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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-17 · 143 added, 229 removed, 262 unchanged (59% of the section changed)

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Recent Developments

Demand for oil and natural gas has increased steadily from the lows experienced in 2020 as the impact of the global response to the COVID-19 pandemic continues to wane, with commodity prices also driven by declines in crude oil supplies, concerns over sanctions resulting from the Russian invasion of Ukraine and slower crude oil production growth due to reduced investments by operators globally in recent years.

The spot price of Brent crude oil averaged $101 per barrel during 2022, an increase of 43% from the 2021 average, but crude oil prices decreased toward the end of the third quarter and through the fourth quarter of 2022 in response to, among other things, the growing risk of a global recession, which raised concerns over future crude oil demand destruction, and expanding commodity inventories.

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

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On February 9, 2024, Brent crude oil, WTI crude oil and natural gas spot prices closed at $83.58 per barrel, $77.26 per barrel and $1.74 per MMBtu, respectively.

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

drilling rig count reported on February 10, 2023 was 761 rigs – slightly below the fourth quarter 2022 average.

In January 2022, we exited various underperforming domestic service lines within our Well Site Services segment.

These service offerings generated revenues of approximately $20 million in 2021.

The exit of these service lines improved our segment margins for 2022 despite tempering our reported revenue growth.

In March 2022, we recorded bad debt expense of $0.8 million related to receivables from Russia-based customers of our Offshore/Manufactured Products segment.

As of March 31 and December 31, 2022, we had no remaining material balance sheet exposure related to Russia.

In April 2022, our Offshore/Manufactured Products segment acquired E-Flow, a global provider of fully integrated handling, control, monitoring and instrumentation solutions.

E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry.

The purchase price of $8.1 million (net of cash acquired) was funded with cash on-hand.

In July 2022, we paid the GEO Seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock (having a market value of $10.3 million) to fully settle our disputes, including $19.7 million in principal and accrued interest due under the GEO Note.

In August 2022, our Offshore/Manufactured Products segment settled outstanding litigation against certain service providers in exchange for the receipt of cash totaling $6.9 million.

We recognized a gain of $6.1 million in connection with this settlement.

Current and expected future pricing for WTI crude oil, along with expectations regarding the regulatory environment in the regions in which we operate, are factors that will continue to influence our customers' willingness to invest capital in their businesses.

Additionally, the U.S.

drilling rig count reported on February 9, 2024 was 623 rigs – comparable to the fourth quarter 2023 average.

In February 2023, we repaid the $17.3 million in principal amount, plus accrued interest, outstanding under our 2023 Notes.

Additionally, our Board authorized a $25.0 million stock repurchase plan, which extends through February 2025.

During 2023, $6.9 million of share repurchases were made under this authorization.

On February 16, 2024, we amended our ABL Facility to extend its maturity date from February 10, 2025 to February 16, 2028.

Current and expected future pricing for WTI crude oil and natural gas and inflationary cost increases, along with expectations regarding the regulatory environment in the regions in which we operate, are factors that will continue to influence our customers’ willingness to invest capital in their businesses.

Expectations for the longer-term price for Brent crude oil will continue to influence our customers’ spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment.

Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, including:

geopolitical conflicts (such as the direction and outcome of Russia's invasion of Ukraine) and international tensions;

geopolitical conflicts in Europe and the Middle East, along with associated international tensions;

the perceived risk of a global economic recession;

global uncertainties related to the COVID-19 pandemic;

domestic or international crude oil production;

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improved vehicle fuel efficiency;

timing of capital investments in alternative energy sources;

a more sustained movement to electric vehicles;

and the potential for ongoing supply/demand imbalances.

Capital investment by our customers temporarily declined due to these factors and the desire to generate sustainable cash flows.

Customer spending in the natural gas shale plays has been limited due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in the United States.

drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of our U.S.

Customer spending in the natural gas shale plays has moderated over the last ten years due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in the United States.

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

This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry.

Additionally, we are investing in research, have been awarded select contracts and are bidding on additional projects that facilitate the development of alternative energy sources, including offshore wind and deepsea mineral gathering opportunities.

Additionally, we are investing in research and product development related to, and have been awarded select contracts and are bidding on additional projects that facilitate, the development of alternative energy sources, including offshore wind and deepsea mineral gathering opportunities.

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 41% of Offshore/Manufactured Products segment sales in 2022 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").

Approximately 69% of Offshore/Manufactured Products segment sales in 2023 were driven by our customers’ capital spending for products and services 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 and services”).

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

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2021 226 214 249 260

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.

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 internationally.

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.

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Additional offerings include proprietary frac plug and toe valve 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 our completion-related 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.

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

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

As of February 9, 2024

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Offshore 21 21 18

International Rig Count:

Offshore 205 179

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

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rig count – with the balance largely natural gas related.

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

rig count for 2022 increased by 245 rigs, or 51%, compared to the average for 2021.

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

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

In addition, in response to Russia’s invasion of Ukraine, governments in the European Union, the United States, the United Kingdom, Switzerland and other countries have enacted sanctions against Russia and Russian interests.

In addition, in response to Russia’s invasion of Ukraine,

governments in the European Union, the United States, the United Kingdom, Switzerland and other countries have enacted sanctions against Russia and Russian interests.

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

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Other factors that can affect our business and financial results include but are not limited to:

the general global economic environment;

the general global economic environment (including disruptions in the banking sector);

competitive pricing pressures;

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climate-related and other regulatory changes;

geopolitical tensions;

geopolitical conflicts and tensions;

and changes in tax laws in the United States and international markets.

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Financial Statements and Supplementary Data” of this Annual Report on Form 10-K and “Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in order to understand factors, such as charges, credits and financing transactions, which may impact the comparability of the selected financial data.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in order to understand factors, such as charges, credits and financing transactions, which may impact comparability of the selected financial data.

We revised our presentation of supplemental disclosure of disaggregated revenue information in 2023.

Prior-period disclosures of disaggregated revenue information presented within this discussion and analysis were conformed with the current-period presentation.

Consolidated Results of Operations

The following summarizes our consolidated results of operations for the years ended December 31, 2023 and 2022 (in thousands, except per share amounts):

Year Ended December 31,

2023 2022 Variance

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Cost of revenues (exclusive of depreciation and amortization expense presented below) 606,888 578,556 28,332

578,556 470,396 108,160

Selling, general and administrative expenses (1)

Depreciation and amortization expense 67,334 80,741 (13,407)

Impairments of fixed and lease assets (2)

94,185 96,038 (1,853)

Other operating income, net (3)

Depreciation and amortization expense 60,778 67,334 (6,556)

Other operating expense (income), net (2)

(2,732) (7,127) 4,395

759,119 734,801 24,318

Operating income (loss) 2,905 (64,792) 67,697

Operating income 23,164 2,905 20,259

Interest expense, net (8,189) (10,280) 2,091

Other income, net 849 3,315 (2,466)

3,315 1,628 1,687

Loss before income taxes (4,060) (73,334) 69,274

Income tax (provision) benefit (5,480) 9,341 (14,821)

Net loss $ (9,540) $ (63,993) $ 54,453

Net loss per share:

$ (0.15) $ (1.06)

Income (loss) before income taxes 15,824 (4,060) 19,884

Income tax provision (2,933) (5,480) 2,547

Net income (loss) $ 12,891 $ (9,540) $ 22,431

Net income (loss) per share:

$ 0.20 $ (0.15)

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(1) Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $3.6 million ($2.1 million in product costs and $1.5 million in service costs) recognized in 2021.

(2) During 2021, we recognized non-cash impairment charges of $4.2 million to reduce the carrying value of certain fixed and operating lease assets to their estimated realizable value.

(3) During 2022, we recognized a gain of $6.1 million associated with the settlement of outstanding litigation.

(4) During 2021, we recognized a non-cash foreign currency loss of $9.3 million associated with the reclassification of unrealized foreign currency translation adjustments which were released upon the liquidation of an international operation and non-cash gains of $4.0 million in connection with our purchases of $131.4 million principal amount of our 1.50% Convertible Senior Notes Due 2023 (the "2023 Notes").

See Note 4, "Asset Impairments and Other Charges and Benefits," Note 5, "Details of Selected Balance Sheet Accounts" and Note 7, "Long-term Debt," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of these and other charges and benefits recognized in 2022 and 2021.

(1) During 2023, we recognized $0.6 million, associated with the defense of certain Well Site Services segment patents related to proprietary technologies.

(2) During 2023, we recognized facility consolidation charges of $2.5 million associated with the Offshore/Manufactured Products segment’s ongoing consolidation and relocation of certain manufacturing and service locations.

During 2022, we recognized a gain of $6.1 million associated with the settlement of outstanding litigation against certain service providers.

Segment Results of Operations

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Supplemental financial information by operating segment for the years ended December 31, 2023 and 2022 is summarized below (in thousands):

Year Ended December 31,

2023 2022 Variance

Offshore/Manufactured Products

Project-driven products $ 158,040 $ 122,097 $ 35,943

Project-driven:

Products $ 189,739 $ 158,040 $ 31,699

Services 112,742 98,968 13,774

302,481 257,008 45,473

Military and other products 32,596 32,563 33

Short-cycle products 106,186 92,152 14,034

Other products and services 131,531 111,458 20,073

Total Offshore/Manufactured Products 381,723 298,729 82,994

441,263 381,723 59,540

Well Site Services 242,633 231,189 11,444

Downhole Technologies 98,387 124,794 (26,407)

Total $ 737,706 $ 573,161 $ 164,545

$ 782,283 $ 737,706 $ 44,577

Operating income (loss):

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Downhole Technologies (14,884) (6,669) (8,215)

(6,669) (13,470) 6,801

Corporate (41,132) (40,559) (573)

Total $ 2,905 $ (64,792) $ 67,697

$ 23,164 $ 2,905 $ 20,259

(1) Operating income in 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation.

(2) Operating loss in 2021 included non-cash fixed and operating lease asset impairment charges of $4.2 million and inventory impairment charges of $1.5 million.

(3) Operating loss in 2021 included a non-cash inventory impairment charge of $2.1 million.

See Note 4, "Asset Impairments and Other Charges and Benefits," and Note 5, "Details of Selected Balance Sheet Accounts," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of these and other charges and benefits recognized in 2022 and 2021.

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(1) During 2023, we recognized facility consolidation charges of $2.5 million associated with the Offshore/Manufactured Products segment’s ongoing consolidation and relocation of certain manufacturing and service locations.

During 2022, we recognized a gain of $6.1 million associated with the settlement of outstanding litigation against certain service providers.

(2) In 2023, we recognized $0.6 million in costs associated with the defense of certain Well Site Services segment patents related to proprietary technologies.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

We reported a net loss for the year ended December 31, 2022 of $9.5 million, or $0.15 per share, which included a gain of $6.1 million ($4.6 million after-tax, or $0.07 per share) recognized in connection with the settlement of a litigation matter.

These results compare to a net loss for the year ended December 31, 2021 of $64.0 million, or $1.06 per share.

Reported results in 2021 included:

non-cash impairment charges of $7.7 million ($6.1 million after-tax, or $0.10 per share) associated with write-downs of inventories and fixed and lease assets;

$7.5 million ($5.9 million after-tax, or $0.10 per share) of severance and restructuring costs;

a non-cash loss of $9.3 million ($9.3 million after-tax, or $0.15 per share) reclassified from other comprehensive loss upon exit of an international operation;

and non-cash gains of $4.0 million ($3.2 million after-tax, or $0.05 per share) associated with convertible debt extinguishment.

Demand for most of our products and services increased throughout 2022 from the lows experienced in 2020 and 2021 due to the waning impact of the global response to the COVID-19 pandemic, which had adversely affected energy demand and prices.

Increased capital investments by our customers, together with internal cost reduction and strict capital discipline measures and other corporate actions, resulted in significant improvements in our consolidated results in 2022.

During 2021, we recognized an aggregate $8.8 million reduction of payroll tax expense (recognized within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program.

We reported net income for the year ended December 31, 2023 of $12.9 million, or $0.20 per share, which included facility consolidation charges of $2.5 million ($2.0 million after-tax, or $0.03 per share) and patent defense costs of $0.6 million ($0.5 million after-tax, or $0.01 per share).

These results compare to a net loss for the year ended December 31, 2022 of $9.5 million, or $0.15 per share, which included a gain of $6.1 million ($4.6 million after-tax, or $0.07 per share) recognized in connection with the settlement of a litigation matter.

Increased capital investments by our offshore and international customers, together with our internal cost control and strict capital discipline measures and other corporate actions, resulted in improvements in our consolidated results in 2023.

The favorable impact of continued growth in offshore and international project activity and associated backlog conversion was partially offset by the impact of an industry-wide decline in U.S.

well completions (the U.S.

year-end rig count declined 20% from December 2022) – triggered by weaker commodity prices.

Consolidated total revenues in 2023 increased $44.6 million, or 6%, from 2022.

Consolidated product revenues in 2022 increased $86.3 million, or 29%, from 2021, driven primarily by increased U.S.

land-based customer activity and higher demand for project-related connector products.

Consolidated service revenues in 2022 increased $78.3 million, or 29%, from 2021 due primarily to higher customer spending in the United States, partially offset by the exit of certain non-performing service offerings in January 2022 (which generated revenues of approximately $20 million in 2021).

As can be derived from the following table, 61% of our consolidated revenues in 2022 were derived from sales of our short-cycle product and service offerings, which compares to 59% in the prior year.

Consolidated product revenues in 2023 increased $33.0 million, or 9%, from 2022, driven primarily by higher customer demand for project-driven production facility and connector products.

Consolidated service revenues in 2023 increased $11.6 million, or 3%, from 2022 due primarily to increased customer project spending internationally.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the years ended December 31, 2023 and 2022 (in thousands):

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Year Ended December 31 2023 2022 2023 2022 2023 2022 2023 2022

Major revenue categories -

Project-driven products $ 158,040 $ 122,097 $ — $ — $ — $ — $ 158,040 $ 122,097

Completion products and services 60,350 41,640 210,584 160,881 124,794 103,492 395,728 306,013

Drilling services — — 20,605 10,059 — — 20,605 10,059

Other products 31,802 23,534 — — — — 31,802 23,534

Project-driven:

Products $ 189,739 $ 158,040 $ — $ — $ — $ — $ 189,739 $ 158,040

Services 112,742 98,968 — — — — 112,742 98,968

Total project-driven 302,481 257,008 — — — — 302,481 257,008

Military and other products 32,596 32,563 — — — — 32,596 32,563

Products 106,186 92,152 — — 90,029 102,808 196,215 194,960

Services — — 242,633 231,189 8,358 21,986 250,991 253,175

Total short-cycle 106,186 92,152 242,633 231,189 98,387 124,794 447,206 448,135

Other products and services 131,531 111,458 — — — — 131,531 111,458

$ 441,263 $ 381,723 $ 242,633 $ 231,189 $ 98,387 $ 124,794 $ 782,283 $ 737,706

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

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $108.2 million, or 23%, in 2022 compared to 2021, which included $3.6 million of non-cash inventory impairment charges.

Excluding these charges, consolidated cost of revenues increased $111.7 million, or 24%, from the prior year.

Consolidated product costs in 2022 increased $60.8 million, or 25%, compared to 2021, which included $2.1 million in non-cash inventory impairment charges.

Excluding these 2021 charges, consolidated product costs increased $62.9 million, or 26%, from the prior year due to the reported revenue growth and higher material, transportation, labor and other costs.

Consolidated service costs in 2022 increased $47.4 million, or 21%, compared to 2021, which included $1.5 million in non-cash inventory impairment charges.

Excluding these 2021 charges, consolidated service costs increased $48.8 million, or 22%, from the prior year due to the impact of higher customer activity levels and increased labor, material and other costs, partially offset by the impact of the January 2022 exit of certain non-performing service offerings.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $28.3 million, or 5%, in 2023 compared to 2022.

Consolidated product costs in 2023 increased $21.4 million, or 7%, compared to 2022 due primarily to the reported revenue growth as well as higher material, transportation, labor and other costs.

Consolidated service costs in 2023 increased $6.9 million, or 3%, compared to 2022, due primarily to the impact of higher revenue levels and increased labor and other costs.

Selling, General and Administrative Expense.

Selling, general and administrative expense increased $12.3 million, or 15%, in 2022 from 2021 due primarily to higher performance-based incentive compensation, professional services, bad debt and trade show expenses, partially offset by $3.7 million in severance and restructuring charges recognized in 2021.

Selling, general and administrative expense was $94.2 million in 2023, which included $0.6 million of legal and other costs associated with enforcing certain of our patents.

Excluding these patent defense costs, selling, general and administrative costs decreased $2.4 million, or 3%, from 2022, due primarily to reductions in short-term incentive and bad debt expenses.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $13.4 million, or 17%, in 2022 compared to the prior year, driven primarily by reduced capital investments made in our Well Site Services segment in recent years.

Depreciation and amortization expense decreased $6.6 million, or 10%, in 2023 compared to the prior-year period, due to certain intangible assets reaching the end of their economic life coupled with reduced capital investments made in our Well Site Services segment in recent years.

Note 14, “Segments and Related Information,” to our Consolidated Financial Statements presents depreciation and amortization expense by segment.

Impairments of Fixed and Lease Assets.

During 2021, our Well Site Services segment recorded non-cash impairment charges of $4.2 million to reduce the carrying value of certain of the segment's fixed and operating lease assets to their estimated realizable value.

Other Operating Income, Net.

Net other operating income for 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation against certain service providers within our Offshore/Manufactured Products segment.

Operating Income (Loss).

Our consolidated operating income was $2.9 million in 2022, which included the $6.1 million gain reported as other operating income, net (discussed above).

This compares to a consolidated operating loss of $64.8 million recognized in 2021, which included $7.7 million of asset impairment charges and $7.5 million of severance and restructuring costs.

In 2023, other operating income, net included gains on disposals of assets totaling $4.1 million, partially offset by charges of $2.5 million recognized in connection with our ongoing consolidation of certain manufacturing and service locations within our Offshore/Manufactured Products segment.

Other operating income, net for 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation against certain service providers within our Offshore/Manufactured Products segment.

Operating Income.

Our consolidated operating income was $23.2 million in 2023, which included the $2.5 million in facility consolidation charges reported within other operating income, net and the $0.6 million in patent defense costs reported within selling, general and administrative expense.

This compares to a consolidated operating income of $2.9 million in 2022, which included the $6.1 million gain (discussed above) recognized within other operating income, net.

Excluding these charges and prior-year litigation gain, operating income increased $29.4 million year-over-year.

Interest Expense, Net.

Net interest expense totaled $8.2 million in 2023, which compares to $10.3 million in 2022.

Interest expense as a percentage of total debt outstanding was approximately 6% in 2022 and 5% in 2021.

Other Income, Net.

Net other income for 2022 included a non-cash charge of $0.6 million recognized in connection with the settlement of disputes with the GEO Seller and non-cash gains of $0.2 million recognized in connection with our purchases of our 2023 Notes.

Net other income for 2021 included gains of $6.5 million recognized on the disposal of assets and non-cash gains of $4.0 million recognized in connection with our purchases of our 2023 Notes.

These 2021 gains were offset by a $9.3 million non-cash loss associated with the reclassification of unrealized foreign currency translation adjustments to net loss upon our liquidation of an international operation, which was previously recorded as a component of other comprehensive loss within stockholders’ equity.

For 2022, our income tax provision was $5.5 million on a pre-tax loss of $4.1 million, which included certain non-deductible expenses and discrete tax items.

This compares to an income tax benefit of $9.3 million on a pre-tax loss of $73.3 million for 2021, which included certain non-deductible expenses and discrete tax items.

Interest expense as a percentage of total debt outstanding was approximately 7% in 2023, compared to 6% in 2022.

For 2023, our income tax provision was $2.9 million on pre-tax income of $15.8 million, which included certain non-deductible expenses, discrete tax items and reductions in valuation allowances recorded against deferred tax assets.

This compares to an income tax provision of $5.5 million on a pre-tax loss of $4.1 million for 2022, which included certain non-deductible expenses and discrete tax items.

Other Comprehensive Income (Loss).

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

Other comprehensive loss was $12.9 million in 2022 compared to comprehensive income of $5.4 million in 2021.

With the liquidation of the international operation in 2021 noted above, we recognized other comprehensive income (resulting from the release of historical currency translation adjustments) of $9.3 million in 2021.

Excluding this benefit, our reported other comprehensive loss for 2021 was $4.0 million, driven by fluctuations in foreign currency exchange rates compared to the U.S.

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

Other comprehensive income was $9.0 million in 2023 compared to a comprehensive loss of $12.9 million in 2022 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 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

During 2022, the exchange rate for the British pound weakened compared to the U.S.

During 2023, the exchange rates for the British pound and the Brazilian real strengthened compared to the U.S.

In 2022, the exchange rate for the British pound weakened compared to the U.S.

dollar, while the Brazilian real strengthened compared to the U.S.

During 2021, the exchange rate for the British pound and the Brazilian real weakened compared to the U.S.

Segment Operating Results

Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues increased $83.0 million, or 28%, in 2022 compared to 2021 due to increased demand for all of the segment's product and service offerings, particularly project-related connector and short-cycle products.

Our Offshore/Manufactured Products segment revenues increased $59.5 million, or 16%, in 2023 compared to 2022 due primarily to increased demand for international and offshore-project driven products and services.

Operating Income.

Our Offshore/Manufactured Products segment reported operating income of $45.3 million in 2022, which included a $6.1 million gain in connection with the settlement of outstanding litigation.

The segment reported operating income of $15.4 million in 2021, which included severance and restructuring costs of $0.9 million.

This year-over-year increase was due primarily to the reported revenue growth and recognition of the $6.1 million gain in connection with the settlement of litigation, partially offset by the impact of higher material, transportation, labor and other costs.

Our Offshore/Manufactured Products segment reported operating income of $65.3 million in 2023, which included the $2.5 million in facility consolidation charges.

This compares to operating income of $45.3 million in 2022, which included a $6.1 million gain recognized in connection with the settlement of outstanding litigation.

Excluding the facility consolidation charges and prior-year litigation gain, operating income increased $28.6 million year-over-year due primarily to the Offshore/Manufactured Products segment’s reported revenue growth and lower bad debt expense, partially offset by the impact of higher material, transportation, labor and other costs.

Backlog in our Offshore/Manufactured Products segment totaled $333 million as of December 31, 2023 compared to $308 million as of December 31, 2022.

Bookings during 2022 totaled $435 million, yielding a book-to-bill ratio of 1.1x.

Bookings during 2023 totaled $472 million, yielding a year-to-date book-to-bill ratio of 1.1x.

Well Site Services

Our Well Site Services segment revenues increased $60.2 million, or 35%, in 2022 compared to 2021, driven by increased U.S.

customer activity levels partially offset by the exit of U.S.

thru-tubing service offerings in January 2022 (which generated revenues of approximately $20 million in 2021).

Operating Income (Loss).

Our Well Site Services segment reported operating income of $4.9 million in 2022.

The segment reported an operating loss of $34.5 million in 2021, which included $4.3 million in severance and restructuring costs, non-cash fixed and lease asset impairment charges of $4.2 million and a non-cash inventory impairment charge of $1.5 million.

Excluding these 2021 charges, the segment's operating results improved by $29.5 million compared to the prior year due primarily to the segment's reported revenue growth and a $11.6 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Our Well Site Services segment revenues increased $11.4 million, or 5%, in 2023 compared to 2022, driven primarily by higher U.S.

customer activity levels during the first half of 2023.

Operating Income.

Our Well Site Services segment reported operating income of $13.9 million in 2023, compared to operating income of $4.9 million in 2022.

Excluding the 2023 patent defense costs, the Well Site Services segment’s operating results improved $9.6 million from the prior-year period, due to the reported revenue growth and a $3.2 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Downhole Technologies

Our Downhole Technologies segment revenues increased $21.3 million, or 21%, in 2022 from 2021 due primarily to increased customer demand for perforating and completion products in the United States.

Our Downhole Technologies segment revenues decreased $26.4 million, or 21%, in 2023 from 2022 due primarily to lower U.S.

customer demand for perforating and completion products.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $6.7 million in 2022, compared to an operating loss of $13.5 million in 2021, which included a non-cash inventory impairment charge of $2.1 million and $0.8 million of severance and restructuring charges.

Excluding these 2021 charges, operating loss decreased $3.9 million in 2022 from the prior year due to the reported increase in revenues, partially offset by higher material, transportation, labor and other costs.

Our Downhole Technologies segment reported an operating loss of $14.9 million in 2023, compared to an operating loss of $6.7 million reported in 2022.

This year-over-year increase in operating loss is due primarily to the reported decrease in the Downhole Technologies segment’s revenue, $1.1 million in incremental non-cash provisions for excess and obsolete inventory as well as higher labor, material and other costs.

Operating Loss.

Corporate expenses in 2022 increased $8.3 million, or 26%, from 2021 due primarily to higher personnel costs, performance-based incentive compensation and professional fees, partially offset by $1.6 million of severance costs recognized in the prior-year period.

Corporate expenses in 2023 increased $0.6 million, or 1%, from 2022, with the impact of higher personnel and marketing costs partially offset by lower short-term incentive and professional service expenses.

Liquidity, Capital Resources and Other Matters

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Operating Activities

Cash flows from operations totaled $32.9 million during 2022, compared to $7.2 million generated by operations during 2021.

During 2022, $34.7 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories driven by higher customer activity levels.

During 2021, $17.2 million was used to fund net working capital increases, primarily due to the significant increase in activity levels in the latter part of 2021 as the global economy recovered.

Cash flows from operations totaled $56.6 million during 2023, compared to $32.9 million provided by operations during 2022.

During 2023, $21.0 million was used to fund net working capital increases, primarily due to increases in inventories as well as decreases in accounts payable, accrued liabilities and deferred revenue, partially offset by a decrease in accounts receivable.

During 2022, $34.7 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories.

Investing Activities

Net cash used in investing activities during 2023 totaled $25.6 million, compared to $22.7 million used in investing activities during 2022.

As discussed under "Recent Developments," we acquired E-Flow on April 14, 2022 for net cash consideration of $8.1 million.

Capital expenditures totaled $30.7 million and $20.3 million during 2023 and 2022, respectively.

These investments were partially offset by proceeds from the sale of property and equipment of $5.3 million and $5.9 million during 2023 and 2022, respectively.

We expect to spend approximately $25 million in capital expenditures during 2023.

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

In 2022, we acquired E-Flow Control Holdings Limited, a global provider of fully integrated handling, control, monitoring and instrumentation solutions.

The purchase price of $8.1 million (net of cash acquired) was funded with cash on-hand.

Within our Offshore/Manufactured Products segment, we completed the consolidation of certain facilities in Houston, Texas during 2023 and are in the process of strategically relocating our Asian manufacturing and service operations from Singapore to Batam, Indonesia.

With these consolidations, two facilities are classified as held-for-sale assets within prepaid expenses and other current assets as of December 31, 2023.

Including the planned construction of a new facility in Batam, we expect to invest approximately $40 million in capital expenditures during 2024.

In 2024, we also expect to sell the two held-for-sale facilities (in Singapore and Houston), with expected proceeds ranging between $35 million and $40 million.

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

Financing Activities

During 2022, net cash of $20.3 million was used in financing activities, including a cash payment of $10.0 million related to the GEO Note settlement (discussed below) and the purchase of $8.7 million principal amount of our outstanding 2023 Notes.

This compares to $19.6 million of cash used in financing activities during 2021, including our purchases of $131.4 million principal amount of our 2023 Notes for cash totaling $126.0 million and $19.0 million of net repayments under our ABL Facility.

Partially offsetting these uses in 2021 was our issuance of $135.0 million principal amount of our 2026 Notes yielding net cash proceeds of $130.6 million.

On June 28, 2022, we entered into a settlement agreement with the GEO Seller, which included the full and final settlement of all amounts due under the GEO Note.

Pursuant to the settlement agreement, on July 1, 2022, we paid the GEO Seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock.

During 2023, net cash of $26.7 million was used in financing activities, which included the repayment of the $17.3 million in principal amount of our outstanding 2023 Notes and the repurchases of $6.9 million of our common stock.

This compares to $20.3 million of cash used in financing activities during 2022, which included a cash payment of $10.0 million related to the settlement of a promissory note to the seller of GEODynamics, Inc.

(discussed below) and the purchase of $8.7 million principal amount of our outstanding 2023 Notes.

On June 28, 2022, we entered into a settlement agreement with the seller of GEODynamics, Inc.

(acquired in 2018), which provided for the full and final settlement of all amounts due under a promissory note to the seller of GEODynamics, Inc.

Pursuant to the settlement agreement, on July 1, 2022, we paid the seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock.

As of December 31, 2023, we had cash and cash equivalents totaling $47.1 million, which compared to $42.0 million as of December 31, 2022.

Cash was used during the period to settle the GEO Note, fund the E-Flow acquisition, fund capital expenditures and purchase a portion of our 2023 Notes.

As of December 31, 2022, we had no borrowings outstanding under our ABL Facility, $17.3 million principal amount of our 2023 Notes outstanding, $135.0 million principal amount of our 2026 Notes outstanding and other debt of $3.4 million.

As of December 31, 2023, we had no borrowings outstanding under our ABL Facility, $135.0 million principal amount of our 2026 Notes (as defined below) outstanding and other debt of $3.1 million.

Our reported interest expense included amortization of deferred financing costs of $1.8 million during 2023.

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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, stakeholder scrutiny of ESG matters and other factors, many of which are beyond our control.

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

For companies like ours that support the energy industry, this disruption negatively impacted the value of our common stock and may reduce our ability to access capital in the bank and capital markets or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity.

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

In this regard, the effect of multiple U.S.

bank failures in 2023 resulted in significant disruptions to global banking and financial markets.

For companies like ours that support the energy industry, these disruptions negatively impacted the value of our common stock and may reduce our ability to access capital in the bank and capital markets or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity.

On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related information and risks.

We are currently assessing these rules, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from these rules.

To the extent these rules are finalized as proposed, we expect that we and our customers would incur increased costs related to the assessment and disclosure of climate-related risks.

A final rule is expected to be released in the first half of 2024, but we cannot predict the final form and substance of the rule and its requirements at this time.

The ultimate impact on our business is uncertain but, upon finalization, we and our customers may incur increased compliance costs related to the assessment and disclosure of climate-related risks.

We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed.

In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting or seeking more stringent conditions with respect to their investments in us, our customers and other companies like ours that support the energy industry.

In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting access to capital or seeking more stringent conditions with respect to their investments in us, our customers and other companies like ours that support the energy industry.

For more information on our risks related to climate change, see the risk factors in “Part I, Item 1A.

Risk Factors" included in this Annual Report on Form 10-K titled, "Our and our customers' operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide" and "The Inflation Reduction Act of 2022 could accelerate the transition to a low carbon economy and could impose new costs on our customers' operations."

Risk Factors” included in this Annual Report on Form 10-K titled, “Our and our customers’ operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide,” “The Inflation Reduction Act of 2022 could accelerate the transition to a low carbon economy and could impose new costs on our customers’ operations” and “Increasing attention to ESG matters may impact our business.”

Stock Repurchase Program.

On February 16, 2023, the Board of Directors authorized $25.0 million for the repurchases of our common stock, par value $0.01 per share, through February 2025.

On February 16, 2023, the Board authorized $25.0 million for the repurchases of our common stock, par value $0.01 per share, through February 2025.

Subject to applicable securities laws, such purchases will be at such times and in such amounts as we deem appropriate.

As of December 31, 2023, $6.9 million of share repurchases have been made under this authorization.

Revolving Credit Facility.

On February 10, 2021, we entered into the ABL Facility under which credit availability is subject to a borrowing base calculation.

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.

On December 13, 2022, we entered into an additional technical amendment to the ABL Facility to replace the reference benchmark rate of the London Inter Bank Offered Rate (known as LIBOR) with the Secured Overnight Financing Rate (known as SOFR).

This transition is not expected to materially impact our borrowing rate under the ABL Facility.

The ABL Facility is governed by a credit agreement, as amended, 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.

On February 10, 2021, we entered into a senior secured credit facility, 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.

On February 16, 2024, we amended the ABL Facility to extend the maturity date to February 16, 2028.

The ABL Agreement, as amended, matures on February 16, 2028 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million.

See Note 7, “Long-term Debt,” to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information regarding the ABL Agreement.

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The total amount available to be drawn as of December 31, 2023 was $76.1 million, calculated based on the then-current borrowing base less outstanding letters of credit.

On March 16, 2021, we issued $135.0 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 16, 2021 (the "2026 Indenture"), between us and Computershare Trust Company, National Association, as successor trustee.

Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 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.

We issued $135.0 million aggregate principal amount of 4.75% convertible senior notes due 2026 (the “2026 Notes”) pursuant to an indenture, dated as of March 19, 2021 (the “2026 Indenture”), between us and Computershare Trust Company, National Association, as successor trustee.

The 2026 Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted.

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

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As of December 31, 2023, 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 $200.0 million aggregate principal amount of the 2023 Notes pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between us and Computershare Trust Company, National Association, as successor trustee as of March 1, 2022.

Since September 2019, we have purchased a cumulative $182.7 million principal amount of the 2023 Notes for $161.2 million in cash, with $17.3 million principal amount outstanding as of December 31, 2022.

On February 15, 2023, the remaining outstanding 2023 Notes were fully repaid.

Promissory Note.

In connection with the GEODynamics Acquisition, we issued the GEO Note that was scheduled to mature on July 12, 2019.

Payments due under the GEO Note (original principal amount of $25.0 million) were subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to the GEODynamics Acquisition.

We asserted indemnification claims against the GEO Seller, and the GEO Seller filed a breach of contract suit against us alleging that payments due under the GEO Note were required to be repaid in accordance with the terms of such note.

We incurred settlement costs and expenses of $7.5 million related to such indemnification claims and as of June 28, 2022, had reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million, which was our then-current best estimate of what was owed after set-off for indemnification matters.

On June 28, 2022, we entered into a settlement agreement with the GEO Seller, which included the full and final settlement of all amounts due pursuant to the GEO Note.

Pursuant to the settlement agreement, on July 1, 2022, we paid the GEO Seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock (having a market value of $10.3 million).

See Note 15, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion.

On February 15, 2023, our 2023 Notes matured and the outstanding $17.3 million in principal amount was repaid in full.

Our total debt represented 16% and 18% of our combined total debt and stockholders’ equity as of December 31, 2023 and December 31, 2022, respectively.

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Payments due by year

Total 2023 2024 and 2025 2026 and 2027 After 2027

2025 and 2026

2027 and 2028

Contractual obligations

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151,031 6,413 144,618 — —

2026 Notes (3)

157,444 6,413 12,825 138,206 —

Other debt and finance lease obligations 3,092 627 1,092 1,121 252

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The total amount available to be drawn as of December 31, 2023 was $76.1 million.

(2) Amount represents the full principal amount of the 2023 Notes together with interest payments, which were repaid on February 15, 2023.

(2) Amount represents the full principal amount of the 2026 Notes together with cash interest payments due semi-annually.

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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 August 2022, our Offshore/Manufactured Products segment settled outstanding litigation against certain service providers in exchange for the receipt of cash totaling $6.9 million.

In connection with this settlement, we recognized a gain of $6.1 million in the third quarter of 2022.

See Note 15, “Commitments and Contingencies,” to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion.

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

If we encounter difficulty in procuring these raw materials and component products as a result of tariffs, supply chain disruptions or other events, or if the prices we have to pay for these

products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected.

If we encounter difficulty in procuring these raw materials and component products as a result of tariffs, supply chain disruptions or other events, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected.

Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations.

See Note 15, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion.

See Note 2, “Summary of Significant Accounting Policies,” and Note 10, “Income Taxes,” to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for additional information with respect to tax matters.

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We describe our significant accounting policies more fully in Note 2, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included in this Annual Report on Form 10‑K.

Goodwill and Long-Lived Tangible and Intangible Assets

Our goodwill totaled $79.3 million, representing 7% of our total assets as of December 31, 2022.

Our long-lived tangible assets totaled $326.9 million, representing 31% of our total assets as of December 31, 2022, and our long-lived intangible assets totaled $169.8 million, representing 16% of our total assets.

The remainder of our assets largely consisted of cash, accounts receivable and inventories.

Goodwill represents the excess, after impairments, of the purchase price for acquired businesses over the allocated fair value of related net assets.

In accordance with current accounting guidance, we do not amortize goodwill, but rather assess goodwill for impairment annually (as of December 1) and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable.

In the evaluation of goodwill, each reporting unit with goodwill on its balance sheet is assessed separately using relevant events and circumstances.

We estimate the fair value of each reporting unit and compare that fair value to its recorded carrying value.

We utilize, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables.

Projected cash flows are discounted using a long-term weighted average cost of capital for each reporting unit based on estimates of investment returns that would be required by a market participant.

As part of the process of assessing goodwill for potential impairment, our total market capitalization is compared to the sum of the fair values of all reporting units to assess the reasonableness of aggregated fair values.

If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded based on the excess of the carrying amount over the reporting unit's fair value.

December 2020, 2021 and 2022 Assessments

As of December 1, 2022, 2021 and 2020, we had only one reporting unit – Offshore/Manufactured Products – with a goodwill balance remaining.

We performed our annual quantitative assessments of goodwill for impairment, which indicated that the fair value of the Offshore/Manufactured Products reporting unit was greater than its carrying amount at each date and no additional impairments were required in any period.

The valuation techniques used in these annual assessments were consistent with those used during our interim March 31, 2020 assessment for the Offshore/Manufactured Products reporting unit.

The discount rate used to value the reporting unit as of December 1, 2020, 2021 and 2022 was 15.3%, 14.5% and 15.0%, respectively.

The estimated returns required by market participants decreased in our 2020, 2021 and 2022 annual assessments from the March 31, 2020 assessment given improvements in the global economy and financial markets.

Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 100 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would not result in a goodwill impairment in any period.

As of December 31, 2022, our market capitalization was $477 million, or $213 million below our stockholder's equity carrying value.

We continue to monitor commodity prices and other significant assumptions used in our forecasts.

If we experience a prolonged decline in long-term demand for crude oil and natural gas or significant and sustained increases in commodity supplies, which serve to lower commodity prices over the long term, we will be required to update our discounted cash flow analysis and potentially be required to record a goodwill impairment in the future.

Long-Lived Tangible and Intangible Assets

An assessment for impairment of long-lived tangible and intangible assets is conducted at the asset group level whenever changes in facts and circumstances indicate that the carrying value of such asset group may not be recoverable based on estimated undiscounted future cash flows.

Indicators of impairment might include persistent negative economic trends affecting the markets we serve, recurring losses or lowered expectations of future cash flows to be generated by our assets.

When necessary, the amount of impairment is determined based on the excess of carrying value over fair value of the asset group, using quoted market prices, if available, or our judgment as to the future operating cash flows to be generated from these assets throughout their estimated useful lives.

During 2021 and 2020, we recognized non-cash long-lived asset impairment charges totaling $4.2 million and $12.4 million, respectively, to reduce the carrying value of certain equipment and facilities (owned and leased) to their estimated realizable value.

No indicators of impairment were identified in 2022 that would indicate that the carrying values of our long-lived tangible and intangible assets are not recoverable.

Accordingly, no additional impairment losses were recorded.

However, management actions or industry cyclicality and downturns may result in future changes to our estimates of projected operating cash flows, or their timing, and could potentially cause future impairment to the values of our long-lived assets, including finite-lived intangible assets.

Revenue and Cost Recognition

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Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of products.

Proceeds from customers for the cost of oilfield rental equipment that is damaged or lost downhole are reflected as gains or losses on the disposition of assets after considering the write-off of the remaining net book value of the equipment are included within Other income, net.

Accounting for Contingencies

We have contingent liabilities and future claims for which we have made estimates of the amount of the eventual cost to liquidate such liabilities or claims.

These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified and we have made an assessment of our exposure and recorded in an amount estimated to cover the expected loss.

Other claims or liabilities have been estimated based on their fair value or our experience in such matters and, when appropriate, the advice of outside counsel or other outside experts.

Upon the ultimate resolution of these uncertainties, our future reported financial results will be impacted by the difference between our estimates and the actual amounts paid to settle a liability.

Examples of areas where we have made important estimates of future liabilities include income taxes, litigation, insurance claims, and contractual claims and obligations.

We follow the liability method of accounting for income taxes.

Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.

As of December 31, 2022, our total investment, including earnings and profits, in foreign subsidiaries (except for our Canadian operations) is considered to be permanently reinvested outside the United States.

We account for the U.S.

tax effect of global intangible low-taxed income earned by foreign subsidiaries in the period that such income is earned.

We record a valuation allowance in the reporting period when we believe that it is more likely than not that any deferred tax asset will not be realized.

This assessment requires analysis of changes in tax laws, available positive and negative evidence, including consideration of losses in recent years, reversals of temporary differences, forecasts of future income, assessment of future business and tax planning strategies.

During 2022, 2021 and 2020, we recorded valuation allowances primarily with respect to foreign and U.S.

state net operating loss ("NOL") carryforwards.

The calculation of our tax liabilities involves assessing uncertainties regarding the application of complex tax regulations.

We account for uncertain tax positions using a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary.

We record an additional charge in our provision for taxes during the period in which we determine that the recorded tax liability is below the expected level of the ultimate assessment.

Long-Lived Tangible and Intangible Assets

Our long-lived tangible assets totaled $302.4 million, representing 29% of our total assets as of December 31, 2023, and our long-lived intangible assets totaled $153.0 million, representing 15% of our total assets.

The remainder of our assets largely consisted of cash, accounts receivable, inventories and goodwill.

Indicators of impairment might include persistent negative economic trends affecting the markets we serve, recurring losses or lowered expectations of future cash flows to be generated by our assets.

With the decline in operating results reported by the Downhole Technologies segment in 2023, we assessed the carrying value of the segment’s long-lived tangible and intangible assets by comparing management’s estimates of undiscounted future cash flows to the carrying value of the assets.

This assessment indicated that the segment’s long-lived assets were recoverable.

No other indicators of impairment were identified in 2023 that would indicate that the carrying values of our other long-lived tangible and intangible assets were not recoverable.

Accordingly, no impairment losses were recorded.

However, management actions, competitive market conditions or industry cyclicality and downturns may result in future changes to our estimates of projected cash flows, or their timing, and could potentially cause future impairment to the values of our long-lived assets, including finite-lived intangible assets.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB"), which are adopted by us as of the specified effective date.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by us as of the specified effective date.

We believe 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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis