FET 2015 Q2 10-Q
Table of Contents
 

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 June 30, 2015
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
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 July 24, 2015, there were 90,282,646 common shares outstanding.

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Table of Contents



2
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated statements of comprehensive income
(Unaudited)
  
Three months ended June 30,
 
Six months ended June 30,
(in thousands, except per share information)
2015
 
2014
 
2015
 
2014
Net sales
$
284,415

 
$
428,279

 
$
632,511

 
$
832,217

Cost of sales
199,532

 
290,286

 
438,502

 
566,286

Gross profit
84,883

 
137,993

 
194,009

 
265,931

Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
66,225

 
77,731

 
139,785

 
148,771

Transaction expenses
23

 
682

 
240

 
810

Loss (gain) on sale of assets and other
37

 
(284
)
 
(275
)
 
405

Total operating expenses
66,285

 
78,129

 
139,750

 
149,986

Earnings from equity investment
3,840

 
5,940

 
8,411

 
11,248

Operating income
22,438

 
65,804

 
62,670

 
127,193

Other expense (income)
 
 
 
 
 
 
 
Interest expense
7,607

 
7,725

 
15,234

 
15,475

Foreign exchange (gains) losses and other, net
4,055

 
3,129

 
(2,601
)
 
4,606

Total other expense
11,662

 
10,854

 
12,633

 
20,081

Income before income taxes
10,776

 
54,950

 
50,037

 
107,112

Provision for income tax expense
1,911

 
15,407

 
12,516

 
31,063

Net income
8,865

 
39,543

 
37,521

 
76,049

Less: Income (loss) attributable to noncontrolling interest
(9
)
 
21

 
(25
)
 
(3
)
Net income attributable to common stockholders
8,874

 
39,522

 
37,546

 
76,052

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
89,767

 
92,649

 
89,625

 
92,391

Diluted
91,884

 
95,695

 
91,597

 
95,363

Earnings per share
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.43

 
$
0.42

 
$
0.82

Diluted
$
0.10

 
$
0.41

 
$
0.41

 
$
0.80

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Net income
8,865

 
39,543

 
37,521

 
76,049

Change in foreign currency translation, net of tax of $0
25,491

 
11,690

 
(11,806
)
 
12,720

Gain (loss) on pension liability
(29
)
 
—

 
70

 
2

Comprehensive income
34,327

 
51,233

 
25,785

 
88,771

Less: comprehensive loss (income) attributable to noncontrolling interests
11

 
(15
)
 
54

 
12

Comprehensive income attributable to common stockholders
$
34,338

 
$
51,218

 
$
25,839

 
$
88,783

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


3
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Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated balance sheets
(Unaudited)
(in thousands, except share information)
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
57,841

 
$
76,579

Accounts receivable—trade, net
199,620

 
287,045

Inventories
522,817

 
461,515

Prepaid expenses and other current assets
41,458

 
32,985

Costs and estimated profits in excess of billings
16,819

 
14,646

Deferred income taxes, net
23,066

 
22,389

Total current assets
861,621

 
895,159

Property and equipment, net of accumulated depreciation
202,430

 
189,974

Deferred financing costs, net
11,828

 
13,107

Intangibles
265,811

 
271,739

Goodwill
808,374

 
798,481

Investment in unconsolidated subsidiary
55,308

 
49,675

Other long-term assets
4,001

 
3,493

Total assets
$
2,209,373

 
$
2,221,628

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
623

 
$
840

Accounts payable—trade
114,948

 
127,757

Accrued liabilities
82,176

 
126,890

Deferred revenue
8,604

 
10,919

Billings in excess of costs and profits recognized
9,811

 
15,785

Total current liabilities
216,162

 
282,191

Long-term debt, net of current portion
437,673

 
428,010

Deferred income taxes, net
97,831

 
98,188

Other long-term liabilities
22,396

 
17,318

Total liabilities
774,062

 
825,707

Commitments and contingencies

 


Equity
 
 
 
Common stock, $0.01 par value, 296,000,000 shares authorized, 98,299,697 and 97,865,278 shares issued
983

 
979

Additional paid-in capital
878,508

 
864,313

Treasury stock at cost, 8,138,667 and 8,108,983 shares
(133,074
)
 
(132,480
)
Retained earnings
737,051

 
699,505

Accumulated other comprehensive income (loss)
(48,668
)
 
(36,961
)
Total stockholders’ equity
1,434,800

 
1,395,356

Noncontrolling interest in subsidiary
511

 
565

Total equity
1,435,311

 
1,395,921

Total liabilities and equity
$
2,209,373

 
$
2,221,628

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

4
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Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(Unaudited)
  
Six Months Ended June 30,
(in thousands, except share information)
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
37,521

 
$
76,049

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation expense
18,996

 
18,650

Amortization of intangible assets
13,671

 
13,678

Share-based compensation expense
11,814

 
9,414

Deferred income taxes
69

 
6,307

Earnings from equity investment, net of distributions
(5,633
)
 
2,171

Other
2,588

 
2,337

Changes in operating assets and liabilities
 
 
 
Accounts receivable—trade
90,944

 
(24,780
)
Inventories
(39,009
)
 
(11,695
)
Prepaid expenses and other current assets
(4,729
)
 
10,971

Accounts payable, deferred revenue and other accrued liabilities
(62,388
)
 
11,924

Costs and estimated profits in excess of billings, net
(7,960
)
 
(1,943
)
Net cash provided by operating activities
$
55,884

 
$
113,083

Cash flows from investing activities
 
 
 
Acquisition of businesses, net of cash acquired
(60,836
)
 
(37,682
)
Capital expenditures for property and equipment
(19,680
)
 
(28,718
)
Proceeds from sale of business, property and equipment
1,408

 
8,596

Net cash used in investing activities
$
(79,108
)
 
$
(57,804
)
Cash flows from financing activities
 
 
 
Borrowings under Credit Facility
79,943

 
—

Repayment of long-term debt
(70,580
)
 
(75,511
)
Excess tax benefits from stock based compensation
106

 
5,179

Repurchases of stock
(6,194
)
 
(881
)
Proceeds from stock issuance
2,280

 
6,746

Deferred financing costs
—

 
(5
)
Net cash provided by (used in) financing activities
$
5,555

 
$
(64,472
)
Effect of exchange rate changes on cash
(1,069
)
 
2,253

Net decrease in cash and cash equivalents
(18,738
)
 
(6,940
)
Cash and cash equivalents
 
 
 
Beginning of period
76,579

 
39,582

End of period
$
57,841

 
$
32,642

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

5
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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"), a Delaware corporation, is a global oilfield products company, serving the subsea, drilling, 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.
The Company's investment in an operating entity where the Company has the ability to exert significant influence, but does not control operating and financial policies, is accounted for using the equity method. The Company's share of the net income of this entity is recorded as "Earnings from equity investment" in the condensed consolidated statements of comprehensive income. The investment in this entity is included in "Investment in unconsolidated subsidiary" in the condensed consolidated balance sheets. The Company reports its share of equity earnings within operating income 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 six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 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, 2014, which are included in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on February 27, 2015 (the "Annual Report").
2. Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB"), which are adopted by the Company 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 the Company’s consolidated financial statements upon adoption.
In July 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-11, Simplifying the Measurement of Inventory, the objective of which is to clearly articulate the requirements for the measurement and disclosure of inventory.  The new standard will be effective for the Company for the fiscal year beginning after December 15, 2016, including interim periods within those fiscal years. The guidance is not expected to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires deferred financing costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. The new standard will be effective for the Company for the fiscal year beginning January 1, 2016 and interim periods thereafter. The guidance is not expected to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern. The new standard requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity's ability to continue as a going concern for both annual and interim reporting periods. The guidance is effective for the Company for the fiscal year beginning January 1, 2016 and interim periods thereafter. The guidance is not expected to have a material impact on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration

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

to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The new standard is to be effective December 15, 2017. Companies are able to early adopt the pronouncement, however not before December 15, 2016. The Company is currently evaluating the impacts of the adoption and the implementation approach to be used.
3. Acquisitions
2015 Acquisition
Effective February 2, 2015, the Company completed the acquisition of J-Mac Tool, Inc. ("J-Mac") for consideration of $64.2 million. J-Mac is a Fort Worth, Texas based manufacturer of high quality hydraulic fracturing pumps, power ends, fluid ends and other pump accessories. J-Mac is included in the Production & Infrastructure segment. As the value of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date. When the valuation is final, any changes to the preliminary valuation of acquired assets and liabilities could result in adjustments to identified intangibles and goodwill. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
 
 
2015 Acquisition
Current assets, net of cash acquired
 
$
37,106

Property and equipment
 
11,659

Intangible assets (primarily customer relationships)
 
10,408

Tax-deductible goodwill
 
15,249

Current liabilities
 
(10,209
)
Long-term liabilities
 
(22
)
Net assets acquired
 
$
64,191

2014 Acquisition
Effective May 1, 2014, the Company completed the acquisition of Quality Wireline & Cable, Inc. ("Quality") for consideration of $38.3 million. Quality is a Calgary, Alberta based manufacturer of high-performance cased-hole electro-mechanical wireline cables and specialty cables for the oil and gas industry. Quality is included in the Drilling & Subsea segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
 
 
2014 Acquisition
Current assets, net of cash acquired
 
$
7,596

Property and equipment
 
3,837

Intangible assets (primarily customer relationships)
 
11,527

Non-tax-deductible goodwill
 
20,573

Current liabilities
 
(1,615
)
Deferred tax liabilities
 
(3,629
)
Net assets acquired
 
$
38,289

Revenues and net income related to the acquisitions were not significant for the year ended December 31, 2014 or the six months ended June 30, 2015. Pro forma results of operations for the 2015 and 2014 acquisitions have not been presented because the effects were not material to the consolidated financial statements on either an individual or aggregate basis.

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

4. Inventories
The Company's significant components of inventory at June 30, 2015 and December 31, 2014 were as follows (in thousands):
 
June 30,
2015
 
December 31,
2014
Raw materials and parts
$
169,761

 
$
153,768

Work in process
51,581

 
50,913

Finished goods
333,856

 
286,290

Gross inventories
555,198

 
490,971

Inventory reserve
(32,381
)
 
(29,456
)
Inventories
$
522,817

 
$
461,515

5. Goodwill and intangible assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2014 to June 30, 2015, were as follows (in thousands):
 
Drilling & Subsea
 
Production & Infrastructure
 
Total
Goodwill Balance at December 31, 2014 net
$
719,860

 
$
78,621

 
$
798,481

Acquisitions
—

 
15,249

 
15,249

Impact of non-U.S. local currency translation
(5,107
)
 
(249
)
 
(5,356
)
Goodwill Balance at June 30, 2015 net
$
714,753

 
$
93,621

 
$
808,374


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

Intangible assets
Intangible assets consisted of the following as of June 30, 2015 and December 31, 2014, respectively (in thousands):
  
June 30, 2015
 
Gross carrying
amount
 
Accumulated
amortization
 
Net amortizable
intangibles
 
Amortization
period (in years)
Customer relationships
$
292,973

 
$
(94,781
)
 
$
198,192

 
4-15
Patents and technology
30,536

 
(9,373
)
 
21,163

 
5-17
Non-compete agreements
7,029

 
(6,071
)
 
958

 
3-6
Trade names
47,866

 
(16,580
)
 
31,286

 
10-15
Distributor relationships
22,160

 
(13,178
)
 
8,982

 
8-15
Trademark
5,230

 
—

 
5,230

 
Indefinite
Intangible Assets Total
$
405,794

 
$
(139,983
)
 
$
265,811

 
 

  
December 31, 2014
 
Gross carrying
amount
 
Accumulated
amortization
 
Net amortizable
intangibles
 
Amortization
period (in years)
Customer relationships
$
284,120

 
$
(84,947
)
 
$
199,173

 
4-15
Patents and technology
31,069

 
(8,074
)
 
22,995

 
5-17
Non-compete agreements
7,086

 
(5,761
)
 
1,325

 
3-6
Trade names
48,149

 
(14,747
)
 
33,402

 
10-15
Distributor relationships
22,160

 
(12,546
)
 
9,614

 
8-15
Trademark
5,230

 
—

 
5,230

 
Indefinite
Intangible Assets Total
$
397,814

 
$
(126,075
)
 
$
271,739

 
 
6. Debt
Notes payable and lines of credit as of June 30, 2015 and December 31, 2014 consisted of the following (in thousands): 
 
June 30,
2015
 
December 31,
2014
6.25% Senior Notes due October 2021
$
402,600

 
$
402,801

Senior secured revolving credit facility
35,000

 
25,000

Other debt
696

 
1,049

Total debt
438,296

 
428,850

Less: current maturities
(623
)
 
(840
)
Long-term debt
$
437,673

 
$
428,010

Senior Notes Due 2021
The Senior Notes bear interest at a rate of 6.250% 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 the Company’s 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
The Company has a Credit Facility with several financial institutions as lenders that provides for a $600.0 million credit facility with up to $75.0 million available for letters of credit and up to $25.0 million in swingline loans. Subject to terms of the Credit Facility, the Company has the ability to increase the Credit Facility by an additional $300.0 million. The

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

Credit Facility matures in November 2018. Weighted average interest rates under the Credit Facility at June 30, 2015 and December 31, 2014 were 1.94% and 1.91%, respectively.
As of June 30, 2015, we had $35.0 million of borrowings outstanding under the Credit Facility, $12.2 million of outstanding letters of credit and the capacity to borrow an additional $552.8 million subject to certain limitations in the Credit Facility. There have been no changes to the financial covenants disclosed in Item 8 of the Annual Report and the Company was in compliance with all financial covenants at June 30, 2015.
7. Income taxes
The Company's effective tax rate was 25.0% for the six months ended June 30, 2015 and 29.0% for the six months ended June 30, 2014. The tax provision is lower than the comparable period in 2014 primarily due to a higher proportion of our earnings being generated outside the United States in jurisdictions subject to lower tax rates. 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. The effective tax rate was 17.7% for the three months ended June 30, 2015 and 28.0% for the three months ended June 30, 2014. The tax provision for the three months ended June 30, 2015 is lower than the comparable period in 2014 primarily due to a higher proportion of our earnings being generated outside the United States in jurisdictions subject to lower tax rates.
8. Fair value measurements
At June 30, 2015, the carrying value of the Credit Facility was $35.0 million. Substantially all of the debt 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 the Company’s Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At June 30, 2015, the fair value and the carrying value of the Company’s Senior Notes approximated $398.6 million and $402.6 million, respectively. At December 31, 2014, the fair value and the carrying value of the Company’s Senior Notes approximated $378.1 million and $402.8 million, respectively.
There were no outstanding financial assets as of June 30, 2015 and December 31, 2014 that required measuring the amounts at fair value. The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and there were no transfers between levels of the fair value hierarchy during the six months ended June 30, 2015.

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

9. Business segments
The Company’s operations are divided into the following two operating segments, which are our reportable segments: Drilling & Subsea ("D&S") and Production & Infrastructure ("P&I"). 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 June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Drilling & Subsea
$
169,662

 
$
279,251

 
$
384,777

 
$
541,020

Production & Infrastructure
114,929

 
149,369

 
248,092

 
291,944

Intersegment eliminations
(176
)
 
(341
)
 
(358
)
 
(747
)
Total Revenue
$
284,415

 
$
428,279

 
$
632,511

 
$
832,217

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Drilling & Subsea
$
15,380

 
$
50,336

 
$
44,586

 
$
97,401

Production & Infrastructure
15,201

 
26,562

 
34,393

 
50,444

Corporate
(8,083
)
 
(10,696
)
 
(16,344
)
 
(19,437
)
Total segment operating income
22,498

 
66,202

 
62,635

 
128,408

Transaction expenses
23

 
682

 
240

 
810

Loss (gain) on sale of assets and other
37

 
(284
)
 
(275
)
 
405

Income from operations
$
22,438

 
$
65,804

 
$
62,670

 
$
127,193

A summary of consolidated assets by reportable segment is as follows (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
 
Drilling & Subsea
 
$
1,577,801

 
$
1,674,934

Production & Infrastructure
 
558,770

 
488,225

Corporate
 
72,802

 
58,469

Total assets
 
$
2,209,373

 
$
2,221,628

Corporate assets include, among other items, prepaid assets, cash and deferred loan costs.

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

10. 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 June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net Income attributable to common stockholders
$
8,874

 
$
39,522

 
$
37,546

 
$
76,052

 
 
 
 
 
 
 
 
Average shares outstanding (basic)
89,767

 
92,649

 
89,625

 
92,391

Common stock equivalents
2,117

 
3,046

 
1,972

 
2,972

Diluted shares
91,884

 
95,695

 
91,597

 
95,363

Earnings per share
 
 
 
 
 
 
 
Basic earnings per share
$
0.10

 
$
0.43

 
$
0.42

 
$
0.82

Diluted earnings per share
$
0.10

 
$
0.41

 
$
0.41

 
$
0.80

The diluted earnings per share calculation excludes approximately 1.3 million and 0.4 million stock options for the three months ended June 30, 2015 and 2014, respectively, and 1.7 million and 0.5 million stock options for the six months ended June 30, 2015 and 2014, respectively, because they were anti-dilutive as the option exercise price was greater than the average market price of the common stock.
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 June 30, 2015 and December 31, 2014, 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.
12. Stockholders' equity
Share-based compensation
During the six months ended June 30, 2015, the Company granted 458,250 options and 861,599 shares of restricted stock or restricted stock units, which includes 161,660 performance share awards with a market condition. The stock options were granted with an exercise price of $18.68. Of the restricted stock or restricted stock units granted, 639,711 vest ratably over four years on each anniversary of the grant date. 60,228 shares of restricted stock or restricted stock units were granted to the non-employee members of the Board of Directors, which have a twelve month vesting period from the date of grant. 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 awards 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.
13. Related party transactions
The Company has sold and purchased equipment and services to and from various affiliates of certain directors. The dollar amounts related to these related party activities are not significant to the Company’s condensed consolidated financial statements.

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

14. 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
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
209,234

 
$
102,363

 
$
(27,182
)
 
$
284,415

Cost of sales
 
—

 
155,127

 
71,771

 
(27,366
)
 
199,532

Gross profit
 
—

 
54,107

 
30,592

 
184

 
84,883

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
52,426

 
13,799

 
—

 
66,225

Transaction expenses
 
—

 
23

 
—

 
—

 
23

Loss (gain) on sale of assets and other
 
—

 
53

 
(16
)
 
—

 
37

Total operating expenses
 
—

 
52,502

 
13,783

 
—

 
66,285

Earnings from equity investment
 
—

 
3,840

 
—

 
—

 
3,840

Equity earnings from affiliate, net of tax
 
13,830

 
10,594

 
—

 
(24,424
)
 
—

Operating income
 
13,830

 
16,039

 
16,809

 
(24,240
)
 
22,438

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
7,624

 
—

 
(17
)
 
—

 
7,607

Foreign exchange (gains) losses and other, net
 
—

 
31

 
4,024

 
—

 
4,055

Total other expense (income)
 
7,624

 
31

 
4,007

 
—

 
11,662

Income before income taxes
 
6,206

 
16,008

 
12,802

 
(24,240
)
 
10,776

Provision for income tax expense
 
(2,668
)
 
2,178

 
2,401

 
—

 
1,911

Net income
 
8,874

 
13,830

 
10,401

 
(24,240
)
 
8,865

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
(9
)
 
—

 
(9
)
Net income attributable to common stockholders
 
8,874

 
13,830

 
10,410

 
(24,240
)
 
8,874

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
8,874

 
13,830

 
10,401

 
(24,240
)
 
8,865

Change in foreign currency translation, net of tax of $0
 
25,491

 
25,491

 
25,491

 
(50,982
)
 
25,491

Change in pension liability
 
(29
)
 
(29
)
 
(29
)
 
58

 
(29
)
Comprehensive income (loss)
 
34,336

 
39,292

 
35,863

 
(75,164
)
 
34,327

Less: comprehensive (income) loss attributable to noncontrolling interests
 
—

 
—

 
11

 
—

 
11

Comprehensive income (loss) attributable to common stockholders
 
$
34,336

 
$
39,292

 
$
35,874

 
$
(75,164
)
 
$
34,338



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

Condensed consolidating statements of comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2014
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
312,663

 
$
154,761

 
$
(39,145
)
 
$
428,279

Cost of sales
 
—

 
221,119

 
108,861

 
(39,694
)
 
290,286

Gross profit
 
—

 
91,544

 
45,900

 
549

 
137,993

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
59,536

 
18,195

 
—

 
77,731

Other operating expense
 
—

 
512

 
(114
)
 
—

 
398

Total operating expenses
 
—

 
60,048

 
18,081

 
—

 
78,129

Earnings from equity investment
 
—

 
5,940

 
—

 
—

 
5,940

Equity earnings from affiliates, net of tax
 
44,571

 
19,805

 
—

 
(64,376
)
 
—

Operating income
 
44,571

 
57,241

 
27,819

 
(63,827
)
 
65,804

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
7,768

 
(7
)
 
(36
)
 
—

 
7,725

Interest income with affiliate
 
—

 
(1,933
)
 
—

 
1,933

 
—

Interest expense with affiliate
 
—

 
—

 
1,933

 
(1,933
)
 
—

Foreign exchange (gains) losses and other, net
 
—

 
676

 
2,453

 
—

 
3,129

Total other expense (income)
 
7,768

 
(1,264
)
 
4,350

 
—

 
10,854

Income before income taxes
 
36,803

 
58,505

 
23,469

 
(63,827
)
 
54,950

Provision for income tax expense
 
(2,719
)
 
13,934

 
4,192

 
—

 
15,407

Net income
 
39,522

 
44,571

 
19,277

 
(63,827
)
 
39,543

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
21

 
—

 
21

Net income attributable to common stockholders
 
39,522

 
44,571

 
19,256

 
(63,827
)
 
39,522

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
39,522

 
44,571

 
19,277

 
(63,827
)
 
39,543

Change in foreign currency translation, net of tax of $0
 
11,690

 
11,690

 
11,690

 
(23,380
)
 
11,690

Comprehensive income (loss)
 
51,212

 
56,261

 
30,967

 
(87,207
)
 
51,233

Less: comprehensive (income) loss attributable to noncontrolling interests
 
—

 
—

 
(15
)
 
—

 
(15
)
Comprehensive income (loss) attributable to common stockholders
 
$
51,212

 
$
56,261

 
$
30,952

 
$
(87,207
)
 
$
51,218



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

Condensed consolidating statements of comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
478,433

 
$
222,680

 
$
(68,602
)
 
$
632,511

Cost of sales
 
—

 
343,894

 
161,446

 
(66,838
)
 
438,502

Gross profit
 
—

 
134,539

 
61,234

 
(1,764
)
 
194,009

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
109,798

 
29,987

 
—

 
139,785

Transaction expenses
 
—

 
240

 
—

 
—

 
 
Loss (gain) on sale of assets and other
 
—

 
(58
)
 
(217
)
 
—

 
(275
)
Total operating expenses
 
—

 
109,980

 
29,770

 
—

 
139,750

Earnings from equity investment
 
—

 
8,411

 
—

 
—

 
8,411

Equity earnings from affiliates, net of tax
 
47,434

 
26,830

 
—

 
(74,264
)
 
—

Operating income
 
47,434

 
59,800

 
31,464

 
(76,028
)
 
62,670

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
15,212

 
14

 
8

 
—

 
15,234

Foreign exchange (gains) losses and other, net
 
—

 
(154
)
 
(2,447
)
 
—

 
(2,601
)
Total other expense (income)
 
15,212

 
(140
)
 
(2,439
)
 
—

 
12,633

Income before income taxes
 
32,222

 
59,940

 
33,903

 
(76,028
)
 
50,037

Provision for income tax expense
 
(5,324
)
 
12,506

 
5,334

 
—

 
12,516

Net income
 
37,546

 
47,434

 
28,569

 
(76,028
)
 
37,521

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
(25
)
 
—

 
(25
)
Net income attributable to common stockholders
 
37,546

 
47,434

 
28,594

 
(76,028
)
 
37,546

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
37,546

 
47,434

 
28,569

 
(76,028
)
 
37,521

Change in foreign currency translation, net of tax of $0
 
(11,806
)
 
(11,806
)
 
(11,806
)
 
23,612

 
(11,806
)
Change in pension liability
 
70

 
70

 
70

 
(140
)
 
70

Comprehensive income (loss)
 
25,810

 
35,698

 
16,833

 
(52,556
)
 
25,785

Less: comprehensive (income) loss attributable to noncontrolling interests
 
—

 
—

 
54

 
—

 
54

Comprehensive income (loss) attributable to common stockholders
 
$
25,810

 
$
35,698

 
$
16,887

 
$
(52,556
)
 
$
25,839




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

Condensed consolidating statements of comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$
—

 
$
610,695

 
$
300,591

 
$
(79,069
)
 
$
832,217

Cost of sales
 
—

 
428,088

 
214,846

 
(76,648
)
 
566,286

Gross profit
 
—

 
182,607

 
85,745

 
(2,421
)
 
265,931

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
—

 
113,103

 
35,668

 
—

 
148,771

Other operating expense
 
—

 
1,546

 
(331
)
 
—

 
1,215

Total operating expenses
 
—

 
114,649

 
35,337

 
—

 
149,986

Earnings from equity investment
 
—

 
11,248

 
—

 
—

 
11,248

Equity earnings from affiliates, net of tax
 
86,139

 
31,640

 
—

 
(117,779
)
 
—

Operating income
 
86,139

 
110,846

 
50,408

 
(120,200
)
 
127,193

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
15,518

 
16

 
(59
)
 
—

 
15,475

Interest income with affiliate
 
—

 
(3,883
)
 
—

 
3,883

 
—

Interest expense with affiliate
 
—

 
—

 
3,883

 
(3,883
)
 
—

Foreign exchange (gains) losses and other, net
 
—

 
1,018

 
3,588

 
—

 
4,606

Total other expense (income)
 
15,518

 
(2,849
)
 
7,412

 
—

 
20,081

Income before income taxes
 
70,621

 
113,695

 
42,996

 
(120,200
)
 
107,112

Provision for income tax expense
 
(5,431
)
 
27,556

 
8,938

 
—

 
31,063

Net income
 
76,052

 
86,139

 
34,058

 
(120,200
)
 
76,049

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
(3
)
 
—

 
(3
)
Net income attributable to common stockholders
 
76,052

 
86,139

 
34,061

 
(120,200
)
 
76,052

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
76,052

 
86,139

 
34,058

 
(120,200
)
 
76,049

Change in foreign currency translation, net of tax of $0
 
12,720

 
12,720

 
12,720

 
(25,440
)
 
12,720

Change in pension liability
 
2

 
2

 
2

 
(4
)
 
2

Comprehensive income (loss)
 
88,774

 
98,861

 
46,780

 
(145,644
)
 
88,771

Less: comprehensive (income) loss attributable to noncontrolling interests
 
—

 
—

 
12

 
—

 
12

Comprehensive income (loss) attributable to common stockholders
 
$
88,774

 
$
98,861

 
$
46,792

 
$
(145,644
)
 
$
88,783






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

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
15,133

 
$
42,708

 
$
—

 
$
57,841

Accounts receivable—trade, net
 
—

 
124,376

 
75,244

 
—

 
199,620

Inventories
 
—

 
397,487

 
135,074

 
(9,744
)
 
522,817

Cost and profits in excess of billings
 
—

 
3,879

 
12,940

 
—

 
16,819

Other current assets
 
—

 
54,263

 
10,261

 
—

 
64,524

Total current assets
 
—

 
595,138

 
276,227

 
(9,744
)
 
861,621

Property and equipment, net of accumulated depreciation
 
—

 
165,638

 
36,792

 
—

 
202,430

Deferred financing costs, net
 
11,828

 
—

 
—

 
—

 
11,828

Intangibles
 
—

 
198,725

 
67,086

 
—

 
265,811

Goodwill
 
—

 
538,147

 
270,227

 
—

 
808,374

Investment in unconsolidated subsidiary
 
—

 
55,308

 
—

 
—

 
55,308

Investment in affiliates
 
1,369,431

 
603,545

 
—

 
(1,972,976
)
 
—

Long-term advances to affiliates
 
498,290

 
—

 
57,089

 
(555,379
)
 
—

Other long-term assets
 
—

 
3,223

 
778

 
—

 
4,001

Total assets
 
$
1,879,549

 
$
2,159,724

 
$
708,199

 
$
(2,538,099
)
 
$
2,209,373

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

 
$
612

 
$
11

 
$
—

 
$
623

Accounts payable—trade
 
—

 
80,997

 
33,951

 
—

 
114,948

Accrued liabilities
 
7,151

 
55,101

 
19,924

 
—

 
82,176

Deferred revenue
 
—

 
2,791

 
5,813

 
—

 
8,604

Billings in excess of costs and profits
 
—

 
211

 
9,600

 
—

 
9,811

Total current liabilities
 
7,151

 
139,712

 
69,299

 
—

 
216,162

Long-term debt, net of current portion
 
437,598

 
57

 
18

 
—

 
437,673

Long-term payables to affiliates
 
—

 
555,379

 
—

 
(555,379
)
 
—

Deferred income taxes, net
 
—

 
78,056

 
19,775

 
—

 
97,831

Other long-term liabilities
 
—

 
17,089

 
5,307

 
—

 
22,396

Total liabilities
 
444,749

 
790,293

 
94,399

 
(555,379
)
 
774,062

 
 
 
 
 
 
 
 
 
 
 
Total stockholder's equity
 
1,434,800

 
1,369,431

 
613,289

 
(1,982,720
)
 
1,434,800

Noncontrolling interest in subsidiary
 
—

 
—

 
511

 
—

 
511

Equity
 
1,434,800

 
1,369,431

 
613,800

 
(1,982,720
)
 
1,435,311

Total liabilities and equity
 
$
1,879,549

 
$
2,159,724

 
$
708,199

 
$
(2,538,099
)
 
$
2,209,373


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

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries