What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-28 compared with 2022-03-04 · 231 added, 300 removed, 737 unchanged (42% of the section changed)

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

Consolidated statements of comprehensive loss for the years ended December 31, 2021 and 2020

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2022 and 2021

Consolidated balance sheets as of December 31, 202 2 and 20 21

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Forum Energy Technologies, Incorporated

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Forum Energy Technologies, Incorporated and subsidiaries (the "Company") as of December 31, 2021 and 2020, 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, 2021, and the related notes (collectively referred to as the "financial statements").

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

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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, 2021, 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 March 4, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

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, 2022, 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 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter 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 the critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

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The inventory, net balance at December 31, 2022 was $269.8 million and the amount of inventory reserve was $39.3 million.

historical sales experiences, performing audit procedures required a high degree of auditor judgment and increased extent of effort.

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

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Houston, Texas

March 4, 2022

February 28, 2023

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

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and subsidiaries

Consolidated statements of comprehensive loss

Consolidated statements of comprehensive income (loss)

Year ended December 31,

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Selling, general and administrative expenses 179,471 168,886

Impairments of intangible assets, property and equipment — 20,394

Loss (gain) on disposal of assets and other ( 1,052 ) 2,531

Gain on sale-leaseback transactions ( 7,000 ) —

Gain on disposal of assets and other ( 1,271 ) ( 1,052 )

Total operating expenses 171,200 167,834

Operating loss ( 44,493 ) ( 231,623 )

Operating income (loss) 17,326 ( 44,493 )

Other expense (income)

Interest expense 31,525 32,009

Loss (gain) on extinguishment of debt 5,290 ( 72,478 )

Deferred loan costs written off — 2,262

Foreign exchange losses and other, net 217 6,470

Gain on disposition of business — ( 88,375 )

Total other expense (income), net 37,516 ( 121,853 )

Loss before income taxes ( 82,009 ) ( 109,770 )

Income tax expense (benefit) 642 ( 12,881 )

Net loss ( 82,651 ) ( 96,889 )

Loss on extinguishment of debt — 5,290

Foreign exchange losses (gains) and other, net ( 24,548 ) 217

Total other expense, net 6,977 37,516

Income (loss) before income taxes 10,349 ( 82,009 )

Income tax expense 6,637 642

Net income (loss) $ 3,712 $ ( 82,651 )

Weighted average shares outstanding

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Diluted 5,951 5,643

Loss per share

Earnings (loss) per share

Basic $ 0.65 $ ( 14.65 )

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Other comprehensive income (loss), net of tax of $ 0 :

Net loss ( 82,651 ) ( 96,889 )

Net income (loss) $ 3,712 $ ( 82,651 )

Change in foreign currency translation ( 28,713 ) ( 1,479 )

Gain (loss) on pension liability 840 ( 700 )

Gain on pension liability 2,256 840

Comprehensive loss $ ( 22,745 ) $ ( 83,290 )

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Deferred financing costs, net 1,166 1,484

Intangibles, net 217,405 240,444

Deferred income taxes, net 203 102

Intangible assets, net 191,481 217,405

Deferred tax assets, net 184 203

Other long-term assets 8,828 6,075

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Long-term debt, net of current portion 239,128 232,370

Deferred income taxes, net 834 1,952

Deferred tax liabilities, net 902 834

Operating lease liabilities 64,626 34,745

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Cash flows from operating activities

Net loss $ ( 82,651 ) $ ( 96,889 )

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

Impairments of intangible assets, property and equipment — 20,394

Impairments of operating lease assets — 15,370

Net income (loss) $ 3,712 $ ( 82,651 )

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

Depreciation expense 12,441 17,064

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Deferred income taxes ( 130 ) 2,791

Gain on disposition of business — ( 88,375 )

Loss (gain) on extinguishment of debt 5,290 ( 72,478 )

Deferred loan costs written off — 2,262

Loss on extinguishment of debt — 5,290

Gain on sale-leaseback transactions ( 7,000 ) —

Other 5,350 5,210

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Accounts payable, deferred revenue and other accrued liabilities 20,764 36,327

Billings in excess of costs and estimated profits earned 7,986 ( 3,900 )

Net cash provided by (used in) operating activities $ ( 15,775 ) $ 3,883

Billings in excess of costs and profits recognized ( 9,233 ) 7,986

Net cash used in operating activities ( 17,054 ) ( 15,775 )

Cash flows from investing activities

Capital expenditures for property and equipment ( 7,492 ) ( 2,399 )

Proceeds from the sale of property and equipment 7,007 5,292

Proceeds from sale of property and equipment 3,007 7,007

Proceeds from settlement of note receivable — 10,784

Acquisition of businesses, net of cash acquired ( 485 ) ( 3,411 )

Proceeds from the sale of business ( 1,283 ) 105,204

Proceeds from sale of business — ( 1,283 )

Proceeds from sale-leaseback transactions 32,109 —

Net cash provided by investing activities 27,139 10,698

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Repayments on revolving Credit Facility ( 544,126 ) ( 13,126 )

Cash paid to repurchase 2025 Notes and 2021 Notes ( 58,596 ) ( 40,270 )

Bond exchange early participation payment — ( 3,500 )

Cash paid to repurchase 2025 Notes — ( 58,596 )

Repurchases of stock ( 3,826 ) ( 1,414 )

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Noncash investing and financing activities

Operating lease right of use assets obtained in exchange for lease obligations 2,340 4,505

Finance lease right of use assets obtained in exchange for lease obligations 463 1,401

Operating lease assets obtained in exchange for lease obligations $ 40,516 $ 2,340

Finance lease assets obtained in exchange for lease obligations 2,026 463

Accrued purchases of property and equipment 50 —

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Stock-based compensation expense — 7,594 — — — 7,594

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

Adjustment for adoption of ASU 2016-13 — — — ( 1,398 ) — ( 1,398 )

Treasury stock — — ( 1,063 ) — — ( 1,063 )

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Currency translation adjustment — — — — ( 1,479 ) ( 1,479 )

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

Net loss — — — ( 82,651 ) — ( 82,651 )

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Treasury stock — — ( 2,998 ) — — ( 2,998 )

Liability awards converted to share settled — 275 — — — 275

Change in pension liability — — — — 2,256 2,256

Currency translation adjustment — — — — ( 28,713 ) ( 28,713 )

Net Loss — — — ( 82,651 ) — ( 82,651 )

Net income — — — 3,712 — 3,712

Balance at December 31, 2022 $ 62 $ 1,253,613 $ ( 138,560 ) $ ( 680,595 ) $ ( 127,485 ) $ 307,035

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During 2021, distribution of vaccines resulted in reopening of certain economies and increasing demand for oil and natural gas.

However, ongoing COVID-19 outbreaks and related work restrictions continue to contribute to disruptions in global supply chains which have led to inflationary pressures for certain goods and services.

We anticipate that our liquidity, financial condition and future results of operations will continue to be impacted by ongoing developments from the COVID-19 pandemic.

In 2022, ongoing COVID-19 outbreaks and related work restrictions continued to disrupt global supply chains contributing to materials delays and inflationary pressures.

The Company anticipates that future outbreaks of COVID-19, should they occur, will continue to impact our liquidity, financial condition and future results of operations.

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.

The preparation of consolidated 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 consolidated 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, 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.

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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 two year period ended December 31, 2021 is as follows (in thousands):

The changes in allowance for doubtful account during the years ended December 31, 2022 and 2021 were as follows (in thousands):

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

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December 31, 2022 11,114 2,249 ( 2,673 ) 10,690

Inventory consisting of finished goods and materials and supplies held for resale is carried at the lower of cost or net realizable value.

Inventories, consisting of finished goods and materials and supplies held for resale, are carried at the lower of cost or net realizable value.

For certain operations, cost, which includes the cost of raw materials and labor for finished goods, is determined using standard cost which approximates a first-in first-out basis.

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For the years ended December 31, 2022 and 2021, we recognized inventory write downs totaling $ 2.7 million and $ 8.1 million, respectively.

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

These charges are all included in cost of sales in the consolidated statements of comprehensive income (loss).

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

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Routine expenditures for repairs and maintenance are expensed as incurred.

Depreciation is computed using the straight-line method based on the estimated useful lives of assets, generally 2 to 30 years.

Depreciation is computed using the straight-line method based on the estimated useful lives of assets, generally two to 30 years.

Property and equipment held under finance leases are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.

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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 year ended December 31, 2021, we did no t recognize any property and equipment impairment charges.

For the year ended December 31, 2020, we recognized property and equipment impairment charges totaling $ 15.1 million which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

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

Forum Energy Technologies, Inc.

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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.

Operating lease 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 12 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.

Our leases have remaining terms of one to 12 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 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.

We review operating lease 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.

If the undiscounted future cash flows are less than the carrying amount of the asset, 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 year ended December 31, 2021, we did no t recognize any impairments of operating lease assets.

For the year ended December 31, 2020, we recognized impairments of operating lease assets totaling $ 15.4 million 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 Long-Lived Assets for further information related to these charges.

Intangible assets

Intangible assets with definite lives are comprised of customer and distributor relationships, patents and technology, trade names, trademarks and non-compete agreements which are amortized on a straight-line basis over the life of the intangible asset, generally two to twenty-two years .

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

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

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

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

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

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

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

For the year ended December 31, 2021, we did no t recognize any impairments of intangible assets.

For the year ended December 31, 2020, we recognized intangible asset impairment charges totaling $ 5.3 million which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

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

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

Recognition of provisions for contingencies

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Legal costs are expensed as incurred.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

An assessment is made of the areas where potential claims may arise under contract warranty clauses.

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Warranty provisions are eliminated at the end of the warranty period except where warranty claims are still outstanding.

The liability for product warranty is included in other accrued liabilities in the consolidated balance sheets.

The liability for product warranty is included in accrued liabilities in the consolidated balance sheets.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Revenue recognition and deferred revenue

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Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of

We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established.

In such cases, no profit is recognized during the period.

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

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

completion is insufficient to enable a reasonably certain forecast of profit to be established.

In such cases, no profit is recognized during the period.

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.

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.

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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 Topic 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 ASC 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.

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See Note 10 Income Taxes for more information on valuation allowances recognized.

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

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.

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Notes to consolidated financial statements (continued)

local currency translation

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operations have designated the local currency as the functional currency.

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.

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

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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.

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

The carrying amounts for financial instruments classified as current assets and current liabilities approximate fair value, due to the short maturity of such instruments.

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Accounting Standards Adopted in 2022

In December 2019, the FASB issued ASU No.

2019-12 Income Taxes (Topic 740) - Disclosure Framework - Simplifying the Accounting for Income Taxes, which simplified the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and clarifying and amending existing guidance.

We adopted this new standard as of January 1, 2021.

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

Accounting Standards Issued But Not Yet Adopted

Convertible Debt.

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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

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

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.

This guidance will be effective for us in the first quarter of 2022.

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

Disaggregated Revenue

Refer to Note 18 Business Segments for disaggregated revenue by product line and geography.

We adopted this new standard as of January 1, 2022.

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

Accounting Standards Issued But Not Yet Adopted

Inflation Reduction Act of 2022 .

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

The IRA, among other provisions, imposes a 15% corporate alternative minimum tax on the adjusted financial statement income of certain large corporations effective for tax years beginning after December 31, 2022 and a 1% excise tax on stock repurchases made by publicly traded U.S.

corporations after December 31, 2022.

The Company is in the process of evaluating the IRA and the impact it may have on our consolidated financial statements.

Disaggregated revenues

Refer to Note 17 Business Segments for disaggregated revenues by product line and geography.

Contract balances

The following table reflects the changes in our contract assets and contract liabilities balances for the year ended December 31, 2021:

December 31, 2021 December 31, 2020 Increase

The following table reflects the changes in our contract assets and contract liabilities balances for the years ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021 Increase / (Decrease)

Accrued revenue $ 665 $ 2,245

Costs and estimated profits in excess of billings 15,139 8,285

Contract assets - current 15,804 10,530

Contract assets - non-current 2,638 —

Contract assets $ 18,442 $ 10,530 $ 7,912 75 %

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Contract liabilities $ 14,706 $ 16,981 $ ( 2,275 ) ( 13 ) %

During the year ended December 31, 2021, our contract assets increased by $ 0.3 million and our contract liabilities increased by $ 7.3 million primarily due to the timing of billings on large projects in our Subsea Technologies product line.

During the year ended December 31, 2022, our contract assets increased by $ 7.9 million and our contract liabilities decreased by $ 2.3 million primarily due to the timing of milestone billings in our Subsea Technologies product line.

The noncurrent portion of contract assets is recorded on the consolidated balance sheets as other Iong-term assets.

During the year ended December 31, 2022, we recognized revenue of $ 14.5 million that was included in the contract liability balance at the beginning of the period.

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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

2021 acquisition of Hawker Equipment Solutions

On December 20, 2021, we acquired certain assets of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of $ 5.1 million, of which, $ 3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years .

On December 20, 2021, we acquired certain assets of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of $ 5.1 million, of which, $ 3.4 million was paid in the fourth quarter of 2021 and $ 1.0 million paid in 2022, with the balance expected to be paid over the next four years .

Hawker is a manufacturer of hydraulic pickup and laydown units.

This acquisition is included in the Drilling product line within the Drilling and Downhole segment.

This acquisition is included in the Drilling product line within the Drilling & 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.

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 working capital settlement liability which was paid in 2021.

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

Forum Energy Technologies, Inc.

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Notes to consolidated financial statements (continued)

The Company’s significant components of inventory at December 31, 2021 and 2020 were as follows (in thousands):

The Company’s significant components of inventories at December 31, 2022 and 2021 were as follows (in thousands):

2022 December 31,

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Finished goods 187,448 182,954

Gross inventories 304,625 396,689

Total Inventories 309,119 304,625

inventory reserve ( 39,291 ) ( 62,885 )

Inventories $ 241,740 $ 251,747

The change in the amounts of the inventory reserve during the two year period ended December 31, 2021 is as follows (in thousands):

Inventories, net $ 269,828 $ 241,740

The changes in inventory reserve during the two-year period ended December 31, 2022 were as follows (in thousands):

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

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December 31, 2022 62,885 2,698 ( 26,292 ) 39,291

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):

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

Estimated useful lives December 31,

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117,145 124,254

Furniture & fixtures 3 - 10

Vehicles 3 - 5

Right of use assets - finance leases 2 - 6

Rental equipment 3 - 10

15,292 14,547

Construction in progress 4,530 1,960

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accumulated depreciation ( 171,017 ) ( 183,921 )

Total property and equipment, net $ 94,005 $ 113,668

Property and equipment, net $ 62,963 $ 94,005

Depreciation expense was $ 12.4 million and $ 17.1 million for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2021, we did no t recognize any property and equipment impairment charges.

For the year ended December 31, 2020, we recognized property and equipment impairment charges totaling $ 15.1 million, which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

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

During 2022, the Company disposed land and buildings related to a sale-leaseback transaction with a net book value of approximately $ 25.1 million and received net proceeds of $ 32.1 million.

The Company recognized a gain of $ 7.0 million as a result, which is reported in operating expense in the consolidated statements of comprehensive income (loss).

Forum Energy Technologies, Inc.

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Intangible Assets

At December 31, 2021 and 2020, intangible assets consisted of the following, respectively (in thousands):

At December 31, 2022 and 2021, intangible assets consisted of the following (in thousands):

December 31, 2022

Gross carrying

amount Accumulated

amortization Net intangibles Amortization

Cost Accumulated

amortization Net Amortization

period (in years)

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Trademark 5,089 ( 1,781 ) 3,308 15

Intangible Assets Total $ 407,443 $ ( 190,038 ) $ 217,405

Total intangible assets $ 403,315 $ ( 211,834 ) $ 191,481

December 31, 2021

Gross carrying

amount Accumulated

amortization Net intangibles Amortization

Cost Accumulated

amortization Net Amortization

period (in years)

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Trademark 5,089 ( 1,442 ) 3,647 15

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

Total intangible assets $ 407,443 $ ( 190,038 ) $ 217,405

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

For the year ended December 31, 2021, we did no t recognize any intangible asset impairment charges.

For the year ended December 31, 2020, we recognized intangible asset impairment charges totaling $ 5.3 million, which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

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

Amortization expense was $ 24.5 million and $ 25.1 million for the years ended December 31, 2022 and 2021, respectively.

2 unchanged sentences

2023 $ 24,302

Impairments of Long-Lived Assets

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, led to 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).

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Following is a summary of impairment charges recognized in our segments during the year ended December 31, 2020 (in thousands):

Impairments of:

Drilling & Downhole Completions Production Corporate Total Impairments

Property and equipment (1)

1,069 9,608 4,460 — 15,137

Intangible assets (1)

5,257 — — — 5,257

Operating lease right of use assets (2)

5,366 6,140 2,366 1,498 15,370

Total impairments $ 11,692 $ 15,748 $ 6,826 $ 1,498 $ 35,764

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

(2) $ 10.8 million of these charges are included in Cost of sales, while $ 4.5 million are included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

Notes payable and lines of credit as of December 31, 2021 and 2020 consisted of the following (in thousands):

Notes payable and lines of credit consisted of the following as of (in thousands):

2022 December 31,

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Total debt 239,910 233,230

current maturities ( 860 ) ( 1,322 )

Long-term debt $ 232,370 $ 293,373

current portion ( 782 ) ( 860 )

Long-term debt, net of current portion $ 239,128 $ 232,370

In August 2020, we exchanged $ 315.5 million principal amount of our previous 6.25 % unsecured notes due 2021 (“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 % is payable in cash and 2.75 % is payable in cash or additional notes, at the Company’s option.

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

As of December 31, 2021, approximately $ 116.0 million principal amount of the 2025 Notes 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 is also subject to the mandatory and optional conversion rights.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

During the year ended December 31, 2021, we repurchased an aggregate $ 59.9 million of principal amount of our 2025 Notes for $ 58.6 million.

As of December 31, 2022, approximately $ 122.8 million principal amount of the 2025 Notes was 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 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.

These conditions were satisfied on December 27, 2022 and as a result, $ 122.8 million or 47.8 % of the principal amount of the 2025 Notes mandatorily converted into approximately 4.5 million shares of common stock, which settled in January 2023.

During 2021, we repurchased an aggregate $ 59.9 million of principal amount of our 2025 Notes for $ 58.6 million.

The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $ 53.3 million, resulting in a $ 5.3 million loss on extinguishment of debt.

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Borrowings under the U.S.

line bear interest at a rate equal to, at our option, either (a) the LIBOR rate, subject to a floor of 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of 1.25 % to 1.75 %, in each case based upon the Company's quarterly total net leverage ratio.

line bear interest at a rate equal to, at our option, either (a) the London Interbank Offered Rate (“LIBOR”), subject to a floor of 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

1.25 % to 1.75 %, in each case based upon the Company's quarterly total net leverage ratio.

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 0.00 %.

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 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of 1.25 % to 1.75 %, in each case based upon the Company's quarterly net leverage ratio.

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 0.00 %.

Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the Canadian Dollar Offered Rate (“CDOR”), subject to a floor of 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of 1.25 % to 1.75 %, in each case based upon the Company's quarterly net leverage ratio.

The Canadian line base rate is determined by reference to the greater of (i) the one-month CDOR 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 0.00 %.

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 %.

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

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 connection with the September 2021 Credit Facility amendment, we deferred approximately $ 1.6 million of loan costs that will be amortized over the facility's remaining life.

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):

Year ending December 31, Amount

Total future payment $ 259,169

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Total debt $ 239,910

The above future payments include $ 122.8 million of the principal amount of the 2025 Notes mandatorily converted and settled in January 2023.

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

The following table summarizes the supplemental balance sheet information related to leases as of December 31, 2021 and 2020 (in thousands):

The following table summarizes the supplemental consolidated balance sheet information related to leases as of December 31, 2022 and 2021 (in thousands):

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Classification December 31, 2022 December 31, 2021

Operating lease assets Operating lease assets $ 57,270 $ 25,431

Finance lease assets Property and equipment, net of accumulated depreciation 1,727 2,464

Finance lease assets Property and equipment, net 2,500 1,727

Total lease assets $ 59,770 $ 27,158

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Total lease liabilities $ 75,415 $ 46,914

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

The following table summarizes the components of lease expenses for the twelve months ended December 31, 2021 (in thousands):

Twelve Months Ended

The following table summarizes the components of lease expenses (in thousands):

Year ended December 31,

Lease Cost Classification 2022 2021

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Present value of lease liabilities $ 73,402 $ 2,013 $ 75,415

The following table summarizes the weighted-average remaining lease term and weighted average discount rates related to leases as of December 31, 2021:

Lease Term and Discount Rate December 31, 2021 December 31, 2020

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

The following table summarizes the weighted-average remaining term and weighted average discount rates related to leases as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

Weighted-average remaining lease term (years)

Operating leases 6.4 years 6.6 years

Financing leases 1.5 years 1.8 years

Operating leases 8.8 6.4

Financing leases 2.8 1.5

Weighted-average discount rate

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Financing leases 6.43 % 6.58 %

The following table summarizes the supplemental cash flow information related to leases as of December 31, 2021:

Twelve Months Ended

The following table summarizes the supplemental cash flow information related to leases for the years ended December 31, 2022 and 2021 (in thousands):

Year ended December 31,

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

2 unchanged sentences

Financing cash flows from finance leases 1,184 1,517

Sale-leaseback transactions

During 2022, the Company sold and leased back land and buildings for net proceeds of $ 32.1 million.

The initial annual rent for the assets is $ 2.7 million with initial term of 12 years, subject to annual increase.

The transactions met the requirements of sale-leaseback accounting.

The related assets were removed from property and equipment and the appropriate operating lease asset and liabilities of approximately $ 24.8 million were recorded in the consolidated balance sheets.

The components of income (loss) before income taxes were as follows (in thousands):

Year ended December 31,

$ ( 43,587 ) $ ( 98,445 )

53,936 16,436

Income (loss) before income taxes $ 10,349 $ ( 82,009 )

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

The components of loss before income taxes for the years ended December 31, 2021 and 2020 are as follows (in thousands):

$ ( 98,445 ) $ ( 106,785 )

16,436 ( 2,985 )

Loss before income taxes $ ( 82,009 ) $ ( 109,770 )

The components of income tax expense (benefit) for the years ended December 31, 2021 and 2020 are as follows (in thousands):

The components of income tax expense (benefit) were as follows (in thousands):

Year ended December 31,

federal and state $ 196 $ 1,235

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

Year ended December 31,

Income tax benefit at the statutory rate $ 2,173 21.0 % $ ( 17,222 ) ( 21.0 ) %

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Our effective tax rate was 64.1 % and 0.8 % for the years ended December 31, 2022 and 2021, respectively.

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, 2021 and 2020 includes an increase in our valuation allowance of $ 31.1 million and $ 25.3 million, respectively, 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.

The tax benefit for the years ended December 31, 2022 and 2021 includes an increase in our valuation allowance of $ 8.1 million and $ 31.1 million, respectively, 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.

2 unchanged sentences

The primary components of deferred taxes include (in thousands):

December 31, 2022 December 31, 2021

Deferred tax assets

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Operating lease liabilities 17,596 11,176

Inventory 14,692 37,784

Inventories 12,964 14,692

Stock awards 1,862 2,340

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Deferred tax liabilities

Property and equipment — ( 6,861 )

Operating lease assets $ ( 13,989 ) $ ( 6,490 )

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net operating loss carryforwards with indefinite expiration dates.

The ultimate realization of income tax benefits for these net operating loss carryforwards depends on our ability to generate sufficient taxable income in the respective taxing jurisdictions.

In addition to our net operating loss carryforwards, we also had U.S.

interest limitation carryforwards of $ 105.6 million with indefinite expiration dates.

The ultimate realization of income tax benefits for these net operating loss and interest limitation carryforwards depends on our ability to generate sufficient taxable income in the respective taxing jurisdictions.

Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of our domestic net operating losses may be limited in future periods depending upon future changes in ownership.

Where we have unrecognized tax benefits in jurisdictions with existing net operating losses, we utilize the unrecognized tax benefits as a source of income to offset such losses.

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income tax purposes because we do not intend to sell, liquidate or otherwise trigger the recognition of U.S.

taxable income with regard to our investment in these foreign subsidiaries.

taxable income with

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

regard to our investment in these foreign subsidiaries.

Determining the amount of U.S.

4 unchanged sentences

With few exceptions, we are no longer subject to income tax examination by tax authorities in these jurisdictions prior to 2016.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

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.

We account for uncertain tax positions in accordance with guidance in ASC 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):

2022 Activity Amount

Balance at January 1, 2022 $ 8,358

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We estimate that $ 7.6 million of the unrecognized tax benefits at December 31, 2022, excluding consideration of valuation allowance, would impact our future effective income tax rate, if recognized.

We recognize interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of comprehensive loss.

We recognize interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of comprehensive income (loss).

As of December 31, 2022 and 2021, we had accrued approximately $ 0.4 million and $ 0.5 million in interest and penalties, respectively.

1 unchanged sentence

Fair Value Measurements

The Company had zero and $ 13.1 million outstanding under the Credit Facility at December 31, 2021 and December 31, 2020, respectively.

The Company had zero outstanding balance under the Credit Facility at December 31, 2022 and December 31, 2021.

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

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There were no other significant outstanding financial instruments as of December 31, 2022 and 2021 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, 2021.

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 years ended December 31, 2022 and 2021.

Forum Energy Technologies, Inc.

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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 and Delaware.

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, and Illinois.

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

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To date, asbestos claims have not had a material adverse effect on our business, financial condition, results of operations, or cash flow, as our annual out-of-pocket costs over the last five years has been less than $ 300,000 .

There were fewer than 25 new cases filed against our subsidiary in each of last two years, and a significant number of existing cases were dismissed, settled or otherwise disposed of over the last year.

There were approximately forty new cases filed against our subsidiary in each of last two years, and a significant number of existing cases were dismissed, settled or otherwise disposed of over the last year.

We currently have fewer than 150 lawsuits pending against this subsidiary.

9 unchanged sentences

Notes to consolidated financial statements (continued)

Portland Harbor Superfund litigation

In May 2009, one of the Company’s subsidiaries (which is presently a dormant company with nominal assets except for rights under insurance policies) was named along with many defendants in a suit filed by the Port of Portland, Oregon seeking reimbursement of costs related to a five-year study of contaminated sediments at the port.

In March 2010, the subsidiary also received a notice letter from the Environmental Protection Agency indicating that it had been identified as a potentially responsible party with respect to environmental contamination in the “study area” for the Portland Harbor Superfund Site.

Under a 1997 indemnity agreement, the subsidiary is indemnified by a third party with respect to losses relating to environmental contamination.

As required under the indemnity agreement, the subsidiary provided notice of these claims, and the indemnitor has assumed responsibility and is providing a defense of the claims.

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.

In October of 2017, one of our subsidiaries, Global Tubing LLC (“Global Tubing”), 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.

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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.

While Global Tubing believes that it will prevail in showing that its products do not infringe on Tenaris’s patents, if Tenaris were to obtain a permanent injunction, Global Tubing may be barred from selling certain of its DURACOIL TM products.

Alternatively, if we are ordered to pay money damages and/or royalties for the life of the patents in question, Global Tubing’s and the Company’s financial performance may be materially adversely impacted.

Portland Harbor Superfund

One of the Company’s dormant subsidiaries is one of several named defendants in a suit filed by the Port of Portland, Oregon in May 2009 seeking reimbursement of costs related to an environmental study at the Port of Portland, and in March 2010, was identified as a potentially responsible party by the Environmental Protection Agency with respect to the Portland Harbor Superfund Site.

The subsidiary is indemnified for environmental contamination losses by a third party that has assumed responsibility and is providing a defense of the claims.

Based on information currently available, the Company does not believe that these matters will have a material adverse effect on the financial condition, results of operations, cash flows or capital expenditures of the Company.

Operating leases

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At December 31, 2022, the Company had $ 21.8 million in letters of credit outstanding.

Loss Per Share

Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):

Year ended December 31,

Net loss attributable to common stockholders $ ( 82,651 ) $ ( 96,889 )

Net income (loss) attributable to common stockholders $ 3,712 $ ( 82,651 )

Basic - weighted average shares outstanding 5,747 5,643

2 unchanged sentences

Diluted - weighted average shares outstanding 5,951 5,643

Loss per share

Earnings (loss) per share

Basic $ 0.65 $ ( 14.65 )

Diluted $ 0.62 $ ( 14.65 )

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 net losses incurred for these periods.

The diluted earnings per share calculation excludes approximately 84 thousand shares for 2022 because they were anti-dilutive.

For the year ended December 31, 2022, we excluded the assumed conversion of the 2025 Notes in calculating diluted earnings per share as the effect was anti-dilutive.

For the year ended December 31, 2021, we excluded all potentially dilutive restricted shares, stock options and the assumed conversion of the 2025 Notes in calculating diluted earnings per share as the effect was anti-dilutive due to net losses incurred for the period.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Stockholders' Equity and Employee Benefit Plans

Employee benefit plans

Employee Benefits

We sponsor a 401(k) savings plan for U.S.

employees and related savings plans for certain non-U.S.

employees and similar savings plans for certain non-U.S.

These plans benefit eligible employees by allowing them the opportunity to make contributions up to certain limits.

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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 zero and $ 2.3 million for the years ended December 31, 2021 and 2020, respectively.

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.

The expense under the Company’s retirement plan was $ 3.4 million and zero for the years ended December 31, 2022 and 2021, respectively.

Long-Term Incentive Compensation

FET stock based compensation plan

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.

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, performance shares or any combination thereof.

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 285 thousand 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, 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 105 thousand shares remained available under the 2016 Amended Plan for future grants as of December 31, 2021.

Stock-based compensation

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

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

In connection with the adoption of the 2016 Plan (as described below), no further awards will be granted under the 2010 Plan, but outstanding awards under the 2010 Plan will continue to be governed by its terms.

In May 2016, we adopted a new 2016 Stock and Incentive Plan (the “2016 Plan”), under which we initially reserved a total of 285 thousand shares.

Our stockholders approved amendments to the 2016 Plan in May 2019, May 2020 and May 2022, increasing the shares authorized for issuance thereunder to 605 thousand shares.

Approximately 326 thousand shares remained available under the 2016 Plan for future grants as of December 31, 2022.

The total amount of stock based compensation expense recorded was $ 4.2 million and $ 7.6 million for the years ended December 31, 2022 and 2021, respectively.

1 unchanged sentence

Future grants will result in additional compensation expense.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Stock options

5 unchanged sentences

2022 Activity Number of shares

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

(in thousands) Weighted average exercise price Weighted average remaining term (in years) Aggregate intrinsic value

(in millions)

Beginning balance 95 $ 358.31 3.5 $ —

Outstanding at December 31, 2021 75 $ 357.34 3.2 $ —

Granted — $ —

Exercised — $ —

Forfeited/expired ( 22 ) $ 377.42

Total outstanding 75 $ 357.34 3.2 $ —

Options exercisable 75 $ 358.46 3.2 $ —

Outstanding at December 31, 2022 53 $ 349.07 2.5 $ —

Exercisable at December 31, 2022 53 $ 349.07 2.5 $ —

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

1 unchanged sentence

As of December 31, 2022 and 2021, 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 .

Therefore, the intrinsic value for stock options outstanding and exercisable was zero as of each such date.

No stock options were granted in 2022 or 2021.

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Restricted stock

2 unchanged sentences

2022 Activity Restricted stock (shares in thousands)

Nonvested at beginning of year —

Nonvested at the end of year 10

The weighted average grant date fair value of restricted stock granted during the year ended December 31, 2021 was $ 23.36 per share.

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

Nonvested at December 31, 2021 10

Vested ( 10 )

Nonvested at December 31, 2022 —

Restricted stock units

2 unchanged sentences

2022 Activity Restricted stock units (shares in thousands)

Nonvested at beginning of year 331

Nonvested at December 31, 2021 356

Vested ( 138 )

Forfeited ( 8 )

Nonvested at the end of year 356

Of the restricted stock units granted during 2021, 73,839 shares vest ratably over three years and 66,524 shares vest ratably over three years dependent upon achieving a minimum stock price of $ 23.49 for 20 trading days during each performance period.

Nonvested at December 31, 2022 412

Of the restricted stock units granted during 2022, 101 thousand shares vest ratably over three years .

The remaining 101 thousand shares granted during 2022 vest ratably over three years dependent upon achieving a minimum stock price of $ 23.68 for 20 trading days during each of three different 3-year , 2-year and 1-year performance periods.

These awards were originally classified as cash-settled liability awards.

In May 2022, the Company’s shareholders approved an additional 400 thousand shares to be added to the 2016 Plan and the fair value of the awards was remeasured.

In connection with the remeasurement, the Company determined that the awards would be settled in shares instead of cash and they were classified as equity.

The weighted average grant date fair value of the restricted stock units was $ 18.94 and $ 18.20 per share during the years ended December 31, 2022, and 2021, respectively.

The total grant date fair value of units vested was $ 4.3 million and $ 5.3 million during 2022 and 2021, respectively.

Liability-classified awards

During 2022, 33 thousand cash-settled phantom stock units were issued to employees that vest ratably over two years .

These awards have a maximum payout that is calculated based on five times the stock price on the date of grant.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to consolidated financial statements (continued)

Liability-classified awards

During 2021, we granted 66,524 cash-settled phantom stock units to employees that vest ratably over three years .

These awards have a maximum payout that is calculated based on five times the stock price on the date of grant.

The Company also granted 73,839 cash-settled contingent phantom stock units to employees that vest ratably over three years dependent upon achieving a minimum stock price of $ 23.49 for 20 trading days during each performance period.

These awards also have a maximum payout that is calculated based on five times the stock price on the date of grant.

Stock appreciation rights

In the fourth quarter of 2019, we granted stock appreciation rights with service-vesting and market-vesting conditions.

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

2021 Activity Stock Appreciation Rights (in thousands)

Nonvested at beginning of year 248

Forfeited ( 11 )

Nonvested at the end of year 237

The grant date fair value of the stock appreciation rights was $ 3.86 .

The stock appreciation rights will vest on the third anniversary from the grant date if the a verage closing price of a share of our Common Stock over the twenty trading days prior to the third anniversary date (the “Ending Market Value”) is equal to or greater than $ 100.00 .

If vested, the stock appreciation rights will ultimately be settled for the difference between the Ending Market Value and the exercise price of $ 29.00 .

The stock appreciation rights, if vested, may be settled in stock or cash.

If vested, we intend to settle the stock appreciation rights in stock.

Related Party Transactions

The Company has sold and purchased inventory, services and fixed assets to and from various affiliates of certain directors.

The Company has sold and purchased inventory, services and fixed assets to and from affiliates of certain directors.

The dollar amounts related to these related party activities are not significant to our consolidated financial statements.

12 unchanged sentences

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

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

Summary financial data by segment follows (in thousands):

Summary financial data by reportable segment follows (in thousands):

Year ended December 31,

3 unchanged sentences

Eliminations ( 1,122 ) ( 555 )

Total revenue $ 541,068 $ 512,476

Total revenues $ 699,913 $ 541,068

Segment operating income (loss)

3 unchanged sentences

Corporate ( 34,268 ) ( 31,408 )

Total segment operating loss ( 45,545 ) ( 208,698 )

Impairments of intangible assets, property and equipment — 20,394

Loss (gain) on disposal of assets and other ( 1,052 ) 2,531

Operating loss $ ( 44,493 ) $ ( 231,623 )

Total segment operating income (loss) 9,055 ( 45,545 )

Gain on sale-leaseback transactions ( 7,000 ) —

Gain on disposal of assets and other ( 1,271 ) ( 1,052 )

Operating income (loss) $ 17,326 $ ( 44,493 )

Depreciation and amortization

4 unchanged sentences

Total depreciation and amortization $ 36,978 $ 42,176

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

A summary of capital expenditures by reportable segment is as follows (in thousands):

15 unchanged sentences

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

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

A summary of long-lived assets by country is as follows (in thousands):

Year ended December 31,

Long-lived assets:

A summary of long-lived assets by geography is as follows (in thousands):

Long-lived assets December 31,

2022 December 31,

United States $ 279,390 $ 298,171

7 unchanged sentences

Year ended December 31,

Revenues $ % $ %

United States $ 470,765 67.3 % $ 324,376 60.0 %

4 unchanged sentences

Latin America 34,613 4.9 % 30,670 5.7 %

Total Revenue $ 541,068 100.0 % $ 512,476 100.0 %

Total Revenues $ 699,913 100.0 % $ 541,068 100.0 %

Forum Energy Technologies, Inc.

and subsidiaries

Notes to consolidated financial statements (continued)

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

Year ended December 31,

Revenues $ % $ %

Drilling Technologies $ 143,389 20.6 % $ 96,680 17.8 %

6 unchanged sentences

Eliminations ( 1,122 ) ( 0.2 ) % ( 555 ) ( 0.1 ) %

Total revenue $ 541,068 100.0 % $ 512,476 100.0 %

Total revenues $ 699,913 100.0 % $ 541,068 100.0 %

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