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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended March 31, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-35504
FORUM ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
61-1488595
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
920 Memorial City Way, Suite 1000
Houston, Texas 77024
(Address of principal executive offices)
(281) 949-2500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
Non-accelerated filer o
 
(Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 26, 2018 there were 108,838,232 common shares outstanding.


 


Table of Contents



2

 

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
  
Three months ended March 31,
(in thousands, except per share information)
2018
 
2017
Revenue
$
250,231

 
$
171,096

Cost of sales
182,944

 
132,117

Gross profit
67,287

 
38,979

Operating expenses
 
 
 
Selling, general and administrative expenses
72,091

 
60,674

Transaction expenses
1,336

 
628

Gain on disposal of assets and other
(397
)
 
(246
)
Total operating expenses
73,030

 
61,056

Earnings (loss) from equity investment
(963
)
 
1,462

Operating loss
(6,706
)
 
(20,615
)
Other expense (income)
 
 
 
Interest expense
8,087

 
6,580

Foreign exchange losses and other, net
3,551

 
1,546

Gain on contribution of subsea rentals business
(33,506
)
 
—

Total other (income) expense, net
(21,868
)
 
8,126

Income (loss) before income taxes
15,162

 
(28,741
)
Income tax benefit
(12,904
)
 
(12,973
)
Net income (loss)
28,066

 
(15,768
)
 
 
 
 
Weighted average shares outstanding
 
 
 
Basic
108,423

 
95,860

Diluted
110,857

 
95,860

Earnings (loss) per share
 
 
 
Basic
$
0.26

 
$
(0.16
)
Diluted
0.25

 
(0.16
)
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Net income (loss)
28,066

 
(15,768
)
Change in foreign currency translation, net of tax of $0
6,287

 
7,222

Gain (loss) on pension liability
16

 
(15
)
Comprehensive income (loss)
34,369

 
(8,561
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3

 

Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share information)
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
42,340

 
$
115,216

Accounts receivable—trade, net
194,949

 
202,914

Inventories, net
468,896

 
443,177

Prepaid expenses and other current assets
32,863

 
19,490

Accrued revenue
2,860

 
—

Costs and estimated profits in excess of billings
12,056

 
9,584

Total current assets
753,964

 
790,381

Property and equipment, net of accumulated depreciation
184,526

 
197,281

Deferred financing costs, net
2,692

 
2,900

Intangible assets
426,744

 
443,064

Goodwill
757,801

 
755,245

Investment in unconsolidated subsidiary
43,086

 
—

Deferred income taxes, net
4,015

 
3,344

Other long-term assets
9,677

 
3,013

Total assets
$
2,182,505

 
$
2,195,228

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
1,133

 
$
1,156

Accounts payable—trade
143,897

 
137,684

Accrued liabilities
62,756

 
66,765

Deferred revenue
8,614

 
8,819

Billings in excess of costs and profits recognized
816

 
1,881

Total current liabilities
217,216

 
216,305

Long-term debt, net of current portion
456,577

 
506,750

Deferred income taxes, net
29,168

 
31,232

Other long-term liabilities
32,688

 
31,925

Total liabilities
735,649

 
786,212

Commitments and contingencies

 


Equity
 
 
 
Common stock, $0.01 par value, 296,000,000 shares authorized, 117,030,329 and 116,343,656 shares issued
1,170

 
1,163

Additional paid-in capital
1,199,875

 
1,195,339

Treasury stock at cost, 8,195,192 and 8,190,362 shares
(134,359
)
 
(134,293
)
Retained earnings
465,834

 
438,774

Accumulated other comprehensive loss
(85,664
)
 
(91,967
)
Total equity
1,446,856

 
1,409,016

Total liabilities and equity
$
2,182,505

 
$
2,195,228

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

4

 

Forum Energy Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three months ended March 31,
(in thousands, except share information)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income (loss)
$
28,066

 
$
(15,768
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation expense
8,158

 
8,999

Amortization of intangible assets
10,500

 
6,523

Inventory write down
2,455

 
531

Share-based compensation expense
5,302

 
4,665

(Earnings) loss from unconsolidated subsidiary, net of distributions
963

 
(1,462
)
Gain on contribution of subsea rentals business
(33,506
)
 
—

Deferred income taxes
(2,735
)
 
(13,787
)
Other
531

 
698

Changes in operating assets and liabilities
 
 
 
Accounts receivable—trade
3,034

 
(19,596
)
Inventories
(27,363
)
 
(6,127
)
Prepaid expenses and other assets
(16,770
)
 
4,586

Cost and estimated profit in excess of billings
(3,420
)
 
1,611

Accounts payable, deferred revenue and other accrued liabilities
6,528

 
16,298

Billings in excess of costs and estimated profits earned
$
(1,065
)
 
$
(2,177
)
Net cash used in operating activities
$
(19,322
)
 
$
(15,006
)
Cash flows from investing activities
 
 
 
Capital expenditures for property and equipment
(5,080
)
 
(3,468
)
Acquisition of businesses, net of cash acquired
—

 
(8,738
)
Investment in unconsolidated subsidiary
$
—

 
$
(1,041
)
Proceeds from sale of business, property and equipment
5,074

 
40

Net cash used in investing activities
$
(6
)
 
$
(13,207
)
Cash flows from financing activities
 
 
 
Repayments of debt
(50,729
)
 
(891
)
Repurchases of stock
(1,946
)
 
(4,403
)
Proceeds from stock issuance
—

 
1,757

Net cash used in financing activities
$
(52,675
)
 
$
(3,537
)
 
 
 
 
Effect of exchange rate changes on cash
(873
)
 
2,242

 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(72,876
)
 
(29,508
)
Cash, cash equivalents and restricted cash at beginning of period
115,216

 
234,422

Cash, cash equivalents and restricted cash at end of period
$
42,340

 
$
204,914

 
 
 
 
Noncash investing activities
 
 
 
Acquisition via issuance of stock
$
—

 
$
4,500

Assets contributed for equity method investment
$
18,070

 
$
—

Note receivable related to equity method investment transaction
$
4,067

 
$
—

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

5

 

Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Forum Energy Technologies, Inc. (the “Company”, “we”, “our”, “us”), a Delaware corporation, is a global oilfield products company, serving the drilling, subsea, completion, production and infrastructure sectors of the oil and natural gas industry. The Company designs, manufactures and distributes products and engages in aftermarket services, parts supply and related services that complement the Company’s product offering.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Our investments in operating entities where we have the ability to exert significant influence, but do not control operating and financial policies, are accounted for using the equity method of accounting with our share of the net income reported in “Earnings (loss) from equity investment” in the condensed consolidated statements of comprehensive income (loss). These investments are included in “Investment in unconsolidated subsidiary” in the condensed consolidated balance sheets. The Company’s share of equity earnings and losses are reported within operating loss as the investee’s operations are integral to the operations of the Company.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position, results of operations and cash flows have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other interim period.
These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017, which are included in the Company’s 2017 Annual Report on Form 10-K filed with the SEC on February 27, 2018 (the “Annual Report”).
2. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of the specified effective date. 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.
Accounting Standards Adopted in 2018
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes existing revenue recognition guidance and requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to contracts that were not completed as of that date. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Refer to Note 3 Revenues for additional information related to our revenue recognition policies and incremental disclosures following the adoption of Topic 606.
Modification Accounting for Stock Compensation. In May 2017, the FASB issued ASU No. 2017-09 Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share based payment award as a modification. Under the new ASU, an entity should apply modification accounting unless the fair value, the vesting conditions, and the classification of the award as equity or liability of the modified award all remain the same as the original award. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no impact on our unaudited condensed consolidated financial statements or related disclosures.

6
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Clarifying the Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01 Business Combination (Topic 805) - Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no impact on our unaudited condensed consolidated financial statements or related disclosures.
Deferred Taxes on Intra-Entity Asset Transfers. In October 2016, the FASB issued ASU No. 2016-16 Income Tax (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This new guidance eliminates this exception and requires the income tax consequences of an intra-entity transfer of an asset other than inventory be recognized when the transfer occurs. As required, we applied this update on a modified retrospective basis resulting in a $1.0 million direct cumulative-effect adjustment to retained earnings as of January 1, 2018.
Statement of Cash Flows. In August 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-15 Cash Flow Statement (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. We adopted this new guidance in the first quarter of 2018. The only issue currently relevant to the Company is distributions received from equity method investees, where the new guidance allows an accounting policy election between the cumulative earnings approach and the nature of the distribution approach. We will continue to use the cumulative earnings approach. Therefore, the adoption of this guidance did not have a material impact on our unaudited condensed consolidated financial statements.
Restricted Cash Presentation. In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230) - Restricted Cash a consensus of the FASB Emerging Issues Task Force. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance did not have a material impact on our unaudited condensed consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
Stranded Tax Effects from the Tax Cuts and Jobs Act. In February 2018, the FASB issued ASU No. 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. U.S. GAAP requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (referred to as “stranded tax effects”). The amendments in this ASU allow a specific exception for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. In addition, the amendments in this Update also require certain disclosures about stranded tax effects. The standard will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases.  Under this new guidance, lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of greater than twelve months. The standard will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are continuing to evaluate the impact of this new guidance and have put in place an implementation team to review lease contracts, evaluate existing lease related processes and provide training related to the new standard. We will continue to monitor for any additional implementation or other guidance that may be issued in 2018 with respect to the new lease standard and adjust implementation plans accordingly.

7
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

3. Revenues
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, we adopted Topic 606 using the modified retrospective transition method applied to contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic revenue recognition guidance.
The adoption of Topic 606 did not have a material impact on our consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the three months ended March 31, 2018. Furthermore, we expect the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis.
The following table summarizes the impacts of adopting Topic 606 on our consolidated financial statements as of January 1, 2018:
 
As Reported
 
Adjustments due to
 
As Adjusted
(in thousands, unaudited)
Dec. 31, 2017
 
ASC 606
 
Jan. 1, 2018
Accounts receivable—trade, net
$
202,914

 
$
(3,235
)
 
$
199,679

Accrued revenue
—

 
3,235

 
3,235

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statement of comprehensive income and balance sheet is shown in the table below. The immaterial impact to revenue and cost of sales relates to a change in the timing of revenue recognition for certain short-term contracts in our subsea product line.
 
Three Months Ended March 31, 2018
(in thousands, unaudited)
As Reported
 
Amount Without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Income Statement
 
 
 
 
 
Revenue
$
250,231

 
$
249,868

 
$
363

Cost of sales
182,944

 
182,529

 
415

Gross profit
$
67,287

 
$
67,339

 
$
(52
)
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
Accounts receivable—trade, net
$
194,949

 
$
197,809

 
$
(2,860
)
Accrued revenue
2,860

 
—

 
2,860

Inventories, net
468,896

 
469,311

 
(415
)
Costs and estimated profits in excess of billings
12,056

 
11,693

 
363

Retained earnings
465,834

 
465,886

 
(52
)
Revenue Recognition Policies
Revenue is recognized in accordance with ASC Topic 606 when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Contract Identification. We account for a contract when it is approved, both parties are committed, the rights of the parties are identified, payment terms are defined, the contact has commercial substance and collection of consideration is probable.
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. In accordance with Topic 606, we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the

8
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

contract with the customer. We have elected to apply the practical expedient to account for shipping and handling costs associated with outbound freight after control of a product has transferred to a customer as a fulfillment cost which is included in Cost of Sales. Furthermore, since our customer payment terms are short-term in nature, we have also elected to apply the practical expedient which allows an entity to not adjust for the effects of a significant financing component if it expects that the customer’s payment period will be less than one year in duration.
Contract Value. Revenue is measured based on the amount of consideration specified in the contracts with our customers and excludes any amounts collected on behalf of third parties. We have elected the practical expedient to exclude amounts collected from customers for all sales (and other similar) taxes.
The estimation of total revenue from a customer contract is subject to elements of variable consideration. Certain customers may receive rebates or discounts which are accounted for as variable consideration. We estimate variable consideration as the most likely amount to which we expect to be entitled and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historic, current, forecast) that is reasonably available to us.
Timing of Recognition. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer. Our performance obligations are satisfied at a point in time or over time as work progresses.
Revenue from goods transferred to customers at a point in time accounted for 97% of revenues for the three months ended March 31, 2018. The majority of this revenue is product sales which are generally recognized when items are shipped from our facilities and title passes to the customer. The amount of revenue recognized for products is adjusted for expected returns, which are estimated based on historical data.
Revenue from goods transferred to customers over time accounted for 3% of revenues for the three months ended March 31, 2018 which is primarily related to contracts in our Subsea and Production Equipment product lines. Recognition over time for these contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date.
We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount of revenue recognized is calculated based on the ratio of costs incurred to-date compared to total estimated costs which requires management to calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized during the period.
Accounting estimates during the course of projects may change, primarily related to our remotely operated vehicles (“ROVs”) which may take longer to manufacture. The effect of such a change, which can be upward as well as downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a prospective basis.
Contracts are sometimes modified to account for changes in product specifications or requirements. Most of our contract modifications are for goods and services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis. No adjustment to any one contract was material to our unaudited condensed consolidated financial statements for the three months ended March 31, 2018.
We sell our products through a number of channels including a direct sales force, marketing representatives, and distributors. We have elected to expense sales commissions when incurred as the amortization period would be less than one year. These costs are recorded within cost of sales.
Portfolio Approach. We have elected to apply the new revenue standard to a portfolio of contracts with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within that portfolio.

9
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Disaggregated Revenue
Refer to Note 10 Business Segments for disaggregated revenue by product line and geography.
Contract Balances
Contract balances are determined on a contract by contract basis. Contract assets represent revenue recognized for goods and services provided to our customers when payment is conditioned on something other than the passage of time. Similarly, when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record a contract liability. Such contract liabilities typically result from billings in excess of costs incurred on construction contracts and advance payments received on product sales.
The following table reflects the changes in our contract assets and contract liabilities balances for the three months ended March 31, 2018:
 
March 31, 2018
 
January 1, 2018
 
Increase / (Decrease)
 
 
 
$
 
%
Accrued revenue
$
2,860

 
$
3,235

 
 
 
 
Costs and estimated profits in excess of billings
12,056

 
9,584

 
 
 
 
Contract assets
$
14,916

 
$
12,819

 
$
2,097

 
16
 %
 
 
 
 
 
 
 
 
Deferred revenue
$
8,614

 
$
8,819

 
 
 
 
Billings in excess of costs and profits recognized
816

 
1,881

 
 
 
 
Contract liabilities
$
9,430

 
$
10,700

 
$
(1,270
)
 
(12
)%
During the three months ended March 31, 2018, our contract assets increased by $2.1 million and our contract liabilities decreased by $1.3 million primarily due to an increase in project activity and the timing of billings in our Production Equipment product line.
During the three months ended March 31, 2018, we recognized revenue of $8.3 million that was included in the contract liability balance at the beginning of the period.
As all of our contracts are less than one year in duration, we have elected to apply the practical expedient which allows an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
4. Acquisitions & Dispositions
2018 Disposition of Forum Subsea Rentals
On January 3, 2018, we contributed our subsea rentals business into Ashtead Technology to create a leading independent provider of subsea survey and remotely operated vehicle equipment rental services. In exchange, we received a 40% interest in the combined business (“Ashtead”), a cash payment of £2.7 million British Pounds and a note receivable from Ashtead of £3.0 million British Pounds. Our 40% interest in Ashtead is accounted for as an equity method investment and reported as Investment in unconsolidated subsidiary in our unaudited condensed consolidated balance sheets. In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business, which is classified as Gain on contribution of subsea rentals business in the unaudited condensed consolidated statements of comprehensive income (loss). This gain is equal to the sum of the consideration received, which includes the fair value of our 40% interest in Ashtead, £2.7 million British Pounds in cash, and the £3.0 million British Pounds note receivable from Ashtead, less the $18.1 million carrying value of the Forum subsea rentals assets at the time of closing. The fair value of our 40% interest in Ashtead was determined based on the present value of estimated future cash flows of the combined entity as of January 3, 2018. The difference between the fair value of our 40% interest in Ashtead of $43.8 million and the book value of the underlying net assets resulted in a basis difference, which was allocated to fixed assets, intangible assets and goodwill based on their respective fair values as of January 3, 2018. The basis difference allocated to fixed assets and intangible assets will be amortized through equity earnings (loss) over the estimated life of the respective assets.

10
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

As the valuation of our 40% interest in Ashtead is preliminary in nature, it is subject to adjustment as additional information is obtained about the facts and circumstances that existed at the transaction date. Pro forma results of operations for this transaction have not been presented because the effects were not material to the consolidated financial statements.
2017 Acquisition of Global Tubing
On October 2, 2017, we acquired all of the remaining ownership interests of Global Tubing, LLC (“Global Tubing”) from our joint venture partner and management for total consideration of approximately $290.3 million. We originally invested in Global Tubing with the joint venture partner and management in 2013. Prior to acquiring the remaining ownership interest in Global Tubing, we reported this investment using the equity method of accounting. The financial results for Global Tubing are reported in the Completions segment. Located in Dayton, Texas, Global Tubing provides coiled tubing, coiled line pipe and related services to customers worldwide. We believe that this strategic acquisition will further enhance our focus and strategy of expansion in the North American completions market. Global Tubing contributed revenues of $37.0 million during the three months ended March 31, 2018. Refer to Note 4. Acquisitions in our annual report on Form 10-K for the year ended December 31, 2017 for pro forma results of operations for this acquisition.
The following table summarizes the consideration transferred to acquire the remaining ownership interests of Global Tubing (in thousands other than stock price and shares issued):
 
Purchase Consideration
Forum Energy Technologies' closing stock price on October 2, 2017
$
15.10

Multiplied by number of shares issued for acquisition
11,488,208

Value of common shares
$
173,472

Cash
31,764

Repayment of Global Tubing debt at acquisition
85,084

Total consideration paid for the acquisition
$
290,320

The following table summarizes the current fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
Accounts receivable
$
28,044

Inventory
40,005

Other current assets
3,141

Property and equipment
51,585

Intangible assets (primarily developed technologies and customer relationships)
228,190

Tax-deductible goodwill
69,423

Non-tax deductible goodwill
64,491

Current liabilities
(16,005
)
Long term liabilities
(54
)
Total net assets
468,820

Fair value of equity method investment previously held
(178,500
)
Net assets acquired
$
290,320

The goodwill is attributable to the workforce of the acquired business and synergies expected to arise following the acquisition of the remaining ownership interests of Global Tubing. The goodwill associated with the previously owned equity interests is not deductible for tax purposes. All of the goodwill was assigned to the Company’s Completions segment.

11
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

2017 Acquisition of Multilift
On July 3, 2017, the Company acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, “Multilift”) for approximately $39.2 million in cash consideration. These acquisitions are included in the Completions segment. Based in Houston, Texas, Multilift manufactures the patented SandGuardTM and the CycloneTM completion tools. This acquisition increases our product offering related to artificial lift to our completions customers. We intend to utilize our distribution system to increase Multilift’s sales with additional customers and through geographic expansion. Pro forma results of operations for this acquisition have not been presented because the effects were not material to the condensed consolidated financial statements. The following table summarizes the current fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
Current assets, net of cash acquired
$
3,763

Property and equipment
96

Intangible assets (primarily customer relationships)
17,090

Tax-Deductible Goodwill
16,472

Non-tax Deductible Goodwill
3,099

Current liabilities
(1,329
)
Net assets acquired
$
39,191

2017 Acquisition of Cooper Valves
On January 9, 2017, the Company acquired substantially all of the assets of Cooper Valves, LLC as well as 100% of the general partnership interests of Innovative Valve Components (collectively, “Cooper”) for total aggregate consideration of $14.0 million, after settlement of working capital adjustments. The aggregate consideration included the issuance of stock valued at $4.5 million and certain contingent cash payments. These acquisitions are included in the Production & Infrastructure segment. The acquired Cooper brands include Accuseal® metal seated ball valves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line of Cooper Alloy® cast and forged gate, globe, and check valves. Innovative Valve Components, in partnership with Cooper Valves, commercialized critical service valves and components for the power generation, mining and oil and natural gas industries. The fair values of the assets acquired and liabilities assumed and pro forma results of operations have not been presented because they are not material to the consolidated financial statements.
5. Inventories
The Company’s significant components of inventory at March 31, 2018 and December 31, 2017 were as follows (in thousands):
 
March 31,
2018
 
December 31,
2017
Raw materials and parts
$
176,424

 
$
160,093

Work in process
53,308

 
51,941

Finished goods
310,581

 
305,461

Gross inventories
540,313

 
517,495

Inventory reserve
(71,417
)
 
(74,318
)
Inventories
$
468,896

 
$
443,177


12
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2017 to March 31, 2018, were as follows (in thousands):
 
Drilling & Subsea
 
Completions
 
Production & Infrastructure
 
Total
Goodwill Balance at December 31, 2017
$
251,454

 
$
484,345

 
$
19,446

 
$
755,245

Impact of non-U.S. local currency translation
2,668

 
(30
)
 
(82
)
 
2,556

Goodwill Balance at March 31, 2018
$
254,122

 
$
484,315

 
$
19,364

 
$
757,801

There was no impairment of goodwill during the three months ended March 31, 2018 and 2017. Accumulated impairment losses on goodwill were $236.8 million as of March 31, 2018 and December 31, 2017. The Company performs its annual impairment tests of goodwill as of October 1, or when there is an indication an impairment may have occurred.
Intangible assets
Intangible assets consisted of the following as of March 31, 2018 and December 31, 2017, respectively (in thousands):
 
March 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amortizable Intangibles
 
Amortization Period (In Years)
Customer relationships
$
413,942

 
$
(135,125
)
 
$
278,817

 
4-15
Patents and technology
112,695

 
(19,160
)
 
93,535

 
5-17
Non-compete agreements
6,183

 
(5,726
)
 
457

 
3-6
Trade names
61,808

 
(23,528
)
 
38,280

 
10-15
Distributor relationships
22,160

 
(16,654
)
 
5,506

 
8-15
Trademarks
10,319

 
(170
)
 
10,149

 
15 - Indefinite
Intangible Assets Total
$
627,107

 
$
(200,363
)
 
$
426,744

 
 
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amortizable Intangibles
 
Amortization Period (In Years)
Customer relationships
$
428,544

 
$
(138,566
)
 
$
289,978

 
4-15
Patents and technology
110,910

 
(16,733
)
 
94,177

 
5-17
Non-compete agreements
6,625

 
(6,041
)
 
584

 
3-6
Trade names
64,359

 
(22,090
)
 
42,269

 
10-15
Distributor relationships
22,160

 
(16,338
)
 
5,822

 
8-15
Trademarks
10,319

 
(85
)
 
10,234

 
15 - Indefinite
Intangible Assets Total
$
642,917

 
$
(199,853
)
 
$
443,064

 
 

13
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

7. Debt
Notes payable and lines of credit as of March 31, 2018 and December 31, 2017 consisted of the following (in thousands): 
 
March 31,
2018
 
December 31,
2017
6.25% Senior Notes due October 2021
$
400,000

 
$
400,000

Unamortized debt premium
1,481

 
1,583

Debt issuance cost
(3,947
)
 
(4,222
)
Senior secured revolving credit facility
58,803

 
108,446

Other debt
1,373

 
2,099

Total debt
457,710

 
507,906

Less: current maturities
(1,133
)
 
(1,156
)
Long-term debt
$
456,577

 
$
506,750

Senior Notes Due 2021
The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. The Senior Notes are senior unsecured obligations, and are guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.
Credit Facility
On October 30, 2017, we amended and restated our existing credit facility (such amended and restated credit facility, the “Credit Facility”) to, among other things, increase revolving credit commitments from $140.0 million to $300.0 million (with a sublimit of up to $25.0 million available for the issuance of letters of credit for the account of the Company and certain of our domestic subsidiaries) (the “U.S. Line”), of which up to $30.0 million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $3.0 million available for the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”). Lender commitments under the Credit Facility, subject to certain limitations, may be increased by an additional $100.0 million. The Credit Facility matures in July 2021, but if our outstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the Credit Facility will automatically extend to October 2022.
Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our balances of receivables and inventory. As of March 31, 2018, our total borrowing base was $299.4 million, of which $58.8 million was drawn and $5.7 million was used for security of outstanding letters of credit, resulting in remaining availability of $234.9 million.
Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in San Francisco, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus an applicable margin. Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) a base rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from time to time by Thomson Reuters and (ii) the CDOR rate plus 1.00%, in each case plus an applicable margin. The applicable margin for LIBOR and CDOR loans will initially range from 1.75% to 2.25%, depending upon average excess availability under the Credit Facility. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the applicable margin for LIBOR and CDOR loans will range from 1.50% to 2.00%, depending upon average excess availability under the Credit Facility. The weighted average interest rate under the Credit Facility was approximately 3.85% for the three months ended March 31, 2018.

14
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

The Credit Facility also provides for a commitment fee in the amount of (a) 0.375% per annum on the unused portion of commitments if average usage of the Credit Facility is greater than 50% and (b) 0.500% per annum on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50%. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the commitment fees will range from 0.25% to 0.375%, depending upon average usage of the Credit Facility.
If excess availability under the Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.
Deferred Loan Costs
We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the Senior Notes and the Amended Credit Facility. 
Other Debt
Other debt consists primarily of various capital leases of equipment.
Letters of Credit and Guarantees
We execute letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to guarantee our fulfillment of performance obligations relating to certain large contracts. We had $6.5 million and $7.9 million in total outstanding letters of credit as of March 31, 2018 and December 31, 2017, respectively.
8. Income Taxes
The effective tax rate, calculated by dividing total tax benefit by income (loss) before income taxes, was a benefit of 85.1% for three months ended March 31, 2018 compared to a benefit of 45.1% for the three months ended March 31, 2017. The effective tax rate for 2018 is significantly different than the comparable period in 2017 primarily due to the reduction in the U.S. corporate income tax rate as well as a benefit related to the adjustment of the provisional tax impact of tax reform initially recorded in the prior quarter. Furthermore, the effective tax rate can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), a comprehensive U.S. tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries.
In the fourth quarter of 2017, we recorded provisional amounts related to the effects of U.S. Tax Reform including the recognition of liabilities for taxes on mandatory deemed repatriation of non-U.S. earnings and re-measurement of deferred taxes based on the new U.S. corporate income tax rate of 21%. We have updated these provisional amounts in the first quarter of 2018 based on additional guidance recently issued by the U.S. Internal Revenue Service resulting in an income tax benefit of $16.2 million in the quarter. This adjustment to our provisional estimate of the effects of U.S. Tax Reform results in an overall benefit of $6.1 million.
As we do not have all the necessary information to analyze all income tax effects of the new rules, these amounts remain provisional and we believe they represent a reasonable estimate of the accounting implications of U.S. Tax Reform. The ultimate impact of U.S. Tax Reform continues to be subject to adjustment as further guidance is provided by the U.S. Internal Revenue Service regarding the application of the new U.S. corporate income tax laws. We expect to complete our detailed analysis no later than the fourth quarter of 2018.

15
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

9. Fair Value Measurements
At March 31, 2018 and December 31, 2017, the Company had $58.8 million and $108.4 million, respectively, of debt outstanding under the Credit Facility which incurs interest at a variable interest rate and therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.
The fair value of our Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At March 31, 2018, the fair value and the carrying value of our Senior Notes approximated $396.0 million and $401.5 million, respectively. At December 31, 2017, the fair value and the carrying value of our Senior Notes approximated $402.0 million and $401.6 million, respectively.
There were no other outstanding financial assets as of March 31, 2018 and December 31, 2017 that required measuring the amounts at fair value. We did not change our valuation techniques associated with recurring fair value measurements from prior periods and there were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2018.
10. Business Segments
The Company reports its results of operations in the following three reportable segments: Drilling & Subsea, Completions and Production & Infrastructure.
In the second quarter 2017, the Company moved management and financial reporting of our AMC branded fully rotational torque machine operations from the Drilling and Subsea segment to the Completions segment in order to better align with the predominant customer base of the segment. Prior period financial information has been revised to conform with current period presentation with no impact to total segment operating results.
The amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments. Summary financial data by segment follows (in thousands):
 
Three months ended March 31,
 
2018
 
2017
Revenue:
 
 
 
Drilling & Subsea
$
52,348

 
$
61,876

Completions
112,508

 
42,390

Production & Infrastructure
86,421

 
67,579

Eliminations
(1,046
)
 
(749
)
Total revenue
$
250,231

 
$
171,096

 
 
 
 
Operating loss
 
 
 
Drilling & Subsea
$
(10,206
)
 
$
(8,341
)
Completions
8,857

 
(3,516
)
Production & Infrastructure
4,162

 
(569
)
Corporate
(8,580
)
 
(7,807
)
Segment operating loss
(5,767
)
 
(20,233
)
Transaction expenses
1,336

 
628

Gain on disposal of assets and other
(397
)
 
(246
)
Operating loss
$
(6,706
)
 
$
(20,615
)

16
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

A summary of consolidated assets by reportable segment is as follows (in thousands):
 
March 31,
2018
 
December 31,
2017
Drilling & Subsea
$
651,571

 
$
645,254

Completions
1,225,071

 
1,202,379

Production & Infrastructure
245,047

 
251,685

Corporate
60,816

 
95,910

Total assets
$
2,182,505

 
$
2,195,228

Corporate assets include, among other items, cash, prepaid assets and deferred financing costs.
The following table presents our revenues disaggregated by product line (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Drilling Technologies
$
42,768

 
$
45,143

Subsea Technologies
9,580

 
16,733

Downhole Technologies
24,527

 
16,614

Stimulation and Intervention
50,987

 
25,776

Coiled Tubing
36,994

 
—

Production Equipment
31,456

 
24,721

Valve Solutions
54,965

 
42,858

Eliminations
(1,046
)
 
(749
)
Total revenue
$
250,231

 
$
171,096

The following table presents our revenues disaggregated by geography (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
United States
$
190,064

 
$
127,325

Canada
19,194

 
13,470

Europe & Africa
13,890

 
16,727

Middle East
10,570

 
4,359

Asia-Pacific
8,850

 
5,382

Latin America
7,663

 
3,833

Total Revenue
$
250,231

 
$
171,096


11. Commitments and Contingencies
In the ordinary course of business, the Company is, and in the future could be, involved in various pending or threatened legal actions that may or may not be covered by insurance. Management has reviewed such pending judicial and legal proceedings, the reasonably anticipated costs and expenses in connection with such proceedings, and the availability and limits of insurance coverage, and has established reserves that are believed to be appropriate in light of those outcomes that are considered to be probable and can be reasonably estimated. The reserves accrued at March 31, 2018 and December 31, 2017, respectively, are immaterial. It is management’s opinion that the Company’s ultimate liability, if any, with respect to these actions is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

17
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Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

12. Earnings Per Share
The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):
 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss)
$
28,066

 
$
(15,768
)
 
 
 
 
Basic - weighted average shares outstanding
108,423

 
95,860

Dilutive effect of stock options and restricted stock
2,434

 
—

Diluted - weighted average shares outstanding
110,857

 
95,860

 
 
 
 
Earnings (loss) per share
 
 
 
Basic
$
0.26

 
$
(0.16
)
Diluted
$
0.25

 
$
(0.16
)
The calculation of diluted earnings per share excludes approximately 3.3 million shares that were anti-dilutive for the three months ended March 31, 2018. The calculation of diluted loss per share excludes all potentially dilutive shares for the three months ended March 31, 2017 because there was a net loss for the period.
13. Stockholders' Equity
Share-based compensation
During the three months ended March 31, 2018, the Company granted 504,930 stock options, 1,152,294 shares of restricted stock and restricted stock units and 160,010 performance share awards with a market condition.
The stock options granted have an exercise price of $12.00 per share and vest ratably over 4 years. The 1,152,294 shares of restricted stock and restricted stock units include 1,039,794 shares granted to employees that vest ratably over 4 years and 112,500 shares granted to non-employee members of the Board of Directors that have a vesting period of 12 months.
The performance share awards granted may settle for between zero and two shares of the Company’s common stock. The number of shares issued pursuant to the performance share award agreements will be determined based on the total shareholder return of the Company’s common stock as compared to a group of peer companies, measured annually over a one year, two year and three year performance period.
14. Related Party Transactions
The Company has sold and purchased equipment and services to and from certain affiliates of our directors. The dollar amounts related to these related party activities are not material to the Company’s unaudited condensed consolidated financial statements.



18
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Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

15. Condensed Consolidating Financial Statements
The Senior Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The guarantees are full and unconditional, joint and several, and on an unsecured basis.
Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
218,949

 
$
43,753

 
$
(12,471
)
 
$
250,231

Cost of sales
 
—

 
159,305

 
35,898

 
(12,259
)
 
182,944

Gross profit
 
—

 
59,644

 
7,855

 
(212
)
 
67,287

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
60,073

 
12,018

 
—

 
72,091

Transaction expenses
 
—

 
1,329

 
7

 
—

 
1,336

Loss (gain) on disposal of assets and other
 
—

 
(631
)
 
234

 
—

 
(397
)
Total operating expenses
 
—

 
60,771

 
12,259

 
—

 
73,030

Loss from equity investment
 
—

 
(10
)
 
(953
)
 
—

 
(963
)
Equity earnings from affiliate, net of tax
 
34,321

 
28,307

 
—

 
(62,628
)
 
—

Operating income (loss)
 
34,321

 
27,170

 
(5,357
)
 
(62,840
)
 
(6,706
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
7,918

 
343

 
(174
)
 
—

 
8,087

Foreign exchange losses and other, net
 
—

 
—

 
3,551

 
—

 
3,551

(Gain) loss on contribution of subsea rentals business
 
—

 
5,856

 
(39,362
)
 
—

 
(33,506
)
Total other expense (income)
 
7,918

 
6,199

 
(35,985
)
 
—

 
(21,868
)
Income before income taxes
 
26,403

 
20,971

 
30,628

 
(62,840
)
 
15,162

Income tax expense (benefit)
 
(1,663
)
 
(13,350
)
 
2,109

 
—

 
(12,904
)
Net income
 
28,066

 
34,321

 
28,519

 
(62,840
)
 
28,066

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
28,066

 
34,321

 
28,519

 
(62,840
)
 
28,066

Change in foreign currency translation, net of tax of $0
 
6,287

 
6,287

 
6,287

 
(12,574
)
 
6,287

Change in pension liability
 
16

 
16

 
16

 
(32
)
 
16

Comprehensive income
 
$
34,369

 
$
40,624

 
$
34,822

 
$
(75,446
)
 
$
34,369



19
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Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
142,736

 
$
46,402

 
$
(18,042
)
 
$
171,096

Cost of sales
 
—

 
110,240

 
39,395

 
(17,518
)
 
132,117

Gross profit
 
—

 
32,496

 
7,007

 
(524
)
 
38,979

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
48,063

 
12,611

 
—

 
60,674

Transaction Expense
 
—

 
517

 
111

 
—

 
628

Loss (gain) on disposal of assets and other
 
—

 
(270
)
 
24

 
—

 
(246
)
Total operating expenses
 
—

 
48,310

 
12,746

 
—

 
61,056

Earnings from equity investment
 
—

 
1,462

 
—

 
—

 
1,462

Equity earnings from affiliates, net of tax
 
(11,435
)
 
(5,126
)
 
—

 
16,561

 
—

Operating loss
 
(11,435
)
 
(19,478
)
 
(5,739
)
 
16,037

 
(20,615
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
6,666

 
(27
)
 
(59
)
 
—

 
6,580

Foreign exchange losses (gains) and other, net
 
—

 
(137
)
 
1,683

 
—

 
1,546

Total other expense (income)
 
6,666

 
(164
)
 
1,624

 
—

 
8,126

Loss before income taxes
 
(18,101
)
 
(19,314
)
 
(7,363
)
 
16,037

 
(28,741
)
Income tax benefit
 
(2,333
)
 
(7,879
)
 
(2,761
)
 
—

 
(12,973
)
Net loss
 
(15,768
)
 
(11,435
)
 
(4,602
)
 
16,037

 
(15,768
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net loss
 
(15,768
)
 
(11,435
)
 
(4,602
)
 
16,037

 
(15,768
)
Change in foreign currency translation, net of tax of $0
 
7,222

 
7,222

 
7,222

 
(14,444
)
 
7,222

Change in pension liability
 
(15
)
 
(15
)
 
(15
)
 
30

 
(15
)
Comprehensive income (loss)
 
$
(8,561
)
 
$
(4,228
)
 
$
2,605

 
$
1,623

 
$
(8,561
)


20
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
484

 
$
27,946

 
$
13,910

 
$
—

 
$
42,340

Accounts receivable—trade, net
 
—

 
165,928

 
29,021

 
—

 
194,949

Inventories, net
 
—

 
403,196

 
74,716

 
(9,016
)
 
468,896

Prepaid expenses and other current assets
 
—

 
22,822

 
10,041

 
—

 
32,863

Accrued revenue
 
—

 
—

 
2,860

 
—

 
2,860

Cost and estimated profits in excess of billings
 
—

 
11,981

 
75

 
—

 
12,056

Total current assets
 
484

 
631,873

 
130,623

 
(9,016
)
 
753,964

Property and equipment, net of accumulated depreciation
 
—

 
162,012

 
22,514

 
—

 
184,526

Deferred financing costs, net
 
2,692

 
—

 
—

 
—

 
2,692

Intangible assets
 
—

 
374,864

 
51,880

 
—

 
426,744

Goodwill
 
—

 
599,820

 
157,981

 
—

 
757,801

Investment in unconsolidated subsidiary
 
—

 
1,923

 
41,163

 
—

 
43,086

Deferred income taxes, net
 
—

 
671

 
3,344

 
—

 
4,015

Other long-term assets
 
—

 
4,407

 
5,270

 
—

 
9,677

Investment in affiliates
 
1,290,210

 
429,493

 
—

 
(1,719,703
)
 
—

Long-term advances to affiliates
 
622,735

 
—

 
89,304

 
(712,039
)
 
—

Total assets
 
$
1,916,121

 
$
2,205,063

 
$
502,079

 
$
(2,440,758
)
 
$
2,182,505

Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
—

 
$
1,052

 
$
81

 
$
—

 
$
1,133

Accounts payable—trade
 
—

 
124,861

 
19,036

 
—

 
143,897

Accrued liabilities
 
12,927

 
37,326

 
12,503

 
—

 
62,756

Deferred revenue
 
—

 
4,175

 
4,439

 
—

 
8,614

Billings in excess of costs and profits recognized
 
—

 
370

 
446

 
—

 
816

Total current liabilities
 
12,927

 
167,784

 
36,505

 
—

 
217,216

Long-term debt, net of current portion
 
456,338

 
212

 
27

 
—

 
456,577

Deferred income taxes, net
 
—

 
20,266

 
8,902

 
—

 
29,168

Other long-term liabilities
 
—

 
14,552

 
18,136

 
—

 
32,688

Long-term payables to affiliates
 
—

 
712,039

 
—

 
(712,039
)
 
—

Total liabilities
 
469,265

 
914,853

 
63,570

 
(712,039
)
 
735,649

 
 
 
 
 
 
 
 
 
 
 
Total equity
 
1,446,856

 
1,290,210

 
438,509

 
(1,728,719
)
 
1,446,856

Total liabilities and equity
 
$
1,916,121

 
$
2,205,063

 
$
502,079

 
$
(2,440,758
)
 
$
2,182,505


21
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
73,981

 
$
41,235

 
$
—

 
$
115,216

Accounts receivable—trade, net
 
—

 
168,162

 
34,752

 
—

 
202,914

Inventories
 
—

 
374,527

 
77,454

 
(8,804
)
 
443,177

Other current assets
 
—

 
12,679

 
6,811

 
—

 
19,490

Cost and profits in excess of billings
 
—

 
9,584

 
—

 
—

 
9,584

Total current assets
 
—

 
638,933

 
160,252

 
(8,804
)
 
790,381

Property and equipment, net of accumulated depreciation
 
—

 
167,407

 
29,874

 
—

 
197,281

Deferred financing costs, net
 
2,900

 
—

 
—

 
—

 
2,900

Intangible assets
 
—

 
390,752

 
52,312

 
—

 
443,064

Goodwill
 
—

 
599,677

 
155,568

 
—

 
755,245

Investment in unconsolidated subsidiary
 
—

 
—

 
—

 
—

 
—

Deferred income taxes, net
 
—

 
—

 
3,344

 
—

 
3,344

Other long-term assets
 
—

 
2,086

 
927

 
—

 
3,013

Investment in affiliates
 
1,250,593

 
418,799

 
—

 
(1,669,392
)
 
—

Long-term advances to affiliates
 
667,968

 
—

 
90,524

 
(758,492
)
 
—

Total assets
 
$
1,921,461

 
$
2,217,654

 
$
492,801

 
$
(2,436,688
)
 
$
2,195,228

Liabilities and equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
—

 
$
1,048

 
$
108

 
$
—

 
$
1,156

Accounts payable—trade
 
—

 
117,158

 
20,526

 
—

 
137,684

Accrued liabilities
 
6,638

 
46,962

 
13,165

 
—

 
66,765

Deferred revenue
 
—

 
4,455

 
4,364

 
—

 
8,819

Billings in excess of costs and profits recognized
 
—

 
1,394

 
487

 
—

 
1,881

Total current liabilities
 
6,638

 
171,017

 
38,650

 
—

 
216,305

Long-term debt, net of current portion
 
505,807

 
908

 
35

 
—

 
506,750

Deferred income taxes, net
 
—

 
22,737

 
8,495

 
—

 
31,232

Other long-term liabilities
 
—

 
13,907

 
18,018

 
—

 
31,925

Long-term payables to affiliates
 
—

 
758,492

 
—

 
(758,492
)
 
—

Total liabilities
 
512,445

 
967,061

 
65,198

 
(758,492
)
 
786,212

 
 
 
 
 
 
 
 
 
 
 
Total equity
 
1,409,016

 
1,250,593

 
427,603

 
(1,678,196
)
 
1,409,016

Total liabilities and equity
 
$
1,921,461

 
$
2,217,654

 
$
492,801

 
$
(2,436,688
)
 
$
2,195,228


22
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Cash flows from operating activities
 
$
7,196

 
$
3,050

 
$
(5,618
)
 
$
(23,950
)
 
$
(19,322
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property and equipment
 
—

 
(3,944
)
 
(1,136
)
 
—

 
(5,080
)
Long-term loans and advances to affiliates
 
45,234

 
—

 
—

 
(45,234
)
 
—

Proceeds from sale of business, property and equipment
 
—

 
785

 
4,289

 
—

 
5,074

Net cash provided by (used in) investing activities
 
$
45,234

 
$
(3,159
)
 
$
3,153

 
$
(45,234
)
 
$
(6
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Repayments of debt
 
(50,000
)
 
(692
)
 
(37
)
 
—

 
(50,729
)
Long-term loans and advances to affiliates
 
—

 
(45,234
)
 
—

 
45,234

 
—

Dividend paid to affiliates
 
—

 
—

 
(23,950
)
 
23,950

 
—

Repurchases of stock
 
(1,946
)
 
—

 
—

 
—

 
(1,946
)
Net cash used in financing activities
 
$
(51,946
)
 
$
(45,926
)
 
$
(23,987
)
 
$
69,184

 
$
(52,675
)
Effect of exchange rate changes on cash
 
—

 
—

 
(873
)
 
—

 
(873
)
Net increase (decrease) in cash and cash equivalents
 
484

 
(46,035
)
 
(27,325
)
 
—

 
(72,876
)
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
—

 
73,981

 
41,235

 
—

 
115,216

End of period
 
$
484

 
$
27,946

 
$
13,910

 
$
—

 
$
42,340


23
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2017
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Cash flows from operating activities
 
$
374

 
$
(13,349
)
 
$
(2,031
)
 
$
—

 
$
(15,006
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Acquisition of businesses, net of cash acquired
 
—

 
(8,738
)
 
—

 
—

 
(8,738
)
Capital expenditures for property and equipment
 
—

 
(3,285
)
 
(183
)
 
—

 
(3,468
)
Investment in unconsolidated subsidiary
 
—

 
(1,041
)
 
—

 
—

 
(1,041
)
Long-term loans and advances to affiliates
 
2,310

 
7,319

 
—

 
(9,629
)
 
—

Proceeds from sale of business, property and equipment
 
—

 
40

 
—

 
—

 
40

Net cash provided by (used in) investing activities
 
$
2,310

 
$
(5,705
)
 
$
(183
)
 
$
(9,629
)
 
$
(13,207
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Repayments of debt
 
—

 
(868
)
 
(23
)
 
—

 
(891
)
Long-term loans and advances to affiliates
 
—

 
(2,310
)
 
(7,319
)
 
9,629

 
—

Repurchases of stock
 
(4,403
)
 
—

 
—

 
—

 
(4,403
)
Proceeds from stock issuance
 
1,757

 
—

 
—

 
—

 
1,757

Net cash used in financing activities
 
$
(2,646
)
 
$
(3,178
)
 
$
(7,342
)
 
$
9,629

 
$
(3,537
)
Effect of exchange rate changes on cash
 
—

 
—

 
2,242

 
—

 
2,242

Net increase (decrease) in cash and cash equivalents
 
38

 
(22,232
)
 
(7,314
)
 
—

 
(29,508
)
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
65

 
143,275

 
91,082

 
—

 
234,422

End of period
 
$
103

 
$
121,043

 
$
83,768

 
$
—

 
$
204,914



24

 

Item 2. Management’s discussion and analysis of financial condition and results of operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Forward-looking statements may include statements about:
•business strategy;
•cash flows and liquidity;
•the volatility and impact of fluctuations in oil and natural gas prices;
•the availability of raw materials and specialized equipment, including as a result of the potential application of tariffs by governmental authorities;
•our ability to accurately predict customer demand;
•customer order cancellations or deferrals;
•competition in the oil and gas industry;
•governmental regulation and taxation of the oil and natural gas industry;
•environmental liabilities;
•political, social and economic issues affecting the countries in which we do business;
•our ability to deliver our backlog in a timely fashion;
•our ability to implement new technologies and services;
•availability and terms of capital;
•general economic conditions;
•
our ability to successfully manage our growth, including risks and uncertainties associated with integrating and retaining key employees of the businesses we acquire;
•benefits of our acquisitions;
•availability of key management personnel;
•availability of skilled and qualified labor;
•operating hazards inherent in our industry;
•the continued influence of our largest shareholder;
•the ability to establish and maintain effective internal control over financial reporting;
•effects of remediation efforts to address the material weakness discussed in “Item 4. Controls and Procedures;”
•financial strategy, budget, projections and operating results;
•uncertainty regarding our future operating results; and
•plans, objectives, expectations and intentions contained in this report that are not historical.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2018, and elsewhere in this Quarterly Report on Form 10-Q. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

25

Overview
We are a global oilfield products company, serving the drilling, subsea, completion, production and infrastructure sectors of the oil and natural gas industry. We design, manufacture and distribute products, and engage in aftermarket services, parts supply and related services that complement our product offering. Our product offering includes a mix of frequently replaced consumable products and highly engineered capital products that are used in the exploration, development, production and transportation of oil and natural gas. Our consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineered capital products are directed at: drilling rig equipment for new rigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on new producing wells; pressure pumping equipment; and downstream capital projects. In 2017, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.
We seek to design, manufacture and supply reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators.
We operate three business segments that cover all stages of the well cycle. A summary of the products and services offered by each segment is as follows:
•
Drilling & Subsea segment. This segment designs and manufactures products and provides related services to the drilling, energy subsea construction and services markets, and other markets such as alternative energy, defense and communications. The products and related services consist primarily of: (i) capital equipment and a broad line of expendable drilling products consumed in the drilling process; and (ii) subsea remotely operated vehicles and trenchers, specialty components and tooling, products used in subsea pipeline infrastructure, and a broad suite of complementary subsea technical services and rental items.
•
Completions segment. This segment designs, manufactures and supplies products and provides related services to the well construction, completion, stimulation and intervention markets. The products and related services consist primarily of: (i) well construction casing and cementing equipment, cable protectors used in completions, composite plugs used for zonal isolation in hydraulic fracturing and wireline flow-control products; and (ii) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, pump consumables and flow iron as well as coiled tubing, wireline cable, and pressure control equipment used in the well completion and intervention service markets.
•
Production & Infrastructure segment. This segment designs, manufactures and supplies products and provides related equipment and services for production and infrastructure markets.  The products and related services consist primarily of: (i) engineered process systems, production equipment and related field services, as well as oil and produced water treatment equipment; and (ii) a wide range of industrial valves focused on serving upstream, midstream, and downstream oil and natural gas customers as well as power and other general industries.
Market Conditions
The level of demand for our products is directly related to activity levels and the capital and operating budgets of our customers, which in turn are influenced heavily by energy prices and the expectation as to future trends in those prices. In addition, the availability of capital equipment adequate to serve exploration and production requirements, or lack thereof, drives demand for our capital equipment products.
The probability of any cyclical change in energy prices and the extent and duration of such a change are difficult to predict. In November 2016, the Organization of Petroleum Exporting Countries (“OPEC”) and other unaffiliated countries announced that their production levels would be capped or reduced. In November 2017, the OPEC coalition agreed to extend the reductions through year end 2018. Oil prices have continued to strengthen since the beginning of 2018 and have recently risen to a level last seen in 2015. However, prices for the sale and purchase of oil in future years have not increased substantially during the same period, indicating doubt in the market as to the sustainability of current prices. These increases in current prices have led to higher drilling and completions activity and higher spending by our customers, primarily in North America. The volume of rigs drilling for oil and natural gas in North America is a driver for our revenue from this region, and the number of those rigs has increased substantially from the low point reached in the second quarter of 2016. Exploration and production operators continue to have improved well economics derived from concentrating activity in basins with the best returns on investment and employing enhanced drilling and completion techniques. This increased activity resulted in increases in our revenues and orders in 2017 through the first quarter of 2018, principally from the sale of consumable equipment. The existence of new or refurbished capital equipment

26

adequate to serve the needs of the industry, such as onshore and offshore drilling rigs, limits demand in that area of the market. In addition, drilling and completions activity in higher cost areas, especially offshore and in some international regions, is lagging the North America onshore activity recovery.
The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (“WTI”), United Kingdom Brent crude oil (“Brent”), and Henry Hub natural gas:
 
 
Three months ended
 
 
March 31,
 
December 31,
 
March 31,
 
 
2018
 
2017
 
2017
Average global oil, $/bbl
 
 
 
 
 
 
West Texas Intermediate
 
$
62.91

 
$
55.27

 
$
51.62

United Kingdom Brent
 
$
66.86

 
$
61.40

 
$
53.59

 
 
 
 
 
 
 
Average North American Natural Gas, $/Mcf
 
 
 
 
 
 
Henry Hub
 
$
3.08

 
$
2.91

 
$
3.02

Average WTI and Brent oil prices were 14% and 9% higher, respectively, in the first quarter of 2018 compared to the fourth quarter of 2017, and were 22% and 25% higher, respectively, compared to the first quarter of 2017. Average natural gas prices were 6% higher in the first quarter of 2018 compared to the fourth quarter of 2017, and 2% higher compared to the first quarter of 2017.
The table below shows the average number of active drilling rigs, based on the weekly Baker Hughes Incorporated rig count, operating by geographic area and drilling for different purposes.
 
 
Three months ended
 
 
March 31,
 
December 31,
 
March 31,
 
 
2018
 
2017
 
2017
Active Rigs by Location
 
 
 
 
 
 
United States
 
966

 
921

 
742

Canada
 
269

 
204

 
295

International
 
970

 
949

 
939

Global Active Rigs
 
2,205

 
2,074

 
1,976

 
 
 
 
 
 
 
Land vs. Offshore Rigs
 
 
 
 
 
 
Land
 
1,995

 
1,859

 
1,754

Offshore
 
210

 
215

 
222

Global Active Rigs
 
2,205

 
2,074

 
1,976

 
 
 
 
 
 
 
U.S. Commodity Target
 
 
 
 
 
 
Oil/Gas
 
781

 
742

 
593

Gas
 
185

 
179

 
148

Unclassified
 
—

 
—

 
1

Total U.S. Active Rigs
 
966

 
921

 
742

 
 
 
 
 
 
 
U.S. Well Path
 
 
 
 
 
 
Horizontal
 
833

 
785

 
610

Vertical
 
63

 
63

 
69

Directional
 
70

 
73

 
63

Total U.S. Active Rigs
 
966

 
921

 
742

As a result of higher oil and natural gas prices, the average U.S. rig count for the first quarter of 2018 increased 5% compared to the fourth quarter of 2017 and 30% compared to the first quarter of 2017. The U.S. rig count reached a trough of 404 rigs in the second quarter of 2016. Since then, the number of working rigs has increased steadily to 993 rigs as of the end of March 2018. A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. While the U.S. land rig count has continued to recover, it remains low compared to historical norms.

27

The table below shows the amount of total inbound orders by segment:
(in millions of dollars)
Three months ended
 
March 31,
 
December 31,
 
March 31,
 
2018
 
2017
 
2017
Drilling & Subsea
$
53.1

 
$
49.6

 
$
68.4

Completions
111.1

 
101.1

 
50.1

Production & Infrastructure
96.8

 
80.8

 
75.4

Total Orders
$
261.0

 
$
231.5

 
$
193.9

Three months ended March 31, 2018 compared with three months ended March 31, 2017
 
Three Months Ended March 31,
 
Favorable / (Unfavorable)
 
2018
 
2017
 
$
 
%
(in thousands of dollars, except per share information)
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Drilling & Subsea
$
52,348

 
$
61,876

 
$
(9,528
)
 
(15.4
)%
Completions
112,508

 
42,390

 
70,118

 
165.4
 %
Production & Infrastructure
86,421

 
67,579

 
18,842

 
27.9
 %
Eliminations
(1,046
)
 
(749
)
 
(297
)
 
*

Total revenue
250,231

 
171,096

 
79,135

 
46.3
 %
Operating loss:
 
 
 
 
 
 
 
Drilling & Subsea
(10,206
)
 
(8,341
)
 
(1,865
)
 
(22.4
)%
Operating margin %
(19.5
)%
 
(13.5
)%
 
 
 
 
Completions
8,857

 
(3,516
)
 
12,373

 
351.9
 %
Operating margin %
7.9
 %
 
(8.3
)%
 
 
 
 
Production & Infrastructure
4,162

 
(569
)
 
4,731

 
831.5
 %
Operating margin %
4.8
 %
 
(0.8
)%
 
 
 
 
Corporate
(8,580
)
 
(7,807
)
 
(773
)
 
(9.9
)%
Total segment operating loss
(5,767
)
 
(20,233
)
 
14,466

 
71.5
 %
Operating margin %
(2.3
)%
 
(11.8
)%
 
 
 
 
Transaction expenses
1,336

 
628

 
708

 
*

Gain on disposal of assets and other
(397
)
 
(246
)
 
(151
)
 
*

Operating loss
(6,706
)
 
(20,615
)
 
13,909

 
67.5
 %
Interest expense
8,087

 
6,580

 
(1,507
)
 
(22.9
)%
Foreign exchange losses and other, net
3,551

 
1,546

 
(2,005
)
 
(129.7
)%
Gain on contribution of subsea rentals business
(33,506
)
 
—

 
33,506

 
*

Total other (income) expense, net
(21,868
)
 
8,126

 
29,994

 
369.1
 %
Income (loss) before income taxes
15,162

 
(28,741
)
 
43,903

 
152.8
 %
Income tax benefit
(12,904
)
 
(12,973
)
 
(69
)
 
(0.5
)%
Net income (loss)
$
28,066

 
$
(15,768
)
 
$
43,834

 
278.0
 %
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
108,423

 
95,860

 
 
 
 
Diluted
110,857

 
95,860

 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
0.26

 
$
(0.16
)
 
 
 
 
Diluted
$
0.25

 
$
(0.16
)
 
 
 
 
* not meaningful
 
 
 
 
 
 
 

28

We made two acquisitions in the second half of 2017. In addition, we contributed our subsea rentals business into Ashtead in exchange for a 40% interest in the combined business in the first quarter of 2018. Due to these changes, our results of operations for the first quarter of 2018 may not be comparable to historical results of operations for the first quarter of 2017 period. Refer to Note 4 Acquisitions & Dispositions for additional information.
Revenue
Our revenue for the three months ended March 31, 2018 increased $79.1 million, or 46.3%, to $250.2 million compared to the three months ended March 31, 2017. In general, the increase in revenue is due to the higher market activity resulting from higher commodity prices. For the three months ended March 31, 2018, our Drilling & Subsea, Completions, and Production & Infrastructure segments comprised 20.9%, 44.6%, and 34.5% of our total revenue, respectively, which compared to 36.2%, 24.3%, and 39.5% of total revenue, respectively, for the three months ended March 31, 2017. The changes in revenue by operating segment consisted of the following:
Drilling & Subsea segment — Revenue decreased $9.5 million, or 15.4%, to $52.3 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Approximately $7.2 million of the decrease relates to lower sales of our subsea products due to the contribution of our subsea rentals business into Ashtead in exchange for a 40% interest in the combined business as well as lower sales volumes for our remotely operated subsea vehicles and associated products, which was largely attributable to reduced investment in global offshore projects. The remaining decrease relates to our drilling products, which had particularly strong sales volumes in the first quarter of 2017 related to rig mud pump upgrades as a result of the steep increase in U.S. rig count in early 2017.
Completions segment — Revenue increased $70.1 million, or 165.4%, to $112.5 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Segment revenue in 2018 includes $37.0 million of revenue from the fourth quarter 2017 acquisition of the remaining membership interest of Global Tubing and $5.2 million from the third quarter 2017 acquisition of Multilift. Refer to Note 4 Acquisitions & Dispositions for additional information. The remaining increase is primarily related to $25.2 million of higher sales volumes for our well stimulation and intervention products, particularly North America sales of pressure control equipment and other products used in the well completion and intervention service market, driven by an increase in drilling and completions spending of exploration and production companies.
Production & Infrastructure segment — Revenue increased $18.8 million, or 27.9%, to $86.4 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in drilling and completions budgets of exploration and production companies and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment. Approximately $12.1 million of the increase is due to higher sales volumes of valve products, particularly sales into the North America oil and gas market. The remaining increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators.
Segment operating loss and segment operating margin percentage
Segment operating loss for the three months ended March 31, 2018, improved $14.5 million from a loss of $20.2 million for the three months ended March 31, 2017 to a loss of $5.8 million for the three months ended March 31, 2018. For the three months ended March 31, 2018, the segment operating margin percentage of (2.3)% represents an improvement from the (11.8)% operating margin percentage for three months ended March 31, 2017. The segment operating margin percentage is calculated by dividing segment operating loss by revenue for the period. The change in operating margin percentage for each segment is explained as follows:
Drilling & Subsea segment — The operating margin percentage for this segment was (19.5)% for the three months ended March 31, 2018 compared to (13.5)% for the three months ended March 31, 2017. The primary driver for this decrease in operating margin percentage is lower activity levels as discussed above, particularly our capital products, which caused a loss of manufacturing scale efficiencies.
Completions segment — The operating margin percentage for this segment improved to 7.9% for the three months ended March 31, 2018, from (8.3)% for the three months ended March 31, 2017. The improvement in operating margin percentage is due to increased operating leverage on higher volumes, especially on consumable flow equipment sold to pressure pumping service companies. In addition, operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of Global Tubing which was previously reported as an equity method investment in the first quarter of 2017. Results for the three months ended March 31, 2018 also included a $2.5 million charge for a write-down of obsolete product inventory.
Production & Infrastructure segment — The operating margin percentage for this segment improved to 4.8% for the three months ended March 31, 2018, from (0.8)% for the three months ended March 31, 2017. The improvement in

29

operating margin percentage is driven by increased operating leverage on higher sales volumes for our valves products partially offset by incremental costs associated with international expansion and lower margins on sales of surface production equipment.
Corporate — Selling, general and administrative expenses for Corporate increased by $0.8 million, or 9.9% to $8.6 million, for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, due to higher personnel costs. Corporate costs include, among other items, payroll related costs for general management and management of finance and administration, legal, human resources; professional fees for legal, accounting and related services; and marketing costs.
Other items not included in segment operating loss
Several items are not included in segment operating loss, but are included in total operating loss. These items include transaction expenses and gains and losses on the disposal of assets. Transaction expenses relate to legal and other advisory costs incurred in acquiring businesses and are not considered to be part of segment operating loss. These costs were $1.3 million for the three months ended March 31, 2018 and $0.6 million for the three months ended March 31, 2017.
Other income and expense
Other income and expense includes interest expense, foreign exchange gains and losses and a gain recognized on the contribution of our subsea rentals business. We incurred $8.1 million of interest expense during the three months ended March 31, 2018, an increase of $1.5 million from three months ended March 31, 2017 primarily due to an increase in outstanding borrowings under our revolving line of credit. The foreign exchange losses are primarily the result of movements in the British pound and the Euro relative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S. dollar. In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business. Refer to Note 4 Acquisitions & Dispositions for additional information.
Taxes
The effective tax rate, calculated by dividing total tax benefit by income (loss) before income taxes, was a benefit of 85.1% for three months ended March 31, 2018 compared to a benefit of 45.1% for the three months ended March 31, 2017. The effective tax rate for 2018 is significantly different than the comparable period in 2017 primarily due to the reduction in the U.S. corporate income tax rate as well as a benefit related to the adjustment of the provisional tax impact of tax reform initially recorded in the prior quarter. Furthermore, the effective tax rate can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), a comprehensive U.S. tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries.
In the fourth quarter of 2017, we recorded provisional amounts related to the effects of U.S. Tax Reform including the recognition of liabilities for taxes on mandatory deemed repatriation of non-U.S. earnings and re-measurement of deferred taxes based on the new U.S. corporate income tax rate of 21%. We have updated these provisional amounts in the first quarter of 2018 based on additional guidance recently issued by the U.S. Internal Revenue Service resulting in an income tax benefit of $16.2 million in the quarter. This adjustment to our provisional estimate of the effects of U.S. Tax Reform results in an overall benefit of $6.1 million.
As we do not have all the necessary information to analyze all income tax effects of the new rules, these amounts remain provisional and we believe they represent a reasonable estimate of the accounting implications of U.S. Tax Reform. The ultimate impact of U.S. Tax Reform continues to be subject to adjustment as further guidance is provided by the U.S. Internal Revenue Service regarding the application of the new U.S. corporate income tax laws. We expect to complete our detailed analysis no later than the fourth quarter of 2018.

30

Liquidity and capital resources
Sources and uses of liquidity
Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit and our credit facility and senior notes described below. Our primary uses of capital have been for acquisitions, ongoing maintenance and growth capital expenditures, inventories and sales on credit to our customers. We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outside sources of capital.
At March 31, 2018, we had cash and cash equivalents of $42.3 million and total debt of $457.7 million. We believe that cash on hand and cash generated from operations will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations for the foreseeable future.
Our total 2018 capital expenditure budget is approximately $35.0 million, which consists of, among other items, investments in certain manufacturing facilities, replacing end of life machinery and equipment, continuing the implementation of our enterprise resource planning solution globally, and general capital expenditures. This budget does not include expenditures for potential business acquisitions. We believe cash flows from operations should be sufficient to fund our capital requirements for 2018.
Although we do not budget for acquisitions, pursuing growth through acquisitions is a significant part of our business strategy. We expanded and diversified our product portfolio with the acquisition of three businesses in 2017 for total cash and stock consideration of approximately $340.7 million, net of cash acquired. For additional information, see Note 4 Acquisitions & Dispositions. We continue to actively review acquisition opportunities on an ongoing basis, and we may fund future acquisitions with cash and/or equity. Our ability to make significant additional acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.
Our cash flows for the three months ended March 31, 2018 and 2017 are presented below (in millions):
  
Three months ended March 31,
 
2018
 
2017
Net cash used in operating activities
$
(19.3
)
 
$
(15.0
)
Net cash used in investing activities
—

 
(13.2
)
Net cash used in financing activities
(52.7
)
 
(3.5
)
Effect of exchange rate changes on cash
(0.9
)
 
2.2

Net decrease in cash, cash equivalents and restricted cash
$
(72.9
)
 
$
(29.5
)
Net cash used in operating activities
Net cash used in operating activities was $19.3 million and $15.0 million for the three months ended March 31, 2018 and 2017, respectively. Due to improved operating results, net income adjusted for non-cash items provided $19.7 million of cash for the three months ended March 31, 2018 as compared to $9.6 million of cash used for the same period in 2017. However, higher investments in working capital used cash of $39.1 million for the three months ended March 31, 2018 as compared to $5.4 million for the same period in 2017. The increase in working capital in the first three months of 2018 is primarily due to investments in inventory in anticipation of growth in market demand for our products.
Net cash used in investing activities
Net cash used in investing activities was approximately zero and $13.2 million for the three months ended March 31, 2018 and 2017, respectively. The decrease was primarily due to $5.1 million of proceeds from the sale of business, property and equipment in the three months ended March 31, 2018 as compared to $8.7 million of cash consideration paid for an acquisition in the first quarter of 2017. Capital expenditures for the three months ended March 31, 2018 were $5.1 million as compared to $3.5 million for the comparable prior period.

31

Net cash used in financing activities
Net cash used in financing activities was $52.7 million and $3.5 million for the three months ended March 31, 2018 and 2017, respectively. The increase primarily resulted from a $49.8 million increase in repayments of debt in the three months ended March 31, 2018 as compared to the same period in 2017.
Senior Notes Due 2021
The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. The Senior Notes are senior unsecured obligations guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.
Credit Facility
On October 30, 2017, we amended and restated the Credit Facility to, among other things, increase revolving credit commitments from $140.0 million to $300.0 million, including up to $30.0 million available to certain Canadian subsidiaries of the Company for loans in United States or Canadian dollars, $25.0 million available for letters of credit issued for the account of the Company and certain of its domestic subsidiaries and $3.0 million available for letters of credit issued for the account of Canadian subsidiaries of the Company. Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the United States, Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the United States and Canada. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future receivables and fluctuations in our inventory. The Credit Facility matures in July 2021, but if our outstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the 2017 Credit Facility will automatically extend to October 2022.
If excess availability under the Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.
Off-balance sheet arrangements
As of March 31, 2018, we had no off-balance sheet instruments or financial arrangements, other than operating leases and letters of credit entered into in the ordinary course of business.
Contractual obligations
Except for net repayments under the Credit Facility, as of March 31, 2018, there have been no material changes in our contractual obligations and commitments disclosed in the Annual Report.
Critical accounting policies and estimates
Beginning January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers.  Although the new revenue standard is not expected to have a material impact on our ongoing net income, we did implement new policies based on the five-step model provided in the new revenue standard and changes to our processes related to revenue recognition. There have been no other material changes in our critical accounting policies and procedures during the three months ended March 31, 2018.
For a detailed discussion of our critical accounting policies and estimates, refer to our 2017 Annual Report on Form 10-K. For recent accounting pronouncements, refer to Note 2 Recent Accounting Pronouncements.

Item 3. Quantitative and qualitative disclosures about market risk
We are currently exposed to market risk from changes in foreign currency and changes in interest rates. From time to time, we may enter into derivative financial instrument transactions to manage or reduce our market risk, but we do not enter into derivative transactions for speculative purposes.
There have been no significant changes to our market risk since December 31, 2017. For a discussion of our exposure to market risk, refer to Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2017 Annual Report on Form 10-K.

32

 

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act). The Company’s disclosure controls and procedures have been designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of March 31, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018 due to a previously disclosed material weakness in internal control over financial reporting as discussed below. This material weakness was identified and discussed in “Part II - Item 9A - Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2017.
Notwithstanding this material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.
In conducting management's evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2018, we have excluded Global Tubing, LLC, because it was acquired by the Company in a purchase business combination in the fourth quarter of 2017. The total assets and total revenues of Global Tubing, LLC, a wholly-owned subsidiary, constituted approximately 7% of our total consolidated assets as of March 31, 2018 and approximately 15% of our total consolidated revenues for the three months ended March 31, 2018.
Material Weakness in Internal Control Over Financial Reporting
We identified the following material weakness in the operation of our internal control over financial reporting:
As previously disclosed in our 2017 Annual Report on Form 10-K, we did not maintain effective controls over the development of fair value measurements utilized in the application of the acquisition method of accounting for business combinations, and for purposes of testing goodwill for impairment. Specifically, our review procedures over the development and application of inputs, assumptions, and calculations used in fair value measurements associated with business combinations and goodwill impairment testing did not operate at an appropriate level of precision commensurate with our financial reporting requirements. This control deficiency resulted in an adjustment to the gain realized upon the consolidation of Global Tubing, LLC which was recorded prior to the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2017. Additionally, this control deficiency could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. This material weakness did not result in a restatement of any of the Company’s previously filed consolidated financial statements. As of the end of the period covered by this Form 10-Q, the identified material weakness has not been remediated; however, management has taken steps towards the remediation plan outlined below.
Remediation Plans
Our management, with oversight from our Audit Committee, has initiated a plan to remediate the material weakness previously identified in the Annual Report on Form 10-K for the period ended December 31, 2017. These plans include the implementation of additional controls and procedures to address the development of fair value measurements utilized in the application of the acquisition method of accounting for business combinations, and for purposes of testing goodwill for impairment. These new controls and procedures are in the process of being implemented and will be tested when we perform our annual goodwill impairment testing for the year ending December 31, 2018, or earlier should a business acquisition occur or an interim impairment assessment become necessary. Until management has

33

 

tested the remediation and concluded that the controls are operating effectively as designed, the material weakness will continue to exist.
Changes in Internal Control over Financial Reporting
Beginning January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is not expected to have a material financial impact, we implemented changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, ongoing contract review requirements and gathering of information provided for disclosures.   
Except for the material weakness remediation efforts identified above and changes associated with the implementation of the new revenue standard noted above, there were no other changes in our internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Information related to Item 1. Legal Proceedings is included in Note 11 Commitments and Contingencies, which is incorporated herein by reference.
Item 1A. Risk Factors
For additional information about our risk factors, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of our repurchases of our common stock during the three months ended March 31, 2018.
Period
 
Total number of shares purchased (a)
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plan or programs (b)
 
Maximum value of shares that may yet be purchased under the plan or program
(in thousands) (b)
January 1, 2018 - January 31, 2018
 
2,187

 
$
15.55

 
—

 
$
49,752

February 1, 2018 - February 28, 2018
 
2,643

 
$
12.00

 
—

 
$
49,752

March 1, 2018 - March 31, 2018
 
—

 
$
—

 
—

 
$
49,752

Total
 
4,830

 
$
13.61

 
—

 
 
(a) All of the 4,830 shares purchased during the three months ended March 31, 2018 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from the vesting of restricted stock grants. These shares were not part of a publicly announced program to purchase common stock.
(b) In October 2014, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $150 million. From the inception of this program through March 31, 2018, we have repurchased approximately 4.5 million shares of our common stock for aggregate consideration of approximately $100.2 million. Remaining authorization under this program is $49.8 million.
Acquisition of Innovative Valve Components
On January 9, 2017, we acquired all of the issued and outstanding partnership interests of Innovative Valve Components. As partial consideration for the acquisition we issued 196,249 shares of our common stock. On January 9, 2018, we issued 8,400 shares of our common stock in connection with the first anniversary of the closing pursuant to the terms of the purchase agreement. The issuance of our common stock was exempt from registration under the Securities Act pursuant to Rule 4(a)(2) thereof and the safe harbor provided by Rule 506 of Regulation D promulgated thereunder.



34

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
 
 
Number
 
DESCRIPTION
 
 
 
—
Severance Agreement, dated February 16, 2018, by and between Forum Energy Technologies, Inc. and Pablo G. Mercado (incorporated herein by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K, filed on February 21, 2018).
 
 
 
—
Severance Agreement, dated February 16, 2018, by and between Forum Energy Technologies, Inc. and Michael D. Danford (incorporated herein by reference to Exhibit 10.2 on the Company’s Current Report on Form 8-K, filed on February 21, 2018).
 
 
 
—
Employment Agreement, dated February 16, 2018, by and between Forum Energy Technologies, Inc. and C. Christopher Gaut (incorporated herein by reference to Exhibit 10.3 on the Company’s Current Report on Form 8-K, filed on February 21, 2018).
 
 
 
—
Form of Restricted Stock Agreement (Directors).
 
 
 
—
Form of Restricted Stock Unit Agreement (Directors).
 
 
 
—
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 1)
 
 
 
—
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2)
 
 
 
—
Form of Nonstatutory Stock Option Agreement (Employees and Consultants)
 
 
 
—
Form of Performance Share Award Agreement (Employees and Consultants)
 
 
 
—
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS**
—
XBRL Instance Document.
 
 
 
101.SCH**
—
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL**
—
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.LAB**
—
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE**
—
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
101.DEF**
—
XBRL Taxonomy Extension Definition Linkbase Document.
*Previously filed.
**Filed herewith.
***Furnished herewith.

35

 

SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned authorized individuals.
 
 
 
 
 
 
 
FORUM ENERGY TECHNOLOGIES, INC. 
 
 
Date:
May 2, 2018
By:
/s/ Pablo G. Mercado
 
 
 
 
Pablo G. Mercado
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
(As Duly Authorized Officer and Principal Financial Officer)
 
 
 
 
 
 
 
 
By:
/s/ Tylar K. Schmitt
 
 
 
 
Tylar K. Schmitt
 
 
 
 
Vice President and Chief Accounting Officer
 
 
 
 
(As Duly Authorized Officer and Principal Accounting Officer)
 



36
Exhibit
Exhibit 10.4


    
FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN

2018 NON‑OFFICER DIRECTOR RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this “Agreement”) is made as of the ___ day of_________, 2018 (the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _____________ (the “Director”).
1.Award. Pursuant to the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”), as of the Date of Grant, [number of shares] shares (the “Restricted Shares”) of the Company’s common stock, par value $.01 per share, shall be issued as hereinafter provided in the Director’s name subject to certain restrictions thereon. The Director acknowledges receipt of a copy of the Plan, and agrees that this award of Restricted Shares shall be subject to all of the terms and provisions of the Plan, including future amendments thereto, if any, pursuant to the terms thereof.
2.Definitions. Capitalized terms used in this Agreement that are not defined below or in the body of this Agreement shall have the meanings given to them in the Plan. In addition to the terms defined in the body of this Agreement, the following capitalized words and terms shall have the meanings indicated below:
(a)    “Earned Shares” means the Restricted Shares after the lapse of the Forfeiture Restrictions without forfeiture.
(b)    “Forfeiture Restrictions” shall have the meaning specified in Section 3(a) hereof.
(c)    “Securities Act” means the Securities Act of 1933, as amended.
3.    Restricted Shares. The Director hereby accepts the Restricted Shares when issued and agrees with respect thereto as follows:
(a)    Forfeiture Restrictions. The Restricted Shares may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of and in the event of termination of the Director’s service on the Board for any reason whatsoever, the Director shall, for no consideration, forfeit all unvested Restricted Shares. The obligation to forfeit and surrender Restricted Shares to the Company upon termination of service as provided in the preceding sentence is herein referred to as the “Forfeiture Restrictions.” The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of Restricted Shares.
(b)    Lapse of Forfeiture Restrictions. Provided that the Director served continuously on the Board from the Date of Grant through [February 16, 2019], the Forfeiture Restrictions shall lapse. Notwithstanding the foregoing, if a Change in Control occurs and the Director has served continuously on the Board from the Date of Grant to the date upon which such Change in Control occurs, then the Forfeiture Restrictions shall lapse with respect to the Restricted Shares on the date upon which such Change in Control occurs.
(c)    Certificates. A certificate evidencing the Restricted Shares shall be issued by the Company in the Director’s name, pursuant to which the Director shall have all of the rights of a stockholder of the Company with respect to the Restricted Shares, including, without limitation, voting rights and the right to receive dividends (provided, however, that dividends paid in shares of the Company’s stock shall be subject to the Forfeiture Restrictions and further provided that dividends that are paid other than in shares of the



Company’s stock shall be paid no later than the end of the calendar year in which the dividend for such class of stock is paid to stockholders of such class or, if later, the 15th day of the third month following the date the dividend is paid to stockholders of such class of stock). Notwithstanding the foregoing, the Company may, in its discretion, elect to complete the delivery of the Restricted Shares by means of electronic, book-entry statement, rather than issuing physical share certificates. The Director may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions have expired, and a breach of the terms of this Agreement shall cause a forfeiture of the Restricted Shares. The certificate, if any, shall be delivered upon issuance to the Secretary of the Company or to such other depository as may be designated by the Committee as a depository for safekeeping until the forfeiture of such Restricted Shares occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan and this Agreement. At the Company’s request, the Director shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares. Upon the lapse of the Forfeiture Restrictions without forfeiture, the Company shall cause a new certificate or certificates to be issued without legend (except for any legend required pursuant to applicable securities laws or any agreement to which the Director is a party) in the name of the Director in exchange for the certificate evidencing the Restricted Shares or, as may be the case, the Company shall issue appropriate instructions to the transfer agent if the electronic, book-entry method is utilized.
(d)    Corporate Acts. The existence of the Restricted Shares shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. The prohibitions of Section 3(a) hereof shall not apply to the transfer of Restricted Shares pursuant to a plan of reorganization of the Company, but the stock, securities or other property received in exchange therefor shall also become subject to the Forfeiture Restrictions and provisions governing the lapsing of such Forfeiture Restrictions applicable to the original Restricted Shares for all purposes of this Agreement, and the certificates, if any, representing such stock, securities or other property shall be legended to show such restrictions.
4.    Status of Stock. The Director understands that at the time of the execution of this Agreement the sale of the Restricted Shares has not been registered under the Securities Act or any state securities law and that the Company does not currently intend to effect any such registration.
The Director agrees that the Restricted Shares and the Earned Shares when issued under this Agreement are being acquired for investment without a view to distribution, within the meaning of the Securities Act, and shall not be sold, transferred, assigned, pledged or hypothecated in the absence of (a) an effective registration statement for the sale of such shares under the Securities Act and applicable state securities laws or (b) if requested by the Company, the delivery by the Director to the Company of a written opinion of legal counsel, who shall be satisfactory to the Company, addressed to the Company and satisfactory in form and substance to the Company’s counsel, to the effect that an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws is available. The Director also agrees that the Restricted Shares and Earned Shares issued under this Agreement will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws.
In addition, the Director agrees that (a) the certificates, if any, representing the Restricted Shares and Earned Shares may bear such legend or legends as the Committee deems appropriate in order to reflect the Forfeiture Restrictions and to assure compliance with applicable securities laws, (b) the Company may refuse to register the transfer of the Restricted Shares or Earned Shares on the stock transfer records of the Company if such proposed transfer would constitute a violation of the Forfeiture Restrictions or, in the opinion of



counsel satisfactory to the Company, of any applicable securities law, and (c) the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Restricted Shares.
5.    Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of the Director, such notices or communications shall be effectively delivered if hand delivered to the Director at the Director’s principal place of service or if sent by registered or certified mail to the Director at the last address the Director has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices.
6.    Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Director. The provisions of Section 4 shall survive the lapse of the Forfeiture Restrictions without forfeiture.
7.    Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Restricted Shares granted hereby. Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. Any modification of this Agreement shall be effective only if it is in writing and signed by both the Director and an authorized officer of the Company.
8.    Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Director has executed this Agreement, all as of the date first above written.

                        
FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
DIRECTOR
 
 

                                                
                        




Exhibit
Exhibit 10.5


FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN
2018 NON‑EMPLOYEE DIRECTOR RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (this “Agreement”) is made as of the ___ day of ___________, 2018 (the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _________________ (the “Director”).
1.Award. Pursuant to the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”), the Director is hereby awarded [number of units] units (the “RSUs”) evidencing the right to receive an equivalent number of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions thereon. The Director acknowledges receipt of a copy of the Plan, and agrees that this award of RSUs shall be subject to all of the terms and provisions of the Plan, including future amendments thereto, if any, pursuant to the terms thereof. Capitalized terms used in this Agreement that are not defined herein shall have the meanings given to them in the Plan.
2.Forfeiture Restrictions and Assignment.
(a)Restrictions. The RSUs may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of, and in the event of termination of the Director’s service on the Board for any reason whatsoever, the Director shall, for no consideration, forfeit all unvested RSUs. The obligation to forfeit RSUs upon termination of service as provided in the preceding sentence is herein referred to as the “Forfeiture Restrictions.”
(b)Lapse of Forfeiture Restrictions. Provided that the Director has served continuously on the Board from the Date of Grant through [February 16, 2019], the Forfeiture Restrictions shall lapse. Notwithstanding the foregoing, if a Change in Control occurs and the Director has served continuously on the Board from the Date of Grant to the date upon which such Change in Control occurs, then the Forfeiture Restrictions shall lapse with respect to the RSUs on the date upon which such Change in Control occurs.
3.Settlement and Delivery of Stock. Settlement of RSUs shall be made no later than 15 days after the lapse of Forfeiture Restrictions, or, if the RSUs have been deferred, in accordance with the terms of the 2018 Award Election and Restricted Stock Unit Deferral and Distribution Election Form (distributed separately from this Agreement). Settlement will be made by issuance of shares of Common Stock. Notwithstanding the foregoing, the Company shall not be obligated to issue any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the issuance of shares of Common Stock to comply with any such law, rule, regulation or agreement.
4.Shareholder Rights. The Director shall have no rights to dividends or other rights of a shareholder with respect to shares of Common Stock subject to this award of RSUs unless and until such time as the award has been settled by the issuance of shares of Common Stock to the Director. The Director shall have the right to receive a cash dividend equivalent payment with respect to the RSUs for the period beginning on the Date of Grant and ending on the date the shares of Common Stock are issued to the Director in settlement of the RSUs, which shall be payable at the same time as cash dividends on Common Stock are paid to Company stockholders.
5.Corporate Acts. The existence of the RSUs shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act



or proceeding. The prohibitions of Section 2(a) hereof shall not apply to the transfer of RSUs pursuant to a plan of reorganization of the Company, but the stock, securities or other property received in exchange therefor shall also become subject to the Forfeiture Restrictions.
6.Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Director.
7.Amendment. Any modification of this Agreement shall be effective only if it is in writing and signed by both the Director and an authorized officer of the Company.
8.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Director has executed this Agreement, all as of the date first above written.

                            
FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
DIRECTOR
 
 
 



Exhibit
Exhibit 10.6


FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN

2018 EMPLOYEE RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (this “Agreement”) is made as of the ___ day of ___________, 2018 (the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _________________ (the “Employee”).
1.Award. Pursuant to the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”), the Employee is hereby awarded [number of units] units (the “RSUs”) evidencing the right to receive an equivalent number of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions thereon. The Employee acknowledges receipt of a copy of the Plan, and agrees that this award of RSUs shall be subject to all of the terms and provisions of the Plan, including future amendments thereto, if any, pursuant to the terms thereof. Capitalized terms used in this Agreement that are not defined herein shall have the meanings given to them in the Plan.
2.Forfeiture Restrictions and Assignment.
(a)Restrictions. The RSUs may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of, and except as otherwise provided in Section 3, in the event of the Employee’s termination of employment for any reason whatsoever, the Employee shall, for no consideration, forfeit all unvested RSUs. The obligation to forfeit unvested RSUs upon termination of employment as provided in the preceding sentence is herein referred to as the “Forfeiture Restrictions.”
(b)Lapse of Forfeiture Restrictions. Provided that the Employee has been continuously employed by the Company or any of its Affiliates (collectively, the “Company Group”) from the Date of Grant through the lapse date set forth in the following schedule, the Forfeiture Restrictions shall lapse and the RSUs shall otherwise become vested with respect to a percentage of the RSUs determined in accordance with the following schedule:
Vesting Date
Additional Percentage of Total Number of RSUs Vesting on Vesting Date
 
 
First Anniversary of Date of Grant
25%
Second Anniversary of Date of Grant
25%
Third Anniversary of Date of Grant
25%
Fourth Anniversary of Date of Grant
25%

Except as otherwise provided in Section 3, any RSUs with respect to which the Forfeiture Restrictions do not lapse in accordance with the preceding provisions of this Section 2(b) shall be forfeited to the Company for no consideration as of the date of the termination of the Employee’s employment with the Company.
3.Termination of Employment.
(a)Death or Disability. If the Employee dies or becomes Disabled (as defined below), to the extent not previously vested pursuant to Section 2(b) above, each quarter of the RSUs described in Section 2(b) that are unvested as of the date of the Employee’s death or Disability, as applicable, shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the RSUs, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of the Employee’s death or Disability, as applicable, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the RSUs would have vested pursuant to Section 2(b). Any remaining unvested RSUs shall be forfeited.



The shares of Common Stock in respect of the vested RSUs shall be issued to the Employee thirty (30) days after the Employee’s death or Disability, as applicable. For purposes of this Section 3(a), an Employee shall become “Disabled” or have a “Disability” on the date that the Employee becomes eligible for long-term disability benefits pursuant to the Company’s long-term disability plan.
(b)Retirement. If the Employee’s employment with the Company Group is terminated by reason of Retirement (as defined below), to the extent not previously vested pursuant to Section 2(b) above, the Committee may, in its sole and absolute discretion, determine that each quarter of the RSUs described in Section 2(b) that are unvested as of the date of the Employee’s Retirement shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the RSUs, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of the Employee’s Retirement, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the RSUs would have vested pursuant to Section 2(b). The shares of Common Stock in respect of the vested RSUs shall be issued to the Employee thirty (30) days after the date of the Employee’s Retirement. For purposes of this Section 3(b), “Retirement” shall mean termination of the Employee’s service relationship with all members of the Company Group which is specifically determined by the Committee in its sole and absolute discretion to constitute Retirement.
(c)Good Reason. In lieu of the definition of “Good Reason” set forth in the Plan, “Good Reason” for purposes of this Agreement shall mean the occurrence of any of the following events without the Employee’s express written consent:
(i)
a change in the Employee’s status, title or position with the Company Group, including as an officer of the Company, which, in the Employee’s good faith judgment, does not represent a promotion, with commensurate adjustment of compensation, from the Employee’s status, title or position as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are inconsistent with the Employee’s status, title or position in effect immediately prior to such assignment; the withdrawal from the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are consistent with such status, title or position in effect immediately prior to such withdrawal; or any removal of the Employee from or any failure to reappoint or reelect the Employee to any position; provided that the circumstances described in this item (i) do not apply as a result of the Employee’s death, Retirement, or Disability or following receipt by the Employee of written notice from the Company of the termination of the Employee’s employment for Cause;
(ii)
a reduction by the Company in the Employee’s then current base salary;
(iii)
the failure by the Company to continue in effect any benefit or compensation plan in which the Employee was participating immediately prior to such failure other than as a result of the normal expiration or amendment of any such plan in accordance with its terms; or the taking of any action, or the failure to act, by the Company which would adversely affect the Employee’s continued participation in any benefit or compensation plan on at least as favorable a basis to the Employee as is the case immediately prior to the action or failure to act or which would materially reduce the Employee’s benefits under any such plan or deprive the Employee of any material benefit enjoyed by the Employee immediately prior to the action or failure to act;
(iv)
the relocation of the principal place of the Employee’s employment to a location 25 miles further from the Employee’s then current principal residence;
(v)
the failure by the Company upon a Change in Control to obtain an agreement, satisfactory to the Employee, from any successor or assign of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform



this Agreement in the same manner and to the same extent the Company would be required to perform if no succession or assignment had taken place; or
(vi)
any material default by the Company in the performance of its obligations under this Agreement.
Any event or condition described in this Section 3(c) which occurs prior to the effective date of any Change in Control, but which the Employee reasonably demonstrates (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (y) otherwise arose in connection with or in anticipation of a Change in Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to such effective date. The Employee’s continued employment or failure to give the Company any notice of termination for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. For purposes of this Section 3(c), any good faith determination of Good Reason made by the Employee shall be conclusive.
4.Settlement and Delivery of Stock. Except as otherwise provided in Section 2(b) or 3, settlement of RSUs shall be made no later than 15 days after the lapse of Forfeiture Restrictions. Settlement will be made by issuance of shares of Common Stock. Notwithstanding the foregoing, the Company shall not be obligated to issue any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the issuance of shares of Common Stock to comply with any such law, rule, regulation or agreement.
5.Shareholder Rights. The Employee shall have no rights to dividends or other rights of a shareholder with respect to shares of Common Stock subject to this award of RSUs unless and until such time as the award has been settled by the issuance of shares of Common Stock to the Employee. The Employee shall have the right to receive a cash dividend equivalent payment with respect to the RSUs for the period beginning on the Date of Grant and ending on the date the shares of Common Stock are issued to the Employee in settlement of the RSUs, which shall be payable at the same time as cash dividends on Common Stock are paid to Company stockholders.
6.Corporate Acts. The existence of the RSUs shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. The prohibitions of Section 2(a) hereof shall not apply to the transfer of RSUs pursuant to a plan of reorganization of the Company, but the stock, securities or other property received in exchange therefor shall also become subject to the Forfeiture Restrictions.
7.Withholding of Tax. To the extent that the settlement of RSUs results in compensation income or wages to the Employee for federal, state, local or foreign tax purposes, the Company shall withhold an appropriate number of shares of Common Stock, having a Fair Market Value determined in accordance with the Plan, equal to the amount necessary to satisfy the minimum federal, state, local and foreign tax withholding obligation with respect to the settled RSUs. The issuance of shares of Common Stock described in Section 4 will be net of such shares of Common Stock that are withheld to satisfy applicable taxes pursuant to this Section 7. In lieu of withholding of shares of Common Stock, the Committee may, in its discretion, authorize tax withholding to be satisfied by a cash payment to the Company, by withholding an appropriate amount of cash from base pay, or by such other method as the Committee determines may be appropriate to satisfy all obligations for withholding of such taxes. The Employee acknowledges and agrees that the Company is making no representation or warranty as to the tax consequences to the Employee as a result of the receipt of the RSUs, the lapse of any Forfeiture Restrictions



or the issuance of shares of Common Stock pursuant thereto, or the forfeiture of any RSUs pursuant to the Forfeiture Restrictions.
8.Employment Relationship. For purposes of this Agreement, the Employee shall be considered to be in the employment of the Company as long as the Employee remains an employee of the Company Group. Without limiting the scope of the preceding sentence, it is specifically provided that the Employee shall be considered to have terminated employment with the Company Group at the time of the termination of the “Affiliate” status of the entity or other organization that employs the Employee. Nothing in the adoption of the Plan, nor the award of the RSUs thereunder pursuant to this Agreement, shall confer upon the Employee the right to continued employment by the Company Group or affect in any way the right of the Company Group to terminate such employment at any time. Unless otherwise provided in a written employment agreement or by applicable law, the Employee’s employment by the Company shall be on an at-will basis, and the employment relationship may be terminated at any time by either the Employee or the Company Group for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee or its delegate, and its determination shall be final.
9.Section 409A. The award of RSUs is intended to be (i) exempt from Section 409A of the Code (“Section 409A”) including, but not limited to, by reason of compliance with the short-term deferral exemption as specified in Treas. Reg. § 1.409A-1(b)(4); or (ii) in compliance with Section 409A, and the provisions of this Agreement shall be administered, interpreted and construed accordingly. Payments under this Agreement in a series of installments shall be treated as a right to receive a series of separate payments for purposes of Section 409A. If the Employee is identified by the Company as a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date on which the Employee has a “separation from service” (other than due to death) within the meaning of Section 1.409A-1(h) of the Treasury Regulations, notwithstanding the provisions of Sections 2 or 3 hereof, any transfer of shares payable on account of a separation from service that are deferred compensation shall take place on the earlier of (i) the first business day following the expiration of six months from the Employee’s separation from service or (ii) such earlier date as complies with the requirements of Section 409A. To the extent required to comply with Section 409A, the Employee shall be considered to have terminated employment with the Company Group when the Employee incurs a “separation from service” with a member of the Company Group within the meaning of Section 409A(a)(2)(A)(i) of the Code. The Company makes no commitment or guarantee to the Employee that any federal or state tax treatment shall apply or be available to any person eligible for benefits under this Agreement.
10.Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Employee.
11.Amendment. Any modification of this Agreement shall be effective only if it is in writing and signed by both the Employee and an authorized officer of the Company.
12.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.



IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Employee has executed this Agreement, all as of the date first above written.
                                            
                        
FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
EMPLOYEE
 
 
 





Exhibit
Exhibit 10.7



FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN

2018 EMPLOYEE RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (this “Agreement”) is made as of the ___ day of ____________, 2018 (the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _________________ (the “Employee”).
1.Award. Pursuant to the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”), the Employee is hereby awarded [number of units] units (the “RSUs”) evidencing the right to receive an equivalent number of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions thereon. The Employee acknowledges receipt of a copy of the Plan, and agrees that this award of RSUs shall be subject to all of the terms and provisions of the Plan, including future amendments thereto, if any, pursuant to the terms thereof. Capitalized terms used in this Agreement that are not defined herein shall have the meanings given to them in the Plan.
2.Forfeiture Restrictions and Assignment.
(a)Restrictions. The RSUs may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of, and except as otherwise provided in Section 3, in the event of the Employee’s termination of employment for any reason whatsoever, the Employee shall, for no consideration, forfeit all unvested RSUs. The obligation to forfeit unvested RSUs upon termination of employment as provided in the preceding sentence is herein referred to as the “Forfeiture Restrictions.”
(b)Lapse of Forfeiture Restrictions. Provided that the Employee has been continuously employed by the Company or any of its Affiliates (collectively, the “Company Group”) from the Date of Grant through the lapse date set forth in the following schedule, the Forfeiture Restrictions shall lapse and the RSUs shall otherwise become vested with respect to a percentage of the RSUs determined in accordance with the following schedule:
Vesting Date
Additional Percentage of Total Number of RSUs Vesting on Vesting Date
 
 
First Anniversary of Date of Grant
25%
Second Anniversary of Date of Grant
25%
Third Anniversary of Date of Grant
25%
Fourth Anniversary of Date of Grant
25%
Except as otherwise provided in Section 3, any RSUs with respect to which the Forfeiture Restrictions do not lapse in accordance with the preceding provisions of this Section 2(b) shall be forfeited to the Company for no consideration as of the date of the termination of the Employee’s employment with the Company.
3.Termination of Employment.
(a)Death or Disability. If the Employee dies or becomes Disabled (as defined below), to the extent not previously vested pursuant to Section 2(b) above, each quarter of the RSUs described in Section 2(b) that are unvested as of the date of the Employee’s death or Disability, as applicable, shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the RSUs, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of the Employee’s death or Disability, as applicable,



and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the RSUs would have vested pursuant to Section 2(b). Any remaining unvested RSUs shall be forfeited. The shares of Common Stock in respect of the vested RSUs shall be issued to the Employee thirty (30) days after the Employee’s death or Disability, as applicable. For purposes of this Section 3(a), an Employee shall become “Disabled” or have a “Disability” on the date that the Employee becomes eligible for long-term disability benefits pursuant to the Company’s long-term disability plan.
(b)Retirement. If the Employee’s employment with the Company Group is terminated by reason of Retirement (as defined below), to the extent not previously vested pursuant to Section 2(b) above, the Committee may, in its sole and absolute discretion, determine that each quarter of the RSUs described in Section 2(b) that are unvested as of the date of the Employee’s Retirement shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the RSUs, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of the Employee’s Retirement, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the RSUs would have vested pursuant to Section 2(b). The shares of Common Stock in respect of the vested RSUs shall be issued to the Employee thirty (30) days after the date of the Employee’s Retirement. For purposes of this Section 3(b), “Retirement” shall mean termination of the Employee’s service relationship with all members of the Company Group which is specifically determined by the Committee in its sole and absolute discretion to constitute Retirement.
4.Settlement and Delivery of Stock. Except as otherwise provided in Section 2(b) or 3, settlement of RSUs shall be made no later than 15 days after the lapse of Forfeiture Restrictions. Settlement will be made by issuance of shares of Common Stock. Notwithstanding the foregoing, the Company shall not be obligated to issue any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the issuance of shares of Common Stock to comply with any such law, rule, regulation or agreement.
5.Shareholder Rights. The Employee shall have no rights to dividends or other rights of a shareholder with respect to shares of Common Stock subject to this award of RSUs unless and until such time as the award has been settled by the issuance of shares of Common Stock to the Employee. The Employee shall have the right to receive a cash dividend equivalent payment with respect to the RSUs for the period beginning on the Date of Grant and ending on the date the shares of Common Stock are issued to the Employee in settlement of the RSUs, which shall be payable at the same time as cash dividends on Common Stock are paid to Company stockholders.
6.Corporate Acts. The existence of the RSUs shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. The prohibitions of Section 2(a) hereof shall not apply to the transfer of RSUs pursuant to a plan of reorganization of the Company, but the stock, securities or other property received in exchange therefor shall also become subject to the Forfeiture Restrictions.
7.Withholding of Tax. To the extent that the settlement of RSUs results in compensation income or wages to the Employee for federal, state, local or foreign tax purposes, the Company shall withhold an appropriate number of shares of Common Stock, having a Fair Market Value determined in accordance with the Plan, equal to the amount necessary to satisfy the minimum federal, state, local and foreign tax withholding obligation with respect to the settled RSUs. The issuance of shares of Common Stock described in Section 4



will be net of such shares of Common Stock that are withheld to satisfy applicable taxes pursuant to this Section 7. In lieu of withholding of shares of Common Stock, the Committee may, in its discretion, authorize tax withholding to be satisfied by a cash payment to the Company, by withholding an appropriate amount of cash from base pay, or by such other method as the Committee determines may be appropriate to satisfy all obligations for withholding of such taxes. The Employee acknowledges and agrees that the Company is making no representation or warranty as to the tax consequences to the Employee as a result of the receipt of the RSUs, the lapse of any Forfeiture Restrictions or the issuance of shares of Common Stock pursuant thereto, or the forfeiture of any RSUs pursuant to the Forfeiture Restrictions.
8.Employment Relationship. For purposes of this Agreement, the Employee shall be considered to be in the employment of the Company as long as the Employee remains an employee of the Company Group. Without limiting the scope of the preceding sentence, it is specifically provided that the Employee shall be considered to have terminated employment with the Company Group at the time of the termination of the “Affiliate” status of the entity or other organization that employs the Employee. Nothing in the adoption of the Plan, nor the award of the RSUs thereunder pursuant to this Agreement, shall confer upon the Employee the right to continued employment by the Company Group or affect in any way the right of the Company Group to terminate such employment at any time. Unless otherwise provided in a written employment agreement or by applicable law, the Employee’s employment by the Company shall be on an at-will basis, and the employment relationship may be terminated at any time by either the Employee or the Company Group for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee or its delegate, and its determination shall be final.
9.Section 409A. The award of RSUs is intended to be (i) exempt from Section 409A of the Code (“Section 409A”) including, but not limited to, by reason of compliance with the short-term deferral exemption as specified in Treas. Reg. § 1.409A-1(b)(4); or (ii) in compliance with Section 409A, and the provisions of this Agreement shall be administered, interpreted and construed accordingly. Payments under this Agreement in a series of installments shall be treated as a right to receive a series of separate payments for purposes of Section 409A. If the Employee is identified by the Company as a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date on which the Employee has a “separation from service” (other than due to death) within the meaning of Section 1.409A-1(h) of the Treasury Regulations, notwithstanding the provisions of Sections 2 or 3 hereof, any transfer of shares payable on account of a separation from service that are deferred compensation shall take place on the earlier of (i) the first business day following the expiration of six months from the Employee’s separation from service or (ii) such earlier date as complies with the requirements of Section 409A. To the extent required to comply with Section 409A, the Employee shall be considered to have terminated employment with the Company Group when the Employee incurs a “separation from service” with a member of the Company Group within the meaning of Section 409A(a)(2)(A)(i) of the Code. The Company makes no commitment or guarantee to the Employee that any federal or state tax treatment shall apply or be available to any person eligible for benefits under this Agreement.
10.Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Employee.
11.Amendment. Any modification of this Agreement shall be effective only if it is in writing and signed by both the Employee and an authorized officer of the Company.
12.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.




IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Employee has executed this Agreement, all as of the date first above written.
                        

FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
EMPLOYEE
 
 
 


                        
                                                

                        





Exhibit
Exhibit 10.8




FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN
2018 EMPLOYEE NONSTATUTORY STOCK OPTION AGREEMENT

This Nonstatutory Stock Option Agreement (this “Agreement”) is made as of __ day of ________, 2018 the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _________________ (“Employee”).
To carry out the purposes of the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”), by affording Employee the opportunity to purchase shares of the common stock of the Company, par value $.01 per share (“Common Stock”), and in consideration of the mutual agreements and other matters set forth herein and in the Plan, the Company and Employee hereby agree as follows:
1.Grant of Option. The Company hereby irrevocably grants to Employee the right and option (“Option”) to purchase all or any part of an aggregate of [Amount of Options], shares Common Stock on the terms and conditions set forth herein and in the Plan, which Plan is incorporated herein by reference as a part of this Agreement. In the event of any conflict between the terms of this Agreement and the Plan, the Plan shall control. Capitalized terms used but not defined in this Agreement shall have the meaning attributed to such terms under the Plan, unless the context requires otherwise. This Option shall not be treated as an incentive stock option within the meaning of section 422(b) of the Code.
2.Purchase Price. The purchase price of Common Stock purchased pursuant to the exercise of this Option shall be $[Exercise Price] per share, which has been determined to be not less than the Fair Market Value of a share of Common Stock at the Date of Grant. For all purposes of this Agreement, Fair Market Value of Common Stock shall be determined in accordance with the provisions of the Plan.
3.Exercise of Option. Subject to the earlier expiration of this Option as herein provided, this Option may be exercised, by written notice to the Company at its principal Employee office addressed to the attention of its Corporate Secretary (or such other officer or employee of the Company as the Company may designate from time to time), at any time and from time to time after the Date of Grant, but this Option shall not be exercisable for more than a percentage of the aggregate number of shares offered by this Option determined in accordance with the following schedule:
Date Additional Option Shares
Become Exercisable
Additional Percentage of Aggregate Option Shares
Becoming Exercisable
 
 
First Anniversary of Date of Grant
25%
Second Anniversary of Date of Grant
25%
Third Anniversary of Date of Grant
25%
Fourth Anniversary of Date of Grant
25%
Notwithstanding the schedule set forth above, if a Change in Control occurs and Employee has remained continuously employed by the Company or any of its Affiliates (collectively, the “Company Group”) from the Date of Grant to the date upon which such Change in Control occurs, then this Option shall be exercisable with respect to 100% of the shares offered by this Option from and after the date upon which such Change in Control occurs.
4.Termination of Employment. This Option may be exercised only while Employee remains an employee of the Company Group and will terminate and cease to be exercisable upon Employee’s termination of employment with the Company, except that:




(a)If Employee’s employment with the Company Group terminates by reason of Disability (as defined below), each quarter of the Option described in Section 3 that is unvested as of the date of Employee’s Disability shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the Option, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of Employee’s Disability, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the Option would have vested pursuant to Section 3. Any remaining unvested portion of this Option shall be forfeited. The vested portion of this Option may be exercised by Employee (or Employee’s estate or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Employee) at any time during the period of one year following such termination, but only as to the number of shares Employee was entitled to purchase hereunder as of the date Employee’s employment so terminates. For purposes of this Section 4(a), a “Disability” occurs on the date that Employee becomes eligible for long-term disability benefits pursuant to the Company’s long-term disability plan.
(b)If Employee’s employment with the Company Group terminates by reason of death, each quarter of the Option described in Section 3 that is unvested as of the date of Employee’s death shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the Option, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of Employee’s death, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date on which each such unvested quarter of the Option would have vested pursuant to Section 3. Any remaining unvested portion of this Option shall be forfeited. Employee’s estate, or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Employee, may exercise the vested portion of this Option at any time during the period of one year following the date of Employee’s death, but only as to the number of shares Employee was entitled to purchase hereunder as of the date of Employee’s death.
(c)The Plan sets forth the treatment of each unvested quarter of the Option described in Section 3 following a Change in Control. In lieu of the definition of “Good Reason” set forth in the Plan, “Good Reason” for purposes of this Agreement shall mean the occurrence of any of the following events without the Employee's express written consent:
(i)
a change in the Employee’s status, title or position with the Company Group, including as an officer of the Company, which, in the Employee's good faith judgment, does not represent a promotion, with commensurate adjustment of compensation, from the Employee’s status, title or position as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are inconsistent with the Employee’s status, title or position in effect immediately prior to such assignment; the withdrawal from the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are consistent with such status, title or position in effect immediately prior to such withdrawal; or any removal of the Employee from or any failure to reappoint or reelect the Employee to any position; provided that the circumstances described in this item (i) do not apply as a result of the Employee’s death, Retirement, or Disability or following receipt by the Employee of written notice from the Company of the termination of the Employee's employment for Cause;
(ii)
a reduction by the Company in the Employee's then current base salary;
(iii)
the failure by the Company to continue in effect any benefit or compensation plan in which the Employee was participating immediately prior to such failure other than as



a result of the normal expiration or amendment of any such plan in accordance with its terms; or the taking of any action, or the failure to act, by the Company which would adversely affect the Employee’s continued participation in any benefit or compensation plan on at least as favorable a basis to the Employee as is the case immediately prior to the action or failure to act or which would materially reduce the Employee's benefits under any such plan or deprive the Employee of any material benefit enjoyed by the Employee immediately prior to the action or failure to act;
(iv)
the relocation of the principal place of the Employee's employment to a location 25 miles further from the Employee's then current principal residence;
(v)
the failure by the Company upon a Change in Control to obtain an agreement, satisfactory to the Employee, from any successor or assign of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no succession or assignment had taken place; or
(vi)
any material default by the Company in the performance of its obligations under this Agreement.
Any event or condition described in this Section 4(c) which occurs prior to the effective date of any Change in Control, but which the Employee reasonably demonstrates (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (y) otherwise arose in connection with or in anticipation of a Change in Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to such effective date. The Employee’s continued employment or failure to give the Company any notice of termination for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. For purposes of this Section 4(c), any good faith determination of Good Reason made by the Employee shall be conclusive.
(d)If Employee’s employment with the Company Group terminates for any reason other than as described in (a), (b) or (c) above, this Option may be exercised by Employee at any time during the period of 30 days following such termination, or by Employee’s estate (or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Employee) during a period of 30 days following Employee’s death if Employee dies during such 30-day period, but in each case only as to the number of shares Employee was entitled to purchase hereunder as of the date Employee’s employment so terminates.
(e)If Employee has remained continuously employed by the Company from the Date of Grant to the date upon which a Change in Control occurs, and if Employee’s employment with the Company Group terminates for any reason on or after the date upon which such Change in Control occurs, then, notwithstanding the provisions of (a), (b) or (d) above, this Option may be exercised to the extent vested by Employee (or Employee’s estate or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Employee) at any time on or before the expiration of 10 years from the Date of Grant.
(f)If Employee’s employment with the Company Group terminates by reason of Retirement (as defined below), the Committee may, in its sole and absolute discretion, determine that each quarter of the Option described in Section 3 that is unvested as of the date of Employee’s Retirement shall become vested in a pro rata amount determined by a fraction with respect to each unvested quarter of the Option, the numerator of which shall be the number of months (not including any partial months) that have elapsed for the period beginning on the Date of Grant and ending on the date of Employee’s Retirement, and the denominator of which shall be the number of months for the period beginning on the Date of Grant and ending on the corresponding anniversary of the date



on which each such unvested quarter of the Option would have vested pursuant to Section 3. For purposes of this Section 4(f), “Retirement” shall mean termination of Employee’s service relationship with all members of the Company Group which is specifically determined by the Committee in its sole and absolute discretion to constitute Retirement.
Notwithstanding the preceding provisions of this Section 4, this Option shall not be exercisable in any event after the expiration of 10 years from the Date of Grant.
The purchase price of shares as to which this Option is exercised shall be paid in full at the time of exercise (a) in cash (including check, bank draft or money order payable to the order of the Company), (b) if permitted by the Committee in its sole discretion, by delivering or constructively tendering to the Company shares of Common Stock having a Fair Market Value equal to the purchase price (provided such shares used for this purpose must have been held by Employee for such minimum period of time as may be established from time to time by the Committee), (c) through a “cashless exercise” in accordance with a Company established policy or program for the same or (d) any combination of the foregoing. No fraction of a share of Common Stock shall be issued by the Company upon exercise of an Option or accepted by the Company in payment of the exercise price thereof; rather, Employee shall provide a cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Common Stock. Unless and until a certificate or certificates representing such shares shall have been issued by the Company to Employee, Employee (or the person permitted to exercise this Option in the event of Employee’s death) shall not be or have any of the rights or privileges of a stockholder of the Company with respect to shares acquirable upon an exercise of this Option.
If Employee is subject to taxation in the United Kingdom, then the exercise of this Option will be effective only if accompanied by an election under Section 431(1) of the Income Tax (Earnings & Pensions) Act 2003 in the form attached as Appendix A completed as far as possible by Employee.

5.Withholding of Tax. To the extent that the grant or exercise of this Option or the disposition of shares of Common Stock acquired by exercise of this Option results in compensation income or wages to Employee for federal, state, local or foreign tax purposes, the Company shall withhold an appropriate number of shares of Common Stock, having a Fair Market Value determined in accordance with the Plan, equal to the amount necessary to satisfy the minimum federal, state, local and foreign tax withholding obligation with respect to this Option. The issuance of shares of Common Stock described in Section 3 will be net of such shares of Common Stock that are withheld to satisfy applicable taxes pursuant to this Section 5. In lieu of withholding of shares of Common Stock, the Committee may, in its discretion, authorize tax withholding to be satisfied by a cash payment to the Company, by withholding an appropriate amount of cash from base pay, or by such other method as the Committee determines may be appropriate to satisfy all obligations for withholding of such taxes.
6.Status of Common Stock. Employee understands that at the time of the execution of this Agreement the shares of Common Stock to be issued upon exercise of this Option have not been registered under the Securities Act, or any state securities law, and that the Company does not currently intend to effect any such registration. Until the shares of Common Stock acquirable upon the exercise of the Option have been registered for issuance under the Securities Act, the Company will not issue such shares unless, if requested by the Company, the holder of the Option provides the Company with a written opinion of legal counsel, who shall be satisfactory to the Company, addressed to the Company and satisfactory in form and substance to the Company’s counsel, to the effect that the proposed issuance of such shares to such Option holder may be made without registration under the Securities Act. In the event exemption from registration under the Securities Act is available upon an exercise of this Option, Employee (or the person permitted to exercise this Option in the event of Employee’s death or incapacity), if requested by the Company to do so,



will execute and deliver to the Company in writing an agreement containing such provisions as the Company may require to assure compliance with applicable securities laws.
Employee agrees that the shares of Common Stock which Employee may acquire by exercising this Option shall be acquired for investment without a view to distribution, within the meaning of the Securities Act, and shall not be sold, transferred, assigned, pledged or hypothecated in the absence of an effective registration statement for the sale of such shares under the Securities Act and applicable state securities laws or an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws. Employee also agrees that the shares of Common Stock which Employee may acquire by exercising this Option will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws.
In addition, Employee agrees that (i) the certificates representing the shares of Common Stock purchased under this Option may bear such legend or legends as the Committee deems appropriate in order to assure compliance with the terms and provisions of the Stockholders Agreement and applicable securities laws, (ii) the Company may refuse to register the transfer of the shares of Common Stock purchased under this Option on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of the terms and provisions of the Stockholders Agreement or any applicable securities law, and (iii) the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the shares of Common Stock purchased under this Option.
7.Employment Relationship. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company Group as long as Employee remains an employee of any member of the Company Group. Without limiting the scope of the preceding sentence, it is expressly provided that Employee shall be considered to have terminated employment with the Company Group at the time of the termination of the “Affiliate” status under the Plan of the entity or other organization that employs Employee. Nothing in the adoption of the Plan, nor the award of this Option thereunder pursuant to this Agreement, shall affect in any way the right of Employee or the Company to terminate such employment at any time. Unless otherwise provided in a written employment agreement or by applicable law, Employee’s employment by the Company shall be on an at-will basis, and the employment relationship may be terminated at any time by either Employee or the Company for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of Employee’s employment with the Company, and the cause of such termination, shall be determined by the Committee, and its determination shall be final.
8.Acknowledgements Regarding Taxation. Employee acknowledges and agrees that (a) he is not relying upon any written or oral statement or representation of the Company Group regarding the tax effects associated with Employee’s execution of this Agreement and his receipt, holding and exercise of this Option, and (b) in deciding to enter into this Agreement, Employee is relying on his own judgment and the judgment of the professionals of his choice with whom he has consulted. Employee hereby releases, acquits and forever discharges the Company Group from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with Employee’s execution of this Agreement and his receipt, holding and exercise of this Option.
9.Notices. Any notices or other communications provided for in this Option shall be sufficient if in writing. In the case of Employee, such notices or communications shall be effectively delivered if hand delivered to Employee at Employee’s principal place of employment or if sent by certified mail, return receipt requested, to Employee at the last address Employee has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by certified mail, return receipt requested, to the Company at its principal executive offices.
10.Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Employee.



11.Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Option granted hereby; provided, however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any employment and/or severance agreement between the Company (or an Affiliate) and Employee in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. Any modification of this Agreement shall be effective only if it is in writing and signed by both Employee and an authorized officer of the Company.
12.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of laws principles thereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officer thereunto duly authorized, and Employee has executed this Agreement, all as of the date first above written.


                        
FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
EMPLOYEE
 
 
 




Exhibit
Exhibit 10.9


FORUM ENERGY TECHNOLOGIES, INC.
2016 STOCK AND INCENTIVE PLAN
2018 EMPLOYEE PERFORMANCE SHARE AGREEMENT
This Performance Award Agreement (this “Agreement”) is made as of the ___ day of ___________, 2018 (the “Date of Grant”), between Forum Energy Technologies, Inc., a Delaware corporation (the “Company”), and _________________ (the “Employee”).
1.Award. The Employee is hereby awarded [number of shares] performance shares (each a “Performance Share”) pursuant to the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “Plan”) which shall be allocated as the “Target Amount” as detailed in the chart below. The Performance Shares represent the opportunity to receive a number of shares of Common Stock based on the “Payout Multiplier” as defined in Exhibit A. The number of Performance Shares that are converted into “Earned Performance Shares” will be between 0% and 200% of the Target Amount. Each Performance Share that does not become an Earned Performance Share shall be forfeited.
The exact number of Performance Shares that shall be converted into Earned Performance Shares and issued to the Employee shall be based upon the achievement by the Company of the performance standards as set forth in Exhibit A hereto over three periods, each beginning on January 1, 2018 (the “Performance Beginning Date”) and ending on December 31, 2018, and each of the first and second anniversary thereof, respectively, (each December 31, the “Performance End Date”) (the period ending on each of the first, second and third Performance End Date is referred to as the “First Performance Period,” the “Second Performance Period,” and the “Third Performance Period,” respectively). The determination by the Committee with respect to the achievement of such performance standards shall be made as soon as administratively practicable following each Performance Period after all necessary Company and peer information is available. The specific date on which such determination is formally made and approved by the Committee is referred to as the “Determination Date.” After the Determination Date, the Company shall notify the Employee of the number of Earned Performance Shares, if any, and the corresponding number of shares of Common Stock to be issued to the Employee in satisfaction of the award. The shares of Common Stock shall be issued to the Employee on March 15 following the applicable Performance End Date (the “Settlement Date”).
For each of the Performance Periods, the Target Amount, the Performance Beginning Date, the Performance End Date and the Settlement Date are detailed in the chart below:
Performance Period
Target Amount
Performance Beginning Date
Performance End Date
Settlement Date
First Performance Period
 
January 1, 2018
December 31, 2018
March 15, 2019
Second Performance Period
 
January 1, 2018
December 31, 2019
March 15, 2020
Third Performance Period
 
January 1, 2018
December 31, 2020
March 15, 2021
The performance standards are based on the Company’s Total Shareholder Return compared against the Peer Group. The methodology for calculating the number of Earned Performance Shares, including the definitions used therefor, is set forth in Exhibit A hereto.
The Employee acknowledges receipt of a copy of the Plan, and agrees that this award of Performance Shares shall be subject to all of the terms and provisions of the Plan, including future amendments thereto,



if any, pursuant to the terms thereof. Capitalized terms used in this Agreement and Exhibit “A” hereto that are not defined herein shall have the meanings given to them in the Plan or Exhibit A, as applicable.
2.Vesting/Forfeiture. Except as otherwise provided in Section 3 below, the Performance Shares shall vest on the applicable Determination Date, provided the Employee is continuously employed by the Company or any of its Affiliates (collectively, the “Company Group”) through the applicable Determination Date. Except as otherwise provided in Section 3, the Performance Shares shall be automatically forfeited on the date of the Employee’s termination of employment.
3.Termination of Employment.
(a)Death or Disability. If prior to a Determination Date with respect to a Performance Period, the Employee dies or becomes Disabled, the Performance Shares shall vest on a pro rata basis determined by multiplying the applicable Target Amount of Performance Shares for each remaining Performance Period by a fraction (not greater than 1.0), the numerator of which is the number of months (not including any partial months) that have elapsed since the Performance Beginning Date to the date of the Employee’s death or Disability, as applicable, and the denominator of which is the total number of months in the applicable Performance Period. Any remaining unvested Performance Shares shall be forfeited. The shares of Common Stock in respect of the vested Performance Shares shall be issued to the Employee thirty (30) days after the date of the Employee’s death or Disability, as applicable. For purposes of this Section 3(a), the Employee shall become “Disabled” or have a “Disability” on the date that the Employee becomes eligible for long-term disability benefits pursuant to the Company’s long-term disability plan.
(b)Retirement. Provided the Employee remained continuously employed by the Company Group for the six (6) month period following the Date of Grant, if the Employee’s employment with the Company Group is terminated prior to a Determination Date with respect to a Performance Period by reason of Retirement, the Committee may, in its sole and absolute discretion, determine that the Performance Shares shall vest on a pro rata basis determined by multiplying the number of Performance Shares that would otherwise have been earned and vested on the applicable Determination Date by a fraction, the numerator of which is the number of months (not including any partial months) that have elapsed since the Performance Beginning Date to the date of the Employee’s Retirement, and the denominator of which is the total number of months in the applicable Performance Period. The shares of Common Stock in respect of the Earned Performance Shares shall be based on the Payout Multiplier and shall be issued to the Employee on the applicable Settlement Date. Notwithstanding any other provision in this Section 3(b), if the Employee’s Retirement occurs on or within two years after the date of consummation of such Change in Control that is a “change in control event” within the meaning of Treasury Regulation 1.409A-3(i)(5) (a “409A Change in Control Event”), the number of Earned Performance Shares shall be equal to the Target Amount for each applicable Performance Period and the shares of Common Stock in respect of the Earned Performance Shares shall be issued to the Employee thirty (30) days after the Employee’s termination of employment. For purposes of this Section 3(b), “Retirement” shall mean termination of the Employee’s service relationship with all members of the Company Group which is specifically determined by the Committee in its sole and absolute discretion to constitute Retirement.
(c)Good Reason. In lieu of the definition of “Good Reason” set forth in Article I of the Plan, “Good Reason” for purposes of this Agreement shall mean the occurrence of any of the following events without the Employee’s express written consent:
(i)
a change in the Employee’s status, title or position with the Company Group, including as an officer of the Company, which, in the Employee’s good faith judgment, does not represent a promotion, with commensurate adjustment of compensation, from the Employee’s status, title or position as in effect immediately prior thereto; the assignment to the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are inconsistent with the Employee’s status, title or position in effect immediately prior to such assignment; the



withdrawal from the Employee of any duties or responsibilities which, in the Employee’s good faith judgment, are consistent with such status, title or position in effect immediately prior to such withdrawal; or any removal of the Employee from or any failure to reappoint or reelect the Employee to any position; provided that the circumstances described in this item (i) do not apply as a result of the Employee’s death, Retirement, or Disability or following receipt by the Employee of written notice from the Company of the termination of the Employee’s employment for Cause;
(ii)
a reduction by the Company in the Employee’s then current base salary;
(iii)
the failure by the Company to continue in effect any benefit or compensation plan in which the Employee was participating immediately prior to such failure other than as a result of the normal expiration or amendment of any such plan in accordance with its terms; or the taking of any action, or the failure to act, by the Company which would adversely affect the Employee’s continued participation in any benefit or compensation plan on at least as favorable a basis to the Employee as is the case immediately prior to the action or failure to act or which would materially reduce the Employee’s benefits under any such plan or deprive the Employee of any material benefit enjoyed by the Employee immediately prior to the action or failure to act;
(iv)
the relocation of the principal place of the Employee’s employment to a location 25 miles further from the Employee’s then current principal residence;
(v)
the failure by the Company upon a Change in Control to obtain an agreement, satisfactory to the Employee, from any successor or assign of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no succession or assignment had taken place; or
(vi)
any material default by the Company in the performance of its obligations under this Agreement.
Any event or condition described in provisions (i) through (vi) above which occurs prior to the effective date of any Change in Control, but which the Employee reasonably demonstrates (x) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (y) otherwise arose in connection with or in anticipation of a Change in Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to such effective date. The Employee’s continued employment or failure to give the Company any notice of termination for Good Reason shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. For purposes of this Section 3(c), any good faith determination of Good Reason made by the Employee shall be conclusive.
4.Settlement and Delivery of Stock. Except as otherwise provided in Section 3, settlement of the Earned Performance Shares shall be made on the applicable Settlement Date. Settlement will be made by issuance of shares of Common Stock equal to the number of Earned Performance Shares. Notwithstanding the foregoing, the Company shall not be obligated to issue any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the issuance of shares of Common Stock to comply with any such law, rule, regulation or agreement.
5.Shareholder Rights. The Employee shall have no rights to dividend equivalent payments with respect to the Performance Shares and shall have no rights to dividends or other rights of a shareholder



with respect to shares of Common Stock subject to this award of Performance Shares unless and until such time as the award has been settled by the issuance of shares of Common Stock to the Employee. Any Earned Performance Shares shall be subject to adjustment under the Plan with respect to dividends or other distributions that are paid in shares of Common Stock with a record date that is after the Determination Date and prior to Settlement Date, as applicable, to such Earned Performance Shares.
6.Corporate Acts. The existence of the Performance Shares shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.
7.Withholding. To the extent that the vesting of the Performance Shares results in compensation income or wages to the Employee for federal, state, local or foreign tax purposes, the Employee shall deliver to the Company or to any Affiliate nominated by the Company at the time of such lapse, such amount of money or, if permitted by the Committee in its sole discretion, shares of Common Stock as the Company or any Affiliate nominated by the Company may require to meet its minimum obligation under applicable tax or social security laws or regulations, and if the Employee fails to do so, the Company and its Affiliates are authorized to withhold from any cash or stock remuneration (including withholding any shares of Common Stock distributable to the Employee under this Agreement) then or thereafter payable to the Employee any tax or social security required to be withheld by reason of such resulting compensation income or wages. The Employee acknowledges and agrees that the Company is making no representation or warranty as to the tax consequences to the Employee as a result of the receipt of the Performance Shares, vesting of the Performance Shares or the forfeiture of any Performance Shares pursuant to the Forfeiture Restrictions.
8.Employment Relationship. For purposes of this Agreement, the Employee shall be considered to be in the employment of the Company as long as the Employee remains an employee of any member of the Company Group. Without limiting the scope of the preceding sentence, it is specifically provided that the Employee shall be considered to have terminated employment with the Company at the time of the termination of the “Affiliate” status of the entity or other organization that employs the Employee.
Nothing in the adoption of the Plan, nor the award of the Performance Shares thereunder pursuant to this Agreement, shall confer upon the Employee the right to continued employment by the Company Group or affect in any way the right of the Company to terminate such employment at any time. Unless otherwise provided in a written employment agreement or by applicable law, the Employee’s employment by the Company Group shall be on an at-will basis, and the employment relationship may be terminated at any time by either the Employee or the Company for any reason whatsoever, with or without cause or notice.
Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee or its delegate, and its determination shall be final.
9.Code Section 409A; No Guarantee of Tax Consequences. The award of Performance Shares is intended to be (i) exempt from Section 409A of the Code (“Section 409A”) including, but not limited to, by reason of compliance with the short-term deferral exemption as specified in Treas. Reg. § 1.409A-1(b)(4); or (ii) in compliance with Section 409A, and the provisions of this Agreement shall be administered, interpreted and construed accordingly. Payments under this Agreement in a series of installments shall be treated as a right to receive a series of separate payments for purposes of Section 409A. If the Employee is identified by the Company as a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date on which the Employee has a “separation from service” (other than due to death) within the meaning of Section 1.409A-1(h) of the Treasury Regulations, notwithstanding the provisions of Section 5 hereof, any transfer of shares



payable on account of a separation from service that are deferred compensation shall take place on the earlier of (i) the first business day following the expiration of six months from the Employee’s separation from service, or (ii) such earlier date as complies with the requirements of Section 409A. To the extent required to comply with Section 409A, the Employee shall be considered to have terminated employment with the Company Group when the Employee incurs a “separation from service” with a member of the Company Group within the meaning of Section 409A(a)(2)(A)(i) of the Code. The Company makes no commitment or guarantee to the Employee that any federal or state tax treatment shall apply or be available to any person eligible for benefits under this Agreement.
10.Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Employee.
11.Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties with respect to Performance Shares commencing on the Performance Beginning Date. Any modification of this Agreement shall be effective only if it is in writing and signed by both the Employee and an authorized officer of the Company.
12.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.

                        
FORUM ENERGY TECHNOLOGIES, INC.
 
 
By:
 
 
Prady Iyyanki
President and CEO
 
 
EMPLOYEE
 
 
 
                                                





Exhibit A

Methodology for Calculating Earned Performance Shares


13.Definitions. For purposes of determining the number of shares of Common Stock issuable to the Employee in respect of the Earned Performance Shares for each Performance Period, the following definitions shall apply:
(a)Ending Share Price means the average closing price of the shares over the twenty trading days prior to the Performance End Date.
(b)Peer Group means Dril-Quip Inc., Exterran Corporation, TechnipFMC plc, Hunting plc, National Oilwell Varco, Inc., Oceaneering International, Inc., Oil States International, Inc., Superior Energy Services, Inc., and PHLC Oil Service Sector Index to the extent such entities or their successors are in existence and publicly traded as of the Performance End Date.
(c)Starting Share Price means the average closing price of the shares over the twenty trading days prior to the Performance Beginning Date.
(d)Total Shareholder Return means common stock price growth for each entity over the applicable Performance Period, as measured by dividing the sum of the cumulative amount of dividends for that Performance Period, assuming dividend reinvestment, and the difference between the entity’s Ending Share Price and the Starting Share Price; by the entity’s Starting Share Price. In the event of a spin-off or similar divestiture during the Performance Period by an entity that is a member of the Peer Group, the Committee may make such adjustments to the calculation of such entity’s Total Shareholder Return as it determines may be appropriate, including, without limitation, taking into account the common stock price growth for both the entity that is the member of the Peer Group and the divested entity over the applicable Performance Period.
For purposes of this Exhibit A, the share prices and dividends of peers that trade in foreign currency shall be converted to U.S. dollars.
14.Committee Methodology. For purposes of determining the number of shares of Common Stock issuable to the Employee in respect of the Earned Performance Shares, the Committee shall:
(a)Calculate the Total Shareholder Return for the Company and each company in the Peer Group for the applicable Performance Period.
(b)Rank the Company and each member of the Peer Group based on Total Shareholder Return with the company having the highest Total Shareholder Return ranking in the first position and the company with the lowest Total Shareholder Return ranking in the tenth position.
(c)Determine the number of Earned Performance Shares by multiplying the Employee’s Target Amount by the Payout Multiplier in the Ten Company Payout Schedule below:



Ten Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.75
3
1.50
4
1.25
5
1.00
6
1.00
7
0.75
8
0.50
9
0.25
10
0.00

Notwithstanding the calculations described in clause (c) above, in the event the Total Shareholder Return for the Company is (I) less than 0%, the Payout Multiplier applied in clause (c) shall not exceed 1.00 or (II) greater than or equal to 20%, the Payout Multiplier applied in clause (c) shall not be less than 1.00.
If any calculation with respect to the Earned Performance Shares would result in a fractional share, the number of shares of Common Stock to be issued shall be rounded up to the nearest whole share.
15.Peer Group Changes. If, as a result of merger, acquisition or a similar corporate transaction, a member of the Peer Group ceases to be a member of the Peer Group (an “Affected Peer Company”), the Affected Peer Company shall not be included in the Ten Company Payout Schedule and the applicable of the following alternative schedules shall be used in its place:
Nine Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.75
3
1.50
4
1.25
5
1.00
6
0.75
7
0.50
8
0.25
9
0.00






Eight Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.71
3
1.42
4
1.13
5
0.84
6
0.55
7
0.26
8
0.00

Seven Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.67
3
1.33
4
1.00
5
0.67
6
0.33
7
0.00

Six Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.60
3
1.20
4
0.80
5
0.40
6
0.00

Five Company Payout Schedule
Company Ranking
Payout Multiplier
1
2.00
2
1.50
3
1.00
4
0.50
5
0.00

If a member of the Peer Group declares bankruptcy, it shall be deemed to remain in the Peer Group until the applicable Performance End Date and shall occupy the lowest ranking in the Payout Schedule. If, as a result of merger, acquisition or a similar corporate transaction, there are five or more Affected Peer Companies, the Committee may in its sole discretion revise the makeup of the Peer Group and make adjustments to the Payout Multipliers.



Exhibit


Exhibit 31.1

Forum Energy Technologies, Inc.
Certification

I, Prady Iyyanki, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Forum Energy Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 
May 2, 2018
By:
/s/ Prady Iyyanki
 
 
 
 
Prady Iyyanki
 
 
 
 
President and Chief Executive Officer
 


Exhibit


Exhibit 31.2

Forum Energy Technologies, Inc.
Certification

I, Pablo G. Mercado, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Forum Energy Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 
May 2, 2018
By:
/s/ Pablo G. Mercado
 
 
 
 
Pablo G. Mercado
 
 
 
 
Chief Financial Officer
 


Exhibit


Exhibit 32.1


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Forum Energy Technologies, Inc. (the “Company”) for the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Prady Iyyanki, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  
May 2, 2018
By:
/s/ Prady Iyyanki
 
 
 
 
Prady Iyyanki
 
 
 
 
President and Chief Executive Officer
 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Exchange Act.


Exhibit


Exhibit 32.2


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Forum Energy Technologies, Inc. (the “Company”) for the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Pablo G. Mercado, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  
May 2, 2018
By:
/s/ Pablo G. Mercado
 
 
 
 
Pablo G. Mercado
 
 
 
 
Chief Financial Officer
 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Exchange Act.