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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-02 compared with 2020-02-25 · 507 added, 838 removed, 716 unchanged (65% of the section changed)

Quantitative and qualitative disclosures about market risk

We are currently exposed to market risk from changes in foreign currency and interest rates.

From time to time, we may enter into derivative financial instrument transactions to manage or reduce our market risk, but we do not enter into derivative transactions for speculative purposes.

A discussion of our market risk exposure in financial instruments follows.

currency exchange rates

In certain regions, we conduct our business in currencies other than the U.S.

dollar and for the majority of our non-U.S.

operations, the functional currency is the applicable local currency.

We operate primarily in the U.S., Canada, United Kingdom, and Europe.

As a result, our primary exposure to fluctuations in currency exchange rates relates to fluctuations between the U.S.

dollar and the Canadian dollar, the British pound sterling, the Euro, and, to a lesser degree, the Mexican Peso and the Singapore dollar.

In countries where we operate in the local currency, the effects of currency fluctuations are largely mitigated because local expenses of such operations are also generally denominated in the local currency.

There may be instances, however, in which costs and revenue will not be matched with respect to currency denomination.

As a result, we may experience economic losses and a negative impact on earnings or net assets solely due to foreign currency exchange rate fluctuations.

Realized and unrealized gains and losses resulting from re-measurements of monetary assets and liabilities denominated in a currency other than the local entity’s functional currency are included in the consolidated statements of comprehensive loss as incurred.

Our consolidated statements of comprehensive loss include foreign exchange losses of $5.2 million and gains of $5.4 million for the years ended December 31, 2019 and 2018 , respectively.

Financial statements of our foreign operations where the functional currency is not the U.S.

dollar are translated into U.S.

dollars using the current rate method whereby assets and liabilities are translated at the balance sheet rate and income and expenses are translated at the average exchange rates in effect during the period.

The resultant translation adjustments are reported as a component of accumulated other comprehensive loss within stockholders’ equity in our consolidated balance sheets.

For the year ended December 31, 2019 , net foreign currency translation gains of $8.0 million are included in other comprehensive income to reflect the net impact of the general strengthening of other applicable currencies against the U.S.

These translation gains were caused primarily by the relative strengthening of the British pound sterling, as it appreciated 4%, offset by weakening of the Euro, as it depreciated 2%, relative to the U.S.

dollar from December 31, 2018 to December 31, 2019 .

Interest rates

At December 31, 2019 , our principal amount of debt outstanding included $400.0 million of Senior Notes which bear interest at a fixed rate of 6.25% .

Borrowings under our Credit Facility are subject to a variable interest rate as determined by the credit agreement and are exposed to interest rate risk associated with changes in market interest rates.

At December 31, 2019 , we had no borrowings outstanding under our Credit Facility.

Not required under Regulation S-K for “smaller reporting companies.”

Consolidated Financial Statements and Supplementary Data

Report of independent registered public accounting firm - Deloitte & Touche LLP

Report of independent registered public accounting firm - PricewaterhouseCoopers LLP

Consolidated statements of comprehensive loss for the years ended December 31, 2020 and 2019

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Forum Energy Technologies, Incorporated and subsidiaries (the "Company") as of December 31, 2019 , the related consolidated statement of comprehensive income (loss), changes in stockholders' equity, and cash flows, for the period ended December 31, 2019 , and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 , and the results of its operations and its cash flows for the year ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2020 expressed an unqualified opinion on the Company's internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of Forum Energy Technologies, Incorporated and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of comprehensive loss, changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory — Refer to Notes 2 and 5 to the financial statements

Critical Audit Matter Description

Inventory consists of finished goods and materials and supplies which are carried at the lower of cost or net realizable value.

The Company evaluates the net realizable values of inventories based on analysis of inventory levels including excess, obsolete and slow-moving items, historical sales experience and future sales forecasts.

The Company’s evaluation of net realizable value is performed at each location and is based on information and assumptions specific to that location.

Changes in these assumptions could have a significant impact on the recorded inventory amounts or the amount of inventory write-downs.

The inventory, net balance at December 31, 2020 was $251.7 million and the amount of inventory reserve was $144.9 million.

Given the significant judgments and assumptions made by management in applying the methodology used to determine net realizable value, future sales forecasts, and the reports utilized to determine inventory levels and historical sales experiences, performing audit procedures required a high degree of auditor judgment and increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the net realizable value of inventory included the following, among others:

• We made inquiries of business unit managers as well as executives, sales, and operations personnel about the expected product lifecycles and product development plans and historical usage by product.

• We have tested the forecasted demand by comparing internal and external information (e.g.

historical usage, contracts, communications with customers, product development plans, and macroeconomic conditions) with the Company’s forecasted demand.

• We evaluated management’s forecasted demand by comparing actual results to historical forecasts.

• We considered the existence of contradictory evidence based on reading of internal communications to management and the board of directors, Company press releases, and analysts' reports, as well as our observations and inquiries as to changes within the business.

Long-lived assets —Refer to Notes 2, 6, 7 and 8 to the financial statements

Critical Audit Matter Description

The Company reviews 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.

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

In performing the review for impairment, management makes significant estimates and assumptions related to forecasts of future cash flows including forecasts of future revenue and useful lives of the assets.

The net balances of property and equipment, definite lived intangibles, and right of use asset balances were $113.7 million, $240.4 million and $31.5 million, respectively, as of December 31, 2020.

Given the significant estimates and assumptions made by management to estimate future sales forecasts and useful lives of the assets, performing audit procedures required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future sales and useful lives included the following, among others:

• We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical and current year results, (2) internal communications to management and the Board of Directors (3) forecasted information included in industry reports of the Company and certain of its peer companies, and (4) third-party and independently researched market data.

• We compared the remaining useful life of the primary assets to the Company’s underlying asset registers

/s/ Deloitte & Touche LLP

Houston, Texas

February 25, 2020

March 2, 2021

We have served as the Company’s auditor since 2019.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Forum Energy Technologies, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Forum Energy Technologies, Inc.

and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of comprehensive loss, of changes in stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 28, 2019, except for the change in composition of reportable segments discussed in Notes 4, 7, and 17 to the consolidated financial statements, as to which the date is May 3, 2019.

We served as the Company's auditor from 2005 to 2019.

Forum Energy Technologies, Inc.

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(in thousands, except per share information) 2020 2019

Revenues $ 512,476 $ 956,533

Cost of sales 523,497 711,681

Gross profit ( 11,021 ) 244,852

Operating expenses

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Total operating expenses 220,602 780,680

Earnings (loss) from equity investments

Loss from equity investments — ( 318 )

Operating loss ( 231,623 ) ( 536,146 )

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Interest expense 30,268 31,618

Foreign exchange losses (gains) and other, net

Gain on contribution of subsea rentals business

Gain on extinguishment of debt ( 72,478 ) —

Deferred loan costs written off 2,262 —

Foreign exchange losses and other, net 6,470 5,022

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

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Loss before income taxes ( 109,770 ) ( 568,871 )

Income tax expense (benefit)

Income tax benefit ( 12,881 ) ( 1,814 )

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

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 )

Other comprehensive income (loss), net of tax:

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

Change in foreign currency translation, net of tax of $ 0

Gain (loss) on pension liability

Loss on pension liability ( 700 ) ( 1,666 )

Comprehensive loss $ ( 88,340 ) $ ( 560,765 )

comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to common stockholders

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

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Consolidated balance sheets

(in thousands, except share information)

(in thousands, except share information) December 31,

2020 December 31,

Current assets

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Accounts receivable—trade, net of allowances of $ 9,217 and $ 9,048

80,606 154,182

Inventories, net 251,747 414,640

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Intangibles, net 240,444 272,300

Investment in unconsolidated subsidiary

Deferred income taxes, net 102 654

Other long-term assets 13,752 16,365

Total assets $ 889,926 $ 1,159,997

Liabilities and equity

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Treasury stock at cost, 410,877 and 410,595 shares

( 134,499 ) ( 134,493 )

Retained earnings (accumulated deficit) ( 601,656 ) ( 503,369 )

Accumulated other comprehensive loss ( 100,389 ) ( 108,938 )

Total equity 406,236 486,039

Total liabilities and equity $ 889,926 $ 1,159,997

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Cash flows from operating activities

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

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

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

Impairments of operating lease assets 15,370 2,364

Depreciation expense 24,484 30,629

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

Gain on extinguishment of debt ( 72,478 ) —

Deferred loan costs written off 2,262 —

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

(Earnings) loss from equity investments, net of distributions

Gain on contribution of subsea rentals business

Loss from equity investments, net of distributions — 318

Other 3,703 1,676

Changes in operating assets and liabilities

Accounts receivable—trade 65,541 49,732

Inventories 51,621 54,265

Prepaid expenses and other current assets 17,794 621

Income tax receivable

Cost and estimated profits in excess of billings ( 4,317 ) 4,632

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Billings in excess of costs and estimated profits earned ( 3,900 ) 2,279

Net cash provided by (used in) operating activities

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

Cash flows from investing activities

Capital expenditures for property and equipment ( 2,246 ) ( 15,102 )

Acquisition of businesses, net of cash acquired

Proceeds from the sale of equity investment, business, property and equipment

Investment in unconsolidated subsidiary

Net cash provided by (used in) investing activities

Proceeds from the sale of equity investment and business 105,204 42,754

Proceeds from the sale of property and equipment 5,292 483

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

Cash flows from financing activities

Borrowings of debt

Repayments of debt

Borrowings on revolving Credit Facility 182,322 137,000

Repayments on revolving Credit Facility ( 169,196 ) ( 256,900 )

Cash paid to repurchase 2021 Notes ( 40,270 ) —

Bond exchange early participation payment ( 3,500 ) —

Repurchases of stock ( 195 ) ( 1,094 )

Proceeds from stock issuance

Payment of capital lease obligations ( 1,179 ) ( 1,197 )

Deferred financing costs ( 9,747 ) —

Net cash provided by (used in) financing activities

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

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

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Noncash investing and financing activities

Acquisition via issuance of stock

Assets contributed for equity method investment

Operating lease right of use assets obtained in exchange for lease obligations 4,505 9,745

Finance lease right of use assets obtained in exchange for lease obligations 1,401 1,822

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

Accrued purchases of property and equipment — 91

Accrued consideration for acquisition

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

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Consolidated statements of changes in stockholders’ equity

(in thousands)

Treasury stock

earnings (accumulated deficit)

(in thousands) Common stock Additional

capital Treasury stock Retained

earnings (accumulated deficit) Accumulated

comprehensive

income / (loss)

income / (loss) Total

stockholders’

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Stock-based compensation expense — 15,846 — — — 15,846

Exercised stock options

Issuance of performance shares

Shares issued in employee stock purchase plan 5 1,546 — — — 1,551

Shares issued for acquisition

Sale of non-controlling interest

Treasury stock

Change in pension liability

Currency translation adjustment

Balance at December 31, 2017

Restricted stock issuance, net of forfeitures

Stock-based compensation expense

Exercised stock options

Issuance of performance shares

Shares issued in employee stock purchase plan

Contingent shares issued for acquisition of Cooper 1 374 — — — 375

Treasury stock — — ( 59 ) — — ( 59 )

Adjustment for adoption of ASU 2016-16 (Intra-entity asset transfers)

Change in pension liability — — — — ( 1,666 ) ( 1,666 )

Currency translation adjustment — — — — 7,958 7,958

Net Loss — — — ( 567,057 ) — ( 567,057 )

Balance at December 31, 2019 $ 1,189 $ 1,231,650 $ ( 134,493 ) $ ( 503,369 ) $ ( 108,938 ) $ 486,039

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Shares issued in employee stock purchase plan 2 344 — — — 346

Contingent shares issued for acquisition of Cooper

Adjustment for adoption of ASU 2016-13

— — — ( 1,398 ) — ( 1,398 )

Treasury stock — — ( 6 ) — — ( 6 )

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Currency translation adjustment — — — — 9,249 9,249

1-for-20 reverse stock split ( 1,138 ) 1,138 — — — —

Net Loss — — — ( 96,889 ) — ( 96,889 )

Balance at December 31, 2020 $ 60 $ 1,242,720 $ ( 134,499 ) $ ( 601,656 ) $ ( 100,389 ) $ 406,236

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Forum Energy Technologies, Inc.

(the “Company”), a Delaware corporation, is a global oilfield products company, serving the drilling, downhole, subsea, completions and production sectors of the oil and natural gas industry.

The Company designs, manufactures and distributes products, and engages in aftermarket services, parts supply and related services that complement the Company’s product offering.

(the “Company”), a Delaware corporation, is a global products company, serving the drilling, downhole, subsea, completions and production sectors of the energy industry.

The Company designs, manufactures and distributes products, and engages in aftermarket parts supply and services that complement the Company’s product offering.

Summary of Significant Accounting Policies

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The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

COVID-19 Impacts

The outbreak of COVID-19 in 2020 caused significant disruptions in the U.S.

and world economies.

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

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

Bankruptcy Code.

The full impacts of the COVID-19 outbreak are continuing to evolve and will ultimately depend on future developments, including the rate of distribution for approved vaccines, actions taken by governmental authorities, customers, suppliers and other third parties to prevent further spread of the virus, workforce availability, and the timing and extent to which economic and operating conditions resume.

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

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

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries after elimination of intercompany balances and transactions.

Noncontrolling interest represented ownership by others of the equity in a consolidated majority owned South African subsidiary which we sold in the first quarter of 2017.

Our investments in operating entities where we have the ability to exert significant influence, but do not control operating and financial policies, are accounted for using the equity method of accounting with our share of the net income reported in “ Earnings (loss) from equity investments ” in the consolidated statements of comprehensive loss and the investments reported in “ Investment in unconsolidated subsidiary ” in the consolidated balance sheets.

The Company’s share of equity earnings are reported within operating loss as the operations of investees are integral to the operations of the Company.

Prior to acquiring the remaining membership interest of Global Tubing, LLC (“Global Tubing”) on October 2, 2017, the Company’s investment was accounted for using the equity method of accounting.

On January 3, 2018, the Company contributed Forum Subsea Rentals (“FSR”) into Ashtead Technology, a competing business, in exchange for a 40 % interest in the combined business.

After the merger, our interest in the combined business was accounted for using the equity method of accounting.

We previously held an investment in Ashtead, an operating entity where we had the ability to exert significant influence, but did not control operating and financial policies.

This investment was accounted for using the equity method of accounting with our share of the net income reported in “Loss from equity investments” in the consolidated statements of comprehensive loss and the investment reported in “Investment in unconsolidated subsidiary” in the consolidated balance sheets.

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

As of December 31, 2020, we have no investments in unconsolidated subsidiaries.

Refer to Note 4 Acquisitions & Dispositions for further discussion.

Refer to Note 4 Dispositions for further discussion.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

In the preparation of these consolidated financial statements, estimates and assumptions have been made by management including, among others, costs to complete contracts, an assessment of percentage of completion of projects, the selection of useful lives of tangible and intangible assets, fair value of reporting units used for goodwill impairment testing, fair value associated with business combinations, expected future cash flows from long lived assets to support impairment tests, provisions necessary for trade receivables, amounts of deferred taxes and income tax contingencies.

In the preparation of these consolidated financial statements, estimates and assumptions have been made by management including, among others, an assessment of percentage of completion of projects based on costs to complete contracts, the selection of useful lives of tangible and intangible assets, expected future cash flows from long lived assets to support impairment tests, provisions necessary for trade receivables, amounts of deferred taxes and income tax contingencies.

Actual results could differ from these estimates.

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The amounts of revenues and income recognized are subject to revisions as the contract progresses to completion and changes in estimates are reflected in the period in which the facts that give rise to the revisions become known.

Additional information that enhances and refines the estimating process that is obtained after the balance sheet date, but before issuance of the consolidated financial statements is reflected in the consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit and high quality, short term money market instruments with an original maturity of three months or less.

Cash equivalents are based on quoted market prices, a Level 1 fair value measure.

Additional information that enhances and refines the estimating process that is obtained after the

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

balance sheet date, but before issuance of the consolidated financial statements, is reflected in the consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit and high quality, short term money market instruments with an original maturity of three months or less.

Cash equivalents are based on quoted market prices, a Level 1 fair value measure.

Accounts receivable-trade

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Any payments subsequently received on receivables previously written off are credited to bad debt expense.

The change in amounts of the allowance for doubtful accounts during the three year period ended December 31, 2019 is as follows (in thousands):

Balance at beginning of period

Charged to expense

Deductions or other

Balance at end of period

December 31, 2017

The change in amounts of the allowance for doubtful accounts during the two year period ended December 31, 2020 is as follows (in thousands):

Period ended Balance at beginning of period Charged to expense Deductions or other Balance at end of period

December 31, 2019 7,432 3,152 ( 1,536 ) 9,048

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We continuously evaluate inventories based on an analysis of inventory levels, historical sales experience and future sales forecasts, to determine obsolete, slow-moving and excess inventory.

Adjustments to reduce such inventory to its net realizable value have been recorded.

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

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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.

In performing the review for impairment, future cash flows expected to result from the use of the asset and its eventual disposal 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 based on expected utilization.

For the years 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 impairment charges were recorded for the years ended December 31, 2018 and 2017 .

In performing the review for impairment, future cash

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

flows expected to result from the use of the asset and its eventual disposal 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 based on expected utilization.

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, which are 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 record the fair value of asset retirement obligations as a liability in the period in which the associated legal obligation is incurred.

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The current portion of the liability is included in other accrued liabilities and the non-current portion is included in other long-term liabilities in the consolidated balance sheets.

Lease Obligations

We determine if an arrangement is a lease at inception.

Leases with an initial term of 12 months or less are not recorded in our consolidated balance sheets.

Leases with an initial term greater than 12 months are recognized in our consolidated balance sheets based on lease classification as either operating or financing.

Operating leases are included in operating lease assets, accrued liabilities and operating lease liabilities.

Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt.

Some of our lease agreements include lease and non-lease components for which we have elected to not separate for all classes of underlying assets.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We sublease certain real estate to third parties when we have no future use for the property.

Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces, equipment and vehicles.

Operating lease Right of Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments at the commencement date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

Our leases have remaining terms of 1 year to 13 years and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

The operating lease ROU assets also include any upfront lease payments made and exclude lease incentives and initial direct costs incurred.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

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

In performing the review for impairment, future cash flows expected to result from the use of the asset and its eventual disposal 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 by means of an analysis of discounted future cash flows based on expected utilization.

For the years ended December 31, 2020 and 2019, we recognized impairments of operating lease assets totaling $ 15.4 million and $ 2.4 million, respectively, which are included in “Cost of Sales” and “Selling, general and administrative expenses” in the consolidated statements of comprehensive loss.

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

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Goodwill and intangible assets

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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.

For the year ended December 31, 2019, we recognized goodwill impairment charges totaling $ 471.0 million which is 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.

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

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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.

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

Recognition of provisions for contingencies

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Accounting estimates during the course of projects may change, primarily related to our remotely operated vehicles (“ROVs”) which may take longer to manufacture.

The effect of such a change, which can be upward as well as downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates.

These revisions to estimates are accounted for on a prospective basis.

Contracts are sometimes modified to account for changes in product specifications or requirements.

Most of our contract modifications are for goods and services that are not distinct from the existing contract.

As such, these modifications

The effect of such a change, which can be upward as well as

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

are accounted for as if they were part of the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.

downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates.

These revisions to estimates are accounted for on a prospective basis.

Contracts are sometimes modified to account for changes in product specifications or requirements.

Most of our contract modifications are for goods and services that are not distinct from the existing contract.

As such, these modifications are accounted for as if they were part of the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.

No adjustment to any one contract was material to our consolidated financial statements for the years ended December 31, 2020 and 2019.

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Concentration of credit risk

Financial instruments which potentially subject the Company to credit risk include trade accounts receivable.

Trade accounts receivable are financial instruments which potentially subject the Company to credit risk.

Trade accounts receivable consist of uncollateralized receivables from domestic and international customers.

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We measure all stock based compensation awards at fair value on the date they are granted to employees and directors, and recognize compensation cost over the requisite service period for awards with only a service condition, and over a graded vesting period for awards with service and performance or market conditions.

The fair value of stock based compensation awards with market conditions is measured using a Monte Carlo Simulation model and, in accordance with Accounting Standards Codification (“ASC”) 718, is not adjusted based on actual achievement of the performance goals.

The fair value of stock based compensation awards with market conditions is measured using a Monte Carlo Simulation model and, in accordance with Accounting Standards Codification Topic 718, is not adjusted based on actual achievement of the performance goals.

The Black-Scholes option pricing model is used to measure the fair value of options.

The following sections address the assumptions used related to the Black-Scholes option pricing model:

Expected life

The expected term of stock options represents the period the stock options are expected to remain outstanding.

Expected volatility

Expected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period and is estimated based on a weighted average of the Company’s historical stock price.

Dividend yield

We have never declared or paid any cash dividends and do not plan to pay cash dividends for the foreseeable future.

Therefore, a zero expected dividend yield was used in the valuation model.

Risk-free interest rate

The risk-free interest rate is based on U.S.

Treasury zero-coupon issues with remaining terms similar to the expected life of the options.

Forfeitures are accounted for as they occur.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

We follow the liability method of accounting for income taxes.

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See Note 11 Income Taxes for more information on valuation allowances recognized.

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.

Refer to Note 10 Income Taxes for further discussion.

Accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

If a tax position meets the “more likely than not” recognition criteria, accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

local currency translation

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Accounting Standards Adopted in 2020

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Stranded Tax Effects from the Tax Cuts and Jobs Act.

In February 2018, the FASB issued ASU No.

2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

GAAP requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates, with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (referred to as “stranded tax effects”).

The amendments in this ASU allow a specific exception for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.

The underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.

In addition, the amendments in this update also require certain disclosures about stranded tax effects.

We applied the update beginning January 1, 2019.

The adoption of this new guidance had no material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (“ASU 842”).

Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases (finance and operating).

The classification as either a finance or operating lease determines whether lease expense is recognized on an effective interest method basis or on a straight-line basis over the term of the lease, respectively.

We adopted this new standard as of January 1, 2019 using the modified retrospective transition method which requires leases existing at, or entered into after, January 1, 2019 to be recognized and measured.

As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

We took advantage of various practical expedients provided by the new standard, including:

use of the transition package of practical expedients which, among other things, allows us to carry forward the historical lease classification for existing leases;

making an accounting policy election for leases with an initial term of 12 months or less to be excluded from the balance sheet;

electing to not separate non-lease components from lease components for all classes of underlying lease assets.

The adoption of this standard resulted in the recording of net operating lease assets of approximately $ 54 million and operating lease liabilities of approximately $ 65 million as of January 1, 2019.

Financial Instruments—Credit Losses.

In June 2016, the FASB issued ASU No.

2016-13 Financial Instruments—Credit Losses (Topic 326), which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis.

It requires an entity to estimate credit losses expected over the life of an exposure based on historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments.

The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

We adopted this new standard as of January 1, 2020.

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

The new standard did not materially affect our consolidated statements of comprehensive loss for the year ended December 31, 2020.

For additional information, please refer to Note 9 Leases .

Accounting Standards Issued But Not Yet Adopted

Accounting for Implementation Costs Related to a Cloud Computing Arrangement .

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This new guidance aligns the requirements for capitalizing implementation costs incurred by an entity related to a cloud computing arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Accordingly, this guidance requires an entity to capitalize certain implementation costs incurred and then amortize them over the term of the cloud hosting arrangement.

Accordingly, this guidance requires an entity to capitalize certain implementation costs incurred and then amortize them over the term of the cloud hosting

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Furthermore, this guidance also requires an entity to present the expense, cash flows, and capitalized implementation costs in the same financial statement line items as the associated hosting service.

This new guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted.

The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

We are currently evaluating the impact of adopting this guidance.

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

We adopted this new standard as of January 1, 2020.

The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurement Disclosure .

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This new guidance eliminated, modified and added certain disclosure requirements related to fair value measurements.

The amended disclosure requirements are effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019.

We are evaluating the impact of adopting this guidance.

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

Financial Instruments—Credit Losses.

In June 2016, the FASB issued ASU No.

2016-13 Financial Instruments—Credit Losses (Topic 326), which introduced an expected credit loss methodology for the impairment of financial assets

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

measured at amortized cost basis.

This guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company is currently evaluating the impact of adopting ASU No.

2016-13 and is in the process of:

reviewing historical data that will be used in the calculation of expected credit loss;

documenting relevant assumptions to calculate expected losses;

updating policies, procedures and internal controls.

Although we are continuing to asses all potential impacts of the standard, based on our analysis completed to date, we expect the adoption of this guidance will result in a change of less than $ 4.0 million for the calculation of our allowance for doubtful accounts for trade accounts receivable.

We adopted this new standard as of January 1, 2020.

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

Subsidiary Guarantees.

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

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

We adopted these amendments in 2020.

Accordingly, combined summarized financial information has been presented only for the issuers and guarantors of our registered securities.

In addition, the previous disclosures have been removed from the Notes to Condensed Consolidated Financial Statements and the new required disclosures are included in Item 7.

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

Accounting Standards Issued But Not Yet Adopted

In December 2019, the FASB issued ASU No.

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

Convertible Debt.

In August 2020, the FASB issued ASU No.

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

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

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

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

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

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

We are currently evaluating the impact of this new guidance.

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

Disaggregated Revenue

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The following table reflects the changes in our contract assets and contract liabilities balances for the year ended December 31, 2020:

December 31, 2019

December 31, 2018

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

Accrued revenue $ 1,687 $ 1,260

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Contract liabilities $ 9,680 $ 10,788 $ ( 1,108 ) ( 10 ) %

During the year ended December 31, 2019 , our contract assets decreased by $ 4.7 million primarily due to the timing of billings on a large project in our Subsea Technologies product line and our contract liabilities decreased by $ 0.8 million primarily due to a reduction in customer pre-payments in our Drilling Technologies and Stimulation and Intervention product lines.

During the year ended December 31, 2020, our contract assets increased by $ 4.8 million and our contract liabilities decreased by $ 1.1 million primarily due to the timing of billings on large projects in our Subsea Technologies product line.

During the year ended December 31, 2020, we recognized revenue of $ 9.3 million that was included in the contract liability balance at the beginning of the period.

In the second quarter of 2018, our Subsea Technologies product line received an order to supply a submarine rescue vehicle and related equipment that we expect to deliver in 2020.

We use the cost-to-cost method to measure progress on this contract to recognize revenue over time.

Other than this contract, all of our other contracts are less than one year in duration.

As such, we have elected to apply the practical expedient which allows an entity to exclude disclosures

about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Acquisitions & Dispositions

2018 Acquisition of Houston Global Heat Transfer LLC

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 included the estimated fair value (as of the acquisition date) 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.

GHT’s flagship product, the Jumbotron, is an innovative cube-style radiator that substantially reduces customer maintenance expense.

This acquisition is included in the Completions segment.

In the first quarter of 2019, we updated the estimated fair value of the contingent cash payments and recognized a $ 4.6 million reduction in the contingent cash liability.

This gain is included in contingent consideration benefit in the consolidated statements of comprehensive loss .

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):

Current assets, net of cash acquired

Property and equipment

Non-current assets

Intangible assets (primarily customer relationships)

Tax-deductible goodwill

Current liabilities

Long-term liabilities

Net assets acquired, net of cash acquired

Revenue and net income for this acquisition were not significant for the year ended December 31, 2019 and 2018.

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

2018 Acquisition of ESP Completion Technologies LLC

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

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

This acquisition is included in the Drilling and Downhole segment.

The fair values of the assets acquired and liabilities assumed as well as the pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated financial statements.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

2017 Acquisition of Global Tubing

On October 2, 2017, we acquired all of the remaining ownership interests of Global Tubing, LLC (“Global Tubing”) from our joint venture partner and management for total consideration of approximately $ 290.3 million .

We originally invested in Global Tubing with a joint venture partner in 2013.

Prior to acquiring the remaining ownership interest in Global Tubing, we reported this investment using the equity method of accounting.

The financial results for Global Tubing are reported in the Completions segment.

Located in Dayton, Texas, Global Tubing provides coiled tubing, coiled line pipe and related services to customers worldwide.

The acquisition of Global Tubing contributed revenues of $ 35.5 million and net income of $ 3.8 million to our consolidated statement of comprehensive loss from the time of acquisition to December 31, 2017.

The following unaudited pro forma summary presents consolidated information as if the Global Tubing acquisition had occurred on January 1, 2016:

Pro Forma Year Ended

December 31, 2017

Net loss attributable to common stockholders

The pro forma consolidated results of operations amounts have been calculated after applying our accounting policies, and include the following adjustments:

An increase in depreciation and amortization expense resulting from the fair value adjustments of property, plant and equipment and intangible assets recognized as part of the Global Tubing Acquisition;

Removal of earnings from equity investment;

Removal of the historical interest expense from Global Tubing’s historical debt and inclusion of interest expense from the amount borrowed on our Credit Facility to finance the acquisition;

As a result of acquiring the remaining equity interest of Global Tubing, the Company’s previously held equity interest was remeasured to fair value, resulting in a gain of approximately $ 120.4 million .

This gain has been recognized in the consolidated statement of comprehensive loss for the year ended December 31, 2017 and is excluded from the pro forma results above;

Estimated tax benefits of approximately $ 45 million to tax-effect the aforementioned pro forma adjustments using an estimated U.S.

federal income tax rate of 35% .

The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, and are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2016 or of future operating performance.

The following table summarizes the consideration transferred to acquire the remaining ownership interests of Global Tubing (in thousands other than stock price and shares issued):

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Purchase Consideration

Forum Energy Technologies' closing stock price on October 2, 2017

Multiplied by number of shares issued for acquisition

Common shares

Repayment of Global Tubing debt at acquisition

Total Consideration paid for the acquisition

2017 Acquisition of Multilift

On July 3, 2017, we acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, “Multilift”) for approximately $ 39.2 million in cash consideration.

These acquisitions are included in the Completions segment.

Based in Houston, Texas, Multilift manufactures the patented SandGuard TM and the Cyclone TM completion tools.

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

2017 Acquisition of Cooper Valves

On January 9, 2017, we acquired substantially all of the assets of Cooper Valves, LLC as well as 100 % of the general partnership interests of Innovative Valve Components (collectively, “Cooper”) for total aggregate consideration of $ 14.0 million , after settlement of working capital adjustments.

The aggregate consideration includes the issuance of stock valued at $ 4.5 million and certain contingent stock issuances.

These acquisitions are included in the Production segment.

The acquired Cooper brands include the Accuseal ® metal seated ball valves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line of Cooper Alloy ® cast and forged gate, globe, and check valves.

Innovative Valve Components, in partnership with Cooper Valves, commercialized critical service valves and components for the power generation, mining and oil and natural gas industries.

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

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

As such, we have elected to apply the practical expedient which allows an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

2020 Disposition of ABZ and Quadrant Valves

On December 31, 2020, we sold certain assets of our ABZ and Quadrant valve brands for cash consideration of $ 104.6 million.

This transaction was accounted for as a disposition of a business.

We recognized a gain on disposition of $ 88.4 million based on the difference in cash received less $ 15.0 million of net book value of assets sold and a $ 1.2 million accrued liability for an estimated working capital settlement.

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

2019 Disposition of Cooper Alloy ®

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

2018 Disposition of Forum Subsea Rentals

On January 3, 2018, we contributed our subsea rentals business to Ashtead 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.

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 prior to the disposition of our equity interest discussed above.

In the first quarter of 2018, we recognized a gain of $ 33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business, which is classified as Gain on contribution of subsea rentals business in the consolidated statements of comprehensive loss .

This gain was equal to the sum of the consideration received, which included the fair value of our 40 % interest in Ashtead, £ 2.7 million British Pounds in cash, and the £ 3.0 million British Pounds note receivable from Ashtead, less the $ 18.1 million carrying value of the Forum subsea rentals assets at the time of closing.

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

The fair value of such 40 % interest in Ashtead was determined based on the present value of estimated future cash flows of the combined entity as of January 3, 2018.

The difference between the fair value of our 40 % interest in Ashtead of $ 43.8 million and the book value of the underlying net assets resulted in a basis difference, which was allocated to fixed assets, intangible assets and goodwill based on their respective fair values as of January 3, 2018.

The basis difference allocated to fixed assets and intangible assets was amortized through equity earnings (loss) over the estimated life of the respective assets prior to the disposition of our equity interest discussed above.

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

The Company’s significant components of inventory at December 31, 2020 and 2019 were as follows (in thousands):

2020 December 31,

Raw materials and parts $ 151,531 $ 172,083

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Inventory reserve ( 144,942 ) ( 66,075 )

The change in the amounts of the inventory reserve during the three year period ended December 31, 2019 is as follows (in thousands):

Balance at beginning of period

Charged to expense

Deductions or other

Balance at end of period

December 31, 2017

Inventories $ 251,747 $ 414,640

The change in the amounts of the inventory reserve during the two year period ended December 31, 2020 is as follows (in thousands):

Period ended Balance at beginning of period Charged to expense Deductions or other Balance at end of period

December 31, 2019 75,587 10,324 ( 19,836 ) $ 66,075

December 31, 2020 66,075 100,794 ( 21,927 ) $ 144,942

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

The $ 100.8 million charged to expense during the year ended December 31, 2020 includes significant write downs of inventory related to the Company’s decision to discontinue certain products and other changes to sourcing and manufacturing strategies.

Property and Equipment

Property and equipment consists of the following (in thousands):

Estimated useful lives

Estimated useful lives December 31,

Land $ 8,476 $ 9,870

Buildings and leasehold improvements 5 - 30

93,645 103,383

Computer equipment 3 - 5

44,607 55,941

Machinery & equipment 5 - 10

148,019 166,123

Furniture & fixtures 3 - 10

Vehicles 3 - 5

Right of use assets - finance leases 2 - 6

Construction in progress 968 3,663

309,648 353,621

accumulated depreciation ( 196,293 ) ( 199,210 )

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Total property and equipment, net $ 113,668 $ 154,836

Depreciation expense was $ 30.6 million , $ 33.1 million and $ 34.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

For the year ended December 31, 2019 , we recognized property and equipment impairment charges of $ 5.2 million in our Subsea product line and $ 2.7 million in our Stimulation and Intervention product line, which are included in Impairments of goodwill, intangible assets, property and equipment in the consolidated statements of comprehensive loss .

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 (classified within level 3 of the fair value hierarchy).

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill were as follows (in thousands):

Drilling & Downhole

Goodwill balance at December 31, 2017

Acquisitions, net of dispositions

Impact of non-U.S.

local currency translation

Goodwill balance at December 31, 2018

Acquisitions, net of dispositions

Impact of non-U.S.

local currency translation

Goodwill balance at December 31, 2019

We perform our annual impairment tests of goodwill as of October 1 or when there is an indication an impairment may have occurred.

Relevant events and circumstances which could be an indicator of impairment include:

macroeconomic

Depreciation expense was $ 24.5 million and $ 30.6 million for the years ended December 31, 2020 and 2019, respectively.

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

industry and market conditions;

commodity prices;

operating cost factors;

overall financial performance;

the impact of dispositions and acquisitions;

valuation of the Company’s common stock and other entity-specific events.

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

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

Upon evaluation, we considered these developments to be a triggering event that required us to update our goodwill impairment evaluation for all reporting units as of September 30, 2019 based on our current forecast and expectations for market conditions.

As a result, we determined that the carrying value of each of our Downhole, Stimulation and Intervention, Coiled Tubing, Production Equipment and Valve Solutions reporting units exceeded their respective estimated fair value and we recorded non-cash goodwill impairment charges of $ 191.5 million , $ 126.3 million , $ 133.9 million , $ 4.6 million , and $ 14.7 million , respectively.

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

Following these impairment charges, there is no remaining goodwill balance for any of our reporting units.

During the fourth quarter 2018, we completed the annual evaluation of goodwill related to all of our reporting units as of October 1, 2018, our annual testing date.

Based on this evaluation, we determined that the carrying value of our Drilling reporting unit exceeded its estimated fair value.

As a result, we recorded a non-cash impairment charge of $ 245.4 million to write-off the goodwill in our Drilling reporting unit.

Additionally, during the fourth quarter 2018, there was a significant decline in oil prices, lowered industry expectations for U.S.

drilling and completions activities and a substantial decline in the quoted market prices of our common stock, which led us to evaluate all of our reporting units for a triggering event as of December 31, 2018.

Upon evaluation, we considered these developments to be a triggering event for our Downhole reporting unit that required us to update our goodwill impairment evaluation as of December 31, 2018 based on our current forecast and expectations for market conditions.

As a result, we determined that the carrying value of our Downhole reporting unit exceeded its estimated fair value and we recorded a non-cash impairment charge of $ 53.4 million to write-off a portion of the goodwill in our Downhole reporting unit.

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

In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins would be sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins.

With this indication of further delays in the recovery of the offshore market, we performed an impairment test and determined that the carrying value of the goodwill in our Subsea reporting unit was impaired.

As a result, we recorded an impairment charge of $ 68.0 million in the second quarter of 2017.

Accumulated impairment losses on goodwill were $ 1,006.6 million , $ 535.6 million and $ 236.8 million as of December 31, 2019 , 2018 , and 2017 , respectively.

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

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

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

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

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

Intangible Assets

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Gross carrying

Net intangibles

amount Accumulated

amortization Net intangibles Amortization

period (in years)

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Non-compete agreements 190 ( 137 ) 53 2 - 6

Distributor relationships

Trade names 42,984 ( 22,941 ) 20,043 7 - 19

Trademark 5,089 ( 1,103 ) 3,986 15

Intangible Assets Total $ 410,359 $ ( 169,915 ) $ 240,444

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

December 31, 2019

Gross carrying

Net intangibles

amount Accumulated

amortization Net intangibles Amortization

period (in years)

2 unchanged sentences

Non-compete agreements 190 ( 100 ) 90 2 - 6

Trade names 43,284 ( 21,015 ) 22,269 7 - 19

Distributor relationships 22,160 ( 18,866 ) 3,294 15 - 22

15 - Indefinite

Trademark 5,089 ( 763 ) 4,326 15

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

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

In the third quarter of 2019, due to the impairment indicators discussed above, we determined that certain intangibles in our Stimulation and Intervention and our Valve Solutions reporting units were impaired.

As a result, we recognized an aggregate $ 53.5 million of impairment charges on these intangible assets (primarily customer relationships, technology and trademarks) in the third quarter of 2019.

In the fourth quarter of 2018, due to the impairment indicators discussed above, we determined that certain intangible assets in our Downhole Technologies reporting unit were impaired.

As a result, we recognized $ 50.2 million of impairment charges on these intangible assets (primarily customer relationships and trade names) in the fourth quarter of 2018.

In the second quarter of 2018, we made the decision to exit specific products within the Subsea Technologies and Downhole Technologies product lines.

As a result, we recognized $ 14.5 million of impairment losses on certain intangible assets (primarily customer relationships).

In 2017, impairment charges totaling $ 1.1 million were recorded on certain intangible assets within the Subsea Technologies and Downhole Technologies reporting units related to management’s decision to abandon specific product lines.

All of the intangible asset impairment charges discussed above are included in Impairments of goodwill, intangible assets, property and equipment in the consolidated statements of comprehensive loss .

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

The fair value was determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows (classified within level 3 of the fair value hierarchy).

Amortization expense was $ 32.6 million , $ 41.4 million and $ 30.7 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

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

Amortization expense was $ 26.5 million and $ 32.6 million for the years ended December 31, 2020 and 2019, respectively.

The estimated future amortization expense for the next five years is as follows (in thousands):

Year ending December 31,

Year ending December 31, Amount

2021 $ 25,533

Impairments of Goodwill and Long Lived Assets

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

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

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

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

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

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

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

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

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

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

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

During the year ended December 31, 2020, the COVID-19 pandemic and associated preventative actions taken around the world to mitigate its spread caused oil demand to deteriorate and economic activity to decrease.

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

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

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

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

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

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

Twelve Months Ended December 31, 2020 Twelve Months Ended December 31, 2019

Impairments of:

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

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

Intangible assets (1)

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

Property and equipment (1)

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

Operating lease right of use assets (2)

5,366 6,140 2,366 1,498 15,370 1,525 684 155 2,364

Total impairments $ 11,692 $ 15,748 $ 6,826 $ 1,498 $ 35,764 $ 198,210 $ 311,818 $ 24,672 $ 534,700

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

(2) For the years ended December 31, 2020 and 2019, $ 10.8 million and $ 1.3 million, respectively, of these charges are included in Cost of sales, while $ 4.5 million and $ 1.1 million, respectively, are included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

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

6.25% Senior notes due October 2021

Unamortized debt premium

2020 December 31,

2021 Notes $ — $ 400,000

2025 Notes 316,863 —

Unamortized debt premium (discount) ( 30,248 ) 770

Debt issuance cost ( 7,318 ) ( 3,232 )

Senior secured revolving credit facility 13,126 —

Other debt 2,272 2,041

Total debt 294,695 399,579

current maturities ( 1,322 ) ( 717 )

Long-term debt $ 293,373 $ 398,862

Senior Notes Due 2021

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

The Senior Notes bear interest at a rate of 6.25 % per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021.

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

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.

Many of these restrictions will terminate if the Senior Notes become rated investment grade.

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.

Credit Facility

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

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

or Canadian dollars (with a sublimit of up to $ 3.0 million available for letters of credit issued for the account of our Canadian subsidiaries (the “Canadian Line”).

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

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

Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the 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 .

As of December 31, 2020, no 2021 Notes remained outstanding.

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

The 2021 Notes bear interest at a rate of 6.25 % per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021.

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

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

During the first half of 2020, we repurchased an aggregate $ 71.9 million principal amount of our 2021 Notes for $ 27.7 million and recognized a net gain of $ 43.8 million, reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs and unamortized debt premium.

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

In the fourth quarter of 2020, we redeemed the remaining $ 12.6 million principal amount of 2021 Notes at par.

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

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

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

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

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

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

In the fourth quarter 2020, we elected to pay $ 1.4 million of accrued interest as additional notes.

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

A portion of the 2025 Notes, initially equal to $ 150.0 million total principal amount, is mandatorily convertible into shares of our common stock at a conversion rate of 37.0370 shares per $ 1,000 principal amount of 2025 Notes converted, equivalent to a conversion price of $ 27.00 per share, subject, however, to the condition that the average of the daily trading prices for the common stock over the preceding 20 -trading day period is at least $ 30.00 per share.

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

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

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

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.

Credit Facility

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

Following such amendment, our Credit Facility provides revolving credit commitments of $ 250.0 million (with a sublimit of up to $ 45.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries) (the “U.S.

Line”), of which up to $ 25.0 million is available to certain of our Canadian subsidiaries for loans in U.S.

or Canadian dollars (with a sublimit of up to $ 3.0 million available for the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”).

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

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

The amount of eligible inventory included in the borrowing base is restricted to the lesser of $ 130.0 million (subject to a quarterly reduction of $ 0.5 million that started on October 1, 2020) and 80.00 % of the total borrowing base.

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

As of December 31, 2020, our total borrowing base was $ 139.2 million, of which $ 13.1 million was drawn and $ 15.6 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 110.5 million.

Borrowings under the U.S.

Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in San Francisco, (ii) the federal funds rate plus 0.50 % per annum and (iii) the one-month adjusted LIBOR plus 1.00 % per annum, in each case plus an applicable margin.

Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) a base rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from time to time by Thomson Reuters and (ii) the CDOR rate plus 1.00 % , in each case plus an applicable margin.

The applicable margin for LIBOR and CDOR loans will initially range from 1.75 % to 2.25 % , depending upon average excess availability under the Credit Facility.

After the first quarter ending on or after March 31, 2018 in which our total net leverage ratio is less than or equal to 4.00 :

1.00 , the applicable margin for LIBOR and CDOR loans will range from 1.50 % to 2.00 % , depending upon average excess availability under the Credit Facility.

The weighted average interest rate under the Credit Facility was approximately 4.16 % during the year ended December 31, 2019 .

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

After the first quarter in which our total leverage ratio is less than or equal to 4.00 :

1.00 , the commitment fees will range from 0.25 % to 0.375 % , depending upon average usage of the Credit Facility .

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

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

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

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

The weighted average interest rate under the Credit Facility was approximately 2.65 % for the year ended December 31, 2020.

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

The Credit Facility is currently scheduled to mature on October 30, 2022.

If excess availability under the Credit Facility falls below the greater of 12.5 % of the borrowing base and $ 31.3 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.

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

Other debt consists primarily of various finance leases of equipment.

Deferred loan costs

The Company has incurred loan costs that have been capitalized and are amortized to interest expense over the term of the Senior Notes and the Credit Facility.

As a result, approximately $ 1.9 million , $ 1.9 million and $ 1.7 million were amortized to interest expense for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The Company has incurred loan costs that have been deferred and are amortized to interest expense over the term of the 2025 Notes and the Credit Facility.

During the year ended December 31, 2020, we capitalized a total of $ 9.7 million of deferred loan costs related to the exchange of the 2021 Notes.

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

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

Approximately $ 1.8 million and $ 1.9 million of deferred loan costs were amortized to interest expense for the years ended December 31, 2020 and 2019, respectively.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Future principal payments under long-term debt for each of the years ending December 31 are as follows (in thousands):

3 unchanged sentences

present value discount on finance leases $ ( 64 )

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

We determine if an arrangement is a lease at inception.

Leases with an initial term of 12 months or less are not recorded in our consolidated balance sheets.

Leases with an initial term greater than 12 months are recognized in our consolidated balance sheets based on lease classification as either operating or financing.

Operating leases are included in operating lease assets, accrued liabilities and operating lease liabilities.

Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt.

Some of our lease agreements include lease and non-lease components for which we have elected to not separate for all classes of underlying assets.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We sublease certain real estate to third parties when we have no future use for the property.

Total debt $ 294,695

Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces, equipment and vehicles.

Operating lease Right of Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments at the commencement date.

Our leases have remaining terms of 1 year to 14 years and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

The operating lease ROU assets also include any upfront lease payments made and exclude lease incentives and initial direct costs incurred.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The following table summarizes the supplemental balance sheet information related to leases as of December 31, 2019 (in thousands):

Classification

December 31, 2019

Operating lease assets

Finance lease assets

Property and equipment, net of accumulated depreciation

The following table summarizes the supplemental balance sheet information related to leases as of December 31, 2020 and 2019 (in thousands):

Classification December 31, 2020 December 31, 2019

Operating lease assets Operating lease assets $ 31,520 $ 48,682

Finance lease assets Property and equipment, net of accumulated depreciation 2,464 2,085

Total lease assets $ 33,984 $ 50,767

Accrued liabilities

Current portion of long-term debt

Operating lease liabilities

Long-term debt, net of current portion

Operating Accrued liabilities $ 11,974 $ 12,538

Finance Current portion of long-term debt 1,322 717

Operating Operating lease liabilities $ 44,536 49,938

Finance Long-term debt, net of current portion 950 $ 1,324

Total lease liabilities $ 58,782 $ 64,517

The following table summarizes the components of lease expenses for the twelve months ended December 31, 2019 (in thousands):

Classification

Twelve Months Ended December 31, 2019

Operating lease cost

Cost of sales and Selling, general and administrative expenses

Finance lease cost

Amortization of leased assets

Selling, general and administrative expenses

Interest on lease liabilities

Interest expense

Sublease income

Cost of sales and Selling, general and administrative expenses

Net lease cost

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Total rent expense under operating leases was $ 13.7 million , $ 18.3 million and $ 19.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The following table summarizes the components of lease expenses for the twelve months ended December 31, 2020 (in thousands):

Twelve Months Ended

Lease Cost Classification 2020 2019

Operating lease cost Cost of sales and Selling, general and administrative expenses $ 8,439 $ 13,675

Finance lease cost

Amortization of leased assets Selling, general and administrative expenses 932 445

Interest on lease liabilities Interest expense 155 81

Sublease income Cost of sales and Selling, general and administrative expenses ( 2,001 ) ( 1,635 )

Net lease cost $ 7,525 $ 12,566

The maturities of lease liabilities as of December 31, 2020 are as follows (in thousands):

Operating Leases

Finance Leases

Operating Leases Finance Leases Total

2021 $ 14,950 $ 1,322 $ 16,272

2022 13,243 892 14,135

2023 8,065 96 8,161

2024 6,683 20 6,703

2025 6,074 6 6,080

Thereafter 20,940 — 20,940

Total lease payments 69,955 2,336 72,291

1 unchanged sentence

Present value of lease liabilities $ 56,510 $ 2,272 $ 58,782

Future minimum lease payments under operating leases as of December 31, 2018 are as follows (in thousands):

The following table summarizes the weighted-average remaining lease term and weighted average discount rates related to leases as of December 31, 2020:

Lease Term and Discount Rate

December 31, 2019

Lease Term and Discount Rate December 31, 2020 December 31, 2019

Weighted-average remaining lease term (years)

Operating leases

Financing leases

Operating leases 6.6 years 6.8 years

Financing leases 1.8 years 2.8 years

Weighted-average discount rate

5 unchanged sentences

The following table summarizes the supplemental cash flow information related to leases as of December 31, 2020:

Twelve Months Ended December 31, 2019

Twelve Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows from finance leases $ 1,179 $ 1,197

Noncash activities from right-of-use assets obtained in exchange for lease obligations:

Operating leases

Finance leases

Noncash activities from adoption of ASC 842 as of January 1, 2019

Prepaid expenses and other current assets

Operating lease assets

Operating lease liabilities

Accrued liabilities

Prepaid expenses and other current assets n/a $ ( 884 )

Operating lease assets n/a 54,069

Operating lease liabilities n/a 64,506

Accrued liabilities n/a ( 11,321 )

The components of loss before income taxes for the years ended December 31, 2020 and 2019 are as follows (in thousands):

$ ( 106,785 ) $ ( 532,363 )

( 2,985 ) ( 36,508 )

Loss before income taxes $ ( 109,770 ) $ ( 568,871 )

The components of income tax expense (benefit) for the years ended December 31, 2019 , 2018 and 2017 are as follows (in thousands):

The components of income tax benefit for the years ended December 31, 2020 and 2019 are as follows (in thousands):

federal and state $ ( 17,219 ) $ ( 1,423 )

1 unchanged sentence

federal and state 723 3,580

( 872 ) ( 16,565 )

Total deferred ( 149 ) ( 12,985 )

Income tax expense (benefit)

Income tax benefit $ ( 12,881 ) $ ( 1,814 )

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

The reconciliation between the actual provision for income taxes from continuing operations and that computed by applying the U.S.

statutory rate to income before income taxes and noncontrolling interests are outlined below (in thousands):

Income tax expense at the statutory rate

The reconciliation between the actual provision for income taxes and that computed by applying the U.S.

statutory rate to loss before income taxes are outlined below (in thousands):

Income tax benefit at the statutory rate $ ( 23,052 ) ( 21.0 ) % $ ( 119,463 ) ( 21.0 ) %

State taxes, net of federal tax benefit ( 4,190 ) ( 3.8 ) % ( 5,846 ) ( 1.0 ) %

operations 625 0.6 % ( 4,023 ) ( 0.7 ) %

Domestic incentives ( 264 ) ( 0.2 ) % ( 633 ) ( 0.1 ) %

3 unchanged sentences

Goodwill impairment — — % 27,244 4.8 %

Global Tubing acquisition

CAREs Act ( 15,981 ) ( 14.6 ) % — — %

Valuation allowance 25,349 23.1 % 98,900 17.4 %

Income tax expense (benefit)

Other 4,406 4.0 % 1,402 0.2 %

Income tax benefit $ ( 12,881 ) ( 11.7 ) % $ ( 1,814 ) ( 0.3 ) %

Our effective tax rate was ( 11.7 )% and ( 0.3 )% for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2019 , we recognized the following significant items impacting our effective tax rate:

$ 27.2 million of tax expense associated with the impairment of non-tax deductible goodwill, and

$ 98.9 million of tax expense consisting of a full valuation allowance against our deferred tax assets in the U.S, U.K., Germany, Singapore and Saudi Arabia, as further described below under the primary components of deferred taxes.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act of 2017, a comprehensive U.S.

tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of non-U.S.

subsidiaries.

The effects of U.S.

tax reform on us include two major categories:

(i) recognition of liabilities for taxes on mandatory deemed repatriation and (ii) re-measurement of deferred taxes.

In 2017, we recorded provisional amounts as an estimate of federal and state tax related to the effects of U.S.

tax reform including the recognition of liabilities for taxes on mandatory deemed repatriation of non-U.S.

earnings of $ 27.7 million and a $ 17.6 million tax benefit for the re-measurement of deferred taxes based on the new 21% U.S.

corporate tax rate, resulting in a net $10.1 million provisional net tax charge for the year.

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

tax reform 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 resulting in an overall net tax benefit related to U.S.

tax reform of $ 5.5 million .

For the year ended December 31, 2020, we recognized a $ 16.0 million benefit related to a carryback claim for U.S.

federal tax losses based on provisions in the U.S.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020.

The CARES Act 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.

The tax benefit for the year ended December 31, 2020 includes an increase in our valuation allowance of $ 25.3 million consisting of a full valuation allowance against our deferred tax assets in the U.S., U.K., Germany, Singapore, China and Saudi Arabia as further described below under the primary components of deferred taxes.

Forum Energy Technologies, Inc.

5 unchanged sentences

Operating lease liabilities 3,097 14,912

Inventory 37,784 16,429

Stock awards 2,180 5,185

Net operating loss and other tax carryforwards 53,781 83,325

Goodwill and intangible assets 39,381 45,528

Fair value discount on 2025 Notes 30,564 —

Other 931 1,150

Gross deferred tax assets 182,635 171,119

4 unchanged sentences

Operating lease assets ( 6,818 ) ( 12,006 )

Goodwill and intangible assets

Investment in unconsolidated subsidiary

Prepaid expenses and other ( 3,519 ) ( 396 )

13 unchanged sentences

We do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions:

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

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

During 2020, we recognized $ 25.3 million of tax expense related to the increase in our valuation allowance provided against our deferred tax assets to write down our deferred tax assets in these jurisdictions to what is more likely than not realizable.

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Notes to consolidated financial statements (continued)

We account for uncertain tax positions in accordance with guidance in FASB ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements.

We account for uncertain tax positions in accordance with guidance in Accounting Standards Codification Topic 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements.

A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):

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Fair Value Measurements

At December 31, 2019 the Company had no balance outstanding under the Credit Facility, and at December 31, 2018 , the Company had $ 119.0 million of debt outstanding under the Credit Facility.

At December 31, 2020 the Company had $ 13.1 million outstanding under the Credit Facility, and at December 31, 2019, the Company had no balance outstanding under the Credit Facility.

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

1 unchanged sentence

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

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

At December 31, 2018 , the fair value and the carrying value of the Company’s unsecured Senior Notes approximated $ 362.0 million and $ 398.1 million , respectively.

At December 31, 2020, the fair value and the carrying value of the Company’s 2025 Notes approximated $ 200.3 million and $ 279.3 million, respectively.

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

There were no other significant outstanding financial instruments as of December 31, 2020 and 2019 that required measuring the amounts at fair value on a recurring basis.

The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and there were no transfers between levels of the fair value hierarchy during the year ended December 31, 2019 .

The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods.

and there were no transfers between levels of the fair value hierarchy during the year ended December 31, 2020.

Forum Energy Technologies, Inc.

7 unchanged sentences

Asbestos litigation

One of our subsidiaries has been named as one of many defendants in a number of product liability claims for alleged exposure to asbestos.

One of our subsidiaries has been named as one of many defendants in a number of product liability claims for alleged exposure to asbestos used in valves.

These lawsuits are typically filed on behalf of plaintiffs who allege exposure to asbestos, against numerous defendants, often forty or more, who are alleged to have manufactured or distributed products containing asbestos.

The injuries alleged by plaintiffs in these cases range from mesothelioma and other cancers to asbestosis.

The earliest claims against our subsidiary were filed in New Jersey in 1998, and our subsidiary currently has active cases in Missouri, New Jersey, New York, Illinois, Delaware, and Pennsylvania.

The earliest claims against our subsidiary were filed in New Jersey in 1998, and our subsidiary currently has active cases in Missouri, New Jersey, New York, Illinois and Delaware.

These complaints do not typically include requests for a specific amount of damages.

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Although the Company believes that it is unlikely that the subsidiary contributed to the contamination at the Portland Harbor Superfund Site, the potential liability of the subsidiary and the ability of the indemnitor to fulfill its indemnity obligations cannot be quantified at this time.

Tenaris litigation

In October of 2017, one of our subsidiaries, Global Tubing, LLC, filed suit against Tenaris Coiled Tubes, LLC and Tenaris, S.A.

(together “Tenaris”) in the United States District Court for the Southern District of Texas seeking a declaration that its DURACOIL TM products do not infringe certain Tenaris patents related to coiled tubing.

Tenaris filed counterclaims against Global Tubing alleging DURACOIL TM products infringe three patents.

Tenaris seeks unspecified damages and a permanent injunction.

Global Tubing is vigorously defending itself and alleges the Tenaris patents are invalid and unenforceable.

While Global Tubing believes that it will prevail on all claims, if Tenaris were to obtain a permanent injunction, Global Tubing may be barred from selling certain of its DURACOIL TM products.

Operating leases

11 unchanged sentences

Dilutive effect of stock options and restricted stock — —

Dilutive effect of convertible 2025 Notes — —

Diluted - weighted average shares outstanding 5,577 5,505

Loss per share

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

Stockholders' Equity and Employee Benefit Plans

Shares issued for Acquisition

On January 9, 2017, the Company issued 196,249 shares of common stock to acquire 100 % of the general partnership interests of Innovative Valve Components.

On October 2, 2017, the Company issued 11.5 million shares of common stock to acquire the remaining membership interests in Global Tubing.

Refer to Note 4 Acquisitions & Dispositions for further details on these acquisitions.

Basic $ ( 17.37 ) $ ( 103.01 )

Diluted $ ( 17.37 ) $ ( 103.01 )

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Stockholders' Equity and Employee Benefit Plans

Employee benefit plans

3 unchanged sentences

We contribute by matching a percentage of each employee’s contributions.

In 2020, for certain plans, the Company temporarily suspended the matching of contributions.

Subsequent to the closing of all acquisitions, employees of those acquired entities will generally be eligible to participate in the Company’s 401(k) savings plan.

We also have the discretion to provide a profit sharing contribution to each participant depending on the Company’s performance for the applicable year.

The expense under the Company’s plan was $ 5.8 million , $ 6.2 million , and $ 5.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The expense under the Company’s plan was $ 2.3 million and $ 5.8 million for the years ended December 31, 2020 and 2019, respectively.

We have an Employee Stock Purchase Plan, which allows eligible employees to purchase shares of the Company’s common stock at six -month intervals through periodic payroll deductions at a price per share equal to 85.0 % of the lower of the fair market value at the beginning and ending of the six -month intervals.

Following the fourth quarter of 2019, this plan was suspended.

Stock repurchases

In October 2014, the board of directors approved a program for the repurchase of outstanding shares of the Company’s common stock with an aggregate purchase price of up to $ 150.0 million .

We have repurchased approximately 4.5 million shares (primarily in 2014) under this program for aggregate consideration of approximately $ 100.2 million .

At the beginning of 2020, this plan was suspended.

Reverse stock split

In order to bring the Company into compliance with the listing requirements of the New York Stock Exchange, our Board of Directors approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $ 0.01 per share, accompanied by a corresponding decrease in the Company’s authorized shares of common stock.

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

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

No fractional shares of common stock were issued as a result of the Reverse Stock Split.

Instead, any stockholder who would have been entitled to a fractional share received a cash payment in lieu of such fractional shares.

Following the completion of the Reverse Stock Split, the number of authorized shares of common stock was reduced from 296,000,000 to 14,800,000 .

Unless otherwise indicated, the number of shares of common stock outstanding and per-share amounts in these consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the effect of the Reverse Stock Split.

The par value of our common stock remains at $ 0.01 per share.

Stock Based Compensation

FET stock based compensation plan

In August 2010, we created the 2010 Stock Incentive Plan (the “2010 Plan”) to allow for employees, directors and consultants of the Company and its subsidiaries to maintain stock ownership in the Company through the award of stock options, restricted stock, restricted stock units or any combination thereof.

Under the terms of the 2010 Plan, a total of 18.5 million shares were authorized for awards.

The following share and per-share information has been retroactively adjusted to reflect the effect of the 1-for-20 Reverse Stock Split.

Stockholders' Equity and Employee Benefit Plans for further information.

Under the terms of the 2010 Plan, a total of 925 thousand shares were authorized for awards.

In May 2016, we created a new 2016 Stock and Incentive Plan (the “2016 Plan”).

Under the terms of the 2016 Plan, the aggregate number of shares that may be issued may not exceed the number of shares reserved but not issued under the 2010 Plan as of May 17, 2016, the effective date of the 2016 plan, a total of 5.7 million shares.

No further awards will be made under the 2010 Plan after such date, and outstanding awards granted under the 2010 Plan shall continue to be outstanding.

In May 2019, we amended and restated the 2016 Plan to add an additional 2.9 million shares and revised certain terms of the 2016 Plan (the “2016 Amended Plan”).

Approximately 4.8 million shares remained available under the 2016 Amended Plan for future grants as of December 31, 2019 .

The total amount of stock based compensation expense recorded was approximately $ 15.8 million , $ 19.9 million and $ 20.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

As of December 31, 2019 , the Company expects to record stock based compensation expense of approximately $ 19.2 million over a weighted average remaining term of approximately two years .

In May 2019, our stockholders approved to amend and restate the 2016 Plan (the “2016 Amended Plan”) to provide for an additional 145 thousand shares and revised certain terms thereof.

In May 2020, our stockholders approved an amendment to the 2016 Amended Plan to provide for an additional 60 thousand shares.

Approximately 218 thousand shares remained available under the 2016 Amended Plan for future grants as of December 31, 2020.

The total amount of stock based compensation expense recorded was approximately $ 9.8 million and $ 15.8 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, the Company expects to

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

record stock based compensation expense of approximately $ 8.9 million over a weighted average remaining term of approximately one year .

Future grants will result in additional compensation expense.

4 unchanged sentences

Compensation expense is recognized on a straight line basis over the vesting period.

The following tables provide additional information related to stock options:

2019 Activity

Number of shares

(in thousands)

Weighted average exercise price

Remaining weighted average contractual life in years

Intrinsic value

The following table provides additional information related to stock options:

2020 Activity Number of shares

(in thousands) Weighted average exercise price Remaining weighted average contractual life in years Intrinsic value

(in millions)

3 unchanged sentences

Options exercisable 92 $ 359.30 3.4 $ —

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

The intrinsic value is the amount by which the fair value of the underlying share exceeds the exercise price of the stock option.

No stock options were exercised in 2019 .

The intrinsic value of stock options exercised in 2018 and 2017 was $ 0.2 million and $ 1.6 million , respectively.

No stock options were exercised in 2020 or 2019.

As of December 31, 2020 and 2019, the share price of the Company was less than the exercise price for all outstanding stock options.

Therefore, the intrinsic value for stock options outstanding and exercisable were both zero .

No stock options were granted in 2019 .

The assumptions used in the Black-Scholes pricing model to estimate the fair value of stock options granted in 2018 and 2017 are as follows:

Weighted average fair value

Expected life (in years)

Dividend yield

Risk free interest rate

No stock options were granted in 2020 or 2019.

Restricted stock

1 unchanged sentence

The following table provides additional information related to our restricted stock:

2019 Activity

Restricted stock (shares in thousands)

2020 Activity Restricted stock (shares in thousands)

Nonvested at beginning of year 10

Vested ( 10 )

Nonvested at the end of year —

The weighted average grant date fair value of the restricted stock was $ 6.59 , $ 12.00 and $ 19.00 per share during the years ended December 31, 2019 , 2018 and 2017 , respectively.

The total fair value of shares vested was $ 1.5 million during 2019 , $ 1.7 million during 2018 and $ 2.3 million during 2017 .

No restricted stock was granted during 2020.

The weighted average grant date fair value of restricted stock granted during the year ended December 31, 2019 was $ 131.80 per share.

The total grant date fair value of shares vested was $ 1.5 million and $ 1.5 million during 2020 and 2019, respectively.

Restricted stock units

1 unchanged sentence

The following table provides additional information related to our restricted stock units:

2019 Activity

Restricted stock units (shares in thousands)

2020 Activity Restricted stock units (shares in thousands)

Nonvested at beginning of year 109

Vested ( 52 )

Forfeited ( 26 )

Nonvested at the end of year 331

The weighted average grant date fair value of the restricted stock units was $ 6.54 , $ 10.54 and $ 17.97 per share during the years ended December 31, 2019 , 2018 and 2017 , respectively.

The total fair value of units vested was $ 11.8 million , $ 14.2 million , and $ 10.0 million during 2019 , 2018 and 2017 , respectively.

Performance share awards

During 2019 , we granted 390,896 performance share awards with service-vesting and market-vesting conditions.

These awards may settle between zero and two shares of the Company’s common stock for each performance share unit awarded.

The number of shares issued for the 2019 performance share awards will be determined based on the

Of the restricted stock units granted during 2020, 113 thousand shares vest ratably over three years, 163 thousand shares vest ratably over three years dependent upon achieving a minimum stock price of $ 14.20 for 20 trading days in each performance period, and 24 thousand shares cliff vest at the end of three years dependent upon achieving a minimum stock price of $ 30.00 for 20 consecutive trading days during the performance period.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

total shareholder return of the Company’s common stock as compared to a group of peer companies measured over a three -year performance period.

The weighted average grant date fair value of the restricted stock units was $ 12.83 and $ 130.80 per share during the years ended December 31, 2020, and 2019, respectively.

The total grant date fair value of units vested was $ 10.3 million and $ 11.8 million during 2020 and 2019, respectively.

Performance share awards

During 2020, we granted performance awards with service-vesting and market-vesting conditions that are payable in either cash or shares of the Company’s common stock.

These awards may settle between zero and three times the award’s cash target amount.

The award amount issued pursuant to the performance award agreements will be determined based on the total shareholder return of the Company’s common stock as compared to a group of peer companies measured over a three year performance period.

As our intention is to settle the awards in cash, we will account for these as liability classified awards.

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

Stock appreciation rights

1 unchanged sentence

The following table provides additional information related to our stock appreciation rights:

2019 Activity

Stock Appreciation Rights (in thousands)

2020 Activity Stock Appreciation Rights (in thousands)

Nonvested at beginning of year 318

Forfeited ( 70 )

Nonvested at the end of year 248

8 unchanged sentences

Business Segments

In the first quarter of 2019, we changed our reporting segments to align 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 have moved the Downhole product line from Completions to Drilling & Subsea to form the new Drilling & Downhole segment.

Completions retains 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.

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

Drilling & Downhole, Completions and Production.

The amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments.

The Drilling & Downhole segment designs and manufactures products and provides related services to the drilling, well construction, artificial lift and subsea energy construction and services markets as well as other markets such as alternative energy, defense and communications.

7 unchanged sentences

We consider the Chief Operating Decision Maker to be the Chief Executive Officer.

The amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Summary financial data by segment follows (in thousands):

1 unchanged sentence

Drilling & Downhole $ 216,836 $ 334,829

Completions 118,685 305,089

Production 177,510 320,996

Eliminations ( 555 ) ( 4,381 )

Total revenue $ 512,476 $ 956,533

1 unchanged sentence

Drilling & Downhole $ ( 47,964 ) $ 7,343

Completions ( 97,304 ) 6,581

Production ( 33,418 ) 7,802

Corporate ( 30,012 ) ( 28,928 )

Total segment operating loss ( 208,698 ) ( 7,202 )

6 unchanged sentences

Drilling & Downhole $ 17,895 $ 21,433

Completions 24,831 32,780

Production 7,755 8,478

Corporate 519 550

Total depreciation and amortization $ 51,000 $ 63,241

3 unchanged sentences

Drilling & Downhole $ 462 $ 3,169

Completions 275 3,886

Production 287 4,041

Corporate 1,222 4,006

Total capital expenditures $ 2,246 $ 15,102

4 unchanged sentences

Year ended December 31,

Assets 2020 2019

Drilling & Downhole $ 314,375 $ 407,779

Completions 356,645 496,714

Production 92,949 186,786

Corporate 125,957 68,718

Total assets $ 889,926 $ 1,159,997

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

3 unchanged sentences

United States $ 332,554 $ 397,219

Europe 42,424 54,519

Canada 17,796 32,703

Asia-Pacific 836 1,707

Middle East 4,877 5,653

Latin America 1,248 2,279

3 unchanged sentences

United States $ 323,322 63.2 % $ 670,205 70.1 %

Canada 30,492 5.9 % 62,651 6.5 %

Europe & Africa 37,438 7.3 % 71,527 7.5 %

Middle East 43,192 8.4 % 62,169 6.5 %

Asia-Pacific 48,067 9.4 % 59,517 6.2 %

Latin America 29,965 5.8 % 30,464 3.2 %

9 unchanged sentences

Valve Solutions 111,747 21.8 % 198,342 20.7 %

Eliminations ( 555 ) ( 0.1 ) % ( 4,381 ) ( 0.5 ) %

Total revenue $ 512,476 100.0 % $ 956,533 100.0 %

2 unchanged sentences

Notes to consolidated financial statements (continued)

Condensed Consolidating Financial Statements

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

The guarantees are full and unconditional, joint and several and on an unsecured basis.

Condensed consolidating statements of comprehensive loss

Year ended December 31, 2019

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Cost of sales

Operating Expenses

Selling, general and administrative expenses

Goodwill and intangible assets impairment

Transaction Expenses

Contingent consideration benefit

Loss (gain) on disposal of assets and other

Total operating expenses

Earnings (loss) from equity investment

Equity loss from affiliate, net of tax

Operating loss

Other expense (income)

Interest expense (income)

Foreign exchange and other losses (gains), net

(Gain) loss realized on previously held equity investment

Gain on disposition of Business

Total other (income) expense, net

Loss before income taxes

Income tax expense (benefit)

Other comprehensive income (loss), net of tax:

Change in foreign currency translation, net of tax of $0

Loss on pension liability

Comprehensive loss

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating statements of comprehensive loss

Year ended December 31, 2018

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Cost of sales

Operating Expenses

Selling, general and administrative expenses

Goodwill and intangible assets impairment

Transaction Expenses

Loss (gain) on disposal of assets and other

Total operating expenses

Earnings (loss) from equity investment

Equity loss from affiliate, net of tax

Operating loss

Other expense (income)

Interest expense

Foreign exchange and other gains, net

(Gain) loss on contribution of subsea rentals business

Total other (income) expense, net

Loss before income taxes

Income tax expense (benefit)

Other comprehensive income (loss), net of tax:

Change in foreign currency translation, net of tax of $0

Gain on pension liability

Comprehensive loss

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating statements of comprehensive loss

Year ended December 31, 2017

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Quarterly Results of Operations (Unaudited)

The following tables summarize the Company’s results by quarter for the years ended December 31, 2020 and 2019.

The quarterly results may not be comparable due to dispositions in 2020 and 2019.

Refer to Note 4 Dispositions for further information.

(in thousands, except per share information) Q1 Q2 Q3 Q4

Revenues $ 182,632 $ 113,275 $ 103,606 $ 112,963

Cost of sales (1) 160,542 100,373 90,496 172,086

Operating Expenses

Selling, general and administrative expenses

Goodwill and intangible assets impairment

Transaction Expenses

Loss on disposal of assets and other

Gross profit 22,090 12,902 13,110 ( 59,123 )

Total operating expenses (2) 77,497 47,924 50,157 45,024

Earnings from equity investment

Equity loss from affiliate, net of tax

Operating loss ( 55,407 ) ( 35,022 ) ( 37,047 ) ( 104,147 )

Other expense (income)

Interest expense (income)

Foreign exchange and other losses (gains), net

Gain realized on previously held equity investment

Total other (income) expense, net

Total other income, net (3) ( 3,913 ) ( 29,104 ) ( 16,513 ) ( 72,323 )

Loss before income taxes ( 51,494 ) ( 5,918 ) ( 20,534 ) ( 31,824 )

Income tax expense (benefit) ( 14,350 ) ( 424 ) 1,017 876

Other comprehensive income (loss), net of tax:

Change in foreign currency translation, net of tax of $0

Gain on pension liability

Comprehensive loss

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating balance sheets

December 31, 2019

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Current assets

Cash and cash equivalents

Accounts receivable—trade, net

Inventories, net

Prepaid expenses and other current assets

Costs and estimated profits in excess of billings

Accrued revenue

Total current assets

Property and equipment, net of accumulated depreciation

Deferred financing costs, net

Operating lease assets

Intangible assets

Investment in unconsolidated subsidiary

Deferred income taxes, net

Other long-term assets

Investment in affiliates

Long-term advances to affiliates

Liabilities and equity

Current liabilities

Current portion of long-term debt

Accounts payable—trade

Accrued liabilities

Deferred revenue

Billings in excess of costs and profits recognized

Total current liabilities

Long-term debt, net of current portion

Deferred income taxes, net

Operating Lease liabilities

Other long-term liabilities

Long-term payables to affiliates

Total liabilities

Total liabilities and equity

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating balance sheets

December 31, 2018

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Current assets

Cash and cash equivalents

Accounts receivable—trade, net

Inventories, net

Prepaid expenses and other current assets

Costs and estimated profits in excess of billings

Accrued revenue

Total current assets

Property and equipment, net of accumulated depreciation

Deferred financing costs, net

Intangible assets

Investment in unconsolidated subsidiary

Deferred income taxes, net

Other long-term assets

Investment in affiliates

Long-term advances to affiliates

Liabilities and equity

Current liabilities

Current portion of long-term debt

Accounts payable—trade

Accrued liabilities

Deferred revenue

Billings in excess of costs and profits recognized

Total current liabilities

Long-term debt, net of current portion

Deferred income taxes, net

Other long-term liabilities

Long-term payables to affiliates

Total liabilities

Total liabilities and equity

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating statements of cash flows

Year ended December 31, 2019

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Cash flows from operating activities

Cash flows from investing activities

Capital expenditures for property and equipment

Acquisition of businesses, net of cash acquired

Investment in unconsolidated subsidiary

Proceeds from sale of business, property and equipment

Long-term loans and advances to affiliates

Net cash provided by investing activities

Cash flows from financing activities

Borrowings of debt

Repayments of debt

Repurchases of stock

Proceeds from stock issuance

Payment of capital lease obligations

Long-term loans and advances to affiliates

Dividend paid to affiliates

Net cash used in financing activities

Effect of exchange rate changes on cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating statements of cash flows

Year ended December 31, 2018

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Cash flows from operating activities

Cash flows from investing activities

Capital expenditures for property and equipment

Acquisition of businesses, net of cash acquired

Proceeds from sale of business, property and equipment

Long-term loans and advances to affiliates

Net cash provided by (used in) investing activities

Cash flows from financing activities

Borrowings of debt

Repayments of debt

Repurchases of stock

Proceeds from stock issuance

Payment of capital lease obligations

Long-term loans and advances to affiliates

Dividend paid to affiliates

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Condensed consolidating statements of cash flows

Year ended December 31, 2017

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

(in thousands)

Cash flows from operating activities

Cash flows from investing activities

Capital expenditures for property and equipment

Acquisition of businesses, net of cash acquired

Investment in unconsolidated subsidiary

Proceeds from sale of property and equipment

Long-term loans and advances to affiliates

Net cash used in investing activities

Cash flows from financing activities

Borrowings of debt

Repurchases of stock

Proceeds from stock issuance

Payment of capital lease obligations

Deferred financing costs

Long-term loans and advances to affiliates

Dividend paid to affiliates

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Net loss ( 37,144 ) ( 5,494 ) ( 21,551 ) ( 32,700 )

Weighted average shares outstanding

Basic 5,559 5,580 5,580 5,588

Diluted 5,559 5,580 5,580 5,588

Loss per share

Basic $ ( 6.68 ) $ ( 0.98 ) $ ( 3.86 ) $ ( 5.85 )

Diluted $ ( 6.68 ) $ ( 0.98 ) $ ( 3.86 ) $ ( 5.85 )

(1) Q1 includes $ 11.6 million of inventory write-downs and $ 8.6 million of lease impairments.

Q4 includes $ 81.1 million of inventory write-downs.

(2) Q1 includes $ 17.3 million of impairments of property and equipment and intangible assets.

Q3 includes $ 3.0 million of impairments of property and equipment.

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

(3) Q1 and Q2 include gains on extinguishment of debt of $ 7.5 million and $ 36.3 million, respectively, related to the repurchase of 2021 Notes at a discount.

Q3 includes a $ 28.7 million gain on extinguishment of debt related to the exchange of 2021 Notes for new 2025 Notes.

See Note 9 Debt for further information related to these gains.

Q4 includes an $ 88.4 million gain related to the sale of certain assets of our ABZ and Quadrant brands of valve products.

See Note 4 Dispositions for further information related to this gain.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Quarterly Results of Operations (Unaudited)

The following tables summarize the Company’s results by quarter for the years ended December 31, 2019 and 2018 .

The quarterly results may not be comparable primarily due to acquisitions and dispositions in 2019 , 2018 and 2017 .

Refer to Note 4 Acquisitions & Dispositions for further information.

(in thousands, except per share information)

(in thousands, except per share information) Q1 Q2 Q3 Q4

Revenues $ 271,842 $ 245,648 $ 239,266 $ 199,777

Cost of sales 201,744 182,460 176,632 150,845

Gross profit 70,098 63,188 62,634 48,932

Total operating expenses (1) 64,952 63,022 595,954 56,752

4 unchanged sentences

Income tax expense (benefit) 1,727 8,393 ( 3,371 ) ( 8,563 )

Net loss ( 7,888 ) ( 13,734 ) ( 532,987 ) ( 12,448 )

Weighted average shares outstanding

Basic 5,482 5,499 5,515 5,523

Diluted 5,482 5,499 5,515 5,523

Loss per share

Q1 includes a $ 4.6 million contingent consideration benefit related to GHT.

See Note 4 Acquisitions & Dispositions for further information related to this benefit.

Basic $ ( 1.44 ) $ ( 2.50 ) $ ( 96.64 ) $ ( 2.25 )

Diluted $ ( 1.44 ) $ ( 2.50 ) $ ( 96.64 ) $ ( 2.25 )

(1) Q1 includes a $ 4.6 million contingent consideration benefit related to reducing the estimated fair value of the contingent cash liability associated with the fourth quarter 2018 acquisition of Global Heat Transfer LLC.

Q3 includes $ 471.0 million of goodwill impairments, $ 53.5 million of intangible asset impairments and $ 7.9 million of property and equipment impairments.

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

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

(2) Q3 includes a $ 1.6 million gain realized on the sale of our previously held equity investment in Ashtead.

Q4 includes a $ 2.3 million gain on the sale of certain assets of our Cooper Alloy ® brand of valve products.

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

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

(in thousands, except per share information)

Cost of sales

Total operating expenses (1)

Earnings (loss) from equity investment

Operating income (loss)

Total other expense (income), net (2)

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Weighted average shares outstanding

Earnings (loss) per share

Total operating expenses includes $ 14.5 million of intangible asset impairments for the Subsea and Downhole product lines in Q2, $ 298.8 million of goodwill impairment charges in Q4 and $ 50.2 million of intangible asset impairments in Q4.

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

Total other expenses includes a $ 33.5 million gain on contribution of our subsea rentals business in Q1.

See Note 4 Acquisitions & Dispositions for further information related to this gain.

See Note 4 Dispositions for further information related to these gains.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 7A. Quantitative and Qualitative Disclosures About Market Risk