $ — $ ( 6,260 ) $ ( 6,260 )

Change in pension liability $ — $ — $ — $ — $ ( 17 ) $ ( 17 )

Net loss — — — ( 532,987 ) — ( 532,987 )

Balance at September 30, 2019 $ 1,186 $ 1,227,768 $ ( 134,487 ) $ ( 490,921 ) $ ( 118,084 ) $ 485,462

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 “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.

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.

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

See Note 4 Dispositions for further information related to the sale of our aggregate 40 % interest in Ashtead.

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 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.

Operating results for the nine months ended September 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, including quarantine and “stay-at-home” orders in the areas in which we operate.

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

As a result of the imposition of these government orders, there was an adverse impact on the level of oil and natural gas demand and many companies have sought protection under Chapter 11 of the U.S.

Bankruptcy Code.

The full impacts of the COVID-19 outbreak will ultimately depend on future developments, including the consequences of governmental and other measures designed to prevent the spread of the virus, the establishment of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which economic and operating conditions resume.

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 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.

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, the adverse impacts on our financial results from COVID-19 will 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 unaudited Condensed Consolidated Statement of Comprehensive Loss for the six months ended June 30, 2020.

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

Accounting for Implementation Costs Related to a Cloud Computing Arrangement .

25 unchanged sentences

However, we currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.

Revenue is recognized 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.

For a detailed discussion of our revenue recognition policies, refer to the Company’s 2019 Annual Report on Form 10-K.

Disaggregated Revenue

Refer to Note 11 Business Segments for disaggregated revenue by product line and geography.

Convertible Debt.

In August 2020, the FASB issued ASU No.

2020-06 Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.

This update reduces the number of accounting models for convertible debt instruments resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital.

In addition, this update also makes targeted changes to the disclosures for convertible instruments and earnings-per-

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Continued)

share guidance.

This guidance may be adopted through either a modified retrospective or fully retrospective method of transition and will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and must be adopted as of the beginning of the Company's fiscal year.

We are currently evaluating the impact of this new guidance.

However, we currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.

Revenue is recognized 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 receive in exchange for those goods or services.

For a detailed discussion of our revenue recognition policies, refer to the Company’s 2019 Annual Report on Form 10-K.

Disaggregated Revenue

Refer to Note 11 Business Segments for disaggregated revenue by product line and geography.

Contract Balances

3 unchanged sentences

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 six months ended June 30, 2020 (in thousands):

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

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

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

Accrued revenue $ 1,617 $ 1,260

4 unchanged sentences

Contract liabilities $ 5,664 $ 10,788 $ ( 5,124 ) ( 47 ) %

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.

During the nine months ended September 30, 2020, our contract assets increased by $ 2.6 million and our contract liabilities decreased by $ 5.1 million due to the timing of billings for significant projects within our Subsea product line.

During the nine months ended September 30, 2020, we recognized revenue of $ 9.5 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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Pro forma results of operations for this disposition have not been presented because the effects were not material to the unaudited condensed consolidated financial statements.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

2019 Disposition of Equity Interest in Ashtead Technology

4 unchanged sentences

Pro forma results of operations for this transaction have not been presented because the effects were not material to the unaudited condensed consolidated financial statements.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

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

June 30, 2020 December 31, 2019

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

September 30, 2020 December 31, 2019

Raw materials and parts $ 166,817 $ 172,082

5 unchanged sentences

Intangible Assets

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

June 30, 2020

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

September 30, 2020

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

15 unchanged sentences

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

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 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.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Continued)

Impairments of Goodwill and Long-Lived Assets

During the third quarter of 2019, there was a significant decline in the quoted market prices of our common stock and a continued decline in U.S.

onshore drilling and completions activity, which led us to evaluate all of our reporting units for a triggering event as of September 30, 2019.

Upon evaluation, we considered these developments to be a triggering event that required us to update our goodwill impairment evaluation and review long-lived assets for all reporting units as of September 30, 2019.

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):

The amount of the impairment charges were measured as the difference between the carrying value and the estimated fair value of the assets.

In addition, we determined that the remaining carrying value of our goodwill was fully impaired in the third quarter of 2019.

The fair values used in each goodwill impairment analysis were determined using the net present value of the expected future cash flows for each reporting unit (classified within level 3 of the fair value hierarchy).

We determined the fair value of each reporting unit using a combination of discounted cash flow and guideline public company methodologies, which required significant assumptions and estimates about the future operations of each reporting unit.

The assumptions about future cash flows and growth rates were based on our strategic plans and management’s estimates for future activity levels.

Forecasted cash flows in future periods were estimated using a terminal value calculation, which considered long-term earnings growth rates.

During the nine months ended September 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, have driven sharp declines in global economic activity.

As a result, during the nine months ended September 30, 2020, we determined that certain long-lived assets were impaired as their carrying values exceeded their fair values.

The amount of the impairment charges were measured as the difference between the carrying value and the estimated fair value of the assets.

The fair value was determined either through analysis of discounted future cash flows or, for certain real estate, based on a third party's sales price estimate (classified within level 3 of the fair value hierarchy).

Following is a summary of impairment charges recognized (in thousands) in our Drilling & Downhole (“D&D”), Completions (“C”), Production (“P”), and Corporate (“Corp”) segments:

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019

Impairments of:

Drilling & Downhole Completions Production Total Impairments

D&D C P Corp Total D&D C P Total

$ — $ — $ — $ — $ — $ 191,485 $ 260,238 $ 19,287 $ 471,010

Intangible assets (1)

5,257 — — — 5,257 — 48,241 5,230 53,471

Property and equipment (1)

1,069 9,608 4,460 — 15,137 5,200 2,655 — 7,855

Operating lease right of use assets (2)

4,544 6,140 1,914 1,498 14,096 1,450 582 155 2,187

Total impairments $ 10,870 $ 15,748 $ 6,374 $ 1,498 $ 34,490 $ 198,135 $ 311,716 $ 24,672 $ 534,523

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

Impairments of:

D&D C P Corp Total D&D C P Total

$ — $ — $ — $ — $ — $ 191,485 $ 260,238 $ 19,287 $ 471,010

Intangible assets (1)

— — — — — — 48,241 5,230 53,471

Property and equipment (1)

— — 2,962 — 2,962 5,200 2,655 — 7,855

Operating lease right of use assets (2)

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Total impairments $ 3,259 $ — $ 2,962 $ 1,498 $ 7,719 $ 196,850 $ 311,134 $ 24,517 $ 532,501

(1) These charges are included in Impairments of intangible assets, property and equipment in the condensed consolidated statements of comprehensive loss.

(2) These charges are included in Impairments of intangible assets, property and equipment in the condensed consolidated statements of comprehensive loss and include primarily customer relationships, technology and distributor relationships.

(3) $ 8.6 million of these charges are included in Cost of sales and $ 0.7 million is included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

The amount of the impairment charges were measured as the difference between the carrying value and the estimated fair value of the assets.

(1) These charges are included in Impairments of goodwill, intangible assets, property and equipment in the condensed consolidated statements of comprehensive loss.

Forum Energy Technologies, Inc.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

Unamortized debt premium 466 770

(2) For the nine months ended September 30, 2020 and 2019, $ 10.4 million and $ 1.3 million, respectively, of these charges are included in Cost of sales, while $ 3.7 million and $ 0.9 million, respectively, are included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

For the three months ended September 30, 2020 and 2019, $ 1.8 million and zero , respectively, of these charges are included in Cost of sales, while $ 2.9 million and $ 0.2 million, respectively, are included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

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

September 30, 2020 December 31, 2019

2021 Notes $ 12,655 $ 400,000

2025 Notes 315,489 —

Unamortized debt premium (discount) ( 31,856 ) 770

Debt issuance cost ( 7,588 ) ( 3,232 )

4 unchanged sentences

Long-term debt $ 290,019 $ 398,862

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.

The 2021 Notes are unsecured obligations, and are guaranteed on an unsecured basis by our U.S.

subsidiaries that guarantee our senior secured revolving credit facility ("Credit Facility") .

During the first half of 2020, we repurchased an aggregate $ 71.9 million principal amount of our 2021 Notes for $ 27.7 million and recognized a net gain of $ 43.8 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.

In the third quarter of 2020, we exchanged $ 315.5 million principal amount of the remaining 2021 Notes for new 2025 Notes as discussed further below.

Following these transactions, $ 12.7 million principal amount of 2021 Notes remained outstanding as of September 30, 2020.

In October 2020, we provided notice of redemption relating to the $ 12.7 million principal amount of 2021 Notes outstanding and intend to redeem such notes in full in November 2020 at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption date (the “Redemption”).

This information does not constitute a notice of redemption with respect to the 2021 Notes, nor does it constitute an offer to tender for, or purchase any, 2021 Notes or any other security.

In August 2020, we exchanged $ 315.5 million principal amount of the 2021 Notes for new 9.00 % convertible secured notes due August 2025 (the “2025 Notes”).

This transaction was accounted for as an extinguishment of the 2021 Notes with the new 2025 Notes recorded at fair value on the transaction date.

We estimated the fair value of the 2025 Notes to be $ 282.6 million at the issuance date, resulting in a $ 32.9 million discount (“Debt Discount”) at issuance.

As a result, we recognized a $ 28.7 million gain on extinguishment of debt that reflects the difference in the $ 314.8 million net carrying value of the 2021 Notes exchanged, including debt issuance costs and unamortized debt premium, less the $ 282.6 million estimated fair value of 2025 Notes and a $ 3.5 million early participation fee paid to

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

bondholders that participated in the exchange.

The Debt Discount is being amortized as non-cash interest expense over the term of the 2025 Notes using the effective interest method.

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

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

A portion of the 2025 Notes, initially equal to $ 150.0 million total principal amount, is mandatorily convertible into shares of our common stock at a conversion rate of 740.7407 shares per $ 1,000 principal amount of 2025 Notes converted, equivalent to 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.

Any interest that the Company elects to pay in additional notes are also subject to the mandatory and optional conversion rights.

Credit Facility

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.

In connection with the issuance of the 2025 Notes, we amended our Credit Facility.

Following such amendment, our Credit Facility provides revolving credit commitments of $ 250.0 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 $ 25.0 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”).

Le nder commitments under the Credit Facility, subject to certain limitations, may be increased by an additional $ 100.0 million.

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.

Such eligible accounts receivable and eligible inventory serve as priority collateral for the Credit Facility, which is also secured on a second lien basis by substantially all of the Company's other assets.

The amount of eligible inventory included in the borrowing base is restricted to the lesser of $ 130.0 million (subject to a quarterly reduction of $ 0.5 million that started on October 1, 2020) and 80.0 % of the total borrowing base.

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

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.

As of September 30, 2020, our total borrowing base was $ 140.5 million, of which zero was drawn and $ 31.9 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 108.6 million.

Borrowings under the U.S.

line bear interest at a rate equal to, at our option, either (a) the LIBOR rate, subject to a floor of 0.75 %, plus a margin of 2.50 % or (b) a base rate plus a margin of 1.50 %.

line base rate is determined by reference to the greatest of (i) the federal funds rate plus 0.50 % per annum, (ii) the one-month adjusted LIBOR plus 1.00 % per annum, and (iii) the rate of interest announced, from time to time, by Wells Fargo at its principal office in San Francisco as its prime rate, subject to a floor of 0.75 %.

Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate, subject to a floor of 0.75 %, plus a margin of 2.50 % or (b) a base rate plus a margin of 1.50 %.

The Canadian line base rate is determined by reference to the greater of (i) the one-month CDOR rate plus 1.00 % and (ii) the prime rate for Canadian dollar commercial loans made in Canada as reported by Thomson Reuters, subject to a floor of 0.75 %.

The weighted average interest rate under the Credit Facility was approximately 2.40 % for the nine months ended September 30, 2020.

The Credit Facility also provides for a commitment fee in the amount of (a) 0.375 % on the unused portion of commitments if average usage of the Credit Facility is greater than 50 % and (b) 0.500 % on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50 %.

The Credit Facility is currently scheduled to mature on July 1, 2021, subject to extension to October 30, 2022 if, on or before July 1, 2021, the 2021 Notes are repaid or refinanced in their entirety with indebtedness maturing on or after January 31, 2023.

Upon completion of the Redemption in the fourth quarter 2020, the maturity of our Credit Facility will be October 30, 2022.

If excess availability under the Credit Facility falls below the greater of 12.5 % of the borrowing base and $ 31.25 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

Forum Energy Technologies, Inc.

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Notes to Condensed Consolidated Financial Statements (Continued)

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 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 2.30 % 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 %.

After the first quarter 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.

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.

thresholds for at least 60 consecutive days.

Furthermore, the Credit Facility includes an obligation to prepay outstanding loans with cash on hand in excess of certain thresholds and includes a cross-default to the 2025 Notes.

Deferred Loan Costs

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.

We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the 2025 Notes, 2021 Notes and the Credit Facility.

During the nine months ended September 30, 2020, we capitalized a total of $ 9.7 million of deferred loan costs related to the exchange of the 2021 Notes.

In the first quarter of 2020, we wrote-off $ 2.0 million of deferred loan costs for the termination of previous discussions related to a potential exchange offer for our 2021 Notes.

In the third quarter of 2020, we wrote off $ 0.3 million of deferred loan costs related to amending our Credit Facility to, among other things, reduce the size of the commitments from $ 300.0 million to $ 250.0 million.

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

We had $ 31.9 million and $ 24.5 million in total outstanding letters of credit as of September 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.

For the three and nine months ended September 30, 2020, we recorded a tax expense of $ 1.0 million and tax benefit of $ 13.8 million, respectively, compared to a tax benefit of $ 3.4 million and tax expense of $ 6.7 million for the three and nine months ended September 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

Forum Energy Technologies, Inc.

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

As such, the tax benefit for the nine months ended September 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.

These losses had previously been offset by a valuation allowance.

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.

The provisions in the CARES Act enabled the company to realize these losses and the related valuation allowance was released.

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

For the nine months ended September 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.

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

As of September 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.

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

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value Measurements

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

The Company had no borrowings outstanding under the Credit Facility at both September 30, 2020 and December 31, 2019.

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

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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 September 30, 2020, the fair value and the carrying value of our 2021 Notes approximated $ 11.8 million and $ 12.7 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.

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 six months ended June 30, 2020.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

The fair value of our 2025 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, 2020, the fair value and the carrying value of our 2025 Notes approximated $ 255.5 million and $ 276.1 million, respectively.

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

Business Segments

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Three Months Ended

June 30, Six Months Ended June 30,

September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total revenue $ 103,606 $ 239,266 $ 399,513 $ 756,756

Operating income (loss)

Operating loss

Drilling & Downhole $ ( 13,207 ) $ 4,342 $ ( 26,751 ) $ 3,185

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Transaction expenses 665 254 852 972

Impairments of intangible assets, property and equipment 112 — 17,432 —

Impairments of goodwill, intangible assets, property and equipment 2,962 532,336 20,394 532,336

Contingent consideration benefit — — — ( 4,629 )

Loss (gain) on disposal of assets and other 541 ( 107 ) ( 180 ) ( 71 )

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

Operating loss $ ( 37,047 ) $ ( 533,359 ) $ ( 127,476 ) $ ( 528,326 )

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):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Drilling & Downhole $ 345,980 $ 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,

September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Three Months Ended

June 30, Six Months Ended June 30,

September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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 June 30, 2020 and December 31, 2019, respectively, are immaterial.

Management 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, 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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Notes to Condensed Consolidated Financial Statements (Continued)

Earnings Per Share

Loss 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

June 30, Six Months Ended June 30,

September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Dilutive effect of stock options and restricted stock — — — —

Dilutive effect of convertible notes due 2025 — — — —

Diluted - weighted average shares outstanding 111,607 110,295 111,459 109,977

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Diluted $ ( 0.19 ) $ ( 4.83 ) $ ( 0.58 ) $ ( 5.04 )

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.

For all periods presented, we excluded all potentially dilutive stock options and restricted stock and the assumed conversion of the 2025 Notes in calculating diluted earnings per share as the effect was anti-dilutive due to the net losses incurred for these periods.

Stockholders' Equity

Stock-based compensation

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.

During the nine months ended September 30, 2020, the Company granted 2,250,360 shares of restricted stock units that vest ratably over three years .

The Company also granted 3,265,000 shares of contingent restricted stock units that vest ratably over three years dependent upon achieving a minimum stock price of $ 0.71 for 20 trading days in each performance period.

In addition, the Company granted 489,750 shares of restricted stock units that cliff vest at the end of three years dependent upon achieving a minimum stock price of $ 1.50 for 20 consecutive trading days during the performance period.

During the nine months ended September 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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As such, compensation expense will be recognized over the requisite three-year service period with subsequent changes in the estimated fair value of the award recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs.

Reverse stock split

In October 2020, our Board of Directors approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $ 0.01 per share, accompanied by a corresponding decrease in the Company’s authorized shares of common stock, such that, following the consummation of the Reverse Stock Split, the number of authorized shares of common stock will be reduced from 296,000,000 to 14,800,000 .

The Company’s stockholders previously approved the Reverse Stock Split at the annual meeting of stockholders on May 12, 2020.

The Company anticipates that the effective time of the Reverse Stock Split will be after market close on November 9, 2020, with the common stock trading on a post-split basis under the Company’s existing trading symbol, “FET,” at the market open on November 10, 2020.

The Reverse Stock Split will increase the market price per share of the

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Notes to Condensed Consolidated Financial Statements (Continued)

Company’s common stock, and is expected to bring the Company into compliance with the listing requirements of the New York Stock Exchange.

Related Party Transactions

The Company has sold and purchased equipment and services to and from certain affiliates of our directors.

The Company has sold and purchased equipment 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.

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