What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-07 · 172 added, 188 removed, 220 unchanged (62% of the section changed)

13 unchanged sentences

The Company's products include highly engineered capital equipment as well as products that are consumed in the drilling, well construction, production and transportation of oil and natural gas.

Our product offering includes a mix of frequently replaced consumable products and highly engineered capital products.

Our consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries.

These consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries.

Our engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, and downstream capital projects.

For the six months ended June 30, 2020, approximately 83% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

For the nine months ended September 30, 2020, approximately 82% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

We seek to design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators.

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(ii) well construction casing and cementing equipment, protection products for artificial lift equipment and cables, and composite plugs used for zonal isolation in hydraulic fracturing;

and (iii) subsea remotely operated vehicles and trenchers, specialty components and tooling, products used in subsea pipeline infrastructure, and complementary subsea technical services.

and (iii) subsea remotely operated vehicles and trenchers, specialty components and tooling, and complementary subsea technical services.

• Completions.

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In addition, the availability of existing capital equipment adequate to serve exploration and production requirements, or lack thereof, drives demand for our capital equipment products.

During the first half of 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused a significant decline in economic activity and oil demand.

In March and April of 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused a significant decline in economic activity and oil demand.

At the same time, the OPEC+ oil producing nations ("OPEC+") increased production in an effort to grow market share, which further exacerbated the imbalance between supply and demand.

The combination of these shocks in both supply and demand caused a significant decline in oil prices during the first quarter of 2020 and created an extremely challenging market for all sub-sectors of the oil and natural gas industry throughout the second quarter of 2020.

In response to the low level of oil prices in the second quarter of 2020, the OPEC+ agreed to a significant cut in oil production and North American exploration and production companies significantly reduced supply by shutting in producing wells and aggressively decreasing drilling and completion activities.

Although oil demand and prices have increased from the lows reached at the beginning of the second quarter, they remain at levels that are uneconomic for many exploration and production companies.

This has driven further declines in the global rig count and North America completions activities.

Due to the poor market conditions, exploration and production companies in North America are under pressure to reduce existing production and minimize capital and maintenance expenditures.

The combination of these shocks in both supply and demand caused a significant decline in oil prices.

In response, in the second quarter of 2020, OPEC+ agreed to a significant cut in oil production and North American exploration and production companies significantly reduced supply by shutting in producing wells and aggressively decreasing drilling and completion activities.

Since that time, WTI prices have partially rebounded and stabilized around a price of approximately $40 per barrel.

The extreme volatility and lower price environment have created an extremely challenging market for all sub-sectors of the oil and natural gas industry in 2020.

Although oil demand and prices have increased from the lows reached at the beginning of the second quarter, global rig count continued to decline through the third quarter of 2020.

Due to the poor market conditions, exploration and production companies in North America are under pressure to continue reducing existing production and minimize capital and maintenance expenditures.

As a result, we have experienced a material reduction in demand for many of our products and consequently, our revenue.

We expect this to have a significant negative impact on demand for our products and results of operations.

In addition, recently there has been an increase in bankruptcies and consolidation of exploration and production and service companies.

A continuation of this trend going forward may lead to a further reduction in the demand for our products.

Activity levels in international regions, as well as global offshore and subsea activity, have also been impacted by COVID-19 related activity disruptions.

However, international revenue for our drilling and subsea capital equipment offerings have not declined as sharply due to longer project timelines for international drilling customers and diversification of our subsea product line revenue outside of the oil and natural gas industry.

However, international revenue for our drilling and subsea capital equipment offerings have not declined as sharply due to longer project timelines for international drilling customers and the diversification of our subsea product line revenue outside of the oil and natural gas industry.

Despite this, we anticipate that revenue for our international regions will continue to remain far below the level achieved during the last newbuild cycle due to lower oil demand and oversupply of relatively new or recently upgraded equipment.

Demand for products in our Valve Solutions product line is driven by capital projects and maintenance spending for refineries, petrochemical plants and pipelines.

As such, revenue for our Valve Solutions product line has also been affected by lower energy prices, but to a lesser extent compared to our other product lines.

The impacts of COVID-19 on the global economy have also negatively impacted demand for our valves products.

Demand for products in our Valve Solutions product line is driven by capital projects and maintenance spending in the upstream, midstream and downstream markets.

As such, revenue for our Valve Solutions product line has also been negatively affected by lower energy prices and the impacts of COVID-19 on the global economy.

In addition, revenue for our Valve Solutions product line has been under pressure due to our distribution customers’ increased focus on decreasing the quantity of valves in their inventories in order to generate positive free cash flow.

Although we have experienced some operational inefficiencies as a result of COVID-19, our manufacturing facilities and business operations have not experienced work stoppages due to COVID-19 or resulting government regulations.

However, in response to the decline in demand for our products and reductions in revenue, we have implemented several cost reduction actions, including exiting certain facilities, lowering headcount, reducing salaries for executive officers and the broader workforce, suspension of the Company’s matching contribution to the U.S.

However, in response to the decline in demand for our products and decreases in revenue, we have implemented significant cost reduction actions, including exiting facilities, lowering headcount, lowering salaries, suspension of the Company’s matching contribution to the U.S.

and Canada defined contribution retirement plans, and furloughs for select employee groups.

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Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

2020 2020 2019

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Henry Hub $ 2.00 $ 1.70 $ 2.38

The price of oil varied dramatically during the first half of 2020 with the spot prices for WTI and Brent falling from $61.14 and $67.77 per barrel, respectively, as of December 31, 2019 to lows below $15.00 per barrel in April 2020 followed by a partial recovery to $39.27 and $41.64 per barrel, respectively, as of June 30, 2020.

We expect oil prices to remain below prior year levels due to lower demand due to the impacts of COVID-19 and supply surpluses.

Natural gas prices also declined in the second quarter of 2020 with average price levels approximately 11% and 34% lower compared to the first quarter of 2020 and the second quarter of 2019, respectively.

The price of oil varied dramatically during the first half of 2020 with the spot prices for WTI and Brent falling from $61.14 and $67.77 per barrel, respectively, as of December 31, 2019 to lows below $15.00 per barrel in April 2020 followed by a partial recovery to $40.05 and $40.30 per barrel, respectively, as of September 30, 2020.

We expect oil prices to remain below prior year levels due to lower demand, the impact of COVID-19 and supply surpluses.

Natural gas prices increased in the third quarter 2020 with average price levels approximately 18% higher compared to the second quarter 2020.

The table below shows the average number of active drilling rigs, based on the weekly Baker Hughes Incorporated rig count, operating by geographic area and drilling for different purposes.

Three Months Ended

June 30, March 31, June 30,

September 30, June 30, September 30,

2020 2020 2019

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The average U.S.

rig count for the second quarter of 2020 was 50% and 60% lower compared to the first quarter of 2020 and the second quarter of 2019, respectively.

rig count for the third quarter 2020 was 35% and 72% lower compared to the second quarter of 2020 and the third quarter of 2019, respectively.

rig count was 805 at the beginning of 2020.

Since then, the number of working rigs has fallen approximately 69% to 251 rigs as of July 31, 2020.

Since then, the number of working rigs fell 70% to a low of 244 rigs in August 2020.

Active rig levels for the remainder of 2020 are projected to remain significantly below prior year levels.

Beginning in 2018, the U.S.

government imposed tariffs on imports of selected products, including those sourced from China.

In response, China and other countries have imposed retaliatory tariffs on a wide range of U.S.

products, including those containing steel and aluminum.

These tariffs have caused our cost of raw materials to increase, primarily in our Coiled Tubing and Valve Solutions product lines.

In response, we are taking actions to mitigate the impact, including through diversification of our supply chain and applying for tariff exemptions for certain products.

Tariffs imposed in 2018 by the U.S.

government on imports of selected products, including those sourced from China, have caused our raw material costs to remain at an increased level, primarily in our Coiled Tubing and Valve Solutions product lines.

In response, we are taking actions to mitigate the impact, including through diversification of our supply chain and applying for tariff exemptions.

The table below shows the amount of total inbound orders by segment:

(in millions of dollars) Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30,

(in millions of dollars) Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

4 unchanged sentences

Results of operations

Three months ended June 30, 2020 compared with three months ended June 30, 2019

Three Months Ended June 30, Change

Three months ended September 30, 2020 compared with three months ended September 30, 2019

Three Months Ended September 30, Change

(in thousands of dollars, except per share information) 2020 2019 $ %

4 unchanged sentences

Total revenue 103,606 239,266 (135,660) (56.7) %

Operating income (loss):

Operating loss:

Drilling & Downhole $ (13,207) $ 4,342 $ (17,549) (404.2) %

5 unchanged sentences

Corporate (7,706) (7,410) (296) (4.0) %

Total segment operating income (loss) (35,460) 877 (36,337) (4,143.3) %

Total segment operating loss (32,879) (876) (32,003) (3,653.3) %

Operating margin % (31.7) % (0.4) %

Transaction expenses 665 254 411 *

Impairments of property and equipment 112 — 112 *

Impairments of goodwill, intangible assets, property and equipment 2,962 532,336 (529,374) *

Loss (gain) on disposal of assets and other 541 (107) 648 *

Operating income (loss) (35,022) 736 (35,758) (4,858.4) %

Operating loss (37,047) (533,359) 496,312 93.1 %

Interest expense 8,473 7,766 707 9.1 %

2 unchanged sentences

Deferred loan costs written off 303 — 303 *

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

Total other (income) expense, net (16,513) 2,999 (19,512) (650.6) %

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We sold our equity interest in Ashtead in the third quarter of 2019.

Therefore, our results of operations for the second quarter of 2020 may not be comparable to the results of operations for the second quarter of 2019.

Therefore, our results of operations for the third quarter of 2020 may not be comparable to the results of operations for the third quarter of 2019.

Refer to Note 4 Dispositions for additional information.

Our revenue for the three months ended June 30, 2020 was $113.3 million, a decrease of $132.4 million, or 53.9%, compared to the three months ended June 30, 2019.

For the three months ended June 30, 2020, our Drilling & Downhole, Completions, and Production segments comprised 41.7%, 15.4%, and 42.9% of our total revenue, respectively, which compared to 33.5%, 32.6%, and 33.9% of our total revenue, respectively, for the three months ended June 30, 2019.

The overall decline in revenue is primarily related to lower sales volumes in the U.S.

market due to the significant decrease in U.S.

drilling and completions activity levels.

Our revenue for the three months ended September 30, 2020 was $103.6 million, a decrease of $135.7 million, or 56.7%, compared to the three months ended September 30, 2019.

For the three months ended September 30, 2020, our Drilling & Downhole, Completions, and Production segments comprised 41.7%, 18.9%, and 39.4% of our total revenue, respectively, which compared to 36.9%, 29.2%, and 33.9% of our total revenue, respectively, for the three months ended September 30, 2019.

The overall decline in revenue is primarily related to lower sales volumes due to the significant decrease in drilling and completions activity levels.

The changes in revenue by operating segment consisted of the following:

Drilling & Downhole segment — Revenue was $47.2 million for the three months ended June 30, 2020, a decrease of $35.2 million, or 42.7%, compared to the three months ended June 30, 2019.

This decrease was driven by a $17.3 million decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of a 60% decline in U.S.

Drilling & Downhole segment — Revenue was $43.2 million for the three months ended September 30, 2020, a decrease of $45.1 million, or 51.1%, compared to the three months ended September 30, 2019.

This decrease was driven by a $25.7 million, or 59.6%, decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of the 72% decline in U.S.

rig activity year-over-year.

Revenue for our Downhole Technologies product line decreased by $16.1 million due to lower sales volumes of artificial lift products and well construction equipment due to the significant decrease in drilling activity and the number of wells completed in the second quarter of 2020.

The $1.7 million decline in revenue for our Subsea Technologies product line was relatively less than other product lines due to the diversification of sales of capital equipment to customers outside the oil and natural gas industry.

Completions segment — Revenue was $17.6 million for the three months ended June 30, 2020, a decrease of $63.9 million, or 78.4%, compared to the three months ended June 30, 2019.

Revenue for our Downhole Technologies product line decreased by $15.7 million due to lower sales volumes of artificial lift products and well construction equipment due to the significant decline in drilling activity and well completions in 2020.

The $3.8 million decline in revenue for our Subsea Technologies product line was relatively less than other product lines in the segment due to the diversification of sales of capital equipment to customers outside the oil and natural gas industry.

Completions segment — Revenue was $19.6 million for the three months ended September 30, 2020, a decrease of $51.0 million, or 72.2%, compared to the three months ended September 30, 2019.

This decrease includes a $27.0 million decrease in revenue for our Stimulation and Intervention product line primarily attributable to lower spending by our pressure pumping service customers due to the significant decline in hydraulic fracturing activity levels in the U.S.

and the cannibalization of existing excess equipment.

The remaining decline was driven by a $24.0 million decrease in sales volumes for our Coiled Tubing product line primarily attributable to lower U.S.

completions activity.

Production segment — Revenue was $48.6 million for the three months ended June 30, 2020, a decrease of $34.7 million, or 41.6%, compared to the three months ended June 30, 2019.

This decrease was driven by a $21.1 million decline in sales volumes of our valve products, particularly sales into the North America upstream and midstream oil and natural gas market, and a $13.6 million decrease in revenue for our Production Equipment product line as a result of lower sales volumes of our surface production equipment due to a decline in well completions activity.

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the three months ended June 30, 2020 was $35.5 million, a decline of $36.3 million compared to segment operating income of $0.9 million for the three months ended June 30, 2019.

For the three months ended June 30, 2020, segment operating margin percentage was (31.3)% compared to 0.4% for the three months ended June 30, 2019.

Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period.

The change in operating income (loss) for each segment is explained as follows:

Drilling & Downhole segment — Segment operating loss was $9.4 million, or (19.9)%, for the three months ended June 30, 2020 compared to segment operating income of $1.3 million, or 1.6%, for the three months ended June 30, 2019.

The $10.7 million decline in segment operating results is primarily attributable to lower gross profit from the 42.7% decline in segment revenues as well as employee severance and facility closure costs incurred in the second quarter of 2020.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented since the second quarter of 2019.

Completions segment — Segment operating loss was $17.8 million, or (101.3)%, for the three months ended June 30, 2020 compared to segment operating income of $2.8 million, or 3.5%, for the three months ended June 30, 2019.

The $20.7 million decline in segment operating results is due to the reduction in gross profit from the 78.4% decline in revenues, partially offset by lower employee related costs and facilities costs due to cost reductions implemented since the second quarter of 2019.

Production segment — Segment operating loss was $1.1 million, or (2.2)%, for the three months ended June 30, 2020 compared to segment operating income of $3.6 million, or 4.3%, for the three months ended June 30, 2019.

The decline in segment operating results is due to lower gross profit from the 41.6% decline in revenue, partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented since the second quarter of 2019.

Corporate — Selling, general and administrative expenses for Corporate were $7.2 million for the three months ended June 30, 2020, a $0.3 million increase compared to the three months ended June 30, 2019.

Reductions in employee related costs from headcount, salary and other cost reductions were more than offset by higher legal professional fees in the three months ended June 30, 2020.

Production segment — Revenue was $40.8 million for the three months ended September 30, 2020, a decrease of $40.2 million, or 49.6%, compared to the three months ended September 30, 2019.

This decrease was driven by a $26.5 million decline in sales volumes of our valve products, particularly sales into the North America upstream and midstream oil and natural gas market, and a $13.6 million decrease in revenue for our Production Equipment product line as a result of lower sales volumes of our surface production equipment due to the decline in well completions activity in 2020.

Segment operating loss and segment operating margin percentage

Segment operating loss for the three months ended September 30, 2020 was $32.9 million, a decline of $32.0 million compared to a loss of $0.9 million for the three months ended September 30, 2019.

For the three months ended September 30, 2020, segment operating margin percentage was (31.7)% compared to (0.4)% for the three months ended September 30, 2019.

Segment operating margin percentage is calculated by dividing segment operating loss by revenue for the period.

The change in operating loss for each segment is explained as follows:

Drilling & Downhole segment — Segment operating loss was $13.2 million, or (30.6)%, for the three months ended September 30, 2020 compared to segment operating income of $4.3 million, or 4.9%, for the three months ended September 30, 2019.

The $17.5 million decline in segment operating results is primarily attributable to lower gross profit from the 51.1% decline in segment revenues as well as employee severance and facility closure costs incurred in 2020.

These declines in segment operating results were partially offset by lower employee and facilities related expenses due to headcount, salary and other cost reductions implemented in 2020.

Completions segment — Segment operating loss was $11.9 million, or (60.6)%, for the three months ended September 30, 2020 compared to a segment operating loss of $0.1 million, or (0.2)%, for the three months ended September 30, 2019.

The $11.8 million decline in segment operating results is due to the reduction in gross profit from the 72.2% decline in revenues, partially offset by lower employee and facilities related expenses due to headcount, salary and other cost reductions implemented in 2020.

Production segment — Segment operating loss was $0.1 million, or (0.2)%, for the three months ended September 30, 2020 compared to segment operating income of $2.3 million, or 2.8%, for the three months ended September 30, 2019.

The decline in segment operating results is due to lower gross profit from the 49.6% decline in revenue, partially offset by lower employee and facilities related expenses due to headcount, salary and other cost reductions implemented in 2020.

Corporate — Selling, general and administrative expenses for Corporate were $7.7 million for the three months ended September 30, 2020, a $0.3 million increase compared to the three months ended September 30, 2019.

Reductions in employee related costs from headcount, salary and other cost reductions were more than offset by a $1.5 million lease impairment and higher legal fees incurred in the three months ended September 30, 2020.

Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel;

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and marketing costs.

Other items not included in segment operating income (loss)

Several items are not included in segment operating income (loss), but are included in total operating income (loss).

These items include transaction expenses, impairments of property and equipment, and loss (gain) on the disposal of assets and other.

Other items not included in segment operating loss

Several items are not included in segment operating loss, but are included in total operating loss.

These items include transaction expenses, impairments of goodwill, intangible assets, property and equipment, and loss (gain) on the disposal of assets and other.

Transaction expenses relate to legal and other advisory costs incurred in acquiring or disposing of businesses and are not considered to be part of segment operating income (loss).

For further information related to impairments of goodwill, intangible assets, property and equipment, refer to Note 7 Impairments of Goodwill and Long-Lived Assets.

Other income and expense

Other income and expense includes interest expense, foreign exchange losses (gains) and other, gain on extinguishment of debt and deferred loan costs written off.

We incurred $6.4 million of interest expense during the three months ended June 30, 2020, a decrease of $1.8 million compared to the three months ended June 30, 2019 due to lower outstanding balances on our revolving Credit Facility and a reduction in the amount of 2021 Notes outstanding.

Other income and expense includes interest expense, foreign exchange losses (gains) and other, gain on extinguishment of debt, deferred loan costs written off and gain realized on previously held equity investment.

We incurred $8.5 million of interest expense during the three months ended September 30, 2020, an increase of $0.7 million compared to the three months ended September 30, 2019 primarily due to an increase in non-cash interest expense for amortization of discount on the new 2025 Notes.

The foreign exchange losses (gains) are primarily the result of movements in the British pound and Euro relative to the U.S.

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dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S.

During the three months ended June 30, 2020, we repurchased an aggregate $61.0 million of principal amount of our 2021 Notes for $24.3 million and recognized a net gain of $36.3 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.

We recorded a tax benefit of $0.4 million for the three months ended June 30, 2020, compared to a tax expense of $8.4 million for the three months ended June 30, 2019.

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

and Saudi Arabia.

In addition, the estimated annual effective tax rate for the three months ended June 30, 2020 is different than the comparable period in 2019 primarily due to losses in jurisdictions where the recording of a tax benefit is not available.

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

This transaction was accounted for as an extinguishment of the 2021 Notes with the new 2025 Notes recorded at fair value resulting in a $28.7 million gain on extinguishment of debt.

See Note 8 Debt for further information.

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, resulting in a write-off of $0.3 million of deferred loan costs.

In the third quarter of 2019, we sold our aggregate 40% interest in Ashtead and recognized a gain of $1.6 million as a result of such sale.

See Note 4 Dispositions for further information.

We recorded a tax expense of $1.0 million for the three months ended September 30, 2020, compared to a tax benefit of $3.4 million for the three months ended September 30, 2019.

The tax benefit for the three months ended September 30, 2019 includes a $3.8 million benefit related to the impairments of goodwill.

In addition, the estimated annual effective tax rate for the three months ended September 30, 2020 is different than the comparable period in 2019 primarily due to the impairment of non-deductible goodwill in 2019 and losses in jurisdictions where the recording of a tax benefit is not available.

Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

Six months ended June 30, 2020 compared with six months ended June 30, 2019

Six Months Ended June 30, Favorable / (Unfavorable)

Nine months ended September 30, 2020 compared with nine months ended September 30, 2019

Nine Months Ended September 30, Favorable / (Unfavorable)

2020 2019 $ %

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Transaction expenses 852 972 (120) (12.3) %

Impairments of intangible assets, property and equipment 17,432 — (17,432) *

Impairments of goodwill, intangible assets, property and equipment 20,394 532,336 (511,942) *

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

Loss (gain) on disposal of assets and other (721) 36 757 *

Operating income (loss) (90,429) 5,033 (95,462) (1,896.7) %

Gain on disposal of assets and other (180) (71) (109) *

Operating loss (127,476) (528,326) 400,850 75.9 %

Interest expense 21,617 24,170 (2,553) (10.6) %

Foreign exchange losses (gains) and other, net (4,376) 131 4,507 3,440.5 %

Foreign exchange gains and other, net (931) (3,069) 2,138 69.7 %

Gain on extinguishment of debt (72,478) — (72,478) *

Deferred loan costs written off 2,262 — 2,262 *

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

Total other (income) expense (49,530) 19,534 (69,064) *

10 unchanged sentences

We sold our equity interest in Ashtead in the third quarter of 2019.

Therefore, our results of operations for the six months ended June 30, 2020 may not be comparable to historical results of operations for the six months ended June 30, 2019.

Therefore, our results of operations for the nine months ended September 30, 2020 may not be comparable to historical results of operations for the nine months ended September 30, 2019.

Refer to Note 4 Dispositions for additional information.

Our revenue for the six months ended June 30, 2020 was $295.9 million, a decrease of $221.6 million, or 42.8%, compared to the six months ended June 30, 2019.

For the six months ended June 30, 2020, our Drilling & Downhole, Completions, and Production segments comprised 41.8%, 23.0%, and 35.2% of our total revenue, respectively, which compared to 32.5%, 33.6%, and 33.9% of our total revenue, respectively, for the six months ended June 30, 2019.

Our revenue for the nine months ended September 30, 2020 was $399.5 million, a decrease of $357.2 million, or 47.2%, compared to the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, our Drilling & Downhole, Completions, and Production segments comprised 41.8%, 21.9%, and 36.3% of our total revenue, respectively, which compared to 33.9%, 32.2%, and 33.9% of our total revenue, respectively, for the nine months ended September 30, 2019.

The overall decline in revenue is primarily related to lower sales volumes due to the significant decrease in drilling and completions activity levels.

The changes in revenue by operating segment consisted of the following:

Drilling & Downhole segment — Revenue was $123.8 million for the six months ended June 30, 2020, a decrease of $44.5 million, or 26.4%, compared to the six months ended June 30, 2019.

This decrease includes a $22.6 million decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of a 42% decline in U.S.

Drilling & Downhole segment — Revenue was $167.0 million for the nine months ended September 30, 2020, a decrease of $89.6 million, or 34.9%, compared to the nine months ended September 30, 2019.

This decrease includes a $48.4 million, or 39.5%, decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of a 52% decline in U.S.

rig activity year-over-year.

Revenue for our Downhole Technologies product line decreased by $21.6 million primarily due to lower sales volumes of well construction equipment and artificial lift products due to the significant decrease in drilling activity and the number of wells completed in the first half of 2020.

Revenue for our Subsea Technologies product line in the first half of 2020 was consistent with the first half of 2019 due to the diversification of sales of capital equipment to customers outside the oil and natural gas industry.

Completions segment — Revenue was $68.4 million for the six months ended June 30, 2020, a decrease of $107.8 million, or 61.2%, compared to the six months ended June 30, 2019.

This decline was driven by a $65.2 million decline in revenue for our Stimulation and Intervention product line primarily attributable to lower spending by our pressure pumping service customers due to the significant decline in hydraulic fracturing activity levels in the U.S.

Revenue for our Downhole Technologies product line decreased by $37.2 million primarily due to lower sales volumes of artificial lift products and well construction equipment due to the significant decrease in drilling activity and the number of wells completed in the first nine months of 2020.

The $4.0 million decline in revenue for our Subsea Technologies product line was relatively less than other product lines in the segment due to the diversification of sales of capital equipment to customers outside the oil and natural gas industry.

Completions segment — Revenue was $88.0 million for the nine months ended September 30, 2020, a decrease of $158.8 million, or 64.3%, compared to the nine months ended September 30, 2019.

This decline includes a $92.2 million, or 68.5%, decrease in sales volumes for our Stimulation and Intervention product line primarily attributable to lower spending by our pressure pumping service customers due to the significant decline in hydraulic fracturing activity levels in the U.S.

The remaining decline was driven by a $66.5 million decrease in sales volumes for our Coiled Tubing product line primarily attributable to lower U.S.

completions activity and, to a lesser extent, the completion of a significant international coiled line pipe project in the first quarter of 2019

Production segment — Revenue was $104.2 million for the six months ended June 30, 2020, a decrease of $71.0 million, or 40.5%, compared to the six months ended June 30, 2019.

This decrease was primarily driven by a $39.7 million decline in sales volumes of our valve products, particularly sales into the North America upstream and midstream oil and natural gas market, and a $31.4 million decrease in revenue for our Production Equipment product line as a result of lower sales volumes of our surface production equipment due to the significant decline in well completions activity.

completions activity.

Production segment — Revenue was $145.0 million for the nine months ended September 30, 2020, a decrease of $111.2 million, or 43.4%, compared to the nine months ended September 30, 2019.

This decrease includes a $66.2 million, or 42.0%, decline in sales volumes of our valve products, particularly sales into the North America upstream and midstream oil and natural gas market, and a $45.0 million decrease in revenue for our Production Equipment product line as a result of lower sales volumes of our surface production equipment due to the significant decline in U.S.

well completions in the nine months ended September 30, 2020.

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the six months ended June 30, 2020 was $73.5 million, a decline of $74.7 million compared to the six months ended June 30, 2019.

For the six months ended June 30, 2020, segment operating margin percentage was (24.8)% compared to 0.2% for the six months ended June 30, 2019.

Segment operating loss for the nine months ended September 30, 2020 was $106.4 million, a decline of $106.7 million compared to the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, segment operating margin percentage was (26.6)% compared to break-even for the nine months ended September 30, 2019.

Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period.

The change in operating margin percentage for each segment is explained as follows:

Drilling & Downhole segment — Segment operating loss was $13.5 million, or (10.9)%, for the six months ended June 30, 2020 compared to a loss of $1.2 million, or (0.7)% for the six months ended June 30, 2019.

Drilling & Downhole segment — Segment operating loss was $26.8 million, or (16.0)%, for the nine months ended September 30, 2020 compared to income of $3.2 million, or 1.2% for the nine months ended September 30, 2019.

The $29.9 million decline in segment operating results is primarily attributable to lower gross profit from the 34.9% decline in segment revenues.

In addition, segment operating loss for the first half of 2020 includes approximately $5.3 million of inventory write-downs and $2.5 million of employee severance costs.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented since the second quarter of 2019.

Completions segment — Segment operating loss was $35.1 million, or (51.4)%, for the six months ended June 30, 2020 compared to income of $9.7 million, or 5.5% for the six months ended June 30, 2019.

In addition, segment operating loss for the first nine months of 2020 includes approximately $8.0 million of inventory write-downs, $4.5 million of impairments of operating lease right of use assets, and $3.1 million of employee severance costs.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented in 2020.

Completions segment — Segment operating loss was $47.0 million, or (53.4)%, for the nine months ended September 30, 2020 compared to income of $9.6 million, or 3.9% for the nine months ended September 30, 2019.

The $56.6 million decline in segment operating results is primarily attributable to lower gross profit from the 64.3% decline in segment revenues.

In addition, segment operating loss for the first half of 2020 includes $7.9 million of inventory write-downs, $6.1 million of impairments of operating lease right of use assets, and $1.4 million of employee severance costs.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented since the second quarter of 2019.

Production segment — Segment operating loss was $9.2 million, or (8.9)%, for the six months ended June 30, 2020 compared to income of $7.9 million, or 4.5% for the six months ended June 30, 2019.

In addition, segment operating loss for the first nine months of 2020 includes $8.5 million of inventory write-downs, $6.1 million of impairments of operating lease right of use assets, and $1.5 million of employee severance costs.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented in 2020.

Production segment — Segment operating loss was $9.3 million, or (6.4)%, for the nine months ended September 30, 2020 compared to income of $10.2 million, or 4.0% for the nine months ended September 30, 2019.

The $19.5 million decline in segment operating results is primarily attributable to lower gross profit from the 43.4% decline in segment revenues.

In addition, segment operating loss for the first half of 2020 includes $3.1 million of inventory write-downs, $1.9 million of impairments of operating lease right of use assets, and $1.0 million of employee severance costs.

declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented since the second quarter of 2019.

Corporate — Selling, general and administrative expenses for Corporate were $15.6 million for the six months ended June 30, 2020, a $0.3 million increase compared to the six months ended June 30, 2019.

Reductions in employee related costs from headcount, salary and other cost reductions were more than offset by higher legal professional fees in the first half of 2020.

In addition, segment operating loss for the first nine months of 2020 includes $3.3 million of

inventory write-downs, $1.9 million of impairments of operating lease right of use assets, and $1.2 million of employee severance costs.

These declines in segment operating results were partially offset by lower employee related costs due to headcount, salary and other cost reductions implemented in 2020.

Corporate — Selling, general and administrative expenses for Corporate were $23.3 million for the nine months ended September 30, 2020, a $0.6 million increase compared to the nine months ended September 30, 2019.

Reductions in employee related costs from headcount, salary and other cost reductions were more than offset by a $1.5 million lease impairment and higher legal fees in the first nine months of 2020.

Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel;

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Several items are not included in segment operating income (loss), but are included in total operating income (loss).

These items include transaction expenses, impairments of intangible assets, property and equipment, contingent consideration benefit and loss (gain) on the disposal of assets and other.

These items include transaction expenses, impairments of goodwill, intangible assets, property and equipment, contingent consideration benefit and gain on disposal of assets and other.

Transaction expenses relate to legal and other advisory costs incurred in acquiring or disposing of businesses and are not considered to be part of segment operating income.

In the first quarter of 2020, there was a significant decline in oil prices and a deteriorating outlook for industry market conditions with further declines forecasted for drilling and completions activity.

As a result, we recognized non-cash impairment charges of $17.4 million including impairments of $12.2 million of property and equipment and $5.3 million of intangible assets.

The $4.6 million contingent consideration benefit recognized in the six months ended June 30, 2019 is related to reducing the estimated fair value of the contingent cash liability associated with the acquisition of Houston Global Heat Transfer LLC.

For further information related to impairments of goodwill, intangible assets, property and equipment, refer to Note 7 Impairments of Goodwill and Long-Lived Assets.

The $4.6 million contingent consideration benefit recognized in the nine months ended September 30, 2019 is related to reducing the estimated fair value of the contingent cash liability associated with the acquisition of Houston Global Heat Transfer LLC.

Other expense

Other expense includes interest expense, foreign exchange losses (gains) and other, gain on extinguishment of debt and deferred loan costs written off.

We incurred $13.1 million of interest expense during the six months ended June 30, 2020, a decrease of $3.3 million from the six months ended June 30, 2019 due to lower outstanding balances on our revolving Credit Facility and a reduction in the amount of 2021 Notes outstanding.

The foreign exchange (gains) losses are primarily the result of movements in the British pound and the Euro relative to the U.S.

Other expense includes interest expense, foreign exchange gains and other, gain on extinguishment of debt and deferred loan costs written off.

We incurred $21.6 million of interest expense during the nine months ended September 30, 2020, a decrease of $2.6 million from the nine months ended September 30, 2019 primarily due to lower average outstanding balances on our revolving Credit Facility in 2020 compared to 2019.

The foreign exchange gains are primarily the result of movements in the British pound and the Euro relative to the U.S.

These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S.

dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S.

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.

In addition, 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 recorded a tax benefit of $14.8 million for the six months ended June 30, 2020, compared to a tax expense of $10.1 million for the six months ended June 30, 2019.

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.

During the nine months ended September 30, 2020, we recognized $72.5 million of gains on extinguishment of debt, including a $43.8 million gain from the repurchase of notes in the first half of 2020 and a $28.7 million gain from the exchange of notes in the third quarter of 2020.

During the first half of 2020, we repurchased an aggregate $71.9 million of 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 2021 Notes for new 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, resulting in a $28.7 million gain on extinguishment of debt.

See Note 8 Debt for further information.

During the nine months ended September 30, 2020, we wrote-off $2.3 million of deferred loan costs including $2.0 million for the termination of previous discussions related to a potential exchange offer for our 2021 Notes and $0.3 million related to amending our Credit Facility to, among other things, reduce the size of the commitments from $300.0 million to $250.0 million.

In the third quarter of 2019, we sold our aggregate 40% interest in Ashtead and recognized a gain of $1.6 million as a result of such sale.

See Note 4 Dispositions for further information.

We recorded a tax benefit of $13.8 million for the nine months ended September 30, 2020, compared to a tax expense of $6.7 million for the nine months ended September 30, 2019.

The tax expense 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, as discussed further below.

The tax expense for the nine months ended September 30, 2019 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 and a tax benefit of $3.8 million related to the impairment of goodwill.

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

On March 27, 2020, President Trump signed the 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 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 expense 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.

Tax expense for the six months ended June 30, 2019 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.

In addition, 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.

Liquidity and capital resources

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Our future success and growth will be highly dependent on our ability to generate positive operating cash flow and access outside sources of capital.

As of June 30, 2020, we had cash and cash equivalents of $109.7 million and $84.2 million of availability under our 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.

Concurrent with 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.

Following these transactions, we had $12.7 million principal amount of 2021 Notes, $315.5 million principal amount of 2025 Notes and no borrowings outstanding under our Credit Facility as of September 30, 2020.

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.

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.

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.

See Note 8 Debt for further details related to the terms for our 2021 Notes, 2025 Notes and Credit Facility.

As of September 30, 2020, we had cash and cash equivalents of $20.0 million and $108.6 million of availability under our Credit Facility, respectively.

We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues.

In addition, we expect total 2020 capital expenditures to be less than $5.0 million, consisting of, among other items, replacing end of life machinery and equipment.

Availability under our Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory.

We also expect to receive a cash refund for income taxes in 2020 of approximately $14.1 million from filing a carryback claim for U.S.

Furthermore, availability under our Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory.

In the third quarter of 2020, we received a $14.1 million cash refund for income taxes from filing a carryback claim for U.S.

federal tax losses based on provisions in the CARES Act.

Following these repurchases, we had $328.1 million of 2021 Notes outstanding as of June 30, 2020.

Subsequent to the end of the second 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 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 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.

Prior to obtaining stockholder approval, the amount of 2025 Notes that may be converted into common stock is subject to a conversion cap.

If the required stockholder approval of the issuance of additional shares of common stock and other related actions in connection with the exchange is not obtained in a timely manner, the convertibility of the 2025 Notes will be delayed until such approval is obtained.

If such stockholder approval is not received by June 30, 2021, the failure to obtain such approval would result in an event of default under the 2025 Notes.

Upon such default, the 2025 Notes will become immediately due and payable without any action by the 2025 Notes trustee or the holders of 2025 Notes.

We plan to seek stockholder approval prior to June 30, 2021.

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 have second liens 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 2021, subject to 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 change the financial covenant testing clause to trigger if excess availability under the Credit Facility falls below the greater of 12.5% of the borrowing base and $31.25 million.

Following the 2021 Notes exchange, $12.7 million of 2021 Notes remain outstanding.

If this remaining amount is repaid prior to March 2021, the maturity of the Credit Facility will extend to October 2022.

We plan to retire the $12.7 million of 2021 Notes prior to March 2021.

We expect our available cash on-hand, cash generated by operations, including U.S.

income tax refunds, and estimated availability under our Credit Facility to be adequate to fund current operations and debt maturities during the next 12 months.

In addition, based on existing market conditions and our expected liquidity needs, among other

factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce the principal amount of debt outstanding.

In addition, we expect total 2020 capital expenditures to be less than $5.0 million, consisting of, among other items, replacing end of life machinery and equipment.

We expect our available cash on-hand, cash generated by operations, and estimated availability under our Credit Facility to be adequate to fund current operations and debt maturities during the next 12 months.

In addition, based on existing market conditions and our expected liquidity needs, among other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce the principal amount of debt outstanding.

In 2019, we completed two dispositions for total consideration of $51.7 million.

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We may pursue acquisitions in the future, which may be funded with cash and/or equity.

Our ability to make significant additional acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

Our ability to make significant acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

To the extent that access to the capital and other financial markets is adversely affected by the effects of COVID-19, our customers and other counterparties may become unable to make payments to us, on a timely basis or at all, which could adversely affect our business, cash flows, liquidity, financial condition and results of operations.

Our cash flows for the six months ended June 30, 2020 and 2019 are presented below (in millions):

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ (2.1) $ 40.8

Net cash used in investing activities (0.2) (8.8)

Net cash provided by (used in) financing activities 54.4 (42.1)

Our cash flows for the nine months ended September 30, 2020 and 2019 are presented below (in millions):

Nine Months Ended September 30,

Net cash provided by operating activities $ 1.7 $ 75.7

Net cash provided by investing activities 2.0 27.2

Net cash used in financing activities (41.5) (121.4)

Effect of exchange rate changes on cash (0.1) 0.2

Net increase (decrease) in cash, cash equivalents and restricted cash $ 51.8 $ (9.9)

Net cash provided by (used in) operating activities

Net cash used in operating activities was $2.1 million for the six months ended June 30, 2020 compared to $40.8 million of cash provided by operating activities for the six months ended June 30, 2019.

Net decrease in cash, cash equivalents and restricted cash $ (37.9) $ (18.3)

Net cash provided by operating activities

Net cash provided by operating activities was $1.7 million for the nine months ended September 30, 2020 compared to $75.7 million of cash provided by operating activities for the nine months ended September 30, 2019.

This decline is primarily attributable to the decline in operating results.

Net income adjusted for non-cash items provided $27.1 million of cash for the six months ended June 30, 2019 compared to $7.8 million for the six months ended June 30, 2020.

The remaining decline is due to changes in working capital which provided cash of $13.7 million for the six months ended June 30, 2019 compared to $5.7 million for the six months ended June 30, 2020.

Net cash used in investing activities

Net cash used in investing activities was $0.2 million for the six months ended June 30, 2020 compared to $8.8 million for the same period in 2019 primarily due to a $7.7 million reduction in capital expenditures for property an equipment.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $54.4 million for the six months ended June 30, 2020 compared to $42.1 million of net cash used in financing activities for the six months ended June 30, 2019.

Net cash provided by financing activities for the six months ended June 30, 2020 includes $85.0 million of borrowings on the revolving Credit Facility partially offset by $27.6 million of cash used to repurchase 2021 Notes.

Net cash used in financing activities for the six months ended June 30, 2019 primarily includes $41.1 million of net repayments of debt.

Credit Facility

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

As of June 30, 2020, our Credit Facility provided revolving credit commitments of $300.0 million, including up to $30.0 million available to certain Canadian subsidiaries of the Company for loans in United States or Canadian dollars, $45.0 million available for letters of credit issued for the account of the Company and certain of its domestic subsidiaries and $3.0 million available for letters of credit issued for the account of Canadian subsidiaries of the Company.

Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the United States, Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the United States and Canada.

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.

If excess availability under the Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.

6.25% Notes Due 2021

As of June 30, 2020, our 2021 Notes had $328.1 million principal amount outstanding, which 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 a 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.

See further discussion above regarding the exchange of 2021 Notes completed subsequent to the end of the second quarter.

Net income adjusted for non-cash items used $29.9 million of cash for the nine months ended September 30, 2020 compared to providing $42.5 million of cash for the nine months ended September 30, 2019.

The remaining decline is due to changes in working capital which provided cash of $31.6 million for the nine months ended September 30, 2020 compared to $33.1 million for the nine months ended September 30, 2019.

Net cash provided by investing activities

Net cash provided by investing activities was $2.0 million for the nine months ended September 30, 2020 including $4.2 million of proceeds from the sale of property and equipment, partially offset by $2.2 million of capital expenditures.

Net cash provided by investing activities was $27.2 million for the nine months ended September 30, 2019 including $39.3 million in cash proceeds from the sale of our aggregate 40% interest in Ashtead technology, partially offset by $12.6 million of capital expenditures for property and equipment.

Net cash used in financing activities

Net cash used in financing activities was $41.5 million for the nine months ended September 30, 2020 compared to $121.4 million used in financing activities for the nine months ended September 30, 2019.

Net cash used in financing activities for the nine months ended September 30, 2020 includes $27.7 million of cash used to repurchase 2021 Notes, $9.4 million paid for deferred financing costs and a $3.5 million early participation payment for the bond exchange.

Net cash used in financing activities for the nine months ended September 30, 2019 primarily includes $120.3 million of net repayments of debt.

Supplemental Guarantor Financial Information

The Company’s 2021 Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company.

The Company’s 2021 Notes and 2025 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.

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Summarized financial information for the year-to-date interim period and the most recent annual period was as follows (in thousands):

Three Months Ended

June 30, Six Months Ended June 30,

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

Summarized Statements of Operations 2020 2019 2020 2019

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Cost of sales 69,856 149,130 284,494 482,301

Operating income (loss) (34,903) 526 (85,975) 997

Operating loss (40,311) (542,533) (126,286) (541,536)

Net loss (21,551) (532,987) (64,189) (554,609)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Summarized Balance Sheet

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Off-balance sheet arrangements

As of June 30, 2020, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business.

As of September 30, 2020, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business.

Contractual obligations

Except for the changes in the Credit Facility and 2021 Notes discussed above, there have been no other material changes in our contractual obligations and commitments disclosed in our 2019 Annual Report on Form 10-K.

Except for the 2025 Notes and the changes in the Credit Facility and 2021 Notes discussed above, there have been no other material changes in our contractual obligations and commitments disclosed in our 2019 Annual Report on Form 10-K.

Critical accounting policies and estimates

There have been no material changes in our critical accounting policies and procedures during the six months ended June 30, 2020.

There have been no material changes in our critical accounting policies and procedures during the nine months ended September 30, 2020.

For a detailed discussion of our critical accounting policies and estimates, refer to our 2019 Annual Report on Form 10-K.

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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 2. Management’s Discussion and Analysis