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 March 31, 2016
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 May 2, 2016, there were 91,222,347 common shares outstanding.


Table of Contents
 


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 (loss)
(Unaudited)
  
 
Three months ended March 31,
(in thousands, except per share information)
 
2016
 
2015
Net sales
 
$
159,441

 
$
348,096

Cost of sales
 
124,884

 
238,970

Gross profit
 
34,557

 
109,126

Operating expenses
 
 
 
 
Selling, general and administrative expenses
 
60,013

 
73,560

Transaction expenses
 
166

 
217

Loss (gain) on sale of assets and other
 
(32
)
 
(312
)
Total operating expenses
 
60,147

 
73,465

Earnings from equity investment
 
577

 
4,571

Operating income (loss)
 
(25,013
)
 
40,232

Other expense (income)
 
 
 
 
Interest expense
 
7,133

 
7,627

Deferred financing costs written off
 
2,588

 

Foreign exchange (gains) and other, net
 
(1,380
)
 
(6,656
)
Total other expense
 
8,341

 
971

Income (loss) before income taxes
 
(33,354
)
 
39,261

Provision (benefit) for income tax expense
 
(10,406
)
 
10,605

Net income (loss)
 
(22,948
)
 
28,656

Less: Income (loss) attributable to noncontrolling interest
 
(5
)
 
(16
)
Net income (loss) attributable to common stockholders
 
(22,943
)
 
28,672

 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
Basic
 
90,477

 
89,482

Diluted
 
90,477

 
91,469

Earnings (losses) per share
 
 
 
 
Basic
 
$
(0.25
)
 
$
0.32

Diluted
 
$
(0.25
)
 
$
0.31

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
Net income (loss)
 
(22,948
)
 
28,656

Change in foreign currency translation, net of tax of $0
 
3,472

 
(37,297
)
Gain (loss) on pension liability
 
(43
)
 
99

Comprehensive income (loss)
 
(19,519
)
 
(8,542
)
Less: comprehensive loss (income) attributable to noncontrolling interests
 
(93
)
 
43

Comprehensive income (loss) attributable to common stockholders
 
$
(19,612
)
 
$
(8,499
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated balance sheets
(Unaudited)
(in thousands, except share information)
March 31,
2016
 
December 31,
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
131,977

 
$
109,249

Accounts receivable—trade, net
109,203

 
138,597

Inventories
416,105

 
424,121

Prepaid expenses and other current assets
26,846

 
33,836

Costs and estimated profits in excess of billings
14,124

 
12,009

Total current assets
698,255

 
717,812

Property and equipment, net of accumulated depreciation
180,206

 
186,667

Deferred financing costs, net
1,750

 
4,125

Intangible assets
240,967

 
246,650

Goodwill
671,190

 
669,036

Investment in unconsolidated subsidiary
58,296

 
57,719

Deferred income taxes, net
779

 
780

Other long-term assets
3,126

 
3,253

Total assets
$
1,854,569

 
$
1,886,042

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
82

 
$
253

Accounts payable—trade
75,568

 
76,823

Accrued liabilities
55,934

 
58,563

Deferred revenue
9,119

 
7,283

Billings in excess of costs and profits recognized
4,002

 
8,631

Total current liabilities
144,705

 
151,553

Long-term debt, net of current portion
396,170

 
396,016

Deferred income taxes, net
40,266

 
51,100

Other long-term liabilities
31,464

 
29,956

Total liabilities
612,605

 
628,625

Commitments and contingencies

 


Equity
 
 
 
Common stock, $0.01 par value, 296,000,000 shares authorized, 99,368,477 and 98,605,902 shares issued
993

 
986

Additional paid-in capital
895,307

 
891,248

Treasury stock at cost, 8,145,802 and 8,145,802 shares
(133,318
)
 
(133,318
)
Retained earnings
557,209

 
580,152

Accumulated other comprehensive income (loss)
(78,717
)
 
(82,048
)
Total stockholders’ equity
1,241,474

 
1,257,020

Noncontrolling interest in subsidiary
490

 
397

Total equity
1,241,964

 
1,257,417

Total liabilities and equity
$
1,854,569

 
$
1,886,042

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

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Forum Energy Technologies, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(Unaudited)
  
Three Months Ended March 31,
(in thousands, except share information)
2016
 
2015
Cash flows from operating activities
 
 
 
Net income (loss)
$
(22,948
)
 
$
28,656

Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
 
Depreciation expense
9,284

 
9,513

Amortization of intangible assets
6,612

 
6,769

Share-based compensation expense
5,084

 
5,031

Deferred income taxes
(10,832
)
 
(1,322
)
Deferred loan cost written off
2,588

 

Earnings from equity investment, net of distributions
(577
)
 
(4,571
)
Other
(429
)
 
911

Changes in operating assets and liabilities
 
 
 
Accounts receivable—trade
28,764

 
30,238

Inventories
9,048

 
(37,610
)
Prepaid expenses and other current assets
6,762

 
1,554

Accounts payable, deferred revenue and other accrued liabilities
191

 
12,593

Costs and estimated profits in excess of billings, net
(6,691
)
 
(3,275
)
Net cash provided by operating activities
$
26,856

 
$
48,487

Cash flows from investing activities
 
 
 
Acquisition of businesses, net of cash acquired

 
(60,836
)
Capital expenditures for property and equipment
(4,261
)
 
(11,421
)
Proceeds from sale of business, property and equipment
309

 
662

Net cash used in investing activities
$
(3,952
)
 
$
(71,595
)
Cash flows from financing activities
 
 
 
Borrowings of long term and short term debt
8

 
65,008

Repayment of long term and short term debt
(199
)
 
(25,323
)
Repurchases of stock

 
(5,885
)
Proceeds from stock issuance
165

 
884

Deferred Financing costs
(513
)
 

Net cash provided by (used in) financing activities
$
(539
)
 
$
34,684

Effect of exchange rate changes on cash
363

 
(4,264
)
Net increase in cash and cash equivalents
22,728

 
7,312

Cash and cash equivalents
 
 
 
Beginning of period
109,249

 
76,579

End of period
$
131,977

 
$
83,891

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

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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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 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, 2015, which are included in the Company’s 2015 Annual Report on Form 10-K filed with the SEC on February 26, 2016 (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 March and April 2016, the FASB issued Accounting Standards Update ("ASU") No.2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing, and No. 2016-08 Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations. ASU no. 2016-10 amended and clarified the guidance in the new revenue standard on identifying performance obligation and accounting for licenses of intellectual property and addressed the implementation issues. ASU no. 2016-08 amended the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. Both standards will take effect for public companies for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the adoption of the above guidance.
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 various aspects related to how share-based payments are accounted for and presented in the financial statements: a) All excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement; b) Excess tax benefits should be classified along with other income tax cash flows as an operating activity; c) An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur; d) The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; e) Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. There are also two additional provisions for non-public entities that do not

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

apply to the Company. The standard will take effect for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this guidance.
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 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 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 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 $61.9 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 Completions segment. The following table summarizes the 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
 
$
36,174

Property and equipment
 
11,506

Intangible assets (primarily customer relationships)
 
10,400

Tax-deductible goodwill
 
13,977

Current liabilities
 
(10,129
)
Long-term liabilities
 
(22
)
Net assets acquired
 
$
61,906

Revenues and net income related to the acquisitions were not significant for the current and prior periods presented in this report. Pro forma results of operations for 2015 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 March 31, 2016 and December 31, 2015 were as follows (in thousands):
 
March 31,
2016
 
December 31,
2015
Raw materials and parts
$
149,790

 
$
148,372

Work in process
36,982

 
38,381

Finished goods
301,607

 
315,256

Gross inventories
488,379

 
502,009

Inventory reserve
(72,274
)
 
(77,888
)
Inventories
$
416,105

 
$
424,121

5. Goodwill and intangible assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2015 to March 31, 2016, were as follows (in thousands):
 
Drilling & Subsea
 
Completions
 
Production & Infrastructure
 
Total
Goodwill Balance at December 31, 2015
$
334,595

 
$
316,914

 
$
17,527

 
$
669,036

Impact of non-U.S. local currency translation
326

 
1,619

 
209

 
$
2,154

Goodwill Balance at March 31, 2016
$
334,921

 
$
318,533

 
$
17,736

 
$
671,190

The Company performs its annual impairment tests of goodwill as of October 1. There was no impairment of goodwill during the quarter ended March 31, 2016. Accumulated impairment losses on goodwill were $168.8 million as of March 31, 2016 and December 31, 2015.

Intangible assets
Intangible assets consisted of the following as of March 31, 2016 and December 31, 2015, respectively (in thousands):
  
March 31, 2016
 
Gross carrying
amount
 
Accumulated
amortization
 
Net amortizable
intangibles
 
Amortization
period (in years)
Customer relationships
$
280,381

 
$
(106,206
)
 
$
174,175

 
4-15
Patents and technology
34,359

 
(10,739
)
 
23,620

 
5-17
Non-compete agreements
7,295

 
(6,431
)
 
864

 
3-6
Trade names
45,601

 
(16,557
)
 
29,044

 
10-15
Distributor relationships
22,160

 
(14,126
)
 
8,034

 
8-15
Trademark
5,230

 

 
5,230

 
Indefinite
Intangible Assets Total
$
395,026

 
$
(154,059
)
 
$
240,967

 
 

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

  
December 31, 2015
 
Gross carrying
amount
 
Accumulated
amortization
 
Net amortizable
intangibles
 
Amortization
period (in years)
Customer relationships
$
280,297

 
$
(101,636
)
 
$
178,661

 
4-15
Patents and technology
34,140

 
(10,264
)
 
23,876

 
5-17
Non-compete agreements
7,269

 
(6,292
)
 
977

 
3-6
Trade names
45,446

 
(15,890
)
 
29,556

 
10-15
Distributor relationships
22,160

 
(13,810
)
 
8,350

 
8-15
Trademark
5,230

 

 
5,230

 
Indefinite
Intangible Assets Total
$
394,542

 
$
(147,892
)
 
$
246,650

 
 
6. Debt
Notes payable and lines of credit as of March 31, 2016 and December 31, 2015 consisted of the following (in thousands): 
 
March 31,
2016
 
December 31,
2015
6.25% Senior Notes due October 2021
$
400,000

 
$
400,000

Unamortized debt premium
2,294

 
2,395

Debt issuance cost
(6,149
)
 
(6,425
)
Senior secured revolving credit facility

 

Other debt
107

 
299

Total debt
396,252

 
396,269

Less: current maturities
(82
)
 
(253
)
Long-term debt
$
396,170

 
$
396,016

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
On February 25, 2016, the Company amended its senior secured credit facility (the "Credit Facility" and such amendment, the "Amended Facility") to reduce commitment fees and provide borrowing capacity for general corporate purposes. The Amended Facility provides for a revolving credit line of up to $200.0 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 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 Amended Facility reduced the borrowing capacity from $600.0 million to $200.0 million, as such the Company has written off $2.6 million of the deferred financing costs related to the credit facility.
The Credit Facility matures in November 2018. As of March 31, 2016, we had no borrowings outstanding under the Credit Facility, and $10.5 million of outstanding letters of credit. Subsequent to March 31, 2016, upon the completion of the bank's borrowing base audit, the Company had the capacity to borrow an additional $189.5 million subject to certain limitations in the Credit Facility. Weighted average interest rates under the Credit Facility for the twelve months ended December 31, 2015 were approximately 2.00%.
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 March 31, 2016.

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

7. Income taxes
The Company's effective tax rate was 31.2% for the three months ended March 31, 2016 and 27.0% for the three months ended March 31, 2015. The tax rate is higher than the comparable period in 2015 primarily due to 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. 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.
8. Fair value measurements
At March 31, 2016, the Company had no debt outstanding under the Credit Facility, and $10.5 million of outstanding letters of credit. 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 March 31, 2016, the fair value and the carrying value of the Company’s Senior Notes approximated $346.0 million and $402.3 million, respectively. At December 31, 2015, the fair value and the carrying value of the Company’s Senior Notes approximated $334.1 million and $402.5 million, respectively.
There were no outstanding financial assets as of March 31, 2016 and December 31, 2015 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 three months ended March 31, 2016.

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

9. Business segments
Beginning with the first quarter of 2016, the Company realigned its segments. Completions was designated as a separate segment in recognition of the expansion in these operations and its significant growth potential. The Company is reporting its results of operations in the following three operating segments, which are our reportable segments: Drilling & Subsea, Completions and Production & Infrastructure, instead of the original two operating segments. Management’s change in the composition of the Company’s reporting segments was made in order to align with activity drivers and the customers of our product group and to better correspond to the manner in which management will review and evaluate operating performance. This change will be reflected on a retrospective basis in accordance with generally accepted accounting principles, with prior years adjusted to reflect the change in reporting segments. The amounts indicated below as "Corporate" relate to costs and assets not allocated to the reportable operating segments. Summary financial data by segment follows (in thousands):
 
Three months ended March 31,
 
2016
 
2015
Revenue:
 
 
 
Drilling & Subsea
$
65,295

 
$
163,553

Completions
34,304

 
94,496

Production & Infrastructure
60,511

 
90,523

Intersegment eliminations
(669
)
 
(476
)
Total Revenue
$
159,441

 
$
348,096

 
 
 
 
Operating income (loss):
 
 
 
Drilling & Subsea
$
(9,823
)
 
$
19,839

Completions
(6,458
)
 
20,569

Production & Infrastructure
(1,371
)
 
7,990

Corporate
(7,227
)
 
(8,261
)
Total segment operating income (loss)
(24,879
)
 
40,137

Transaction expenses
166

 
217

Loss (gain) on sale of assets and other
(32
)
 
(312
)
Income (loss) from operations
$
(25,013
)
 
$
40,232

A summary of consolidated assets by reportable segment is as follows (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Assets
 
 
 
 
Drilling & Subsea
 
$
885,418

 
$
912,324

Completions
 
728,531

 
728,745

Production & Infrastructure
 
188,211

 
187,741

Corporate
 
52,409

 
57,232

Total assets
 
$
1,854,569

 
$
1,886,042

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

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

10. Commitments and contingencies
In the ordinary course of business, the Company is, and in the future could be, involved in various pending or threatened legal actions that may or may not be covered by insurance. Management has reviewed such pending judicial and legal proceedings, the reasonably anticipated costs and expenses in connection with such proceedings, and the availability and limits of insurance coverage, and has established reserves that are believed to be appropriate in light of those outcomes that are considered to be probable and can be reasonably estimated. The reserves accrued at March 31, 2016 and December 31, 2015, 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.
11. Earnings per share
The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):
  
Three Months Ended March 31,
 
2016
 
2015
Net income (loss) attributable to common stockholders
$
(22,943
)
 
$
28,672

 
 
 
 
Average shares outstanding (basic)
90,477

 
89,482

Common stock equivalents

 
1,987

Diluted shares
90,477

 
91,469

Earnings(losses) per share
 
 
 
Basic earnings (losses) per share
$
(0.25
)
 
$
0.32

Diluted earnings (losses) per share
$
(0.25
)
 
$
0.31

The diluted earnings per share calculation excludes all stock options for the three months ended March 31, 2016 because there is a net loss for the quarter. The diluted earnings per share calculation excludes approximately 1.6 million stock options for the three months ended March 31, 2015, because they were anti-dilutive as the option exercise price was greater than the average market price of the Company's common stock.
12. Stockholders' equity
Share-based compensation
During the three months ended March 31, 2016, the Company granted 818,620 options and 1,670,270 shares of restricted stock or restricted stock units, which includes 257,900 performance share awards with a market condition. The stock options were granted with an exercise price of $9.39. Of the restricted stock or restricted stock units granted, 1,292,553 vest ratably over four years on each anniversary of the date of grant. 119,817 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 material 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. Subsequent Event
In April 2016, the Company completed the acquisition of the wholesale completion packer product line of Team Oil Tools, Inc. The product line includes a wide variety of completion and service tools, including retrievable and permanent packers, bridge plugs, and accessories which are sold to the oilfield service providers, packer repair companies and distributors on a global basis. This product line will be included in the Completions segment.

15. Condensed consolidating financial statements
The Senior Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The guarantees are full and unconditional, joint and several and on an unsecured basis.
Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2016
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$

 
$
117,314

 
$
55,634

 
$
(13,507
)
 
$
159,441

Cost of sales
 

 
92,614

 
45,132

 
(12,862
)
 
124,884

Gross profit
 

 
24,700

 
10,502

 
(645
)
 
34,557

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 

 
47,664

 
12,349

 

 
60,013

Transaction expenses
 

 
166

 

 

 
166

Loss (gain) on sale of assets and other
 

 
(36
)
 
4

 

 
(32
)
Total operating expenses
 

 
47,794

 
12,353

 

 
60,147

Earnings from equity investment
 

 
577

 

 

 
577

Equity earnings from affiliate, net of tax
 
(16,614
)
 
(1,089
)
 

 
17,703

 

Operating income
 
(16,614
)
 
(23,606
)
 
(1,851
)
 
17,058

 
(25,013
)
Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
7,148

 
(13
)
 
(2
)
 

 
7,133

Deferred loan costs written off
 
2,588

 

 

 

 
2,588

Foreign exchange (gains) losses and other, net
 

 
(82
)
 
(1,298
)
 

 
(1,380
)
Total other expense (income)
 
9,736

 
(95
)
 
(1,300
)
 

 
8,341

Income (loss) before income taxes
 
(26,350
)
 
(23,511
)
 
(551
)
 
17,058

 
(33,354
)
Provision (benefit) for income tax expense
 
(3,407
)
 
(6,897
)
 
(102
)
 

 
(10,406
)
Net income (loss)
 
(22,943
)
 
(16,614
)
 
(449
)
 
17,058

 
(22,948
)
Less: Income (loss) attributable to noncontrolling interest
 

 

 
(5
)
 

 
(5
)
Net income (loss) attributable to common stockholders
 
(22,943
)
 
(16,614
)
 
(444
)
 
17,058

 
(22,943
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
(22,943
)
 
(16,614
)
 
(449
)
 
17,058

 
(22,948
)
Change in foreign currency translation, net of tax of $0
 
3,472

 
3,472

 
3,472

 
(6,944
)
 
3,472

Change in pension liability
 
(43
)
 
(43
)
 
(43
)
 
86

 
(43
)
Comprehensive income (loss)
 
(19,514
)
 
(13,185
)
 
2,980

 
10,200

 
(19,519
)
Less: comprehensive (income) loss attributable to noncontrolling interests
 

 

 
(93
)
 

 
(93
)
Comprehensive income (loss) attributable to common stockholders
 
$
(19,514
)
 
$
(13,185
)
 
$
2,887

 
$
10,200

 
$
(19,612
)


13

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

Condensed consolidating statements of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Net sales
 
$

 
$
269,198

 
$
120,317

 
$
(41,419
)
 
$
348,096

Cost of sales
 

 
188,767

 
89,676

 
(39,473
)
 
238,970

Gross profit
 

 
80,431

 
30,641

 
(1,946
)
 
109,126

Operating expenses
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 

 
57,372

 
16,188

 

 
73,560

Transaction Expense
 

 
217

 

 

 
217

Loss (gain) on sale of assets and other
 

 
(111
)
 
(201
)
 

 
(312
)
Total operating expenses
 

 
57,478

 
15,987

 

 
73,465

Earnings from equity investment
 

 
4,571

 

 

 
4,571

Equity earnings from affiliates, net of tax
 
33,604

 
16,237

 

 
(49,841
)
 

Operating income
 
33,604

 
43,761

 
14,654

 
(51,787
)
 
40,232

Other expense (income)
 
 
 
 
 
 
 
 
 
 
Interest expense (income)
 
7,588

 
14

 
25

 

 
7,627

Foreign exchange (gains) losses and other, net
 

 
(185
)
 
(6,471
)
 

 
(6,656
)
Total other expense (income)
 
7,588

 
(171
)
 
(6,446
)
 

 
971

Income before income taxes
 
26,016

 
43,932

 
21,100

 
(51,787
)
 
39,261

Provision for income tax expense
 
(2,656
)
 
10,328

 
2,933

 

 
10,605

Net income
 
28,672

 
33,604

 
18,167

 
(51,787
)
 
28,656

Less: Income (loss) attributable to noncontrolling interest
 

 

 
(16
)
 

 
(16
)
Net income attributable to common stockholders
 
28,672

 
33,604

 
18,183

 
(51,787
)
 
28,672

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income
 
28,672

 
33,604

 
18,167

 
(51,787
)
 
28,656

Change in foreign currency translation, net of tax of $0
 
(37,297
)
 
(37,297
)
 
(37,297
)
 
74,594

 
(37,297
)
Change in pension liability
 
99

 
99

 
99

 
(198
)
 
99

Comprehensive income (loss)
 
(8,526
)
 
(3,594
)
 
(19,031
)
 
22,609

 
(8,542
)
Less: comprehensive (income) loss attributable to noncontrolling interests
 

 

 
43

 

 
43

Comprehensive income (loss) attributable to common stockholders
 
$
(8,526
)
 
$
(3,594
)
 
$
(18,988
)
 
$
22,609

 
$
(8,499
)








14

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

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
40,746

 
$
91,231

 
$

 
$
131,977

Accounts receivable—trade, net
 

 
71,748

 
37,455

 

 
109,203

Inventories
 

 
320,110

 
106,044

 
(10,049
)
 
416,105

Cost and profits in excess of billings
 

 
4,458

 
9,666

 

 
14,124

Other current assets
 

 
20,480

 
6,366

 

 
26,846

Total current assets
 

 
457,542

 
250,762

 
(10,049
)
 
698,255

Property and equipment, net of accumulated depreciation
 

 
149,830

 
30,376

 

 
180,206

Deferred financing costs, net
 
1,750

 

 

 

 
1,750

Deferred income taxes, net
 

 
(1
)
 
780

 

 
779

Intangibles
 

 
181,081

 
59,886

 

 
240,967

Goodwill
 

 
481,374

 
189,816

 

 
671,190

Investment in unconsolidated subsidiary
 

 
58,296

 

 

 
58,296

Investment in affiliates
 
1,175,421

 
517,135

 

 
(1,692,556
)
 

Long-term advances to affiliates
 
473,592

 

 
60,031

 
(533,623
)
 

Other long-term assets
 

 
2,389

 
737

 

 
3,126

Total assets
 
$
1,650,763

 
$
1,847,646

 
$
592,388

 
$
(2,236,228
)
 
$
1,854,569

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

 
$
71

 
$
11

 
$

 
$
82

Accounts payable—trade
 

 
59,272

 
16,296

 

 
75,568

Accrued liabilities
 
13,145

 
34,388

 
8,401

 

 
55,934

Deferred revenue
 

 
2,551

 
6,568

 

 
9,119

Billings in excess of costs and profits
 

 
632

 
3,370

 

 
4,002

Total current liabilities
 
13,145

 
96,914

 
34,646

 

 
144,705

Long-term debt, net of current portion
 
396,144

 
15

 
11

 

 
396,170

Long-term payables to affiliates
 

 
533,623

 

 
(533,623
)
 

Deferred income taxes, net
 

 
25,542

 
14,724

 

 
40,266

Other long-term liabilities
 

 
16,131

 
15,333

 

 
31,464

Total liabilities
 
409,289

 
672,225

 
64,714

 
(533,623
)
 
612,605

 
 
 
 
 
 
 
 
 
 
 
Total stockholder's equity
 
1,241,474

 
1,175,421

 
527,184

 
(1,702,605
)
 
1,241,474

Noncontrolling interest in subsidiary
 

 

 
490

 

 
490

Equity
 
1,241,474

 
1,175,421

 
527,674

 
(1,702,605
)
 
1,241,964

Total liabilities and equity
 
$
1,650,763

 
$
1,847,646

 
$
592,388

 
$
(2,236,228
)
 
$
1,854,569


15

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

Condensed consolidating balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
36,884

 
$
72,365

 
$

 
$
109,249

Accounts receivable—trade, net
 

 
85,537

 
53,060

 

 
138,597

Inventories
 

 
318,360

 
115,165

 
(9,404
)
 
424,121

Cost and profits in excess of billings
 

 
6,477

 
5,532

 

 
12,009

Other current assets
 

 
25,447

 
8,389

 

 
33,836

Total current assets
 

 
472,705

 
254,511

 
(9,404
)
 
717,812

Property and equipment, net of accumulated depreciation
 

 
153,995

 
32,672

 

 
186,667

Deferred financing costs, net
 
4,125

 

 

 

 
4,125

Deferred income taxes, net
 

 

 
780

 

 
780

Intangibles
 

 
186,234

 
60,416

 

 
246,650

Goodwill
 

 
481,374

 
187,662

 

 
669,036

Investment in unconsolidated subsidiary
 

 
57,719

 

 

 
57,719

Investment in affiliates
 
1,188,707

 
514,893

 

 
(1,703,600
)
 

Long-term advances to affiliates
 
467,184

 

 
60,221

 
(527,405
)
 

Other long-term assets
 

 
2,549

 
704

 

 
3,253

Total assets
 
$
1,660,016

 
$
1,869,469

 
$
596,966

 
$
(2,240,409
)
 
$
1,886,042

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

 
$
243

 
$
10

 
$

 
$
253

Accounts payable—trade
 
$

 
$
57,529

 
$
19,294

 
$

 
$
76,823

Accrued liabilities
 
7,027

 
40,874

 
10,662

 

 
58,563

Deferred revenue
 

 
1,334

 
5,949

 

 
7,283

Billings in excess of costs and profits recognized
 

 
1,872

 
6,759

 

 
8,631

Total current liabilities
 
7,027

 
101,852

 
42,674

 

 
151,553

Long-term debt, net of current portion
 
395,970

 
34

 
12

 

 
396,016

Long-term payables to affiliates
 

 
527,406

 

 
(527,406
)
 

Deferred income taxes, net
 

 
36,937

 
14,163

 

 
51,100

Other long-term liabilities
 

 
14,533

 
15,423

 

 
29,956

Total liabilities
 
402,997

 
680,762

 
72,272

 
(527,406
)
 
628,625

 
 
 
 
 
 
 
 
 
 
 
Total stockholder's equity
 
1,257,019

 
1,188,707

 
524,297

 
(1,713,003
)
 
1,257,020

Noncontrolling interest in subsidiary
 

 

 
397

 

 
397

Equity
 
1,257,019

 
1,188,707

 
524,694

 
(1,713,003
)
 
1,257,417

Total liabilities and equity
 
$
1,660,016

 
$
1,869,469

 
$
596,966

 
$
(2,240,409
)
 
$
1,886,042


16

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

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2016
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Cash flows from (used in) operating activities
 
$
1,670

 
$
6,093

 
$
19,093

 
$

 
$
26,856

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Acquisition of businesses, net of cash acquired
 

 

 

 

 

Capital expenditures for property and equipment
 

 
(3,991
)
 
(270
)
 

 
(4,261
)
Long-term loans and advances to affiliates
 
(1,324
)
 
348

 

 
976

 

Other
 

 
280

 
29

 

 
309

Net cash provided by (used in) investing activities
 
$
(1,324
)
 
$
(3,363
)
 
$
(241
)
 
$
976

 
$
(3,952
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Borrowings of long-term and short-term debt
 

 
8

 

 

 
8

Repayment of long-term and short-term debt
 

 
(199
)
 
 
 

 
(199
)
Long-term loans and advances to affiliates
 

 
1,324

 
(348
)
 
(976
)
 

Deferred financing costs
 
(513
)
 

 

 

 
(513
)
Proceeds from stock issuance
 
167

 
(1
)
 
(1
)
 

 
165

Net cash provided by (used in) financing activities
 
$
(346
)
 
$
1,132

 
$
(349
)
 
$
(976
)
 
$
(539
)
Effect of exchange rate changes on cash
 

 

 
363

 

 
363

Net increase (decrease) in cash and cash equivalents
 

 
3,862

 
18,866

 

 
22,728

Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Beginning of period
 

 
36,884

 
72,365

 

 
109,249

End of period
 
$

 
$
40,746

 
$
91,231

 
$

 
$
131,977


17

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

Condensed consolidating statements of cash flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2015
 
 
FET (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
(in thousands)
 
 
 
 
Cash flows from (used in) operating activities
 
$
1,628

 
$
33,735

 
$
13,124

 
$

 
$
48,487

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Acquisition of businesses, net of cash acquired
 

 
(60,836
)
 

 

 
(60,836
)
Capital expenditures for property and equipment
 

 
(7,626
)
 
(3,795
)
 

 
(11,421
)
Long-term loans and advances to affiliates
 
(41,979
)
 
12,997

 

 
28,982

 

Other
 

 
175

 
487

 

 
662

Net cash provided by (used in) investing activities
 
$
(41,979
)
 
$
(55,290
)
 
$
(3,308
)
 
$
28,982

 
$
(71,595
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Repayment of long-term debt
 
39,898

 
(207
)
 
(6
)
 

 
39,685

Long-term loans and advances to affiliates
 

 
41,979

 
(12,997
)
 
(28,982
)
 

Other
 
(5,001
)
 

 

 

 
(5,001
)
Net cash provided by (used in) financing activities
 
$
34,897

 
$
41,772

 
$
(13,003
)
 
$
(28,982
)
 
$
34,684

Effect of exchange rate changes on cash
 

 

 
(4,264
)
 

 
(4,264
)
Net increase (decrease) in cash and cash equivalents
 
(5,454
)
 
20,217

 
(7,451
)
 

 
7,312

Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
5,551

 
4,006

 
67,022

 

 
76,579

End of period
 
$
97

 
$
24,223

 
$
59,571

 
$

 
$