Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
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| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the Quarterly Period Ended June 30, 2017 |
OR
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| | |
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.
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| | |
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 July 31, 2017, there were 96,580,501 common shares outstanding.
Table of Contents
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 June 30, | | Six months ended June 30, |
(in thousands, except per share information) | 2017 | | 2016 | | 2017 | | 2016 |
Net sales | $ | 201,115 |
| | $ | 142,723 |
| | $ | 372,211 |
| | $ | 302,164 |
|
Cost of sales | 151,860 |
| | 137,442 |
| | 283,977 |
| | 262,326 |
|
Gross profit | 49,255 |
| | 5,281 |
| | 88,234 |
| | 39,838 |
|
Operating expenses | | | | | | | |
Selling, general and administrative expenses | 61,895 |
| | 58,263 |
| | 122,569 |
| | 118,276 |
|
Transaction expenses | 245 |
| | 64 |
| | 873 |
| | 230 |
|
Goodwill impairment | 68,004 |
| | — |
| | 68,004 |
| | — |
|
Loss on sale of assets and other | 1,635 |
| | 48 |
| | 1,389 |
| | 16 |
|
Total operating expenses | 131,779 |
| | 58,375 |
| | 192,835 |
| | 118,522 |
|
Earnings from equity investment | 2,568 |
| | 216 |
| | 4,030 |
| | 793 |
|
Operating loss | (79,956 | ) | | (52,878 | ) | | (100,571 | ) | | (77,891 | ) |
Other expense (income) | | | | | | | |
Interest expense | 6,385 |
| | 6,785 |
| | 12,965 |
| | 13,918 |
|
Deferred financing costs written off | — |
| | — |
| | — |
| | 2,588 |
|
Foreign exchange losses (gains) and other, net | 2,602 |
| | (10,014 | ) | | 4,148 |
| | (11,394 | ) |
Total other expense (income) | 8,987 |
| | (3,229 | ) | | 17,113 |
| | 5,112 |
|
Loss before income taxes | (88,943 | ) | | (49,649 | ) | | (117,684 | ) | | (83,003 | ) |
Benefit for income tax expense | (11,070 | ) | | (21,147 | ) | | (24,043 | ) | | (31,553 | ) |
Net loss | (77,873 | ) | | (28,502 | ) | | (93,641 | ) | | (51,450 | ) |
Less: Income attributable to noncontrolling interest | — |
| | 35 |
| | — |
| | 30 |
|
Net loss attributable to common stockholders | (77,873 | ) | | (28,537 | ) | | (93,641 | ) | | (51,480 | ) |
| | | | | | | |
Weighted average shares outstanding | | | | | | | |
Basic | 96,170 |
| | 90,707 |
| | 96,016 |
| | 90,592 |
|
Diluted | 96,170 |
| | 90,707 |
| | 96,016 |
| | 90,592 |
|
Loss per share | | | | | | | |
Basic | $ | (0.81 | ) | | $ | (0.31 | ) | | $ | (0.98 | ) | | $ | (0.57 | ) |
Diluted | $ | (0.81 | ) | | $ | (0.31 | ) | | $ | (0.98 | ) | | $ | (0.57 | ) |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Net loss | (77,873 | ) | | (28,502 | ) | | (93,641 | ) | | (51,450 | ) |
Change in foreign currency translation, net of tax of $0 | 15,325 |
| | (22,847 | ) | | 22,547 |
| | (19,375 | ) |
Gain (loss) on pension liability | (82 | ) | | 24 |
| | (97 | ) | | (19 | ) |
Comprehensive loss | (62,630 | ) | | (51,325 | ) | | (71,191 | ) | | (70,844 | ) |
Less: comprehensive income attributable to noncontrolling interests | — |
| | (36 | ) | | — |
| | (129 | ) |
Comprehensive loss attributable to common stockholders | $ | (62,630 | ) | | $ | (51,361 | ) | | $ | (71,191 | ) | | $ | (70,973 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated balance sheets
(Unaudited)
|
| | | | | | | |
(in thousands, except share information) | June 30, 2017 | | December 31, 2016 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 220,470 |
| | $ | 234,422 |
|
Accounts receivable—trade, net | 145,341 |
| | 105,268 |
|
Inventories, net | 364,783 |
| | 338,583 |
|
Income tax receivable | 1,872 |
| | 32,801 |
|
Prepaid expenses and other current assets | 27,229 |
| | 29,443 |
|
Costs and estimated profits in excess of billings | 7,439 |
| | 9,199 |
|
Total current assets | 767,134 |
| | 749,716 |
|
Property and equipment, net of accumulated depreciation | 149,418 |
| | 152,212 |
|
Deferred financing costs, net | 809 |
| | 1,112 |
|
Intangible assets | 213,312 |
| | 216,418 |
|
Goodwill | 595,833 |
| | 652,743 |
|
Investment in unconsolidated subsidiary | 62,510 |
| | 59,140 |
|
Deferred income taxes, net | 3,945 |
| | 851 |
|
Other long-term assets | 2,883 |
| | 3,000 |
|
Total assets | $ | 1,795,844 |
| | $ | 1,835,192 |
|
Liabilities and equity | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 1,143 |
| | $ | 124 |
|
Accounts payable—trade | 113,947 |
| | 73,775 |
|
Accrued liabilities | 56,703 |
| | 55,604 |
|
Deferred revenue | 8,841 |
| | 8,338 |
|
Billings in excess of costs and profits recognized | 1,116 |
| | 4,004 |
|
Total current liabilities | 181,750 |
| | 141,845 |
|
Long-term debt, net of current portion | 398,090 |
| | 396,747 |
|
Deferred income taxes, net | 5,005 |
| | 26,185 |
|
Other long-term liabilities | 35,183 |
| | 34,654 |
|
Total liabilities | 620,028 |
| | 599,431 |
|
Commitments and contingencies |
| |
|
|
Equity | | | |
Common stock, $0.01 par value, 296,000,000 shares authorized, 104,697,800 and 103,682,128 shares issued | 1,047 |
| | 1,037 |
|
Additional paid-in capital | 1,010,271 |
| | 998,169 |
|
Treasury stock at cost, 8,187,432 and 8,174,963 shares | (134,248 | ) | | (133,941 | ) |
Retained earnings | 404,533 |
| | 498,174 |
|
Accumulated other comprehensive loss | (105,787 | ) | | (128,237 | ) |
Total stockholders’ equity | 1,175,816 |
| | 1,235,202 |
|
Noncontrolling interest in subsidiary | — |
| | 559 |
|
Total equity | 1,175,816 |
| | 1,235,761 |
|
Total liabilities and equity | $ | 1,795,844 |
| | $ | 1,835,192 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(Unaudited)
|
| | | | | | | |
| Six Months Ended June 30, |
(in thousands, except share information) | 2017 | | 2016 |
Cash flows from operating activities | | | |
Net loss | $ | (93,641 | ) | | $ | (51,450 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities | | | |
Depreciation expense | 17,226 |
| | 18,329 |
|
Amortization of intangible assets | 13,104 |
| | 13,231 |
|
Goodwill impairment | 68,004 |
| | — |
|
Share-based compensation expense | 9,850 |
| | 10,322 |
|
Inventory write down | 769 |
| | 22,733 |
|
Deferred income taxes | (24,435 | ) | | (33,412 | ) |
Deferred loan cost written off | — |
| | 2,588 |
|
Earnings from equity investment, net of distributions | (2,329 | ) | | (389 | ) |
Other | 3,353 |
| | 2,068 |
|
Changes in operating assets and liabilities | | | |
Accounts receivable—trade | (37,644 | ) | | 41,679 |
|
Inventories | (16,800 | ) | | 27,279 |
|
Prepaid expenses and other current assets | 2,232 |
| | 6,342 |
|
Income tax receivable | 30,929 |
| | — |
|
Accounts payable, deferred revenue and other accrued liabilities | 35,183 |
| | (10,220 | ) |
Costs and estimated profits in excess of billings, net | (1,042 | ) | | (4,183 | ) |
Net cash provided by operating activities | $ | 4,759 |
| | $ | 44,917 |
|
Cash flows from investing activities | | | |
Acquisition of businesses, net of cash acquired | (8,738 | ) | | (2,700 | ) |
Capital expenditures for property and equipment | (13,020 | ) | | (10,040 | ) |
Proceeds from sale of business, property and equipment | 1,699 |
| | 3,710 |
|
Investment in unconsolidated subsidiary | $ | (1,041 | ) | | $ | — |
|
Net cash used in investing activities | $ | (21,100 | ) | | $ | (9,030 | ) |
Cash flows from financing activities | | | |
Repayment of long term and short term debt | (1,011 | ) | | (238 | ) |
Net treasury shares withheld | (4,564 | ) | | (1,126 | ) |
Proceeds from stock issuance | 2,020 |
| | 1,137 |
|
Deferred financing costs | — |
| | (513 | ) |
Net cash used in financing activities | $ | (3,555 | ) | | $ | (740 | ) |
Effect of exchange rate changes on cash | 5,944 |
| | (7,167 | ) |
Net increase (decrease) in cash and cash equivalents | (13,952 | ) | | 27,980 |
|
Cash and cash equivalents | | | |
Beginning of period | 234,422 |
| | 109,249 |
|
End of period | $ | 220,470 |
| | $ | 137,229 |
|
Noncash investing activities | | | |
Acquisition via issuance of stock | $ | 4,500 |
| | $ | — |
|
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 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.
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 (loss). 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 (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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 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, 2016, which are included in the Company’s 2016 Annual Report on Form 10-K filed with the SEC on February 28, 2017 (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 May 2017, the FASB issued Accounting Standard Updates ("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. The ASU should be adopted prospectively for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test where the implied fair value of goodwill needs to be determined and compared to the carrying amount of that goodwill to measure the impairment loss. The Company is required to adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company has early adopted the standard in the first quarter of 2017. During the second quarter of 2017, the Company applied this new ASU to perform the goodwill impairment analysis. See Note 6, Goodwill and intangible assets for more details.
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.
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
This guidance will be effective for annual periods beginning after December 15, 2017, including interim periods within those periods, and is not expected to have a material impact on the Company's consolidated financial statements.
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. ASU 2016-18 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial statements.
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 an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU is not expected to have a material impact on the Company's consolidated financial statements.
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. 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. The Company will continue to use the cumulative earnings approach, therefore the guidance is not expected to have a material impact on the Company's consolidated financial statements. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This new guidance includes provisions intended to simplify how share-based payments are accounted for and presented in the financial statements. The Company applied the update prospectively beginning January 1, 2017.
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. The Company is currently evaluating the impact of the adoption of this guidance.
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 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 the entity to use either a full retrospective or modified retrospective transition method. The FASB issued several subsequent updates in 2016 containing implementation guidance related to the new standard. These standards provide additional guidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practical expedients as well as technical corrections and improvements. Overall, the new guidance is to be effective for the fiscal year beginning after December 15, 2017. Companies are able to early adopt the pronouncement, however not before fiscal years beginning after December 15, 2016. The Company has put in place an implementation team to provide training and to review contracts subject to the new revenue standard. The implementation team continues to review contracts, for the areas identified during the initial impact assessment and monitor the potential impact to the Company’s financial statements and related
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
disclosures. The Company currently anticipates that it will adopt this standard using the modified retrospective method and elect to apply the revenue standard only to contracts that are not completed as of the date of initial application. The Company has not yet made a final determination on the effect of this new guidance on our internal control over financial reporting or other changes in business practices and processes.
3. Cash and cash equivalents
Cash and cash equivalents at June 30, 2017 are comprised of bank deposits and short-term investments with an original maturity of three months or less, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure.
4. Acquisitions
2017 Acquisition
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 includes the issuance of stock valued at $4.5 million and certain contingent cash payments. These acquisitions are included in the Production and Infrastructure segment. The acquired Cooper brands include the 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 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 have not been presented because they are not material to the consolidated financial statements. Pro forma results of operations for this acquisition have not been presented because the effects were not material to the consolidated financial statements.
2016 Acquisition
In April 2016, the Company completed the acquisition of the wholesale completion packers business of Team Oil Tools, Inc. The acquisition includes a wide variety of completion and service tools, including retrievable and permanent packers, bridge plugs and accessories which are sold to oilfield service providers, packer repair companies and distributors on a global basis. This acquisition is included in the Completions segment. The fair values of the assets acquired and liabilities assumed have not been presented because they are not material to the consolidated financial statements. Pro forma results of operations for the 2016 acquisition have not been presented because the effects were not material to the consolidated financial statements.
5. Inventories
The Company's significant components of inventory at June 30, 2017 and December 31, 2016 were as follows (in thousands):
|
| | | | | | | |
| June 30, 2017 | | December 31, 2016 |
Raw materials and parts | $ | 113,152 |
| | $ | 106,329 |
|
Work in process | 38,912 |
| | 23,303 |
|
Finished goods | 274,761 |
| | 277,303 |
|
Gross inventories | 426,825 |
| | 406,935 |
|
Inventory reserve | (62,042 | ) | | (68,352 | ) |
Inventories | $ | 364,783 |
| | $ | 338,583 |
|
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, 2016 to June 30, 2017, were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Drilling & Subsea | | Completions | | Production & Infrastructure | | Total |
Goodwill Balance at December 31, 2016 | $ | 307,806 |
| | $ | 327,293 |
| | $ | 17,644 |
| | $ | 652,743 |
|
Acquisitions, net of dispositions | — |
| | — |
| | 1,311 |
| | 1,311 |
|
Impairment | (68,004 | ) | | — |
| | — |
| | (68,004 | ) |
Impact of non-U.S. local currency translation | 7,423 |
| | 2,248 |
| | 112 |
| | 9,783 |
|
Goodwill Balance at June 30, 2017 | $ | 247,225 |
| | $ | 329,541 |
| | $ | 19,067 |
| | $ | 595,833 |
|
The Company performs its annual impairment tests of goodwill as of October 1 or when there is an indication an impairment may have occurred.
In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins would be sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication of further delays in the recovery of the offshore market, the Company performed an impairment test and determined that the carrying value of the goodwill in our Subsea reporting unit was impaired. The Company recorded an impairment charge of $68.0 million for the quarter ended June 30, 2017. Following the impairment charge, at June 30, 2017, the Subsea reporting unit has no remaining balance in goodwill. There was no indication an impairment may have occurred in the other reporting units.
The fair values used in the impairment analysis were determined using the net present value of the expected future cash flows for the reporting unit. During the Company’s goodwill impairment analysis, the Company determines the fair value of the reporting unit, as a whole, using a discounted cash flow analysis, which requires significant assumptions and estimates about future operations. The assumptions about future cash flows and growth rates are based on our current budget for the remainder of the current year, 2018, and for future periods, as well as our strategic plans and management’s beliefs about future activity levels. The discount rate we used for future periods could change substantially if the cost of debt or equity were to significantly increase or decrease, or if we were to choose different comparable companies in determining the appropriate discount rate for our reporting units. Forecasted cash flows in future periods were estimated using a terminal value calculation, which considered long-term earnings growth rates. Accumulated impairment losses on goodwill were $236.8 million and $168.8 million as of June 30, 2017 and December 31, 2016.
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, 2017 and December 31, 2016, respectively (in thousands): |
| | | | | | | | | | | | | |
| June 30, 2017 |
| Gross carrying amount | | Accumulated amortization | | Net amortizable intangibles | | Amortization period (in years) |
Customer relationships | $ | 275,850 |
| | $ | (126,774 | ) | | $ | 149,076 |
| | 4-15 |
Patents and technology | 39,659 |
| | (13,652 | ) | | 26,007 |
| | 5-17 |
Non-compete agreements | 6,369 |
| | (5,932 | ) | | 437 |
| | 3-6 |
Trade names | 46,299 |
| | (20,191 | ) | | 26,108 |
| | 10-15 |
Distributor relationships | 22,160 |
| | (15,706 | ) | | 6,454 |
| | 8-15 |
Trademark | 5,230 |
| | — |
| | 5,230 |
| | Indefinite |
Intangible Assets Total | $ | 395,567 |
| | $ | (182,255 | ) | | $ | 213,312 |
| | |
|
| | | | | | | | | | | | | |
| December 31, 2016 |
| Gross carrying amount | | Accumulated amortization | | Net amortizable intangibles | | Amortization period (in years) |
Customer relationships | $ | 270,586 |
| | $ | (115,381 | ) | | $ | 155,205 |
| | 4-15 |
Patents and technology | 33,936 |
| | (12,225 | ) | | 21,711 |
| | 5-17 |
Non-compete agreements | 6,230 |
| | (5,594 | ) | | 636 |
| | 3-6 |
Trade names | 44,494 |
| | (17,944 | ) | | 26,550 |
| | 10-15 |
Distributor relationships | 22,160 |
| | (15,074 | ) | | 7,086 |
| | 8-15 |
Trademark | 5,230 |
| | — |
| | 5,230 |
| | Indefinite |
Intangible Assets Total | $ | 382,636 |
| | $ | (166,218 | ) | | $ | 216,418 |
| | |
7. Debt
Notes payable and lines of credit as of June 30, 2017 and December 31, 2016 consisted of the following (in thousands): |
| | | | | | | |
| June 30, 2017 | | December 31, 2016 |
6.25% Senior Notes due October 2021 | $ | 400,000 |
| | $ | 400,000 |
|
Unamortized debt premium | 1,786 |
| | 1,989 |
|
Debt issuance cost | (4,773 | ) | | (5,324 | ) |
Senior secured revolving credit facility | — |
| | — |
|
Other debt | 2,220 |
| | 206 |
|
Total debt | 399,233 |
| | 396,871 |
|
Less: current maturities | (1,143 | ) | | (124 | ) |
Long-term debt | $ | 398,090 |
| | $ | 396,747 |
|
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.
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
Credit Facility
On February 25, 2016, we amended our credit facility with Wells Fargo Bank, National Association, as administrative agent, and several financial institutions as lenders (the “Credit Facility”) to reduce lender commitments to $200.0 million. On December 12, 2016, we further amended the Credit Facility (such further amendment, the “Amended Credit Facility”), to, among other things, reduce revolving credit line commitments from $200.0 million to $140.0 million, including up to $25.0 million available for letters of credit and up to $10.0 million in swingline loans. Availability under the Amended Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the United States, United Kingdom and Canada, eligible inventory in the United States, and cash on hand.
The Credit Facility matures in November 2018. As of June 30, 2017 and December 31, 2016, the Company had no borrowings outstanding under the Credit Facility. As of June 30, 2017, the Company had $11.4 million of outstanding letters of credit. At June 30, 2017, the Company had the capacity to borrow an additional $109.5 million subject to certain limitations in the Credit Facility. The Company's borrowing capacity under the Amended Credit Facility could be reduced or eliminated, depending on the future EBITDA. Weighted average interest rates under the Credit Facility for the six months ended June 30, 2017 and twelve months ended December 31, 2016 were approximately 3.00%.
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, 2017.
8. Income taxes
The Company's effective tax rate was 20.4% for the six months ended June 30, 2017 and 38.0% for the six months ended June 30, 2016. The effective tax rate was 12.4% for the three months ended June 30, 2017 and 42.6% for the three months ended June 30, 2016. Impacting the tax rate for the three and six months ended June 30, 2017 was the impairment loss related to non-tax deductible goodwill, and the change in the proportion of losses being generated in the United States, which are benefited at a higher statutory tax rate, as compared to earnings being generated outside the United States in jurisdictions subject to lower tax rates. Also impacting the tax rate for the six months ended June 30, 2017 was the implementation of new accounting guidance related to employee share-based compensation accounting.
9. Fair value measurements
At June 30, 2017 and December 31, 2016, the Company had no debt outstanding under the Credit Facility. At June 30, 2017, the Company had $11.4 million of outstanding letters of credit.
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, 2017, the fair value and the carrying value of the Company’s Senior Notes approximated $391.7 million and $401.8 million, respectively. At December 31, 2016, the fair value and the carrying value of the Company’s Senior Notes each approximated $402.0 million.
There were no outstanding financial assets as of June 30, 2017 and December 31, 2016 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, 2017.
10. Business segments
The Company reports its results of operations in the following three reportable segments: Drilling & Subsea, Completions and Production & Infrastructure.
In order to better align with the predominant customer base of the segment, the Company has moved management and financial reporting of our fully rotational torque machine operations, which operates under the AMC brand, from the Drilling and Subsea segment to the Completions segment. Prior period financial information has been revised to conform with current period presentation with no impact to total segment operating results.
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | | | | | | | |
Drilling & Subsea | $ | 64,031 |
| | $ | 55,120 |
| | $ | 125,907 |
| | $ | 119,555 |
|
Completions | 54,511 |
| | 26,268 |
| | 96,901 |
| | 61,527 |
|
Production & Infrastructure | 83,117 |
| | 61,823 |
| | 150,696 |
| | 122,334 |
|
Intersegment eliminations | (544 | ) | | (488 | ) | | (1,293 | ) | | (1,252 | ) |
Total Revenue | $ | 201,115 |
| | $ | 142,723 |
| | $ | 372,211 |
| | $ | 302,164 |
|
| | | | | | | |
Operating income (loss): | | | | | | | |
Drilling & Subsea | $ | (6,367 | ) | | $ | (20,948 | ) | | $ | (14,708 | ) | | $ | (30,674 | ) |
Completions | 679 |
| | (27,609 | ) | | (2,837 | ) | | (34,163 | ) |
Production & Infrastructure | 3,435 |
| | 2,578 |
| | 2,866 |
| | 1,206 |
|
Corporate | (7,819 | ) | | (6,787 | ) | | (15,626 | ) | | (14,014 | ) |
Total segment operating loss | (10,072 | ) | | (52,766 | ) | | (30,305 | ) | | (77,645 | ) |
Transaction expenses | 245 |
| | 64 |
| | 873 |
| | 230 |
|
Goodwill impairment | 68,004 |
| | — |
| | 68,004 |
| | — |
|
Loss on sale of assets and other | 1,635 |
| | 48 |
| | 1,389 |
| | 16 |
|
Operating loss | $ | (79,956 | ) | | $ | (52,878 | ) | | $ | (100,571 | ) | | $ | (77,891 | ) |
A summary of consolidated assets by reportable segment is as follows (in thousands):
|
| | | | | | | | |
| | June 30, 2017 | | December 31, 2016 |
Assets | | | | |
Drilling & Subsea | | $ | 661,334 |
| | $ | 766,234 |
|
Completions | | 714,504 |
| | 696,208 |
|
Production & Infrastructure | | 221,229 |
| | 175,940 |
|
Corporate | | 198,777 |
| | 196,810 |
|
Total assets | | $ | 1,795,844 |
| | $ | 1,835,192 |
|
Corporate assets include, among other items, prepaid assets, cash and deferred financing costs.
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, 2017 and December 31, 2016, 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.
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 June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net loss attributable to common stockholders | $ | (77,873 | ) | | $ | (28,537 | ) | | $ | (93,641 | ) | | $ | (51,480 | ) |
| | | | | | | |
Average shares outstanding (basic) | 96,170 |
| | 90,707 |
| | 96,016 |
| | 90,592 |
|
Common stock equivalents | — |
| | — |
| | — |
| | — |
|
Diluted shares | 96,170 |
| | 90,707 |
| | 96,016 |
| | 90,592 |
|
Loss per share | | | | | | | |
Basic loss per share | $ | (0.81 | ) | | $ | (0.31 | ) | | $ | (0.98 | ) | | $ | (0.57 | ) |
Diluted loss per share | $ | (0.81 | ) | | $ | (0.31 | ) | | $ | (0.98 | ) | | $ | (0.57 | ) |
The diluted loss per share calculation excludes all stock options for the three and six months ended June 30, 2017 and June 30, 2016 because there was a net loss for the periods.
13. Stockholders' equity
Share-based compensation
During the six months ended June 30, 2017, the Company granted 278,958 options and 943,447 shares of restricted stock or restricted stock units, which includes 124,213 performance share awards with a market condition. The stock options were granted with an exercise price of $20.10. Of the restricted stock or restricted stock units granted, 763,263 vest ratably over four years on each anniversary of the date of grant. 55,971 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.
14. Related party transactions
The Company has sold and purchased equipment and services to and from a few affiliates of certain directors. The dollar amounts related to these related party activities are not material to the Company’s condensed consolidated financial statements.
15. Subsequent event
On July 3, 2017, the Company acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, "Multilift") for approximately $40 million in cash consideration. Based in Houston, Texas, Multilift manufactures the patented SandGuardTM and the CycloneTM completion tools. These products extend the useful life of an electrical submersible pump (ESP) by protecting it against sand and other solids. The fair values of the assets acquired and liabilities assumed as well as the pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated financial statements.
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
16. 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 June 30, 2017 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | | | | | (in thousands) | | | | |
Net sales | | $ | — |
| | $ | 172,917 |
| | $ | 44,274 |
| | $ | (16,076 | ) | | $ | 201,115 |
|
Cost of sales | | — |
| | 132,247 |
| | 35,207 |
| | (15,594 | ) | | 151,860 |
|
Gross profit | | — |
| | 40,670 |
| | 9,067 |
| | (482 | ) | | 49,255 |
|
Operating expenses | | | | | | | | | | |
Selling, general and administrative expenses | | — |
| | 49,840 |
| | 12,055 |
| | — |
| | 61,895 |
|
Transaction expenses | | — |
| | 245 |
| | — |
| | — |
| | 245 |
|
Goodwill impairment | | — |
| | 32,243 |
| | 35,761 |
| | — |
| | 68,004 |
|
Loss on sale of assets and other | | — |
| | 1,613 |
| | 22 |
| | — |
| | 1,635 |
|
Total operating expenses | | — |
| | 83,941 |
| | 47,838 |
| | — |
| | 131,779 |
|
Earnings from equity investment | | — |
| | 2,568 |
| | — |
| | — |
| | 2,568 |
|
Equity earnings from affiliate, net of tax | | (73,513 | ) | | (39,449 | ) | | — |
| | 112,962 |
| | — |
|
Operating income (loss) | | (73,513 | ) | | (80,152 | ) | | (38,771 | ) | | 112,480 |
| | (79,956 | ) |
Other expense (income) | | | | | | | | | | |
Interest expense (income) | | 6,708 |
| | (159 | ) | | (164 | ) | | — |
| | 6,385 |
|
Deferred loan costs written off | | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange (gains) losses and other, net | | — |
| | (49 | ) | | 2,651 |
| | — |
| | 2,602 |
|
Total other expense (income) | | 6,708 |
| | (208 | ) | | 2,487 |
| | — |
| | 8,987 |
|
Income (loss) before income taxes | | (80,221 | ) | | (79,944 | ) | | (41,258 | ) | | 112,480 |
| | (88,943 | ) |
Benefit for income tax expense | | (2,348 | ) | | (6,431 | ) | | (2,291 | ) | | — |
| | (11,070 | ) |
Net income (loss) | | (77,873 | ) | | (73,513 | ) | | (38,967 | ) | | 112,480 |
| | (77,873 | ) |
Less: Income (loss) attributable to noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to common stockholders | | (77,873 | ) | | (73,513 | ) | | (38,967 | ) | | 112,480 |
| | (77,873 | ) |
| | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Net income (loss) | | (77,873 | ) | | (73,513 | ) | | (38,967 | ) | | 112,480 |
| | (77,873 | ) |
Change in foreign currency translation, net of tax of $0 | | 15,325 |
| | 15,325 |
| | 15,325 |
| | (30,650 | ) | | 15,325 |
|
Change in pension liability | | (82 | ) | | (82 | ) | | (82 | ) | | 164 |
| | (82 | ) |
Comprehensive income (loss) | | (62,630 | ) | | (58,270 | ) | | (23,724 | ) | | 81,994 |
| | (62,630 | ) |
Less: comprehensive (income) loss attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
|
Comprehensive income (loss) attributable to common stockholders | | $ | (62,630 | ) | | $ | (58,270 | ) | | $ | (23,724 | ) | | $ | 81,994 |
| | $ | (62,630 | ) |
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed consolidating statements of comprehensive income (loss) |
| | | | | | | | | | |
| | Three months ended June 30, 2016 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | | | | | (in thousands) | | | | |
Net sales | | $ | — |
| | $ | 103,062 |
| | $ | 50,880 |
| | $ | (11,219 | ) | | $ | 142,723 |
|
Cost of sales | | — |
| | 107,801 |
| | 41,734 |
| | (12,093 | ) | | 137,442 |
|
Gross profit | | — |
| | (4,739 | ) | | 9,146 |
| | 874 |
| | 5,281 |
|
Operating expenses | | | | | | | | | | |
Selling, general and administrative expenses | | — |
| | 46,866 |
| | 11,397 |
| | — |
| | 58,263 |
|
Transaction Expense | | — |
| | 64 |
| | — |
| | — |
| | 64 |
|
Loss (gain) on sale of assets and other | | — |
| | 215 |
| | (167 | ) | | — |
| | 48 |
|
Total operating expenses | | — |
| | 47,145 |
| | 11,230 |
| | — |
| | 58,375 |
|
Earnings from equity investment | | — |
| | 216 |
| | — |
| | — |
| | 216 |
|
Equity earnings from affiliates, net of tax | | (24,128 | ) | | 7,235 |
| | — |
| | 16,893 |
| | — |
|
Operating income (loss) | | (24,128 | ) | | (44,433 | ) | | (2,084 | ) | | 17,767 |
| | (52,878 | ) |
Other expense (income) | | | | | | | | | | |
Interest expense (income) | | 6,783 |
| | (2 | ) | | 4 |
| | — |
| | 6,785 |
|
Foreign exchange gains and other, net | | — |
| | (451 | ) | | (9,563 | ) | | — |
| | (10,014 | ) |
Total other expense (income) | | 6,783 |
| | (453 | ) | | (9,559 | ) | | — |
| | (3,229 | ) |
Income before income taxes | | (30,911 | ) | | (43,980 | ) | | 7,475 |
| | 17,767 |
| | (49,649 | ) |
Provision for income tax expense (benefit) | | (2,374 | ) | | (19,852 | ) | | 1,079 |
| | — |
| | (21,147 | ) |
Net income (loss) | | (28,537 | ) | | (24,128 | ) | | 6,396 |
| | 17,767 |
| | (28,502 | ) |
Less: Income (loss) attributable to noncontrolling interest | | — |
| | — |
| | 35 |
| | — |
| | 35 |
|
Net income (loss) attributable to common stockholders | | (28,537 | ) | | (24,128 | ) | | 6,361 |
| | 17,767 |
| | (28,537 | ) |
| | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Net income (loss) | | (28,537 | ) | | (24,128 | ) | | 6,396 |
| | 17,767 |
| | (28,502 | ) |
Change in foreign currency translation, net of tax of $0 | | (22,847 | ) | | (22,847 | ) | | (22,847 | ) | | 45,694 |
| | (22,847 | ) |
Change in pension liability | | 24 |
| | 24 |
| | 24 |
| | (48 | ) | | 24 |
|
Comprehensive income (loss) | | (51,360 | ) | | (46,951 | ) | | (16,427 | ) | | 63,413 |
| | (51,325 | ) |
Less: comprehensive (income) loss attributable to noncontrolling interests | | — |
| | — |
| | (36 | ) | | — |
| | (36 | ) |
Comprehensive income (loss) attributable to common stockholders | | $ | (51,360 | ) | | $ | (46,951 | ) | | $ | (16,463 | ) | | $ | 63,413 |
| | $ | (51,361 | ) |
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed consolidating statements of comprehensive income (loss) |
| | | | | | | | | | |
| | Six months ended June 30, 2017 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Revenue | | $ | — |
| | $ | 315,652 |
| | $ | 90,676 |
| | $ | (34,117 | ) | | $ | 372,211 |
|
Cost of sales | | — |
| | 242,486 |
| | 75,513 |
| | (34,022 | ) | | 283,977 |
|
Gross profit | | — |
| | 73,166 |
| | 15,163 |
| | (95 | ) | | 88,234 |
|
Operating expenses | | | | | | | | | | |
Selling, general and administrative expenses | | — |
| | 97,903 |
| | 24,666 |
| | — |
| | 122,569 |
|
Transaction expenses | | — |
| | 762 |
| | 111 |
| | — |
| | 873 |
|
Goodwill impairment | | — |
| | 32,243 |
| | 35,761 |
| | — |
| | 68,004 |
|
Loss on sale of assets and other | | — |
| | 1,342 |
| | 47 |
| | — |
| | 1,389 |
|
Total operating expenses | | — |
| | 132,250 |
| | 60,585 |
| | — |
| | 192,835 |
|
Earnings from equity investment | | — |
| | 4,030 |
| | — |
| | — |
| | 4,030 |
|
Equity earnings from affiliates, net of tax | | (84,948 | ) | | (44,576 | ) | | — |
| | 129,524 |
| | — |
|
Operating income (loss) | | (84,948 | ) | | (99,630 | ) | | (45,422 | ) | | 129,429 |
| | (100,571 | ) |
Other expense (income) | | | | | | | | | | |
Interest expense (income) | | 13,374 |
| | (186 | ) | | (223 | ) | | — |
| | 12,965 |
|
Deferred loan costs written off | | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange (gains) losses and other, net | | — |
| | (186 | ) | | 4,334 |
| | — |
| | 4,148 |
|
Total other expense (income) | | 13,374 |
| | (372 | ) | | 4,111 |
| | — |
| | 17,113 |
|
Income (loss) before income taxes | | (98,322 | ) | | (99,258 | ) | | (49,533 | ) | | 129,429 |
| | (117,684 | ) |
Provision (benefit) for income tax expense | | (4,681 | ) | | (14,310 | ) | | (5,052 | ) | | — |
| | (24,043 | ) |
Net income (loss) | | (93,641 | ) | | (84,948 | ) | | (44,481 | ) | | 129,429 |
| | (93,641 | ) |
Less: Income (loss) attributable to noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to common stockholders | | (93,641 | ) | | (84,948 | ) | | (44,481 | ) | | 129,429 |
| | (93,641 | ) |
| | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Net income (loss) | | (93,641 | ) | | (84,948 | ) | | (44,481 | ) | | 129,429 |
| | (93,641 | ) |
Change in foreign currency translation, net of tax of $0 | | 22,547 |
| | 22,547 |
| | 22,547 |
| | (45,094 | ) | | 22,547 |
|
Change in pension liability | | (97 | ) | | (97 | ) | | (97 | ) | | 194 |
| | (97 | ) |
Comprehensive income (loss) | | (71,191 | ) | | (62,498 | ) | | (22,031 | ) | | 84,529 |
| | (71,191 | ) |
Less: comprehensive (income) loss attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
|
Comprehensive income (loss) attributable to common stockholders | | $ | (71,191 | ) | | $ | (62,498 | ) | | $ | (22,031 | ) | | $ | 84,529 |
| | $ | (71,191 | ) |
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed consolidating statements of comprehensive income (loss) |
| | | | | | | | | | |
| | Six Months Ended June 30, 2016 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Revenue | | $ | — |
| | $ | 220,377 |
| | $ | 106,514 |
| | $ | (24,727 | ) | | $ | 302,164 |
|
Cost of sales | | — |
| | 200,417 |
| | 86,864 |
| | (24,955 | ) | | 262,326 |
|
Gross profit | | — |
| | 19,960 |
| | 19,650 |
| | 228 |
| | 39,838 |
|
Operating expenses | | | | | | | | | | |
Selling, general and administrative expenses | | — |
| | 94,530 |
| | 23,746 |
| | — |
| | 118,276 |
|
Transaction expenses | | — |
| | 230 |
| | — |
| | — |
| | 230 |
|
Loss (gain) on sale of assets and other | | — |
| | 180 |
| | (164 | ) | | — |
| | 16 |
|
Total operating expenses | | — |
| | 94,940 |
| | 23,582 |
| | — |
| | 118,522 |
|
Earnings from equity investment | | — |
| | 793 |
| | — |
| | — |
| | 793 |
|
Equity earnings from affiliates, net of tax | | (40,741 | ) | | 6,147 |
| | — |
| | 34,594 |
| | — |
|
Operating income (loss) | | (40,741 | ) | | (68,040 | ) | | (3,932 | ) | | 34,822 |
| | (77,891 | ) |
Other expense (income) | | | | | | | | | | |
Interest expense (income) | | 13,931 |
| | (16 | ) | | 3 |
| | — |
| | 13,918 |
|
Deferred loan costs written off | | 2,588 |
| | — |
| | — |
| | — |
| | 2,588 |
|
Foreign exchange gains and other, net | | — |
| | (533 | ) | | (10,861 | ) | | — |
| | (11,394 | ) |
Total other expense (income) | | 16,519 |
| | (549 | ) | | (10,858 | ) | | — |
| | 5,112 |
|
Income (loss) before income taxes | | (57,260 | ) | | (67,491 | ) | | 6,926 |
| | 34,822 |
| | (83,003 | ) |
Provision (benefit) for income tax expense | | (5,780 | ) | | (26,750 | ) | | 977 |
| | — |
| | (31,553 | ) |
Net income (loss) | | (51,480 | ) | | (40,741 | ) | | 5,949 |
| | 34,822 |
| | (51,450 | ) |
Less: Income (loss) attributable to noncontrolling interest | | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
Net income (loss) attributable to common stockholders | | (51,480 | ) | | (40,741 | ) | | 5,919 |
| | 34,822 |
| | (51,480 | ) |
| | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Net income (loss) | | (51,480 | ) | | (40,741 | ) | | 5,949 |
| | 34,822 |
| | (51,450 | ) |
Change in foreign currency translation, net of tax of $0 | | (19,375 | ) | | (19,375 | ) | | (19,375 | ) | | 38,750 |
| | (19,375 | ) |
Change in pension liability | | (19 | ) | | (19 | ) | | (19 | ) | | 38 |
| | (19 | ) |
Comprehensive income (loss) | | (70,874 | ) | | (60,135 | ) | | (13,445 | ) | | 73,610 |
| | (70,844 | ) |
Less: comprehensive (income) loss attributable to noncontrolling interests | | — |
| | — |
| | (129 | ) | | — |
| | (129 | ) |
Comprehensive income (loss) attributable to common stockholders | | $ | (70,874 | ) | | $ | (60,135 | ) | | $ | (13,574 | ) | | $ | 73,610 |
| | $ | (70,973 | ) |
Forum Energy Technologies, Inc. and subsidiaries
Notes to condensed consolidated financial statements (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
Condensed consolidating balance sheets |
| | | | | | | | | | |
| | June 30, 2017 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | | | | | (in thousands) | | | | |
Assets | | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 262 |
| | $ | 137,943 |
| | $ | 82,265 |
| | $ | — |
| | $ | 220,470 |
|
Accounts receivable—trade, net | | — |
| | 115,793 |
| | 29,548 |
| | — |
| | 145,341 |
|
Inventories | | — |
| | 300,316 |
| | 73,002 |
| | (8,535 | ) | | 364,783 |
|
Income tax receivable | | — |
| | 1,872 |
| | — |
| | — |
| | 1,872 |
|
Cost and profits in excess of billings | | — |
| | 5,818 |
| | 1,621 |
| | — |
| | 7,439 |
|
Other current assets | | — |
| | 17,894 |
| | 9,335 |
| | — |
| | 27,229 |
|
Total current assets | | 262 |
| | 579,636 |
| | 195,771 |
| | (8,535 | ) | | 767,134 |
|
Property and equipment, net of accumulated depreciation | | — |
| | 124,960 |
| | 24,458 |
| | — |
| | 149,418 |
|
Deferred financing costs, net | | 809 |
| | — |
| | — |
| | — |
| | 809 |
|
Deferred income taxes, net | | — |
| | — |
| | 3,945 |
| | — |
| | 3,945 |
|
Intangibles | | — |
| | 163,028 |
| | 50,284 |
| | — |
| | 213,312 |
|
Goodwill | | — |
| | 450,625 |
| | 145,208 |
| | — |
| | 595,833 |
|
Investment in unconsolidated subsidiary | | — |
| | 62,510 |
| | — |
| | — |
| | 62,510 |
|
Investment in affiliates | | 1,019,604 |
| | 435,700 |
| | — |
| | (1,455,304 | ) | | — |
|
Long-term advances to affiliates | | 558,770 |
| | — |
| | 80,616 |
| | (639,386 | ) | | — |
|
Other long-term assets | | — |
| | 2,228 |
| | 655 |
| | — |
| | 2,883 |
|
Total assets | | $ | 1,579,445 |
| | $ | 1,818,687 |
| | $ | 500,937 |
| | $ | (2,103,225 | ) | | $ | 1,795,844 |
|
Liabilities and equity | | | | | | | | | | |
Current liabilities | | | | | | | | | | |
Current portion of long-term debt | | $ | — |
| | $ | 1,035 |
| | $ | 108 |
| | $ | — |
| | $ | 1,143 |
|
Accounts payable—trade | | — |
| | 96,789 |
| |