What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-30 · 227 added, 356 removed, 148 unchanged (80% of the section changed)

1 unchanged sentence

The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 2020 Annual Report on Form 10-K in order to understand factors, such as business combinations, charges and credits and financing transactions, which may impact comparability from period to period.

We provide a broad range of products and services to the oil and gas industry through our Well Site Services, Downhole Technologies and Offshore/Manufactured Products business segments.

We provide a broad range of products and services to the oil and gas industry through our Offshore/Manufactured Products, Downhole Technologies and Well Site Services segments.

Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves.

2 unchanged sentences

Recent Developments

In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand due to the COVID-19 pandemic coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production in an effort to protect market share.

OPEC, its members and other state-controlled oil companies agreed to reduce production following the crude oil price collapse and many operators shut-in production in the United States in an effort to address collapsing demand.

As a result of these actions by producers, crude oil prices have recovered some of their losses since reaching record low levels in April of 2020.

However, during the third quarter of 2020, the spot price of Brent and WTI crude oil averaged $43 and $41 per barrel – down 31% and 27%, respectively, from the comparable prior-year quarterly averages.

The ultimate magnitude and duration of the COVID-19 pandemic, the timing and extent of governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices, the global economy and capital markets remains uncertain.

While it is difficult for management to assess or predict with precision the broad future effect of this pandemic on the global economy, the energy industry or the Company, management expects that the pandemic will continue to adversely affect demand for our products and services over the balance of 2020 and into 2021.

Demand for most of our products and services depends substantially on the level of capital expenditures by the oil and natural gas industry.

This decline in crude oil prices has resulted in reductions to most of our customers' drilling, completion and production activities and their related spending on products and services, particularly those tied to activity in the U.S.

In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production in an effort to protect market share.

OPEC, its members and other state-controlled oil companies later agreed to reduce production following the crude oil price collapse and many operators shut-in production in the United States in an effort to address collapsing demand and rapidly rising inventories.

While crude oil prices have recovered significantly since reaching record low levels in April 2020, with crude oil inventories moderating, there remains some uncertainty around the timing of demand recovery to pre-COVID-19 levels.

Demand for most of our products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, which reached 15-year lows in 2020.

The decline in crude oil prices, coupled with higher crude oil inventory levels in 2020, caused rapid reductions to most of our customers' drilling, completion and production activities and their related spending on products and services, particularly those supporting activities in the U.S.

shale play regions.

These conditions have and may continue to result in a material adverse impact on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and, in certain instances, non-payments of amounts owed.

Additionally, future actions among OPEC members and other producing nations as to production levels and prices could result in further declines in crude oil prices, which would prove detrimental, particularly given the weak demand environment for crude oil and associated products caused by the ongoing COVID-19 pandemic.

Following the unprecedented events in March 2020, we immediately began aggressive implementation of the following cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company:

• reduced headcount by 32% between December 31, 2019 and September 30, 2020;

• reduced planned capital expenditures for 2020 by over 70% from the 2019 level;

• reduced annual short-term and long-term incentive awards;

• consolidated and closed certain facilities.

Given the COVID induced economic destruction, we also assessed the carrying value of goodwill and other assets based on the current industry outlook regarding overall demand for and pricing of our products and services.

As a result of these events, actions and assessments, we recorded the following charges during the first nine months of 2020:

• non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of goodwill;

• non-cash impairment charges of $31.2 million to reduce the carrying value of inventory to its net realizable value;

• non-cash impairment charge of $8.2 million to decrease the carrying value of our Well Site Services segment's fixed assets to their estimated realizable value;

• employee severance and facility closure costs of $6.3 million.

In addition, as discussed in more detail under "– Revolving Credit Facility due January 2022," we amended our existing revolving credit facility during the second quarter of 2020.

In connection with this amendment, the revolving credit facility size was reduced from $350 million to $200 million, with advances subject to a monthly borrowing base calculation, in exchange for the existing financial covenants being suspended from July 1, 2020 through March 30, 2021.

As discussed in more detail under “– 1.50% Convertible Senior Notes due February 2023,” during the first nine months of 2020, we purchased a total of $34.9 million principal amount of our 1.50% convertible senior notes for $20.1 million in cash and recognized non-cash gains totaling $10.7 million.

These conditions have and may continue to result in adverse impacts on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and, in certain instances, non-payments of amounts owed.

Additionally, future actions among OPEC members and other producing nations as to production levels and prices could result in declines in crude oil prices, which would prove detrimental.

Following the unprecedented events in March 2020, we immediately began aggressive implementation of cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company and stabilize our cash flows and protect liquidity.

As discussed in more detail below and under "– ABL Facility," "– 2023 Notes," and "– 2026 Notes," we completed two significant financing transactions during the first quarter of 2021 to strengthen our liquidity position.

On February 10, 2021, we entered into a new revolving credit facility which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation that includes eligible U.S.

customer accounts receivable and inventory.

The ABL Facility matures in February 2025.

Concurrent with entering into the ABL Facility, our former senior secured revolving credit facility was terminated.

On March 16, 2021, we entered into an amendment to our ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes discussed below.

On March 19, 2021, we issued $135.0 million aggregate principal amount of our 4.75% convertible senior notes due 2026 (the "2026 Notes").

Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.3 million.

The 2026 Notes will mature on April 1, 2026 and bear interest at an annual rate of 4.75%, which is payable semi-annually on April 1 and October 1.

We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of our outstanding 1.50% convertible senior notes due 2023 (the "2023 Notes"), with the balance added to cash on-hand.

Activity levels in each of our segments were adversely impacted by the severe winter weather event that occurred in February 2021 – particularly in Texas, Oklahoma and surrounding states.

While our facilities did not sustain meaningful damage and our operations and services were restored following the event, our February results of operations were adversely impacted due to the temporary cessation of work at well sites, facility closures by us and our customers, and delays in the shipment of goods to our customers and from our vendors.

Brent and WTI crude oil and natural gas pricing trends were as follows:

4 unchanged sentences

2020 $ 50.27 $ 29.70 $ 42.91 $ 44.32 $ 41.96

2019 $ 63.10 $ 69.01 $ 61.95 $ 63.17 $ 64.26

2018 $ 66.86 $ 74.53 $ 75.08 $ 68.76 $ 71.32

WTI Crude (per bbl)

2020 $ 45.34 $ 27.96 $ 40.89 $ 42.52 $ 39.16

2019 $ 54.82 $ 59.88 $ 56.34 $ 56.82 $ 56.98

2018 $ 62.91 $ 68.07 $ 69.70 $ 59.97 $ 65.25

Henry Hub Natural Gas (per MMBtu)

1 unchanged sentence

________________

2018 $ 3.08 $ 2.85 $ 2.93 $ 3.77 $ 3.15

________________

Energy Information Administration (spot prices).

On October 23, 2020, Brent and WTI crude oil spot prices closed at $40.71 and $39.73 per barrel.

On April 23, 2021, Brent crude oil, WTI crude oil and natural gas spot prices closed at $65.75 per barrel, $62.18 per barrel and $2.79 per MMBtu, respectively.

Additionally, as presented in more detail below, the U.S.

drilling rig count reported on October 23, 2020 was 287 rigs, 13% above the third quarter 2020 average.

Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world.

drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations.

Within this segment, our Completion Services business supplies equipment and service personnel utilized in the completion and initial production of new and recompleted wells.

Activity for the Completion Services business is dependent primarily upon the level and complexity of completion and workover activity in the areas of operations mentioned above.

Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells.

Similarly, demand for our Drilling Services operations was historically driven by activity in our primary land drilling markets of the Permian Basin in West Texas and the U.S.

Rocky Mountain area.

During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S.

Our drilling operations now focus on serving operators in the U.S.

Rocky Mountain region.

Our Downhole Technologies segment is comprised of the GEODynamics, Inc.

("GEODynamics") business we acquired in January 2018.

This segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations.

This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies.

Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools.

This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing.

Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications.

Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments.

Demand for short-cycle completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count.

The following table sets forth a summary of the U.S.

drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated.

drilling rig count Average for the

As of October 23, 2020 Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Land – Oil 197 167 733 370 782

Land – Natural gas and other 76 74 160 90 177

Offshore 14 13 27 17 25

Total 287 254 920 477 984

energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in shale plays utilizing horizontal drilling and completion techniques.

As of September 30, 2020, land-based, oil-directed drilling accounted for 70% of the total U.S.

rig count – with the balance largely natural gas related.

With the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed during the second and third quarters of 2020 – with the active drilling rig count declining 467 rigs, or 64%, from March 31, 2020 to 261 rigs as of September 30, 2020.

As a result, the average U.S.

rig count for the three months ended September 30, 2020 decreased by 666 rigs, or 72%, compared to the average for the three months ended September 30, 2019.

drilling rig count reported on April 23, 2021 was 438 rigs, 11% above the first quarter 2021 average.

Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets.

This segment is particularly influenced by global deepwater drilling and production spending, which are primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices.

Approximately 49% of Offshore/Manufactured Products revenues in the first nine months of 2020 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products").

This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices.

Approximately 35% of Offshore/Manufactured Products sales in the first three months of 2021 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products").

Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans.

1 unchanged sentence

Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas.

Customers have focused in recent years on improving the economics of major deepwater projects at lower commodity breakeven prices by re-bidding projects, identifying advancements in technology, and reducing overall project costs through equipment standardization.

Bidding and quoting activity, along with orders from customers, for deepwater projects improved in 2019 from 2018 levels.

However, with reduced market visibility given the significant decline in crude oil prices which began in March of 2020 and associated reduction in customer spending, we expect that the segment's 2020 bookings will be lower than the levels achieved in 2019.

Backlog reported by our Offshore/Manufactured Products segment totaled $227 million at September 30, 2020, a decrease of 3% from June 30, 2020 and a decrease of 23% from September 30, 2019.

Third quarter 2020 bookings totaled $70 million, yielding a book-to-bill ratio of 0.9x and a year-to-date ratio of 0.8x.

Further, we expect that the segment's 2021 bookings will trend higher than the orders booked into backlog in 2020.

Backlog reported by our Offshore/Manufactured Products segment totaled $226 million at March 31, 2021, an increase of 3% from December 31, 2020.

First quarter 2021 booking improved sequentially, totaling $70 million, yielding a quarterly book-to-bill ratio of 1.2x.

The following table sets forth backlog as of the dates indicated (in millions).

3 unchanged sentences

2019 $ 234 $ 283 $ 293 $ 280

2018 $ 157 $ 165 $ 175 $ 179

Our Downhole Technologies segment, comprised of the GEODynamics, Inc.

("GEODynamics") business we acquired in January 2018, provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations.

This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies.

Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools.

This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing.

Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world.

We primarily supply equipment and service personnel utilized in the completion and initial production of new and recompleted wells.

activity is dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations.

Demand for our completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count.

The following table sets forth a summary of the average U.S.

and international drilling rig count, as measured by Baker Hughes Company, for the periods indicated.

Average for the

As of April 23, 2021

Three Months Ended March 31,

United States:

Land – Oil 332 286 650

Land – Natural gas and other 94 91 113

Offshore 12 16 22

International:

Land 667 1,022

Offshore 169 247

energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S.

shale plays utilizing horizontal drilling and completion techniques.

As of March 31, 2021, oil-directed drilling accounted for 78% of the total U.S.

rig count – with the balance largely natural gas related.

Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining from 790 rigs as of February 29, 2020 to a trough of 244 rigs as of August 14, 2020.

Since August 14, 2020, the U.S.

rig count has increased 71% to 417 rigs as of March 31, 2021.

As can be derived from the table above, the average U.S.

rig count for the three months ended March 31, 2021 decreased by 392 rigs, or 50%, compared to the average for the three months ended March 31, 2020.

Reduced demand for our products and services, coupled with a reduction in the prices we charge our customers for our products and services, has adversely affected our results of operations, cash flows and financial position.

If the current pricing environment for crude oil does not improve, or declines, our customers may be required to further reduce their capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would further adversely affect our results of operations, cash flows and financial position.

If the current pricing environment for crude oil does not stabilize at these higher levels, our customers may be required to reduce their capital expenditures, causing declines in the demand for, and prices of, our products and services, which would adversely affect our results of operations, cash flows and financial position.

We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products.

The United States has imposed tariffs on a variety of imported products, including steel and aluminum.

The United States has imposed tariffs on a variety of imported products, including steel and

In response to the U.S.

7 unchanged sentences

Human Capital

As of September 30, 2020, we employed 2,337 full-time employees on a consolidated basis, 34% of whom are in our Well Site Services segment, 10% of whom are in our Downhole Technologies segment, 53% of whom are in our Offshore/Manufactured Products segment, and 3% of whom are in our corporate headquarters.

During the first nine months of 2020, company-wide personnel levels were reduced 32% from a total of 3,428 full-time employees as of December 31, 2019 following the unprecedented decline in crude oil prices due to the global response to the COVID-19 pandemic.

See "– Recent Developments" for further discussion of personnel reductions and other cost control measures implemented during the first nine months of 2020 in an effort to reduce our expenditures and protect the financial health of our company.

We were party to collective bargaining agreements covering fewer than 100 employees located in the United Kingdom and Argentina as of September 30, 2020 and December 31, 2019.

We believe we have good labor relations with our employees.

For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1.

Business – Human Capital" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Selected Financial Data

4 unchanged sentences

Unaudited Consolidated Results of Operations Data

The following summarizes our unaudited consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):

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

2020 2019 Variance 2020 2019 Variance

The following summarizes our unaudited consolidated results of operations for the three months ended March 31, 2021 and 2020 (in thousands, except per share amounts):

Three Months Ended March 31,

2021 2020 Variance

Products $ 61,445 $ 102,980 $ (41,535)

29 unchanged sentences

________________

(1) Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $5.9 million (in product costs) and $25.2 million ($12.0 million in product costs and $13.2 million in service costs) recognized in the third and first quarters of 2020, respectively.

(1) Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $25.2 million ($12.0 million in product costs and $13.2 million in service costs) recognized in the first quarter of 2020.

(2) During the first quarter of 2020, we recognized non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of our reporting units to their estimated fair value.

(3) During the first quarter of 2020, our Drilling Services business recognized a non-cash impairment charge of $5.2 million to decrease the carrying value of the business's fixed assets to their estimated realizable value.

During the second quarter of 2020, our Completion Services business recognized a non-cash impairment charge of $3.0 million to reduce the carrying value of certain of the unit's fixed assets to their estimated realizable value.

During the third quarter of 2019, our Drilling Services business recognized a non-cash impairment charge of $33.7 million to reduce the carrying value of the unit's fixed assets to their estimated realizable value.

(4) During the third quarter 2020, we recognized non-cash gains of $5.9 million in connection with our purchases of $17.2 million principal amount of our 1.50% convertible senior notes.

During the nine months ended September 30, 2020, we recognized non-cash gains totaling $10.7 million in connection with our purchases of $34.9 million principal amount of our 1.50% convertible senior notes.

(5) During the first nine months of 2020, we recognized a discrete tax benefit of $16.4 million related to U.S.

net operating loss carrybacks under provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act .

See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Long-term Debt" and Note 11, "Income Taxes," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first nine months of 2020 and 2019.

(3) During the first quarters of 2021 and 2020, our Well Site Services segment recognized non-cash impairment charges of $0.7 million and $5.2 million, respectively, to reduce the carrying value of the segment's fixed assets to their estimated realizable value.

(4) During the first quarter 2021, we recognized non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 2023 Notes.

(5) During the first quarter of 2020, we recognized a discrete tax benefit of $14.8 million related to U.S.

net operating loss carrybacks under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

See Note 3, "Asset Impairments and Other Restructuring Items," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Long-term Debt," and Note 11, "Income Taxes," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first three months of 2021 and 2020.

Unaudited Operating Segment Financial Data

We manage and measure our business performance in three distinct operating segments:

Well Site Services, Downhole Technologies and Offshore/Manufactured Products.

Supplemental unaudited financial information by business segment for the three and nine months ended September 30, 2020 and 2019 is summarized below (dollars in thousands):

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

2020 2019 Variance 2020 2019 Variance

Well Site Services -

Completion Services $ 34,893 $ 103,966 $ (69,073) $ 153,994 $ 307,928 $ (153,934)

Drilling Services (1)

2,479 12,034 (9,555) 7,179 32,430 (25,251)

Total Well Site Services 37,372 116,000 (78,628) 161,173 340,358 (179,185)

Downhole Technologies 18,713 42,882 (24,169) 74,743 143,912 (69,169)

Offshore/Manufactured Products, Downhole Technologies and Well Site Services.

Supplemental unaudited financial information by operating segment for the three months ended March 31, 2021 and 2020 is summarized below (dollars in thousands):

Three Months Ended March 31,

2021 2020 Variance

Offshore/Manufactured Products $ 60,609 $ 91,172 $ (30,563)

Downhole Technologies 25,430 41,065 (15,635)

Well Site Services 39,550 87,457 (47,907)

Total $ 125,589 $ 219,694 $ (94,105)

Operating income (loss)

Well Site Services -

Completion Services (2)

$ (14,330) $ 1,719 $ (16,049) $ (176,408) $ (2,282) $ (174,126)

Drilling Services (1)

Offshore/Manufactured Products (1)

$ 1,071 $ (95,496) $ 96,567

Total Well Site Services (13,872) (34,776) 20,904 (181,746) (45,937) (135,809)

Downhole Technologies (2)

(1,615) (192,691) 191,076

Offshore/Manufactured Products (4)

Well Site Services (3)

(9,853) (144,954) 135,101

2 unchanged sentences

________________

(1) In late 2019, we reduced the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S.

Operating loss in the third quarter of 2019 includes a non-cash fixed asset impairment charge of $33.7 million to reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value.

Operating loss in the first quarter of 2020 includes a non-cash fixed asset impairment charge of $5.2 million to further reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value.

(2) Operating loss in the first quarter of 2020 included a non-cash inventory impairment charge of $9.0 million and a non-cash goodwill impairment charge of $127.1 million to reduce the carrying value of the Completion Services reporting unit to its estimated fair value.

Operating loss in the second quarter of 2020 included a non-cash fixed asset impairment charge of $3.0 million to reduce the carrying value of certain of the unit's facilities to their estimated realizable value.

(3) Operating loss in the first quarter of 2020 included a non-cash goodwill impairment charge of $192.5 million to reduce the carrying value of the Downhole Technologies reporting unit to its estimated fair value.

Operating loss in the third quarter of 2020 included a non-cash inventory impairment charge of $5.9 million to reduce the carrying value of the Downhole Technologies reporting unit's inventory to its estimated realizable value.

(4) Operating loss in the first quarter of 2020 included a non-cash inventory impairment charge of $16.2 million and a non-cash goodwill impairment charge of $86.5 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit to its estimated fair value.

See Note 3, "Asset Impairments and Other Charges" and Note 4 , "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges recognized in the first nine months of 2020 and 2019.

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

Consolidated Operating Results

We reported a net loss for the three months ended September 30, 2020 of $20.0 million, or $0.33 per share.

The reported third quarter loss included:

a non-cash inventory impairment charge of $5.9 million ($4.7 million after-tax, or $0.08 per share);

non-cash gains of $5.9 million ($4.7 million after-tax, or $0.08 per share) associated with debt extinguishment and $0.3 million ($0.2 million after-tax) of severance and downsizing costs.

These results compare to a net loss for the three months ended September 30, 2019 of $31.9 million, or $0.54 per share, which included a non-cash fixed asset impairment charge of $33.7 million ($26.6 million after-tax, or $0.45 per share) and $0.7 million ($0.5 million after-tax, or $0.01 per share) of severance and downsizing costs.

Our reported third quarter 2020 results of operations reflect the impact of the unprecedented decline in crude oil prices in March and April of 2020 stemming from the global response to the COVID-19 pandemic and continued uncertainties related to future crude oil demand.

The spot price of WTI crude oil averaged $41 per barrel in the third quarter of 2020, down 27% from the comparable prior-year quarter average.

The decline in crude oil prices and continued high crude oil inventory levels had a negative impact on U.S.

land-based customer drilling and completion activity, particularly activity in the U.S.

shale play regions.

Additionally, our operations were impacted by governmental mandates outside of the United States in an effort to control the COVID-19 pandemic, which limited wellsite operations.

We expect customer-driven activity to remain depressed in the United States over the balance of 2020 and into 2021 given high crude oil inventory levels and lower crude oil prices.

If the current pricing environment for crude oil does not improve, or declines, our customers may be required to further reduce their planned capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would further adversely affect our results of operations, cash flows and financial position.

Consolidated total revenues in the third quarter of 2020 decreased $128.9 million, or 49%, from the third quarter of 2019.

Consolidated product revenues in the third quarter of 2020 decreased $49.5 million, or 41%, from the third quarter of 2019, driven by the steep decline in U.S.

land-based customer activity as well as the associated impact of competitive pricing pressures for products in our Downhole Technologies segment.

Consolidated service revenues in the third quarter of 2020 decreased $79.5 million, or 56%, from the third quarter of 2019 due primarily to reduced customer spending in the U.S.

shale play regions.

As can be derived from the following table, 47% of our consolidated revenues in the third quarter of 2020 were derived from sales of our short-cycle product and service offerings, which compares to 73% in the same period last year.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended September 30, 2020 and 2019 (in thousands):

Well Site Services Downhole Technologies Offshore/ Manufactured Products Total

Three months ended September 30 2020 2019 2020 2019 2020 2019 2020 2019

Major revenue categories -

Project-driven products $ — $ — $ — $ — $ 41,004 $ 39,474 $ 41,004 $ 39,474

Completion products and services 34,893 103,966 18,713 42,882 3,664 26,710 57,270 173,558

Drilling services 2,479 12,034 — — — — 2,479 12,034

Other products — — — — 4,200 7,988 4,200 7,988

Total short-cycle 37,372 116,000 18,713 42,882 7,864 34,698 63,949 193,580

Other products and services — — — — 29,806 30,643 29,806 30,643

$ 37,372 $ 116,000 $ 18,713 $ 42,882 $ 78,674 $ 104,815 $ 134,759 $ 263,697

Percentage of total revenue by type -

Products — % — % 97 % 98 % 69 % 77 % 54 % 46 %

Services 100 % 100 % 3 % 2 % 31 % 23 % 46 % 54 %

Cost of Revenues (exclusive of Depreciation and Amortization Expense).

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $80.5 million, or 40%, in the third quarter of 2020 compared to the third quarter of 2019.

Consolidated product costs in the third quarter of 2020, which includes a $5.9 million non-cash inventory impairment charge, decreased $24.0 million, or 26%, from the third quarter of 2019.

Excluding this charge, consolidated product costs decreased $29.9 million, or 33%, from the prior-year period due primarily to the significant industry-wide decline in demand for short-cycle products.

Consolidated service costs in the third quarter of 2020, decreased $56.5 million, or 51%, from the third quarter of 2019, due primarily to lower activity levels in the U.S.

shale play regions.

Selling, General and Administrative Expense.

Selling, general and administrative expense decreased $10.5 million, or 33%, in the third quarter of 2020 from the third quarter of 2019 due primarily to reductions in personnel levels, short- and long-term compensation costs, travel expenses and other implemented cost reduction measures.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $7.1 million, or 23%, in the third quarter of 2020 compared to the prior-year quarter, driven primarily by our decision to exit drilling operations in West Texas in the third quarter of 2019 along with reduced capital investments made in our Completion Services business in recent years.

Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment.

Impairments of Fixed Assets.

During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S.

As a result of this decision, our Drilling Services business recorded a non-cash impairment charge of $33.7 million in the prior-year period to decrease the carrying value of the unit’s fixed assets.

Operating Income (Loss).

Our consolidated operating loss was $30.8 million in the third quarter of 2020, which included a $5.9 million non-cash inventory impairment charge and $0.3 million of severance and downsizing charges.

This compares to a consolidated operating loss of $34.9 million recognized in the third quarter of 2019, which included the impact of the $33.7 million non-cash fixed asset impairment charge discussed above and $0.7 million of severance and downsizing charges.

Interest Expense, Net.

Net interest expense was $3.5 million in the third quarter of 2020, which compares to $4.4 million in the same period of 2019.

Interest expense, which includes amortization of debt discount and deferred financing costs, as a percentage of total debt outstanding was approximately 6% in both the third quarter of 2020 and 2019.

Our contractual cash interest expense as a percentage of total debt outstanding was substantially lower – averaging approximately 3% in both the three months ended September 30, 2020 and 2019.

Other Income, Net.

Net other income for third quarter of 2020 includes a non-cash gain of $5.9 million recognized in connection with our purchases of $17.2 million principal amount of our 1.50% convertible senior notes for $9.5 million in cash.

We recorded a net income tax benefit for the three months ended September 30, 2020 using a discrete approach.

This methodology was used because changes in our results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate.

For the three months ended September 30, 2020, our income tax benefit was $7.7 million, or 28% of the pre-tax loss of $27.6 million, which included certain non-deductible expenses and discrete tax benefits.

This compares to an income tax benefit of $6.2 million, or 16% of the pre-tax loss of $38.1 million, which also included certain non-deductible expenses, for the three months ended September 30, 2019.

Other Comprehensive Income (Loss).

Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss).

Other comprehensive income was $3.4 million in the third quarter of 2020 compared to loss of $5.7 million in the third quarter of 2019 due to fluctuations in foreign currency exchange rates compared to the U.S.

dollar for certain of the international operations of our reportable segments.

For the three months ended September 30, 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

During the third quarter of 2020, the exchange rate for the British pound strengthened compared to the U.S.

dollar and the Brazilian real weakened compared to the U.S.

This compares to the third quarter of 2019, when the exchange rate for both the British pound and Brazilian real weakened compared to the U.S.

Segment Operating Results

Well Site Services

Our Well Site Services segment revenues decreased $78.6 million, or 68%, in the third quarter of 2020 compared to the prior-year quarter.

Completion Services revenue decreased $69.1 million, or 66%, driven primarily by the unprecedented decline in U.S.

land-based customer completion and production activity following the collapse in crude oil prices in March of 2020.

Our Drilling Services revenues decreased $9.6 million in the third quarter of 2020 from the third quarter of 2019 due to the decision in 2019 to reduce the scope of its operations as well as the current low crude oil price environment.

Operating Loss.

Our Well Site Services segment operating loss decreased $20.9 million in the third quarter of 2020 from the third quarter of 2019, which included the $33.7 million non-cash fixed asset impairment charge discussed previously.

Reported third quarter 2020 results were negatively impacted by the significant decline in revenue and $1.2 million in expenses associated with prior-year insurance claims and a bad debt provision on a receivable from a customer claiming bankruptcy protection within our Completion Services business.

Our Completion Services operating loss in the third quarter of 2020 was $14.3 million, compared to operating income of $1.7 million in the prior-year quarter, with the decrease in revenues and the additional $1.2 million in expenses discussed above, partially offset by the benefit of continued significant cost reduction measures and a $3.5 million reduction in depreciation expense.

Our Drilling Services business reported operating income of $0.5 million in the third quarter of 2020 compared to an operating loss of $36.5 million in the third quarter of 2019, with the decline in revenues more than offset by a $33.7 million reduction in non-cash fixed asset impairment charges and $3.1 million reduction in depreciation expense following our impairments of the unit's fixed assets in the third quarter of 2019 and, to a lesser extent, the first quarter of 2020.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $24.2 million, or 56%, in the third quarter of 2020 from the prior-year period due to a significant decline in U.S.

land-based customer completion activity.

Operating Income (Loss).

Our Downhole Technologies segment reported an operating loss of $12.6 million in the third quarter of 2020 compared to operating income of $0.7 million in the prior-year period, reflecting the steep decline in revenues and a $5.9 million non-cash inventory impairment charge.

Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues decreased $26.1 million, or 25%, in the third quarter of 2020 compared to the third quarter of 2019 due primarily to the significant reduction in sales of its short-cycle products (elastomer and valve products).

Operating Income.

Our Offshore/Manufactured Products segment operating income declined $7.3 million in the third quarter of 2020 compared to the third quarter of 2019, with the year-over-year decrease in revenues, partially offset by the current quarter benefit of cost reduction measures implemented.

Backlog in our Offshore/Manufactured Products segment totaled $227 million as of September 30, 2020, a decrease of 3% from June 30, 2020.

Third quarter 2020 bookings totaled $70 million, yielding a quarterly book-to-bill ratio of 0.9x.

Corporate expenses decreased $3.7 million, or 31%, in the third quarter of 2020 from the prior-year period due to reductions in short- and long-term compensation costs along with other implemented cost reduction measures.

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

(1) Operating loss in the first quarter of 2020 included non-cash goodwill and inventory impairment charges of $86.5 million and $16.2 million, respectively.

(2) Operating loss in the first quarter of 2020 included a non-cash goodwill impairment charge of $192.5 million.

(3) Operating loss in the first quarter of 2021 included non-cash fixed asset impairment charges of $0.7 million.

Operating loss in the first quarter of 2020 included non-cash goodwill, inventory and fixed asset impairment charges of $127.1 million, $9.0 million and $5.2 million, respectively.

See Note 3, "Asset Impairments and Other Restructuring Items," and Note 4, "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first three months of 2021 and 2020.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Consolidated Operating Results

We reported a net loss for the nine months ended September 30, 2020 of $449.6 million, or $7.52 per share.

The reported first nine months loss included:

non-cash impairment charges totaling $445.4 million ($418.1 million after-tax, or $6.99 per share) related to write-downs of goodwill, inventories and fixed assets;

$6.3 million ($5.0 million after-tax, or $0.08 per share) of severance and downsizing costs;

$2.2 million ($1.7 million after-tax, or $0.03 per share) in bad debt provisions related to customer bankruptcies;

non-cash gains of $10.7 million ($8.5 million after-tax, or $0.14 per share) associated with the debt extinguishment;

and discrete tax benefits of $16.4 million, or $0.27 per share, associated with the carryback of tax losses allowed under the CARES Act.

These results compare to a net loss for the nine months ended September 30, 2019 of $56.3 million, or $0.95 per share, which included a non-cash fixed asset impairment charge of $33.7 million ($26.6 million after-tax, or $0.45 per share) and $2.9 million ($2.3 million after-tax, or $0.04 per share) of severance and downsizing costs.

Our reported results of operations for the first nine months of 2020 reflect the impact of the unprecedented decline in crude oil prices in March and April of 2020 stemming from the global response to the COVID-19 pandemic and continued uncertainties related to future crude oil demand.

The spot price of WTI crude oil averaged $38 per barrel in the first nine months of 2020, down 33% from the comparable prior-year period average.

The decline in crude oil prices and higher crude oil inventory levels had a negative impact on U.S.

land-based customer drilling and completion activity beginning in March of 2020, particularly activity in the U.S.

shale play regions.

Additionally, our operations were impacted by governmental mandates outside of the United States in an effort to control the COVID-19 pandemic, which limited wellsite operations and required us and a number of our suppliers to temporarily cease certain operations.

We expect customer-driven activity to remain depressed in the United States over the balance of 2020 and into 2021 given high crude oil inventory levels and lower crude oil prices.

Consolidated total revenues in the first nine months of 2020 decreased $278.3 million, or 36%, from the first nine months of 2019.

Consolidated product revenues in the first nine months of 2020 decreased $105.1 million, or 29%, from the first nine months of 2019, driven by lower U.S.

land-based customer activity as well as the associated impact of competitive pricing pressures for products in our Downhole Technologies segment, partially offset by higher project-driven product sales in our Offshore/Manufactured Products segment.

Consolidated service revenues in the first nine months of 2020 decreased $173.2 million, or 42%, from the first nine months of 2019 due primarily to reduced customer spending in the U.S.

We reported a net loss for the three months ended March 31, 2021 of $15.8 million, or $0.26 per share.

The reported first quarter loss included non-cash gains of $3.6 million ($2.9 million after-tax, or $0.05 per share) associated with debt extinguishment offset by $3.4 million ($2.7 million after-tax) of severance and restructuring costs.

These results compare to a net loss for the three months ended March 31, 2020 of $405.0 million, or $6.79 per share, which included non-cash impairment charges totaling $436.5 million ($411.1 million after-tax, or $6.89 per share) related to write-downs of goodwill, inventories and fixed assets and $0.7 million ($0.5 million after-tax, or $0.01 per share) of severance and restructuring costs.

Our reported results of operations reflect the negative impact of the unprecedented decline in crude oil prices starting in March and April of 2020 stemming from the global response to the COVID-19 pandemic and ongoing uncertainties related to future crude oil demand.

While the spot price of WTI crude oil averaged $58 per barrel in the first quarter of 2021, up 28% from the comparable prior-year quarterly average, and crude oil inventory levels have moderated, there remains some uncertainty around demand recovery to pre-COVID-19 levels.

Additionally, activity levels in each of our segments were adversely impacted during the first quarter of 2021 by the severe winter weather event that occurred in February 2021 – particularly in Texas, Oklahoma and surrounding states.

During the first quarter of 2021, we recognized an aggregate $4.8 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program.

During the first quarter of 2020, we recognized a discrete income tax benefit of $14.8 million related to U.S.

net operating loss carrybacks under provisions of the CARES Act.

We continue to evaluate additional benefits potentially available to us under the CARES Act.

Customer-driven activity has improved off of 2020's low levels but could remain tempered in 2021 given uncertainty around the timing of demand recovery to pre-COVID-19 levels due to the ongoing nature of the COVID-19 pandemic.

If the current pricing environment for crude oil does not stabilize at these higher levels, our customers may be required to reduce their planned capital expenditures, causing declines in the demand for, and prices of, our products and services.

Consolidated total revenues in the first quarter of 2021 decreased $94.1 million, or 43%, from the first quarter of 2020.

Consolidated product revenues in the first quarter of 2021 decreased $41.5 million, or 40%, from the first quarter of 2020, driven by the significant decline in U.S.

land-based customer activity and reduced project-driven customer demand for connector products.

Consolidated service revenues in the first quarter of 2021 decreased $52.6 million, or 45%, from the first quarter of 2020 due primarily to reduced customer spending in the U.S.

shale play regions.

As can be derived from the following table, 55% of our consolidated revenues in the first nine months of 2020 were derived from sales of our short-cycle product and service offerings, which compares to 75% in the same period last year.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the nine months ended September 30, 2020 and 2019 (in thousands):

Well Site Services Downhole Technologies Offshore/ Manufactured Products Total

Nine months ended September 30 2020 2019 2020 2019 2020 2019 2020 2019

As can be derived from the following table, 61% of our consolidated revenues in the first quarter of 2021 were derived from sales of our short-cycle product and service offerings, which compares to 69% in the same period last year.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 2021 and 2020 (in thousands):

Offshore/ Manufactured Products Downhole Technologies Well Site Services Total

Three months ended March 31 2021 2020 2021 2020 2021 2020 2021 2020

Major revenue categories -

10 unchanged sentences

Cost of Revenues (exclusive of Depreciation and Amortization Expense).

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $162.8 million, or 27%, in the first nine months of 2020 compared to the first nine months of 2019.

Cost of revenues in the first nine months of 2020 included non-cash inventory impairment provisions totaling $31.2 million for excess and obsolete inventory – driven by the unprecedented market downturn which began in March of 2020.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $95.3 million, or 48%, in the first quarter of 2021 compared to the first quarter of 2020.

Cost of revenues in the first quarter of 2020 included provisions totaling $25.2 million for excess and obsolete inventory – driven by the unprecedented market downturn in March of 2020.

Excluding these provisions, consolidated cost of revenues decreased $70.1 million, or 41%, from the prior-year period.

Consolidated product costs in the first nine months of 2020, which included non-cash inventory impairment provisions of $17.9 million for excess and obsolete inventory, decreased $50.7 million, or 18%, from the first nine months of 2019.

Excluding these charges, consolidated product costs decreased $68.6 million, or 25% from the prior-year period.

Consolidated service costs, which included non-cash inventory impairment provisions of $13.3 million in the first nine months of 2020, decreased $112.1 million, or 34%, from the first nine months of 2019.

Excluding these incremental inventory reserves, consolidated service costs declined $125.3 million, or 38%, due primarily to significantly lower activity levels in the U.S.

shale play regions.

Consolidated product costs in the first quarter of 2021, decreased $40.3 million, or 45%, from the first quarter of 2020, which included a provision of $12.0 million for excess and obsolete inventory.

Excluding this charge, consolidated product costs decreased $28.3 million, or 36%, from the prior-year period.

Consolidated service costs in the first quarter of 2021, decreased $55.0 million, or 51%, from the first quarter of 2020, which included provisions for excess and obsolete inventory of $13.2 million.

Excluding these charges, consolidated service costs decreased $41.8 million, or 44%, from the prior-year period.

Selling, General and Administrative Expense.

Selling, general and administrative expense decreased $22.0 million, or 24%, in the first nine months of 2020 from the first nine months of 2019 due primarily to reductions in short- and long-term compensation costs, personnel levels, travel expense and other implemented costs reduction measures, partially offset by additional bad debt provisions for receivables related to customers claiming bankruptcy protection.

Selling, general and administrative expense decreased $4.9 million, or 19%, in the first quarter of 2021 from the first quarter of 2020 due primarily to reductions in personnel, compensation levels and travel expenses along with other implemented cost reduction measures.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $19.5 million, or 21%, in the first nine months of 2020 compared to the prior-year period, driven primarily by our decision to exit drilling operations in West Texas in the third quarter of 2019 along with reduced capital investments made in our Completion Services business in recent years.

Depreciation and amortization expense decreased $4.9 million, or 19%, in the first quarter of 2021 compared to the prior-year quarter, driven primarily by reduced capital investments made in our Well Site Services segment in recent years.

Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment.

Impairments of Goodwill.

During the first nine months of 2020, our Completion Services, Downhole Technologies and Offshore/Manufactured Products operations recognized non-cash goodwill impairment charges of $127.1 million, $192.5 million and $86.5 million, respectively, arising from, among other factors, the significant decline in our stock price and that of our peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic.

Impairment of Goodwill.

During the first quarter of 2020, our Offshore/Manufactured Products, Downhole Technologies and Well Site Services operations recognized non-cash goodwill impairment charges of $86.5 million, $192.5 million and $127.1 million, respectively, arising from, among other factors, the significant decline in our stock price (and that of most of our peers) and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic.

In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.

Impairments of Fixed Assets.

During the first nine months of 2020, our Drilling Services and Completion Services businesses recognized non-cash fixed asset impairment charges of $5.2 million and $3.0 million, respectively, following the significant decline in crude oil prices beginning in March of 2020.

During the third quarter of 2019, our Drilling Services business recorded a non-cash impairment charge of $33.7 million to decrease the carrying value of the unit's fixed assets as discussed previously.

During the first quarters of 2021 and 2020, our Well Site Services segment recorded non-cash impairment charges of $0.7 million and $5.2 million, respectively, to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value.

Operating Income (Loss).

Our consolidated operating loss was $506.0 million in the first nine months of 2020, which included $445.4 million of non-cash asset impairment charges and $6.3 million of severance and downsizing charges.

This compares to a consolidated operating loss of $52.1 million recognized in the first nine months of 2019, which included the impact of the $33.7 million non-cash fixed asset impairment charge and $2.9 million in severance and downsizing charges.

Our consolidated operating loss was $19.8 million in the first quarter of 2021, which included $3.4 million of severance and restructuring charges.

This compares to a consolidated operating loss of $441.8 million recognized in the first quarter of 2020, which included the impact of $436.5 million of non-cash asset impairment charges and $0.7 million of severance and restructuring charges.

Interest Expense, Net.

Net interest expense was $11.2 million in the first nine months of 2020, which compares to net interest expense of $13.7 million in the same period of 2019.

Interest expense, which includes amortization of debt discount and deferred financing costs, as a percentage of total debt outstanding was approximately 6% in both the first nine months of 2020 and 2019.

Our contractual cash interest expense as a percentage of total debt outstanding was substantially lower – averaging approximately 3% in both the nine months ended September 30, 2020 and 2019.

Net interest expense was $2.3 million in the first quarter of 2021, which compares to $3.5 million in the same period of 2020.

Interest expense, which includes amortization of deferred financing costs in 2021 and amortization of debt discount and deferred financing costs in 2020, as a percentage of total debt outstanding was approximately 4% in the

first quarter of 2021 and 6% in the first quarter of 2020.

Our contractual cash interest expense as a percentage of total debt outstanding was approximately 3% in the three months ended March 31, 2021 and 2020.

Other Income, Net.

Other income, net for the first nine months of 2020 included non-cash gains of $10.7 million recognized in connection with our purchases of $34.9 million principal amount of our 1.50% convertible senior notes for $20.1 million in cash.

We recorded a net income tax benefit for the nine months ended September 30, 2020 using a discrete approach.

This methodology was used because changes in our results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate.

For the nine months ended September 30, 2020, our income tax benefit was $54.1 million, or 11% of the pre-tax loss of $503.7 million, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes.

The impact of these non-deductible expenses was partially offset by $16.4 million in discrete tax benefits related to the carryback of U.S.

Net other income for first quarter of 2021 includes a non-cash gain of $3.6 million recognized in connection with our purchases of $125.0 million principal amount of our 2023 Notes for $120.0 million in cash.

For the three months ended March 31, 2021, our income tax benefit was $2.3 million, or 13% of the pre-tax loss of $18.1 million, which included certain non-deductible expenses and discrete tax items.

This compares to an income tax benefit of $39.5 million, or 9% of the pre-tax loss of $444.5 million for the three months ended March 31, 2020, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes.

In the first quarter of 2020, the impact of these non-deductible expenses was partially offset by a $14.8 million discrete tax benefit related to the carryback of U.S.

net operating losses under the CARES Act.

This compares to

an income tax benefit of $6.7 million, or 11% of the pre-tax loss of $63.0 million, which also included certain non-deductible expenses, for the nine months ended September 30, 2019.

Other Comprehensive Loss.

Reported comprehensive loss is the sum of reported net loss and other comprehensive loss.

Other comprehensive loss was $12.7 million in the first nine months of 2020 compared to loss of $5.5 million in the first nine months of 2019 due to fluctuations in foreign currency exchange rates compared to the U.S.

dollar for certain of the international operations of our reportable segments.

For the nine months ended September 30, 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil.

During the first nine months of 2020 and 2019, the exchange rates for both the British pound and the Brazilian real weakened compared to the U.S.

Other comprehensive loss was $1.5 million in the first quarter of 2021 compared to loss of $14.8 million in the first quarter of 2020 due to fluctuations in foreign currency exchange rates compared to the U.S.

dollar for certain of the international operations of our operating segments.

For the three months ended March 31, 2021 and 2020, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil.

During the first quarter of 2021, the exchange rate for the British pound strengthened compared to the U.S.

dollar and the Brazilian real weakened compared to the U.S.

This compares to the first quarter of 2020, when the exchange rate for both the British pound and Brazilian real weakened compared to the U.S.

Segment Operating Results

Well Site Services

Our Well Site Services segment revenues decreased $179.2 million, or 53%, in the first nine months of 2020 compared to the prior-year period.

Completion Services revenue decreased $153.9 million, or 50%, driven by the decline in U.S.

land-based customer completion and production activity in response to lower commodity prices.

Our Drilling Services revenues decreased $25.3 million, or 78%, in the first nine months of 2020 from the first nine months of 2019 due to the significant decline in crude oil prices and our exit of drilling operations in the West Texas region in the fourth quarter of 2019.

Operating Loss.

During the first nine months of 2020 and 2019, our Well Site Services segment recorded non-cash impairment charges totaling $144.2 million and $33.7 million, respectively.

Excluding these charges, our Well Site Services segment operating loss increased to $37.5 million in the first nine months of 2020 from $12.2 million in the prior-year period.

Our Completion Services operating loss in the first nine months of 2020, after excluding the non-cash goodwill, inventory and fixed asset impairment charges discussed previously, was $37.4 million, compared to an operating loss of $2.3 million in the prior-year period, with the decrease in revenues and $3.9 million of severance and downsizing costs partially offset by a $8.8 million reduction in depreciation expense and the benefit of continued costs reduction measures.

After excluding non-cash fixed asset impairment charges, our Drilling Services operating loss in the first nine months of 2020 was $0.1 million, compared to an operating loss of $10.0 million in the prior-year period, with the decline in revenues offset by a $4.2 million reduction in depreciation expense and the benefit of continued costs reduction measures.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $69.2 million, or 48%, in the first nine months of 2020 from the prior-year period due to a decline in U.S.

land-based customer completion activity.

Operating Income (Loss).

During the first nine months of 2020, our Downhole Technologies segment recorded a non-cash goodwill impairment charge of $192.5 million, a non-cash inventory impairment charge of $5.9 million and severance and downsizing costs of $1.3 million.

Excluding these charges, operating income (loss) declined $19.9 million in the first nine months of 2020 from the prior-year period due primarily to the decline in revenues and a $1.5 million bad debt provision on a receivable from a customer claiming bankruptcy protection.

Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues were more resilient and declined only $29.9 million, or 10%, in the first nine months of 2020 compared to the first nine months of 2019 due to a significant reduction in sales of our short-cycle products (elastomer and valve products), partially offset by an increase in project-driven product sales.

Our Offshore/Manufactured Products segment revenues decreased $30.6 million, or 34%, in the first quarter of 2021 compared to the first quarter of 2020 due primarily to a reduction in sales of its connector and short-cycle products and service activities.

Operating Income (Loss).

During the first nine months of 2020, our Offshore/Manufactured Products segment recorded non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory.

Excluding these charges, our Offshore/Manufactured Products segment operating income decreased $5.7 million in the first nine months of 2020 compared to the first nine months of 2019, with the year-over-year impact of the decline in revenues partially offset by the current year benefit of cost reduction measures.

Backlog in our Offshore/Manufactured Products segment totaled $227 million as of September 30, 2020, a decrease of 19% from December 31, 2019 and a decrease of 23% from September 30, 2019.

Bookings during the first nine months of 2020 totaled $221 million, yielding a book-to-bill ratio of 0.8x.

Corporate expenses decreased $10.0 million, or 28%, in the first nine months of 2020 from the prior-year period due to personnel reductions as well as reductions in short- and long-term compensation costs and other implemented cost reduction measures.

Our Offshore/Manufactured Products segment reported operating income of $1.1 million in the first quarter of 2021, compared to an operating loss of $95.5 million in the first quarter of 2020, which included non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory.

Excluding these charges, our Offshore/Manufactured Products segment operating income decreased $6.1 million in the first quarter of 2021 compared to the first quarter of 2020, with the impact of the year-over-year decrease in revenues partially offset by cost reduction measures implemented in 2020.

Backlog in our Offshore/Manufactured Products segment totaled $226 million as of March 31, 2021, an increase of 3% from December 31, 2020.

First quarter 2021 bookings totaled $70 million, yielding a quarterly book-to-bill ratio of 1.2x.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $15.6 million, or 38%, in the first quarter of 2021 from the prior-year period due primarily to the year-over-year decline in U.S.

land-based customer completion activity.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $1.6 million in the first quarter of 2021 compared to an operating loss of $192.7 million in the prior-year period, which included a non-cash goodwill impairment charge of $192.5 million.

Excluding this charge, operating loss increased $1.4 million in the first quarter of 2021 from the prior-year period due to the decline in revenues, partially offset by cost reduction measures implemented in 2020.

Well Site Services

Our Well Site Services segment revenues decreased $47.9 million, or 55%, in the first quarter of 2021 compared to the prior-year quarter, driven by reduced customer completion and production activity.

Operating Loss.

Our Well Site Services segment operating loss decreased $135.1 million in the first quarter of 2021 from the first quarter of 2020, which included non-cash impairment charges of $127.1 million related to goodwill, $9.0 million related to inventory and $5.2 million related to fixed assets.

Excluding these 2020 asset impairment charges, our Well Site Services operating loss increased $6.1 million from the prior-year period due to the significant decrease in revenues, substantially offset by cost reduction measures implemented in 2020.

Corporate expenses increased $0.7 million, or 8%, in the first quarter of 2021 from the prior-year period, due to $1.6 million of severance costs incurred in the first quarter of 2021 partially offset by cost reduction measures implemented in 2020.

Liquidity, Capital Resources and Other Matters

Our primary liquidity needs are to fund operating and capital expenditures which, in the past, have included expanding and upgrading our Offshore/Manufactured Products and Downhole Technologies manufacturing facilities and equipment, replacing and increasing Completion Services assets, funding research and new product development, and general working capital needs.

In addition, capital has been used to repay debt, fund strategic business acquisitions and fund share repurchases.

Our primary sources of funds have been cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions.

The crude oil and natural gas industry is highly cyclical which may result in declines in the demand for, and prices of, our products and services, the inability or failure of our customers to meet their obligations to us or a sustained decline in our market capitalization.

These and other potentially adverse market conditions could require us to incur additional asset impairment charges, record additional deferred tax valuation allowances and/or further write down the value of our goodwill and long-lived assets, and may otherwise adversely impact our results of operations, our cash flows and our financial position.

See Note 3, "Asset Impairments and Other Charges," and Note 4, "Details of Selected Balance Sheet Accounts," for further information.

Our primary liquidity needs are to fund operating and capital expenditures, new product development and general working capital needs.

In addition, capital has been used to fund strategic business acquisitions, repay debt, and fund share repurchases.

Our primary sources of funds are cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions.

Operating Activities

Cash flows from operations totaling $131.1 million were generated during the first nine months of 2020 compared to $115.9 million generated during the same period of 2019.

In the second quarter of 2020, we filed carryback claims regarding U.S.

net operating losses generated in 2018 and 2019 in accordance with the rules and procedures of the CARES Act and received cash of $41.3 million during the third quarter of 2020, which benefited our cash flow from operations.

Additionally, during the first nine months of 2020, $74.8 million was provided by net working capital decreases, primarily due to collections of accounts receivable and an increase in deferred revenue, partially offset by decreases in accounts payable and accrued liabilities.

During the first nine months of 2019, $38.0 million was provided by net working capital decreases, driven primarily by collections of accounts receivable, partially offset by an increase in inventories.

Cash flows totaling $8.4 million were used in operations during the first quarter of 2021, compared to $5.4 million generated by operations during the same period of 2020.

During the first quarter of 2021, $12.1 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories.

During the first quarter of 2020, $14.7 million was used to fund net working capital increases, primarily due to an increase in inventories and a reduction in accrued liabilities.

Investing Activities

Cash used in investing activities during the first nine months of 2020 totaled $2.7 million, compared to $43.7 million used in investing activities during the first nine months of 2019.

Capital expenditures totaled $11.3 million and $45.8 million during the first nine months of 2020 and 2019, respectively.

Based on current industry conditions, we now expect to spend approximately $15 million in capital expenditures during 2020.

Cash used in investing activities during the first quarter of 2021 totaled $2.4 million, compared to $2.0 million used in investing activities during the first quarter of 2020.

Capital expenditures totaled $4.1 million and $5.9 million during the first quarter of 2021 and 2020, respectively.

We expect to spend approximately $15 million to $20 million in capital expenditures during 2021.

Whether planned expenditures will actually be made in 2021 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity.

We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our Amended Revolving Credit Facility.

For the nine months ended September 30, 2020, cash flows provided by operations less cash flows used in investing activities totaled $128.4 million, compared to $72.1 million during the same period of 2019.

We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our ABL Facility.

Financing Activities

During the nine months ended September 30, 2020, net cash of $57.0 million was used in financing activities, including $32.9 million of net repayments under our Amended Revolving Credit Facility and our purchases of $34.9 million principal amount of our 1.50% convertible senior notes for cash totaling $20.1 million.

This compares to $76.9 million of cash used in financing activities during the nine months ended September 30, 2019, primarily as a result of $71.1 million in net repayments under our Revolving Credit Facility.

As of September 30, 2020, we had cash and cash equivalents totaling $79.7 million, which compared to $8.5 million as of December 31, 2019.

As of September 30, 2020, we had $19.0 million outstanding under our Amended Revolving Credit Facility (discussed below) and $157.4 million principal amount of our Notes outstanding.

Our reported interest expense, which appropriately included amortization of debt discount and deferred financing costs of $5.9 million during the first nine months of 2020, was substantially above our contractual cash interest expense – reflective primarily of the Notes which provide for a cash interest payment of 1.5% per annum.

For the first nine months of 2020, our contractual cash interest expense was $5.3 million, or approximately 3% of the average principal balance of debt outstanding.

We believe that cash on-hand, cash flow from operations and borrowing capacity available under our Amended Revolving Credit Facility will be sufficient to meet our liquidity needs in the coming twelve months.

During the three months ended March 31, 2021, net cash of $6.6 million was used in financing activities including our purchases of $125.0 million principal amount of our 2023 Notes for cash totaling $120.0 million and $12.0 million of net repayments under our ABL Facility.

Partially offsetting these uses was our issuance of $135.0 million principal amount of our 2026 Notes yielding net cash proceeds of $130.3 million.

This compares to $12.4 million of cash provided by financing activities during the three months ended March 31, 2020, primarily as a result of $19.8 million in net borrowings under our Revolving Credit Facility, partially offset by our purchase of $5.7 million principal amount of our 2023 Notes for $4.7 million.

As of March 31, 2021, we had cash and cash equivalents totaling $54.5 million, which compared to $72.0 million as of December 31, 2020.

As of March 31, 2021, we had $7.0 million outstanding under our ABL Facility (discussed below), $135.0 million principal amount of our 2026 Notes outstanding and $32.4 million principal amount of our 2023 Notes outstanding.

Our reported interest expense, which appropriately included amortization of deferred financing costs of $0.9 million during the first three months of 2021, was above our contractual cash interest expense.

For the first three months of 2021, our contractual cash interest expense was $1.4 million, or approximately 3% of the average principal balance of debt outstanding.

We believe that cash on-hand, cash flow from operations and borrowing capacity available under our ABL Facility will be sufficient to meet our liquidity needs in the coming twelve months.

If our plans or assumptions change, or are inaccurate, we may need to raise additional capital.

Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing.

Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control.

Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, stakeholder scrutiny of environmental, social and governance matters and other factors, many of which are beyond our control.

In this regard, the effect of the COVID-19 pandemic has resulted in significant disruption of global financial markets.

For companies like ours in the energy industry, this disruption has been exacerbated by the global crude oil supply and demand imbalance and resulting decline in crude oil prices, and has significantly impacted the value of our common stock and which may reduce our ability to access capital in the bank and capital markets, which could in the future negatively affect our liquidity.

Revolving Credit Facility due January 2022.

Our senior secured revolving credit facility (the "Revolving Credit Facility") is governed by an amended and restated credit agreement by and among the Company, Wells Fargo Bank, N.A., as administrative agent for the lenders party thereto and the lenders and other financial institutions from time to time party thereto dated as of January 30, 2018 (the "Credit Agreement"), which matures on January 30, 2022.

Prior to June 17, 2020, our Revolving Credit Facility provided for up to $350 million in lender commitments, including $50 million available for the issuance of letters of credit.

On June 17, 2020, we entered into an omnibus amendment to the Credit Agreement (as amended, the "Amended Credit Agreement").

Lender commitments under the Amended Credit Agreement were reduced to $200 million in exchange for the suspension of the financial covenants from July 1, 2020 through March 30, 2021.

During the financial covenant suspension period, borrowing availability under the Revolving Credit Facility (as amended, the "Amended Revolving Credit Facility") is limited to 85% of the lesser of (i) $200 million or (ii) a borrowing base, calculated monthly, equal to the sum of 70% of the consolidated net book value of eligible receivables and 20% of the consolidated net book value of eligible inventory (the "Borrowing Base").

The Company expensed $0.5 million of previously deferred financing costs in the second quarter of 2020, which is included in interest expense, net as a result of the amendment of the Credit Agreement.

See Note 6, "Long-term Debt," for further information regarding terms of the Credit Agreement and the recent amendment thereto.

As of September 30, 2020, we had $19.0 million of borrowings outstanding under the Amended Revolving Credit Facility and $31.2 million of outstanding letters of credit.

The total amount available to be drawn as of October 1, 2020 was $83.8 million, calculated based on 85% of the Borrowing Base less outstanding borrowings and letters of credit.

Based on our forecasts, we anticipate that following the March 30, 2021 expiration of the financial covenant suspension period provided for under the Amended Credit Agreement, we may not be in compliance with the covenants in the Amended Credit Agreement due to projected declines in consolidated EBITDA resulting from current industry conditions caused by the global response to the COVID-19 pandemic and the associated collapse in crude oil prices.

However, we believe that we will have sufficient cash on-hand and cash flow from operations (after capital expenditures) to repay borrowings outstanding under the Amended Revolving Credit Facility in full and to fund our other liabilities as they become due over the next twelve months.

1.50% Convertible Senior Notes due February 2023.

For companies like ours that support the energy industry, this disruption has been exacerbated by the global crude oil supply and demand imbalance and resulting decline in crude oil prices, which has negatively impacted the value of our common stock;

has and may continue to reduce our ability to access capital in the bank and capital markets;

has and may continue to result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity.

ABL Facility.

On February 10, 2021, we entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (as amended, the "ABL Facility") under which credit availability is subject to a borrowing base calculation.

Concurrent with entering into the ABL Facility, our former revolving credit facility was terminated.

On March 16, 2021, we entered into an amendment to the ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes.

The ABL Facility is governed by a credit agreement, as amended on March 16, 2021 to allow for the issuance of the 2026 Notes, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement").

The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics).

The ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S.

customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of letters of credit.

Borrowings under the ABL Agreement are secured by a pledge of substantially all of our domestic assets (other than real property) and the stock of certain foreign subsidiaries.

Borrowings under the ABL Agreement bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% to 3.25% and subject to a LIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability.

We must also pay a quarterly commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement.

The ABL Agreement places restrictions on our ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2023 Notes and 2026 Notes), engage in mergers, and other matters, in each case, subject to certain exceptions.

The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of all amounts then outstanding.

The ABL Agreement also requires us to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time in the event that availability under the ABL Agreement is less than the greater of 15% of the borrowing base and $14.1 million or if an event of default has occurred and is continuing.

As of March 31, 2021, we had $7.0 million of borrowings outstanding under the ABL Facility and $19.0 million of outstanding letters of credit.

The total amount available to be drawn as of March 31, 2021 was $40.6 million, calculated based on the current borrowing base less outstanding borrowings and letters of credit.

Former Revolving Credit Facility.

See Note 6, "Long-term Debt," for further information regarding our former revolving credit facility.

On March 16, 2021, we issued $135 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 16, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee.

Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.3 million.

We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes, with the balance added to cash on-hand.

The 2026 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million.

See Note 6, "Long-term Debt," for further information regarding the 2026 Notes.

As of March 31, 2021, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.

On January 30, 2018, we issued $200 million aggregate principal amount of the 2023 Notes pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee.

The 2023 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million.

During the first nine months of 2020, we purchased $34.9 million principal amount of the outstanding Notes for $20.1 million in cash, which was $10.7 million below the net carrying amount of the related liability, resulting in the recognition of a non-cash gain.

Since September 2019, we have purchased $42.6 million principal amount of the Notes for $26.8 million in cash.

The initial carrying amount of the Notes recorded in the consolidated balance sheet was less than the $200 million principal amount of the Notes, in accordance with currently applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature.

We recorded the value of the conversion feature as a debt discount at the date of issuance, which is amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital.

As a result of this amortization, interest expense currently recognized on the Notes for accounting purposes, reflecting an effective interest rate of approximately 6%, is greater than cash interest we are obligated to pay on the Notes.

Reported interest expense associated with the Notes for the nine months ended September 30, 2020 and 2019 was $7.2 million and $7.7 million, respectively, while the related contractual cash interest totaled $2.0 million and $2.3 million, respectively.

During the first three months of 2021, we purchased $125.0 million principal amount of the outstanding 2023 Notes for $120.0 million in cash, which was $3.6 million below the net carrying amount of the related liability, resulting in the recognition of a non-cash gain.

Since September 2019, we have purchased a cumulative $167.6 million principal amount of the 2023 Notes for $146.8 million in cash.

See Note 6, "Long-term Debt," for further information regarding the 2023 Notes.

As of September 30, 2020, none of the conditions allowing holders of the Notes to convert, or requiring us to repurchase the Notes, had been met.

See "–Recent Accounting Pronouncements" below for discussion of the recent revision to accounting guidance for convertible instruments, which will change our method of accounting for the Notes upon our planned adoption of the standard effective January 1, 2021.

As of March 31, 2021, none of the conditions allowing holders of the 2023 Notes to convert, or requiring us to repurchase the 2023 Notes, had been met.

Promissory Note.

In connection with the GEODynamics Acquisition, we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019.

Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics.

We have provided notice to and asserted indemnification claims against the seller of GEODynamics.

As a result, the maturity date of the note is extended until the indemnity claims are resolved.

We expect that the amount ultimately paid in respect of such note to be reduced by these indemnification claims.

In connection with the 2018 acquisition of GEODynamics (the "GEODynamics Acquisition"), we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019.

We believe that payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics.

We have provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note.

We have incurred settlement costs and expenses of $7.9 million related to such indemnification claims and we believe that the maturity date of such note is extended until the resolution of these claims and expect that the amount ultimately paid in respect of such note will be reduced as a result of the indemnification claims.

Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.1 million as of March 31, 2021 and December 31, 2020, which is our current best estimate of what is owed after set-off for indemnification matters.

See Note 13, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.

Our total debt represented 20% of our combined total debt and stockholders' equity at September 30, 2020, an increase from 17% at December 31, 2019 due primarily to the non-cash asset impairment charges recorded as a reduction of equity in the first and third quarters of 2020.

Stock Repurchase Program.

We maintained a share repurchase program, which was allowed to expire on July 29, 2020.

During the first nine months of 2020, we did not repurchase any shares of our common stock under the program.

Our total debt represented 20% of our combined total debt and stockholders' equity as of March 31, 2021 and December 31, 2020.

Contingencies and Other Obligations.

We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our product or operations.

Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses we have sold.

In certain cases, we are entitled to indemnification from the sellers of the businesses and, in other cases, we have indemnified the buyers of businesses.

In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S.

federal income tax carryback claims we received under the provisions of the CARES Act legislation.

On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court.

Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

See Note 13, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of March 31, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products.

2 unchanged sentences

tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs.

The effect of these new tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve, and we continue to monitor these matters.

The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve, and we continue to monitor these matters.

If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase further as a result of customs, anti-dumping and countervailing duty regulations or otherwise and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected.

6 unchanged sentences

We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors.

Except as discussed in Note 3, "Asset Impairments and Other Charges," there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.

There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.

Recent Accounting Pronouncements

1 unchanged sentence

Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.

In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity.

This new guidance will eliminate the current requirement that the carrying value of convertible debt instruments, including our Notes, be allocated between the debt and equity components.

As permitted under the standard, we plan to adopt the new guidance on January 1, 2021 using the modified retrospective transition method.

Upon initial evaluation, we believe the key changes upon adoption will be to increase the carrying value of the debt component of the Notes and reduce the reported level of interest expense recognized over the remaining life of the Notes.

Based on the $157.4 million principal amount of the Notes outstanding as of September 30, 2020, we estimate that the adoption of the standard on January 1, 2021 will result in a $12.2 million increase in the net carrying value of the Notes, a $3.7 million decrease in deferred income taxes and an $8.5 million net decrease in stockholders' equity.

Beginning on January 1, 2021, the effective interest rate associated with the Notes is expected to decrease from approximately 6% to approximately 2%, which compares to the contractual cash interest rate of 1.50%.

In June 2016, the FASB issued guidance on credit impairment for short-term receivables which, as amended, introduces the recognition of management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.

We adopted this guidance on January 1, 2020, using the optional transition method of recognizing any cumulative effect of adopting this guidance as an adjustment to the opening balance of retained earnings.

The cumulative impact of the adoption of the new standard was not material to our consolidated financial statements.

Prior periods were not retrospectively adjusted.

In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity (referred to as "ASU 2020-06").

This guidance eliminated the requirement that the carrying value of convertible debt instruments, such as our 2023 Notes, be allocated between the debt and equity components.

As permitted under the standard, we adopted the guidance on January 1, 2021 using the modified retrospective transition method.

Adoption of the standard resulted in a $12.2 million increase in the net carrying value of the 2023 Notes, a $2.7 million decrease in deferred income taxes and an $9.5 million net decrease in stockholders' equity.

The effective interest rate associated with the 2023 Notes after adoption of the standard decreased from approximately 6% to approximately 2%, which compares to the contractual cash interest rate of 1.50%.

As further discussed in Note 6, "Long-term Debt," we issued $135 million principal amount of our 2026 Notes on March 19, 2021, which have been accounted for in accordance with the provisions of ASU 2020-06.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis