What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-02 compared with 2020-02-25 · 225 added, 378 removed, 210 unchanged (74% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected historical consolidated financial data” included under Item 6 of this Annual Report on Form 10-K and our financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

This discussion contains forward-looking statements based on our current expectations, estimates and projections about our operations and the industry in which we operate.

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We assume no obligation to update any of these forward-looking statements.

We are a global oilfield products company, serving the drilling, downhole, subsea, completions and production sectors of the oil and natural gas industry.

We design, manufacture and distribute products and engage in aftermarket services, parts supply and related services that complement our product offering.

We are a global products company, serving the drilling, downhole, subsea, completions and production sectors of the energy industry.

We design, manufacture and distribute products and engage in aftermarket parts supply and services that complement our product offering.

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 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;

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;

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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.

In the first quarter of 2019, we changed our reporting segments to align them with business activity drivers and the manner in which management reviews and evaluates operating performance.

Forum now operates in the following three reporting segments:

Drilling & Downhole, Completions and Production, and we believe that this reporting segment structure better aligns with the key phases of the well cycle and provides improved operating efficiencies.

Prior to this change, we operated in three business segments:

Drilling & Subsea, Completions, and Production & Infrastructure.

We moved the Downhole product line from Completions to Drilling & Subsea to form the new Drilling & Downhole segment.

Completions retained the Stimulation & Intervention and Coiled Tubing product lines.

Finally, we renamed Production & Infrastructure the Production segment.

Our historical results of operations have been recast to retrospectively reflect these changes in accordance with generally accepted accounting principles.

A summary of the products and services offered by each segment is as follows:

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(i) capital equipment and a broad line of expendable drilling products consumed in the drilling process;

(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.

This segment designs, manufactures and supplies products and provides related services to the coiled tubing, stimulation and intervention markets.

(ii) well construction casing and cementing equipment and protection products for artificial lift equipment and cables;

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

• Completions.

This segment designs, manufactures and supplies products and provides related services to the coiled tubing, well stimulation and intervention markets.

The products and related services consist primarily of:

(i) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, pump consumables, cooling systems and flow iron as well as wireline cable, and pressure control equipment used in the well completion and intervention service markets;

(i) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems and flow iron as well as wireline cable and pressure control equipment used in the well completion and intervention service markets;

and (ii) coiled tubing strings and coiled line pipe and related services.

• Production .

This segment designs, manufactures and supplies products and provides related equipment and services for production and infrastructure markets.

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(i) engineered process systems, production equipment, as well as specialty separation equipment;

and (ii) a wide

range of industrial valves focused on serving upstream, midstream, and downstream oil and natural gas customers as well as power and other general industries.

and (ii) a wide range of industrial valves focused on serving upstream, midstream, and downstream oil and natural gas customers as well as power generation and other general industries.

Market Conditions

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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.

The probability of changes in energy prices and their extent and duration are difficult to predict.

Oil prices fluctuated throughout 2019 and were on average lower compared to 2018.

The volume of rigs drilling for oil and natural gas in North America and the level of hydraulic fracturing and other well completion activities are drivers for our revenue from this region.

In the second half of 2019, activity levels significantly slowed in the North America market, which caused a material reduction in demand for many of our products and thus, our revenue.

In addition to oil prices, other factors contributed to this slowdown in activity.

Publicly traded exploration and production and oilfield services companies are under pressure from investors to reduce capital spending, generate positive free cash flow and return capital to investors.

This has led service companies to reduce capital expenditures on new equipment and defer maintenance on existing fleets by utilizing equipment from idle fleets.

Increases in activity in international regions, as well as global offshore and subsea activity, have seen a modest recovery in 2019.

As a result, we have seen an increase in international demand for our drilling and subsea capital equipment offerings, especially in the Middle East market.

However, revenue levels remain far below the level achieved during the last newbuild cycle due to the oversupply of relatively new or recently upgraded equipment.

Revenue for our Valve Solutions product line is also influenced by energy prices, but to a lesser extent compared to our other product lines, resulting in more stable operating and financial results over the long-term.

Demand for valves from the oil and natural gas industry worldwide is driven by planned investments in global refinery and petrochemical projects, as well as the construction of additional pipeline capacity.

Our valve distribution customers have also been under pressure to generate positive free cash flow.

This has led them to decrease the amount of valves in their inventories, causing a decrease in orders from our valve distribution customers until their inventories reach targeted levels.

This was particularly evident in the second half of 2019 when our Valve Solutions product line experienced a material slowdown in bookings and overall customer demand.

government has 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 the pricing of our products, diversification of our supply chain and applying for tariff exemptions for certain products.

In early 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused unprecedented declines in economic activity, energy demand and oil and natural gas 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.

The extreme volatility and lower price environment through the year created a very challenging market for all sub-sectors of the oil and natural gas industry.

Recently, oil demand and prices have partially rebounded as supply and demand have rebalanced at a lower level.

However, overall activity and the North America rig count remain at historically low levels.

Due to the challenging market conditions, exploration and production companies in North America are under pressure to generate positive cash flows 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.

In addition, bankruptcies and consolidation of exploration and production and service companies continued through 2020.

If this trend continues going forward, it 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 the diversification of our subsea product line revenue outside of the oil and natural gas industry.

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 their valve inventories in order to generate positive free cash flow.

On December 31, 2020, we sold assets pertaining to our ABZ and Quadrant valve brands for total consideration of $104.6 million and recognized a gain on disposition of $88.4 million.

The disposition of these brands will reduce our Valve Solutions product line’s future revenue.

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

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, reducing salaries, suspending the Company’s matching contribution to the U.S.

and Canada defined contribution retirement plans, and furloughing select employee groups.

These efforts continued in the fourth quarter of 2020 with the discontinuation of certain products and other changes in sourcing and manufacturing strategies.

These restructuring efforts are expected to be completed during the first half of 2021.

The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (WTI), United Kingdom Brent crude oil (Brent), and Henry Hub natural gas:

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Average North American Natural Gas, $/Mcf

Henry Hub $ 2.03 $ 2.56

Average WTI and Brent oil prices were 31% and 35% lower, respectively, for the year ended December 31, 2020 compared to 2019.

The spot WTI and Brent oil price closed at $61.14 and $67.77 per barrel, respectively, as of December 31, 2019 versus $45.15 and $50.57 , respectively, as of December 31, 2018 .

The price of oil varied dramatically during 2020 with spot prices for WTI and Brent falling from $61.14 and $67.77, respectively, as of December 31, 2019 to lows of below $15.00 per barrel in April 2020 followed by a partial recovery to $48.35 and $51.22, respectively, as of December 31, 2020.

Average natural gas prices were 21% lower in 2020 than 2019.

Concerns about the coronavirus and its potential impact on the Chinese and global economy are creating uncertainty about the overall demand for hydrocarbons resulting in lower prices for oil and natural gas in early 2020.

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

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United States 433 943

Canada 89 134

International 825 1,098

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Offshore Rigs

Land 1,133 1,903

Offshore 214 272

Global Active Rigs 1,347 2,175

Commodity Target, Land

Oil/Gas 345 773

Unclassified 3 1

Land Rigs 433 943

Well Path, Land

Horizontal 384 826

Vertical 21 54

Directional 28 63

Active Land Rigs 433 943

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The average U.S.

and Canadian rig counts in 2019 decreased 9% and 30% , respectively, as compared to 2018 , while the international rig count increased 11% compared to 2018 .

The average U.S.

and Canadian rig counts decreased significantly in the second half of 2019.

As of December 31, 2019, the number of working rigs in the U.S.

decreased to 805 active rigs, from 1,083 active rigs as of December 31, 2018.

and Canadian rig counts in 2020 decreased 54% and 34%, respectively, as compared to 2019, while the international rig count decreased 25% compared to 2019.

The number of working rigs in the U.S.

started 2020 at 805 and fell over 70% to a low of 244 rigs in August 2020.

Since then, active rig levels have rebounded slightly to 351 working rigs as of December 31, 2020.

Despite improvement in early 2021, the U.S.

rig count in 2021 is projected to remain below levels achieved in recent years.

The table below shows the amount of total inbound orders by segment for the years ended December 31, 2020 and 2019:

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Drilling & Downhole $ 208.5 $ 314.2

Acquisitions and Dispositions

On December 4, 2019, we sold certain assets of our Cooper Alloy brand of valve products for total consideration of $4.0 million and recognized a gain on disposition totaling $2.3 million .

On October 5, 2018, we acquired 100% of the stock of Houston Global Heat Transfer LLC (“GHT”) for total aggregate consideration of $57.3 million , net of cash acquired.

The aggregate consideration includes the estimated fair value of certain contingent cash payments due to the former owners of GHT if certain conditions are met in 2019 and 2020.

Based in Houston, Texas, GHT designs, engineers, and manufactures premium industrial heat exchanger and cooling systems used primarily on hydraulic fracturing equipment.

This acquisition is included in the Completions segment.

On July 2, 2018, we acquired certain assets of ESP Completion Technologies LLC, a subsidiary of C&J Energy Services, for cash consideration of $8.0 million .

ESPCT consists of a portfolio of early stage technologies that maximize the run life of artificial lift systems, primarily electric submersible pumps.

This acquisition is included in the Drilling and Downhole segment.

On January 3, 2018, we contributed our subsea rentals business to Ashtead to create an independent provider of subsea survey and equipment rental services.

In exchange, we received a 40% interest in the combined business, a cash payment of £2.7 million British Pounds and a note receivable from Ashtead of £3.0 million British Pounds.

Following this transaction, our 40% interest in Ashtead was accounted for as an equity method investment and reported as Investment in unconsolidated subsidiary in our consolidated balance sheets.

On September 3, 2019, we sold our aggregate 40% interest in Ashtead to the majority owners of Ashtead.

Total consideration for Forum’s 40% interest and the settlement of the £3.0 million British Pounds note receivable from Ashtead was $47.7 million .

Forum received $39.3 million in cash proceeds and a new £6.9 million British Pounds note receivable with a three year maturity.

There are factors related to the businesses we have acquired and disposed that may result in lower or higher net profit margins on a go-forward basis, primarily the federal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase.

For additional information regarding our acquisitions and dispositions, refer to Note 4 Acquisitions & Dispositions .

Factors affecting the comparability of our future results of operations to our historical results of operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the following reasons:

Since our initial public offering in 2012, we have grown our business both organically and through strategic acquisitions.

We expanded and diversified our product portfolio and business lines with the acquisition of two businesses in 2018 .

The historical financial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented.

In addition, we completed two strategic dispositions in 2019.

The historical financial data for periods prior to these dispositions include the results attributable to the disposed assets for the periods presented.

As such, historical financial results may not provide an accurate indication of our future results.

As we integrate acquired companies and further implement internal controls, processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares, it is likely that we will incur incremental selling, general and administrative expenses relative to historical periods.

Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.

Completions 112.8 273.8

Production 151.3 275.4

Total Orders $ 472.6 $ 863.4

Results of operations

Year ended December 31, 2019 compared with year ended December 31, 2018

Year ended December 31,

Year ended December 31, Change

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

Drilling & Downhole $ 216,836 $ 334,829 $ (117,993) (35.2) %

Completions 118,685 305,089 (186,404) (61.1) %

Production 177,510 320,996 (143,486) (44.7) %

Eliminations (555) (4,381) 3,826 *

Total revenue $ 512,476 $ 956,533 (444,057) (46.4) %

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Drilling & Downhole $ 192,640 $ 240,175 $ (47,535) (19.8) %

Completions 165,098 226,713 (61,615) (27.2) %

Production 166,314 249,174 (82,860) (33.3) %

Eliminations (555) (4,381) 3,826 *

Total cost of sales $ 523,497 $ 711,681 $ (188,184) (26.4) %

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Drilling & Downhole $ 24,196 $ 94,654 $ (70,458) (74.4) %

Completions (46,413) 78,376 (124,789) (159.2) %

Production 11,196 71,822 (60,626) (84.4) %

Total gross profit $ (11,021) $ 244,852 $ (255,873) (104.5) %

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Drilling & Downhole $ 72,160 $ 86,993 $ (14,833) (17.1) %

Completions 50,891 71,795 (20,904) (29.1) %

Production 44,614 64,020 (19,406) (30.3) %

Corporate 30,012 28,928 1,084 3.7 %

Total selling, general and administrative expenses $ 197,677 $ 251,736 $ (54,059) (21.5) %

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Operating margin % (22.1) % 2.2 %

Completions (97,304) 6,581 (103,885) (1,578.6) %

Operating margin % (82.0) % 2.2 %

Production (33,418) 7,802 (41,220) (528.3) %

Operating margin % (18.8) % 2.4 %

Corporate (30,012) (28,928) (1,084) (3.7) %

Total segment operating loss $ (208,698) $ (7,202) $ (201,496) (2,797.8) %

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Interest expense 30,268 31,618 (1,350) (4.3) %

Foreign exchange losses (gains) and other, net

Gain on contribution of subsea rentals business

Gain on disposition of business

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

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

Foreign exchange losses and other, net 6,470 5,022 1,448 *

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

Gain on disposition of business (88,375) (2,348) (86,027) *

Total other (income) expense, net (121,853) 32,725 (154,578) *

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Income tax benefit (12,881) (1,814) (11,067) *

Net loss (96,889) (567,057) 470,168 82.9 %

Weighted average shares outstanding

Basic 5,577 5,505

Diluted 5,577 5,505

Loss per share

Basic $ (17.37) $ (103.01)

Diluted $ (17.37) $ (103.01)

* not meaningful

Our revenue for the year ended December 31, 2020 was $512.5 million, a decrease of $444.1 million, or 46.4%, compared to the year ended December 31, 2019.

In general, the decrease in revenue is due to lower drilling and completions activity in the North America market resulting from lower oil and natural gas prices compared to the previous year resulting in lower spending by exploration and production companies.

For the year ended December 31, 2020, our Drilling & Downhole segment, Completions segment, and Production segment comprised 42.3%, 23.1% and 34.6% of our total revenue, respectively, compared to 35.0%, 31.4% and 33.6%, respectively, for the year ended December 31, 2019.

The overall decrease in revenue is due to lower sales volumes due to the significant decrease in drilling and completions activity levels as a result of lower spending by exploration and production companies.

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

Drilling & Downhole segment — Revenue was $334.8 million for the year ended December 31, 2019 , an increase of $0.8 million , or 0.2% , compared to the year ended December 31, 2018 .

This increase was driven by a $10.3 million increase in revenue for our Subsea product line, primarily due to higher sales of non-oil and natural gas capital equipment and an $11.1 million increase in revenue for our Downhole product line due to continued sales volume growth for our artificial lift products, including the revenue contribution from ESPCT which was acquired in the third quarter of 2018.

These increases were mostly offset by a $20.6 million decrease in revenue for our Drilling product line on lower sales volumes of consumable products due to lower U.S.

rig activity.

Drilling & Downhole segment — Revenue was $216.8 million for the year ended December 31, 2020, a decrease of $118.0 million, or 35.2%, compared to the year ended December 31, 2019.

This decrease includes a $60.4 million, or 38.3%, 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 38% decline in global rig count year-over-year.

Revenue for our Downhole Technologies product line decreased by $52.0 million, or 44.8%, 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 2020.

The $5.6 million, or 9.1%, 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 $118.7 million for the year ended December 31, 2020, a decrease of $186.4 million, or 61.1%, compared to the year ended December 31, 2019.

This decrease includes a $66.7 million decrease in revenue for our Stimulation and Intervention product line attributable to lower capital spending by our pressure pumping service customers, partially offset by a full year of revenue contribution from GHT, which was acquired in the fourth quarter of 2018.

The remaining decline was driven by a $1.3 million decrease in sales volumes for our Coiled Tubing product line primarily attributable to lower U.S.

completions activity, partially offset by higher sales into international markets.

This decline includes a $105.6 million, or 65.2%, 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 an $80.8 million, or 57%, decrease in sales volumes for our Coiled Tubing product line primarily attributable to lower U.S.

completions activity.

Production segment — Revenue was $177.5 million for the year ended December 31, 2020, a decrease of $143.5 million, or 44.7%, compared to the year ended December 31, 2019.

This decrease was primarily driven by a $21.9 million decline in sales volumes of our valve products, particularly sales into the North America midstream oil and natural gas market.

Revenue for our Production Equipment product line decreased by $18.5 million as a result of lower sales volumes of our surface production equipment due to a decline in well completions activity and lower project activity with our downstream customers for our process oil treatment equipment.

This decrease includes an $86.6 million, or 43.7%, decline in sales volumes of our valve products, particularly sales into the North America upstream and midstream oil and natural gas market, and a $56.9 million, or 46.4%, 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 the number of U.S.

well completions in 2020.

Segment operating loss and segment operating margin percentage

Segment operating loss for the year ended December 31, 2019 improved $23.3 million to a loss of $7.2 million from a loss of $30.5 million for the year ended December 31, 2018 .

The operating margin percentage improved to (0.8)% for the year ended December 31, 2019 from (2.9)% for the year ended December 31, 2018 .

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

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

Drilling & Downhole segment — The operating margin percentage for this segment was 2.2% for the year ended December 31, 2019 compared to (10.0)% for the year ended December 31, 2018 .

The improvement in operating margins is attributable to increased operating leverage on higher revenues for our Downhole and Subsea product lines.

In addition, operating margins improved from a reduction in selling, general and administrative expenses including lower employee related costs as a result of cost reduction actions, an $8.3 million reduction in amortization expense following intangible asset impairments recognized in the fourth quarter of 2018 and a $9.1 million reduction in inventory write downs in 2019 compared to 2018.

Completions segment — The operating margin percentage declined to 2.2% for the year ended December 31, 2019 compared to 8.6% for the year ended December 31, 2018 .

This decline is due to decreased operating leverage on lower sales volumes of our well stimulation products and incremental selling, general and administrative expenses following the fourth quarter 2018 acquisition of GHT.

These declines were partially offset by a $9.5 million reduction in inventory write downs recognized in 2019 compared to 2018.

Production segment — The operating margin percentage was 2.4% for the year ended December 31, 2019 compared to 1.7% for the year ended December 31, 2018 .

Segment operating margins improved due to a $7.6 million reduction in inventory write downs in 2019 compared to 2018 and lower selling, general and administrative expenses, primarily lower employee related costs as a result of cost reduction actions.

These cost reductions were mostly offset by decreased operating leverage on lower sales volumes of our valves products and incremental cost from steel tariffs.

Corporate — Selling, general and administrative expenses for Corporate decreased $6.2 million , or 17.5% , for the year ended December 31, 2019 compared to the year ended December 31, 2018 .

This decrease was primarily attributable to a $3.8 million reduction in severance costs in 2019 compared to 2018 as well as lower employee payroll costs, professional fees and facilities costs as a result of cost reduction actions.

Corporate costs include, among other

items, payroll related costs for management, administration, finance, legal, and human resources personnel;

Segment operating loss for the year ended December 31, 2020 was $208.7 million compared to a loss of $7.2 million for the year ended December 31, 2019.

For the year ended December 31, 2020, segment operating margin percentage was (40.7)% compared to (0.8)% for the year ended December 31, 2019.

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

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

Drilling & Downhole segment — Segment operating loss was $48.0 million, or (22.1)%, for the year ended December 31, 2020 compared to income of $7.3 million, or 2.2% for the year ended December 31, 2019.

The $55.3 million decline in segment operating results is primarily attributable to lower gross profit from the 35.2% decline in segment revenues.

In addition, segment operating loss for 2020 includes $24.9 million of inventory write-downs, $5.4 million of impairments of operating lease right of use assets, and $4.4 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 in 2020.

Completions segment — Segment operating loss was $97.3 million, or (82.0)%, for the year ended December 31, 2020 compared to income of $6.6 million, or 2.2% for the year ended December 31, 2019.

The $103.9 million decline in segment operating results is primarily attributable to lower gross profit from the 61.1% decline in segment revenues.

In addition, segment operating loss for 2020 includes $53.5 million of inventory write-downs, $6.1 million of impairments of operating lease right of use assets, and $1.8 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 $33.4 million, or (18.8)%, for the year ended December 31, 2020 compared to income of $7.8 million, or 2.4% for the year ended December 31, 2019.

The $41.2 million decline in segment operating results is primarily attributable to lower gross profit from the (44.7)% decline in segment revenues.

In addition, segment operating loss for 2020 includes $22.4 million of inventory write-downs, $2.4 million of impairments of operating lease right of use assets, and $1.3 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 $30.0 million for the year ended December 31, 2020, a $1.1 million increase compared to the year ended December 31, 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 related to litigation.

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

professional fees for legal, accounting and related services;

and marketing costs.

Other items not included in segment operating loss

Other items not included in segment operating income (loss)

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

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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 loss.

These costs were $1.2 million and $3.4 million for the years ended December 31, 2019 and 2018 , respectively.

For the years ended December 31, 2019 and 2018 , we recognized material impairments of goodwill, intangible assets, property and equipment primarily as a result of substantial declines in the quoted market prices of our common stock and significant declines in drilling and completions activity.

In 2019, we recognized goodwill impairments totaling $471.0 million , intangible asset impairments totaling $53.5 million and property and equipment impairments totaling $7.9 million .

In 2018, we recognized goodwill impairments totaling $298.8 million and intangible impairments totaling $64.7 million .

See Note 7 Goodwill and Intangible Assets and Note 6 Property and Equipment for further information related to these charges.

The contingent consideration benefit relates to a gain of $4.6 million recognized in the first quarter of 2019 due to reducing the estimated fair value of the contingent cash liability associated with the acquisition of GHT.

See Note 4 Acquisitions & Dispositions for additional information.

For further information related to impairments of goodwill, intangible assets, property and equipment, see Note 8 Impairments of Goodwill and Long Lived Assets .

The contingent consideration benefit in 2019 relates to a gain of $4.6 million recognized in the first quarter of 2019 due to reducing the estimated fair value of the contingent cash liability associated with the fourth quarter 2018 acquisition of Global Heat Transfer LLC.

Other income and expense

Other income and expense includes interest expense, foreign exchange losses (gains) and other, net, gains on the disposition of businesses and a gain realized on our previously held equity investment.

We incurred $31.6 million of interest expense during the year ended December 31, 2019 , a decrease of $0.9 million compared to the year ended December 31, 2018 due to a lower average outstanding balance on our Credit Facility.

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

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

We incurred $30.3 million of interest expense during the year ended December 31, 2020, a decrease of $1.4 million compared to the year ended December 31, 2019 due to lower average outstanding balances on our Credit Facility in 2020 compared to 2019 partially offset by higher non-cash amortization of debt discount and debt issuance costs associated with our 9.0% convertible secured notes due August 2025 (the “2025 Notes”).

The foreign exchange losses are primarily the result of movements in the British pound, the Euro, and the Canadian Dollar 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.

The foreign exchange loss was $5.0 million for the year ended December 31, 2019 compared to a gain of $6.3 million for the year ended December 31, 2018 .

In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business which was contributed to Ashtead in exchange for an aggregate 40% interest in the combined business.

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 this transaction.

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

During the year ended December 31, 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 6.25% unsecured notes due 2021 (the “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 9 Debt for further information.

During the year ended December 31, 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 fourth quarter of 2020, we sold certain assets of our ABZ and Quadrant valve brands and recognized a gain on disposition totaling $88.4 million.

In the fourth quarter of 2019, we sold certain assets of our Cooper Alloy brand of valve products and recognized a gain on disposition totaling $2.3 million.

See Note 4 Acquisitions & Dispositions for further information related to these transactions.

The effective tax rate, calculated by dividing total tax benefit by loss before income taxes, was (0.3)% and (4.0)% for the years ended December 31, 2019 and 2018 respectively.

The tax rate for 2019 is different than 2018 primarily due to higher goodwill impairments, increases in our valuation allowance related to our deferred tax assets and a non-recurring benefit of the tax effects of tax reform recorded in 2018.

We recorded a tax benefit of $1.8 million for the year ended December 31, 2019 , compared to a tax benefit of $15.7 million for the year ended December 31, 2018 .

Items impacting the effective tax rate for the year ended December 31, 2019 include an increase in our valuation allowance of $98.9 million to write down our deferred tax assets in the U.S., U.K., Germany, Singapore and Saudi Arabia primarily due to operating losses incurred where the recording of a tax benefit is not available and $27.2 million of tax expense related to the impairment of non-tax deductible goodwill.

Items impacting the effective tax rate for the year ended December 31, 2018 include $46.1 million of tax expense associated with the impairment of non-tax deductible goodwill for our Drilling and Downhole reporting units, $50.0 million of tax expense for a partial valuation allowance in the U.S.

and full valuation allowances in the U.K., Germany and Singapore, and $15.6 million of tax benefit from adjusting the provisional impact of U.S.

See Note 10 Income Taxes for additional information on the impact of U.S.

Year ended December 31, 2018 compared to year ended December 31, 2017

Year ended December 31,

(in thousands of dollars, except per share information)

Drilling & Downhole

Total revenue

Cost of sales:

Drilling & Downhole

Total cost of sales

Gross profit:

Drilling & Downhole

Total gross profit

Selling, general and administrative expenses:

Drilling & Downhole

Total selling, general and administrative expenses

Segment operating income (loss):

Drilling & Downhole

Operating income margin %

Total segment operating loss

Operating income margin %

Impairments of goodwill and intangible assets

Transaction expenses

Loss (gain) on disposal of assets and other

Operating loss

Interest expense

Foreign exchange losses (gains) and other, net

Gain on contribution of subsea rentals business

Gain realized on previously held equity investment

Total other income

Loss before income taxes

Income tax expense (benefit)

Weighted average shares outstanding

Loss per share

* not meaningful

Our revenue for the year ended December 31, 2018 was $1,064.2 million , an increase of $245.6 million , or 30.0% , compared to the year ended December 31, 2017 .

In general, the increase in revenue is due to higher market activity resulting from higher oil prices.

For the year ended December 31, 2018 , our Drilling & Downhole segment, Completions segment, and Production segment comprise 31.4% , 34.6% and 34.0% of our total revenue, respectively, compared to 37.9% , 22.1% and 40.0% , respectively, for the year ended December 31, 2017 .

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

Drilling & Downhole segment — Revenue was $334.0 million for the year ended December 31, 2018 , an increase of $23.5 million , or 7.6% , compared to the year ended December 31, 2017 .

Revenue from sales of our Downhole products increased $29.0 million , primarily due to incremental revenue from Multilift and ESPCT which were acquired in the second quarter of 2017 and third quarter of 2018, respectively.

Refer to Note 4 Acquisitions & Dispositions for additional information.

Revenue from sales of our drilling products increased $9.4 million , primarily due to higher sales of capital equipment to international markets in 2018.

These increases were partially offset by a $14.9 million decline in revenue for our subsea product line primarily due to the contribution of our subsea rentals business to Ashtead in exchange for a 40% interest in the combined business .

Completions segment — Revenue was $373.1 million for the year ended December 31, 2018 , an increase of $188.9 million , or 102.6% , compared to the year ended December 31, 2017 .

This change includes a $108.8 million increase in revenue from Global Tubing which was acquired and fully consolidated in our financial statements beginning in the fourth quarter of 2017.

The remaining increase was driven by an $80.1 million increase in sales of our well stimulation and intervention products due to higher sales volumes of pressure pumping products attributable to higher completions spending by exploration and production companies in the U.S.

market and revenue contributed by the acquisition of GHT in the fourth quarter of 2018.

Production segment — Revenue was $361.4 million for the year ended December 31, 2018 , an increase of $34.1 million , or 10.4% , compared to the year ended December 31, 2017 .

The increase in oil and natural gas operators budgets and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment.

Approximately $17.3 million of the increase is due to higher sales volumes of valve products, particularly sales into the North America oil and natural gas market.

The remaining $16.8 million increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators .

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the year ended December 31, 2018 improved $33.5 million , to a loss of $30.5 million from a loss of $63.9 million for the year ended December 31, 2017 .

The operating margin percentage improved to (2.9)% for the year ended December 31, 2018 from (7.8)% for the year ended December 31, 2017 .

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

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

Drilling & Downhole segment — The operating margin percentage was (10.0)% for the year ended December 31, 2018 compared to (15.2)% for the year ended December 31, 2017 .

The improvement in operating margin percentage is due to a more favorable sales mix and a decrease in employee related costs resulting from cost reduction actions.

This improvement was partially offset by an increase in restructuring charges and inventory write downs totaling approximately $18.5 million and $12.9 million for the years ended December 31, 2018 and 2017 , respectively.

Completions segment — The operating margin percentage improved to 8.6% for the year ended December 31, 2018 from 4.8% for the year ended December 31, 2017 .

The improvement in operating margin percentage is due to increased operating leverage on higher volumes, especially on higher sales of our well stimulation and intervention products as discussed above.

In addition, operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of Global Tubing, which was previously reported as an equity method investment for the first nine months of 2017 and was fully consolidated in our financial statements beginning in the fourth quarter of 2017.

The improvement in operating margins was partially offset by $12.5 million of charges to write-down inventory for the year ended December 31, 2018 .

Production segment — The operating margin percentage was 1.7% for the year ended December 31, 2018 compared to 2.4% for the year ended December 31, 2017 .

The slight decline in operating margin percentage was driven by $9.9 million of charges to write-down inventory for the year ended December 31, 2018 compared to $4.3 million for the year ended December 31, 2017 .

Corporate — Selling, general and administrative expenses for Corporate increased $1.7 million , or 4.9% , for the year ended December 31, 2018 compared to the year ended December 31, 2017 , primarily due to an increase in employee severance and payroll costs, partially offset by a decrease in share based compensation expense.

Corporate costs

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

professional fees for legal, accounting and related services;

and marketing costs .

Other items not included in segment operating loss

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

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

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

These costs were $3.4 million and $6.5 million for the years ended December 31, 2018 and 2017 , respectively, with these costs primarily related to the acquisitions of GHT and ESPCT in 2018 and Global Tubing and Multilift in 2017.

For the years ended December 31, 2018 and 2017 , we recognized material impairments of goodwill and intangible assets primarily as a result of substantial declines in the quoted market prices of our common stock and significant declines in drilling and completions activity.

In 2018, we recognized goodwill impairments totaling $298.8 million and intangible impairments totaling $64.7 million .

In 2017, we recognized goodwill impairments totaling $68.0 million and intangible impairments totaling $1.1 million .

See Note 7 Goodwill and Intangible Assets for further information related to these charges.

Other income and expense

Other income and expense includes interest expense, foreign exchange losses (gains), a gain recognized on the contribution of our subsea rentals business and a gain realized on the previously held equity investment in Global Tubing.

We incurred $32.5 million of interest expense during the year ended December 31, 2018 , an increase of $5.7 million compared to the year ended December 31, 2017 primarily due to an increase in average outstanding borrowings under our Credit Facility.

The foreign exchange gain was $6.3 million for the year ended December 31, 2018 compared to a loss of $7.3 million for the year ended December 31, 2017 .

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

In 2018 , we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business.

In 2017 , we recognized a gain of $120.4 million on the previously held equity investment in Global Tubing upon acquiring the remaining interest in the fourth quarter of 2017.

Refer to Note 4 Acquisitions & Dispositions for additional information

The effective tax rate, calculated by dividing total tax expense (benefit) by income before income taxes, was (4.0)% and 7.5% for the years ended December 31, 2018 and 2017 , respectively.

The tax rate for 2018 is significantly different than 2017 primarily due to higher goodwill impairments, increases in our valuation allowance related to our deferred tax assets, the reduction in the U.S.

corporate income tax rate as a result of U.S.

tax reform and the tax effects of tax reform recorded in 2018 as compared to those recorded in 2017.

and a full valuation allowance in the U.K., Germany and Singapore writing down our deferred tax assets to what is more likely than not realizable, and $15.6 million of tax benefit from adjusting the provisional impact of U.S.

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 related to these transactions.

We recorded a tax benefit of $12.9 million for the year ended December 31, 2020 compared to $1.8 million for the year ended December 31, 2019.

On March 27, 2020, the U.S.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30% limitation on interest expense deductibility to 50% of adjusted taxable

income for 2019 and 2020, and accelerated 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 year ended December 31, 2020 includes a $16.0 million benefit related to a carryback claim for U.S.

federal tax losses based on provisions in the CARES Act.

The tax benefit for the year ended December 31, 2019 includes an increase in our valuation allowance of $98.9 million to write down our deferred tax assets in the U.S., U.K., Germany, Singapore and Saudi Arabia primarily due to operating losses incurred where the recording of a tax benefit is not available and $27.2 million of tax expense related to the impairment of non-tax deductible goodwill.

See Note 11 Income Taxes for additional information.

Liquidity and capital resources

Sources and uses of liquidity

Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit and our Credit Facility and Senior Notes described below.

Our primary uses of capital have been for inventories, sales on credit to our customers and ongoing maintenance and growth capital expenditures.

Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, our Credit Facility and 2025 Notes described below.

Our primary uses of capital have been for inventories, sales on credit to our customers and maintenance and growth capital expenditures.

We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements.

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

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 borrowings to reduce debt prior to scheduled maturities, and may seek opportunities to refinance all or a portion of our senior secured notes.

At December 31, 2019 , we had cash and cash equivalents of $57.9 million , availability under our Credit Facility of $229.1 million and total debt of $399.6 million .

Capital expenditures for 2019 totaled $15.1 million and consist of, among other items, investments in certain manufacturing facilities, replacing end of life machinery and equipment, and continuing the implementation of our enterprise resource planning solution globally.

We believe that cash on hand, cash generated from operations and availability under our Credit Facility will be sufficient to fund operations, working capital needs, and capital expenditure requirements for the foreseeable future.

In 2018 we expanded and diversified our product portfolio with the acquisition of two businesses for total consideration of $65.3 million .

In 2019, we sold our aggregate 40% interest in Ashtead and we sold certain assets of our Cooper Alloy brand of valve products for total consideration of $51.7 million .

We did not complete any acquisitions in 2019.

For additional information, see Note 4 Acquisitions & Dispositions .

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.

In the fourth quarter of 2020, we redeemed the remaining $12.6 million principal amount of 2021 Notes at par and therefore, no 2021 Notes remained outstanding at December 31, 2020.

As of December 31, 2020, we had $316.9 million principal amount of 2025 Notes and $13.1 million of borrowings outstanding under our Credit Facility.

The Credit Facility is scheduled to mature on October 30, 2022 and the 2025 notes are scheduled to mature in August 2025.

See 9 Debt for further details related to the terms for our 2021 Notes, 2025 Notes and Credit Facility.

As of December 31, 2020, we had cash and cash equivalents of $128.6 million and $110.5 million of availability under our Credit Facility.

In the fourth quarter of 2020, we sold certain assets of our ABZ and Quadrant brands of valve products for cash consideration of $104.6 million.

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.

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

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

In addition, we expect total 2021 capital expenditures to be less than $10.0 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 our 2025 Notes or other debt outstanding.

In 2020, we completed one disposition for total consideration of $104.6 million and in 2019, we completed two dispositions for total consideration of $51.7 million.

For additional information, see Note 4 Dispositions .

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.

Our cash flows for the years ended December 31, 2020 and 2019 are presented below (in thousands):

Year ended December 31,

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash provided by operating activities $ 3,883 $ 104,144

Net cash provided by investing activities 108,250 28,135

Net cash used in financing activities (41,765) (122,191)

Effect of exchange rate changes on cash 338 582

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

Net cash provided by (used in) operating activities

Net increase in cash, cash equivalents and restricted cash $ 70,706 $ 10,670

Net cash provided by operating activities

Net cash provided by operating activities was $3.9 million for the year ended December 31, 2020 compared to $104.1 million for the year ended December 31, 2019.

This improvement is primarily attributable to changes in working capital which provided cash of $63.5 million for the year ended December 31, 2019 compared to a $75.3 million use of cash in 2018 .

Net cash provided by operating activities was $2.4 million for the year ended December 31, 2018 compared to $40.0 million of net cash used in operating activities for the year ended December 31, 2017 .

Due to improved operating results, net income adjusted for non-cash items provided $77.7 million of cash for the year ended December 31, 2018 as compared to $1.7 million of cash used for the same period in 2017 .

However, higher investments in working capital used $75.3 million of cash for the year ended December 31, 2018 compared to $38.4 million for the same period in 2017 .

The increase in working capital in 2018 was primarily due to increases in inventory.

The decrease is primarily attributable to the decline in operating results.

Net income adjusted for non-cash items used $53.5 million of cash for the year ended December 31, 2020 compared to providing $40.7 million of cash for the year ended December 31, 2019.

The remaining decline is due to changes in working capital which provided cash of $57.3 million for the year ended December 31, 2020 compared to $63.5 million for the year ended December 31, 2019.

Our operating cash flows are sensitive to a number of variables, the most significant of which is the level of drilling and production activity for oil and natural gas reserves.

1 unchanged sentence

These factors are beyond our control and are difficult to predict.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $28.1 million for the year ended December 31, 2019 compared to $75.4 million of net cash used in investing activities for the year ended December 31, 2018 .

Net cash provided by investing activities for the year ended December 31, 2019 includes $43.2 million in cash proceeds from the sale of equity investment, business, property and equipment partially offset by $15.1 million of capital expenditures for property and equipment.

In comparison, net cash used in investing activities for the year ended December 31, 2018 included $60.6 million for the acquisition of two businesses and $24.0 million of capital expenditures for property and equipment, partially offset by $9.3 million of proceeds from the sale of businesses, property and equipment.

Net cash used in investing activities was $75.4 million and $188.0 million for the years ended December 31, 2018 and 2017 , respectively.

The decrease was primarily due to $60.6 million of cash consideration (net of cash acquired) paid for two acquisitions in 2018 compared $162.2 million paid for three acquisitions in 2017 .

Capital expenditures were $24.0 million and $26.7 million for the years ended December 31, 2018 and 2017 , respectively.

Net cash provided by (used in) financing activities

Net cash used in financing activities was $122.2 million for the year ended December 31, 2019 compared to $6.5 million of net cash provided by financing activities for the year ended December 31, 2018 .

This change is primarily related to net repayments of debt totaling $119.9 million in 2019.

Net cash provided by financing activities was $6.5 million and $100.6 million for the years ended December 31, 2018 and 2017 , respectively.

The decrease primarily resulted from net borrowings on our Credit Facility of $10.2 million in 2018 compared to $107.4 million in 2017.

Senior Notes Due 2021

Our Senior Notes have $400.0 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 Senior Notes are senior unsecured obligations guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.

The terms of the Senior Notes are governed by the indenture, dated October 2, 2013 (the “Indenture”), by and among us, the guarantors named therein and Wells Fargo Bank, National Association, as trustee.

The Senior Notes contain customary covenants including some limitations and restrictions on our ability to pay dividends on, purchase or redeem our common stock;

redeem or prepay our subordinated debt;

make certain investments;

incur or guarantee additional indebtedness or issue certain types of equity securities;

create certain liens, sell assets, including equity interests in our restricted subsidiaries;

restrict dividends or other payments of our restricted subsidiaries;

consolidate, merge or transfer all or substantially all of our assets;

engage in transactions with affiliates;

and create unrestricted subsidiaries.

The Indenture also contains customary events of default, including nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, failure to pay certain judgments and certain events of bankruptcy and insolvency.

We are required to offer to repurchase the Senior Notes in connection with specified change in control events or with excess proceeds of asset sales not applied for permitted purposes.

We may redeem the Senior Notes at a redemption price of 100.0% of their principal amount plus accrued interest.

For additional information, refer to Note 8 Debt .

Credit Facility

Our Credit Facility provides 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.

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

The Credit Facility matures in July 2021, but if our outstanding Senior Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the Credit Facility will automatically extend to October 2022.

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

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

As of December 31, 2019 , our total borrowing base was $253.0 million ,

of which zero was drawn and $23.9 million was used for security of outstanding letters of credit, resulting in remaining availability of $229.1 million .

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.

For additional information, refer to Note 8 Debt .

Net cash provided by investing activities

Net cash provided by investing activities was $108.3 million for the year ended December 31, 2020 including $104.6 million from the sale of certain assets of our ABZ and Quadrant brands of valve products and $5.3 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 $28.1 million for the year ended December 31, 2019 including $39.3 million in cash proceeds from the sale of our aggregate 40% interest in Ashtead technology and $3.4 million in cash proceeds from the sale of certain assets of our Cooper Alloy brand of valve products, partially offset by $15.1 million of capital expenditures for property and equipment.

Net cash used in financing activities

Net cash used in financing activities was $41.8 million for the year ended December 31, 2020 compared to $122.2 million used in financing activities for the year ended December 31, 2019.

Net cash used in financing activities for the year ended December 31, 2020 includes $40.3 million of cash used to repurchase 2021 Notes, $9.7 million paid for deferred financing costs and a $3.5 million early participation payment for the bond exchange.

These cash outflows were partially offset by $13.1 million of net borrowings on our Credit Facility in 2020.

Net cash used in financing activities for the year ended December 31, 2019 primarily includes $119.9 million of net repayments of debt.

Off-balance sheet arrangements

As of December 31, 2020, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business.

Operating leases were excluded from our balance sheet as of December 31, 2018, but are included in the balance sheet as of December 31, 2019 following the January 1, 2019 adoption of ASC 842.

For additional information, refer to Note 2 Summary of Significant Accounting Policies and Note 9 Leases .

Contractual obligations

The following table summarizes our significant contractual obligations and other long- term liabilities as of December 31, 2019 (in thousands):

Senior Notes due 2021 (1)

Credit Facility (2)

Letters of Credit

(1) Includes interest on $400 million of senior notes at 6.25% that are due in October 2021.

(2) No outstanding balance under the Credit Facility as of December 31, 2019.

As discussed in Note 10 Income Taxes , as of December 31, 2019 the Company has approximately $14.6 million of liabilities associated with uncertain tax positions in the various jurisdictions in which the Company conducts business.

Due to the uncertain and complex application of the tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, the Company cannot make precise estimates of the timing of cash outflows relating to these liabilities.

Accordingly, liabilities associated with uncertain tax positions have been excluded from the contractual obligations table above.

Global inflation has been relatively low in recent years and did not have a material impact on our results of operations during 2019 , 2018 or 2017 .

Although the impact of inflation has been insignificant in recent years, it is still a factor in the global economy and we do experience inflationary pressure on the cost of raw materials and components used in our products.

For additional information, refer to Note 13 Commitments and Contingencies.

Supplemental Guarantor Financial Information

The Company’s 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.

The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor, including all obligations under our Credit Facility;

(ii) secured by certain collateral of such guarantor, subject to permitted liens under the indenture governing the 2025 Notes;

(iii) effectively senior to all unsecured indebtedness of that guarantor, to the extent of the value of the collateral securing the 2025 Notes (after giving effect to the liens securing our Credit Facility and any other senior liens on the collateral);

and (v) senior in right of payment to any future subordinated indebtedness of that guarantor.

In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries of the 2025 Notes, the non-guarantor subsidiaries of such notes will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Company or to any guarantors.

The 2025 Notes guarantees shall each be released upon (i) any sale or other disposition of all or substantially all of the assets of such guarantor (by merger, consolidation or otherwise) to a person that is not (either before or after giving effect to such transaction) the Company or a subsidiary, if the sale or other disposition does not violate the applicable provisions of the indenture governing such notes;

(ii) any sale, exchange or transfer (by merger, consolidation or otherwise) of the equity interests of such guarantor after which the applicable guarantor is no longer a subsidiary, which sale, exchange or transfer does not violate the applicable provisions of the indenture governing such notes;

(iii) legal or covenant defeasance or satisfaction and discharge of the indenture governing such notes;

or (iv) dissolution of such guarantor, provided no default or event of default has occurred that is continuing.

The obligations of each guarantor of the 2025 Notes under its guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor (including, without limitation, any guarantees under the Credit Facility) and any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution obligations under the applicable indenture, result in the obligations of such guarantor under its guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under applicable law.

Nonetheless, in the event of the bankruptcy, insolvency or financial difficulty of a guarantor, such guarantor’s obligations under its guarantee may be subject to review and avoidance under applicable fraudulent conveyance, fraudulent preference, fraudulent transfer and insolvency laws.

We are presenting the following summarized financial information for the Company and the subsidiary guarantors (collectively referred to as the "Obligated Group") pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

For purposes of the following summarized financial information, transactions between the Company and the subsidiary guarantors, presented on a combined basis, have been eliminated and information for the non-guarantor subsidiaries have been excluded.

Amounts due to the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented within the summarized financial information below.

Summarized financial information was as follows (in thousands):

Year ended December 31,

(in thousands, except per share information) 2020 2019

Revenues $ 393,704 $ 811,566

Cost of sales 431,670 614,429

Operating loss (238,608) (550,091)

Net loss (96,889) (567,057)

Year ended December 31,

(in thousands, except per share information) 2020 2019

Current assets $ 385,364 $ 530,111

Noncurrent assets 332,486 416,924

Current liabilities 105,393 122,354

Payables to non-guarantor subsidiaries 102,885 116,053

Noncurrent liabilities 324,954 440,817

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

In preparing our consolidated financial statements, we make judgments, estimates and assumptions affecting the amounts reported.

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Revenue from goods transferred to customers over time accounted for 7% of revenues for the year ended December 31, 2020, which is related to certain contracts in our Subsea and Production Equipment product lines.

Recognition over time for these contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date.

We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of

assets to the customer which occurs as costs are incurred on the contract.

Recognition over time for these contracts is supported by our assessment of the products supplied as having no

alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date.

We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract.

The amount of revenue recognized is calculated based on the ratio of costs incurred to-date compared to total estimated costs which requires management to calculate reasonably dependable estimates of total contract costs.

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We account for awards of stock based compensation at fair value on the date granted to employees and recognize the compensation expense in our consolidated financial statements over the requisite service period.

The fair value of stock based compensation was measured using the fair value of the common stock for restricted stock and restricted stock units, the Black-Scholes model for options, and a Monte Carlo Simulation model for performance share units and stock appreciation rights.

The fair value of stock based compensation is measured using the fair value of the common stock for restricted stock and restricted stock units, the Black-Scholes model for options, and a Monte Carlo Simulation model for performance share units and stock appreciation rights.

These models require assumptions and estimates for inputs, especially the estimate of the volatility in the value of the underlying share price, that affect the resultant values and hence the amount of compensation expense recognized.

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While we have policies for calculating and recording reserves against inventory carrying values, we exercise judgment in establishing and applying these policies.

Business combinations, goodwill and intangible assets

Business combinations

Goodwill acquired in connection with business combinations represents the excess of consideration over the fair value of net assets acquired.

Certain assumptions and estimates are employed in evaluating the fair value of assets acquired and liabilities assumed.

These estimates may be affected by factors such as changing market conditions, technological advances in the oil and natural gas industry or changes in regulations governing that industry.

The most significant assumptions requiring judgment involve identifying and estimating the fair value of intangible assets and the associated useful lives for establishing amortization periods.

To finalize purchase accounting for significant acquisitions, we utilize the services of independent valuation specialists to assist in the determination of the fair value of acquired intangible assets.

Goodwill and intangible assets with indefinite lives

For goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication an impairment may have occurred.

We use an assessment date of October 1 for our annual impairment test for goodwill and other indefinite-lived intangible assets.

Goodwill is reviewed for impairment by comparing the carrying value of each of our reporting units’ net assets, including allocated goodwill, to the estimated fair value of the reporting unit.

We determine the fair value of our reporting units using a combination of discounted cash flow and guideline public company methodologies.

We selected these valuation methodologies because we believe they provide the best estimate of fair value for each of our reporting units.

The discounted cash flow methodology requires the use of estimates and assumptions such as revenue growth rates, future operating margins, the weighted average cost of capital, a terminal growth value, and future market conditions, among others.

The guideline public company methodology is a valuation technique in which the value of an entity is determined based on a comparison to similar publicly traded companies with an evaluation of pricing multiples determined as equity value relative to appropriate measures of operating results.

Criteria for comparability in the selection of publicly traded companies includes, but are not limited to, operational characteristics, growth patterns, relative size, earnings trends, markets served, and risk characteristics.

We believe that the estimates and assumptions used in our impairment assessments are reasonable.

If the reporting unit’s carrying value is greater than its calculated fair value, we recognize a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds its fair value.

For the years ended December 31, 2019 , 2018 and 2017 , we recognized goodwill impairment charges totaling $471.0 million , $298.8 million and $68.0 million , respectively, which are included in “ Impairments of goodwill, intangible assets, property and equipment ” in the consolidated statements of comprehensive loss .

See Note 7 Goodwill and Intangible Assets for further information related to these charges.

Following the goodwill impairment charges recognized in the third quarter of 2019 , there is no remaining goodwill balance for any of our reporting units.

Intangible assets with definite lives

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

In performing the review for impairment, future cash flows expected to result from the use of the asset are estimated.

If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired.

The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset.

The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows.

The impairment loss recognized represents the excess of an assets’ carrying value as compared to its estimated fair value.

For the years ended December 31, 2019 , 2018 and 2017 , we recognized intangible asset impairment charges totaling $53.5 million , $64.7 million and $1.1 million , respectively, which are included in “ Impairments of goodwill, intangible assets, property and equipment ” in the consolidated statements of comprehensive loss .

See Note 7 Goodwill and Intangible Assets for further information related to these charges.

Property and equipment

For the years ended December 31, 2020 and 2019, we recognized inventory write downs totaling $100.8 million and $10.3 million, respectively.

These charges are all included in “ Cost of sales ” in the consolidated statements of comprehensive loss.

See Note 5 Inventories for further information related to these charges.

Property and equipment and intangible assets (“Long-lived assets”)

Property and equipment is stated at cost less accumulated depreciation.

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We have established standard useful lives for certain classes of assets.

Intangible assets are stated at cost less accumulated amortization.

Amortization is computed using the straight-line method based on the estimated useful lives of assets.

We review long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.

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If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired.

amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset.

The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset.

The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows based on expected utilization.

The impairment loss recognized represents the excess of an assets’ carrying value as compared to its estimated fair value.

For the year ended December 31, 2019 , we recognized property and equipment impairment charges totaling $7.9 million , which are included in “ Impairments of goodwill, intangible assets, property and equipment ” in the consolidated statements of comprehensive loss .

See Note 6 Property and Equipment for further information related to these charges.

No significant impairments of property and equipment were recorded for the years ended December 31, 2018 and 2017 .

For the years ended December 31, 2020 and 2019, we recognized property and equipment impairment charges totaling $15.1 million and $7.9 million, respectively.

For the years ended December 31, 2020 and 2019, we recognized intangible asset impairment charges totaling $5.3 million and $53.5 million, respectively.

These charges are all included in “Impairments of goodwill, intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

See Note 8 Impairments of Goodwill and Long Lived Assets for further information related to these charges.

We follow the liability method of accounting for income taxes.

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Changes in the operating environment, including changes in tax law or interpretation of tax law and currency repatriation controls, could impact the determination of our tax liabilities for a given tax year.

During 2018, we completed our analysis of the impact of U.S.

tax reform enacted in December 2017 based on further guidance provided on the new tax law by the U.S.

Treasury Department and Internal Revenue Service.

We finalized our accounting for the effects of U.S.

tax reform during 2018 based on the additional guidance issued and recognized an income tax benefit of $15.6 million for the year ended December 31, 2018.

For the years ended December 31, 2019 and 2018 , we recognized tax expense for valuation allowances totaling $98.9 million and $50.0 million , respectively.

The CARES Act was signed into law in March 2020 in response to the COVID-19 pandemic.

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 year ended December 31, 2020 includes a $16.0 million benefit related to a carryback claim for U.S.

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

For the year ended December 31, 2019, we recognized tax expense for valuation allowances totaling $98.9 million.

See Note 11 Income Taxes for further information related to these charges.

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Cautionary note regarding forward-looking statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control.

1 unchanged sentence

When used in this Annual Report on Form 10-K, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements may include, but are not limited to, statements about the following subjects:

• business strategy;

• cash flows and liquidity;

• the volatility and impact of changes in oil and natural gas prices;

• the availability of raw materials and specialized equipment;

• our ability to accurately predict customer demand;

• customer order cancellations or deferrals;

• competition in the oil and natural gas industry;

governmental regulation and taxation of the oil and natural gas industry, including the application of tariffs by governmental authorities;

• environmental liabilities;

• political, social and economic issues affecting the countries in which we do business;

• changes in relative activities of U.S.

and international operations;

• our ability to deliver our backlog in a timely fashion;

• our ability to implement new technologies and services;

• availability and terms of capital;

• general economic conditions;

our ability to successfully manage our growth, including risks and uncertainties associated with integrating and retaining key employees of the businesses we acquire;

• benefits of our acquisitions;

• availability of key management personnel;

• availability of skilled and qualified labor;

• operating hazards inherent in our industry;

• the continued influence of our largest shareholder;

• the ability to establish and maintain effective internal control over financial reporting;

• financial strategy, budget, projections and operating results;

• uncertainty regarding our future operating results;

• plans, objectives, expectations and intentions contained in this report that are not historical.

All forward-looking statements speak only as of the date of this Annual Report on Form 10-K.

We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on Form 10-K are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on Form 10-K are reasonable, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause actual results to differ materially from our plans, intentions or expectations.

This may be the result of various factors, including, but not limited to, those factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K.

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-K

Item 7. Management’s Discussion and Analysis