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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
|
| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the Quarterly Period Ended March 31, 2019 |
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 every Interactive Data File required to be submitted 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 such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer þ | | Accelerated filer o |
Non-accelerated filer o | | (Do not check if a smaller reporting company) |
Smaller reporting company o | | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 29, 2019 there were 109,910,427 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 March 31, |
(in thousands, except per share information) | | 2019 | | 2018 |
Revenue | | $ | 271,842 |
| | $ | 250,231 |
|
Cost of sales | | 201,744 |
| | 182,944 |
|
Gross profit | | 70,098 |
| | 67,287 |
|
Operating expenses | | | | |
Selling, general and administrative expenses | | 68,968 |
| | 72,091 |
|
Transaction expenses | | 593 |
| | 1,336 |
|
Contingent consideration benefit | | (4,629 | ) | | — |
|
Loss (gain) on disposal of assets and other | | 20 |
| | (397 | ) |
Total operating expenses | | 64,952 |
| | 73,030 |
|
Loss from equity investment | | (849 | ) | | (963 | ) |
Operating income (loss) | | 4,297 |
| | (6,706 | ) |
Other expense (income) | | | | |
Interest expense | | 8,181 |
| | 8,087 |
|
Foreign exchange and other losses, net | | 2,277 |
| | 3,551 |
|
Gain on contribution of subsea rentals business | | — |
| | (33,506 | ) |
Total other (income) expense, net | | 10,458 |
| | (21,868 | ) |
Income (loss) before income taxes | | (6,161 | ) | | 15,162 |
|
Income tax expense (benefit) | | 1,727 |
| | (12,904 | ) |
Net income (loss) | | (7,888 | ) | | 28,066 |
|
| | | | |
Weighted average shares outstanding | | | | |
Basic | | 109,643 |
| | 108,423 |
|
Diluted | | 109,643 |
| | 110,857 |
|
Earnings (loss) per share | | | | |
Basic | | $ | (0.07 | ) | | $ | 0.26 |
|
Diluted | | (0.07 | ) | | 0.25 |
|
| | | | |
Other comprehensive income (loss), net of tax: | | | | |
Net income (loss) | | (7,888 | ) | | 28,066 |
|
Change in foreign currency translation, net of tax of $0 | | 4,834 |
| | 6,287 |
|
Gain (loss) on pension liability | | (9 | ) | | 16 |
|
Comprehensive income (loss) | | $ | (3,063 | ) | | $ | 34,369 |
|
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) | March 31, 2019 | | December 31, 2018 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 29,694 |
| | $ | 47,241 |
|
Accounts receivable—trade, net of allowances of $9,343 and $7,432 | 203,645 |
| | 206,055 |
|
Inventories, net | 471,641 |
| | 479,023 |
|
Prepaid expenses and other current assets | 28,746 |
| | 23,677 |
|
Accrued revenue | 1,020 |
| | 862 |
|
Costs and estimated profits in excess of billings | 8,074 |
| | 9,159 |
|
Total current assets | 742,820 |
| | 766,017 |
|
Property and equipment, net of accumulated depreciation | 173,172 |
| | 177,358 |
|
Operating lease assets | 55,408 |
| | — |
|
Deferred financing costs, net | 1,864 |
| | 2,071 |
|
Intangible assets | 350,309 |
| | 359,048 |
|
Goodwill | 470,674 |
| | 469,647 |
|
Investment in unconsolidated subsidiary | 45,119 |
| | 44,982 |
|
Deferred income taxes, net | 1,735 |
| | 1,234 |
|
Other long-term assets | 9,069 |
| | 9,295 |
|
Total assets | $ | 1,850,170 |
| | $ | 1,829,652 |
|
Liabilities and equity | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 108 |
| | $ | 1,167 |
|
Accounts payable—trade | 152,310 |
| | 143,186 |
|
Accrued liabilities | 72,846 |
| | 81,032 |
|
Deferred revenue | 7,010 |
| | 8,335 |
|
Billings in excess of costs and profits recognized | 1,426 |
| | 3,210 |
|
Total current liabilities | 233,700 |
| | 236,930 |
|
Long-term debt, net of current portion | 487,916 |
| | 517,544 |
|
Deferred income taxes, net | 14,779 |
| | 15,299 |
|
Operating lease liabilities | 55,952 |
| | — |
|
Other long-term liabilities | 26,764 |
| | 29,753 |
|
Total liabilities | 819,111 |
| | 799,526 |
|
Commitments and contingencies |
| |
|
|
Equity | | | |
Common stock, $0.01 par value, 296,000,000 shares authorized, 118,277,326 and 117,411,158 shares issued | 1,183 |
| | 1,174 |
|
Additional paid-in capital | 1,218,963 |
| | 1,214,928 |
|
Treasury stock at cost, 8,208,588 and 8,200,477 shares | (134,482 | ) | | (134,434 | ) |
Retained earnings | 55,800 |
| | 63,688 |
|
Accumulated other comprehensive loss | (110,405 | ) | | (115,230 | ) |
Total equity | 1,031,059 |
| | 1,030,126 |
|
Total liabilities and equity | $ | 1,850,170 |
| | $ | 1,829,652 |
|
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) |
| | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2019 | | 2018 |
Cash flows from operating activities | | | |
Net income (loss) | $ | (7,888 | ) | | $ | 28,066 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
Depreciation expense | 7,513 |
| | 8,158 |
|
Amortization of intangible assets | 8,846 |
| | 10,500 |
|
Inventory write down | 377 |
| | 2,455 |
|
Stock-based compensation expense | 3,910 |
| | 5,302 |
|
Loss from unconsolidated subsidiary | 849 |
| | 963 |
|
Contingent consideration benefit | (4,629 | ) | | — |
|
Gain on contribution of subsea rentals business | — |
| | (33,506 | ) |
Deferred income taxes | (1,021 | ) | | (2,735 | ) |
Noncash losses (gains) and other, net | 4,847 |
| | 531 |
|
Changes in operating assets and liabilities | | | |
Accounts receivable—trade | 684 |
| | 3,034 |
|
Inventories | 6,948 |
| | (27,363 | ) |
Prepaid expenses and other assets | (3,031 | ) | | (16,770 | ) |
Cost and estimated profit in excess of billings | 1,015 |
| | (3,420 | ) |
Accounts payable, deferred revenue and other accrued liabilities | 1,251 |
| | 6,528 |
|
Billings in excess of costs and estimated profits earned | (1,784 | ) | | (1,065 | ) |
Net cash provided by (used in) operating activities | $ | 17,887 |
| | $ | (19,322 | ) |
Cash flows from investing activities | | | |
Capital expenditures for property and equipment | (3,687 | ) | | (5,080 | ) |
Proceeds from sale of business, property and equipment | 134 |
| | 5,074 |
|
Net cash used in investing activities | $ | (3,553 | ) | | $ | (6 | ) |
Cash flows from financing activities | | | |
Borrowings of debt | 20,000 |
| | — |
|
Repayments of debt | (51,063 | ) | | (50,729 | ) |
Repurchases of stock | (973 | ) | | (1,946 | ) |
Net cash used in financing activities | $ | (32,036 | ) | | $ | (52,675 | ) |
| | | |
Effect of exchange rate changes on cash | 155 |
| | (873 | ) |
| | | |
Net decrease in cash, cash equivalents and restricted cash | (17,547 | ) | | (72,876 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 47,241 |
| | 115,216 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 29,694 |
| | $ | 42,340 |
|
| | | |
Noncash activities (1) | | | |
Assets contributed for equity method investment | $ | — |
| | $ | 18,070 |
|
Note receivable related to equity method investment transaction | $ | — |
| | $ | 4,067 |
|
(1) 8 Leases for additional information noncash activities related to leases and the impact from adoption of ASU 842.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Forum Energy Technologies, Inc. and subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2018 |
(in thousands) | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income / (loss) | | Total equity |
Balance at December 31, 2017 | | $ | 1,163 |
| | $ | 1,195,339 |
| | $ | (134,293 | ) | | $ | 438,774 |
| | $ | (91,967 | ) | | $ | 1,409,016 |
|
Stock-based compensation expense | | — |
| | 5,302 |
| | — |
| | — |
| | — |
| | 5,302 |
|
Restricted stock issuance, net of forfeitures | | 4 |
| | (1,611 | ) | | — |
| | — |
| | — |
| | (1,607 | ) |
Issuance of performance shares | | 2 |
| | (275 | ) | | — |
| | — |
| | — |
| | (273 | ) |
Shares issued in employee stock purchase plan | | 1 |
| | 995 |
| | — |
| | — |
| | — |
| | 996 |
|
Contingent shares issued for acquisition of Cooper | | — |
| | 125 |
| | — |
| | — |
| | — |
| | 125 |
|
Treasury stock | | — |
| | — |
| | (66 | ) | | — |
| | — |
| | (66 | ) |
Adjustment for adoption of ASU 2016-16 (Intra-entity asset transfers) | | — |
| | — |
| | — |
| | (1,006 | ) | | — |
| | (1,006 | ) |
Currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | 6,287 |
| | 6,287 |
|
Change in pension liability | | — |
| | — |
| | — |
| | — |
| | 16 |
| | 16 |
|
Net income | | — |
| | — |
| | — |
| | 28,066 |
| | — |
| | 28,066 |
|
Balance at March 31, 2018 | | $ | 1,170 |
| | $ | 1,199,875 |
| | $ | (134,359 | ) | | $ | 465,834 |
| | $ | (85,664 | ) | | $ | 1,446,856 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 |
(in thousands) | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income / (loss) | | Total equity |
Balance at December 31, 2018 | | $ | 1,174 |
| | $ | 1,214,928 |
| | $ | (134,434 | ) | | $ | 63,688 |
| | $ | (115,230 | ) | | $ | 1,030,126 |
|
Stock-based compensation expense | | — |
| | 3,910 |
| | — |
| | — |
| | — |
| | 3,910 |
|
Restricted stock issuance, net of forfeitures | | 6 |
| | (931 | ) | | — |
| | — |
| | — |
| | (925 | ) |
Shares issued in employee stock purchase plan | | 2 |
| | 682 |
| | — |
| | — |
| | — |
| | 684 |
|
Contingent shares issued for acquisition of Cooper | | 1 |
| | 374 |
| | — |
| | — |
| | — |
| | 375 |
|
Treasury stock | | — |
| | — |
| | (48 | ) | | — |
| | — |
| | (48 | ) |
Currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | 4,834 |
| | 4,834 |
|
Change in pension liability | | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Net loss | | — |
| | — |
| | — |
| | (7,888 | ) | | — |
| | (7,888 | ) |
Balance at March 31, 2019 | | $ | 1,183 |
| | $ | 1,218,963 |
| | $ | (134,482 | ) | | $ | 55,800 |
| | $ | (110,405 | ) | | $ | 1,031,059 |
|
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,” “we,” “our,” or “us”), a Delaware corporation, is a global oilfield products company, serving the drilling, subsea, completions, 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 intercompany transactions have been eliminated in consolidation.
Our investments in operating entities where we have the ability to exert significant influence, but do not control operating and financial policies, are accounted for using the equity method of accounting, with our share of the net income reported in “Loss from equity investment” in the condensed consolidated statements of comprehensive income (loss). These investments are included in “Investment in unconsolidated subsidiary” in the condensed consolidated balance sheets. The Company’s share of equity earnings are reported 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 three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 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, 2018, which are included in the Company’s 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019 (the “Annual Report”).
Change of Segment
In the first quarter 2019, we changed our reporting segments in order to align with business activity drivers and the manner in which management reviews and evaluates operating performance. Forum now operates in the following three reporting segments: Drilling & Downhole, Completions and Production. This move better aligns with the key phases of the well cycle and provides improved operating efficiencies. Historically, we operated in three business segments: Drilling & Subsea, Completions, and Production & Infrastructure. We have moved the Downhole product line from Completions to Drilling & Subsea to form the new Drilling & Downhole segment. Completions retains the Stimulation & Intervention and Coiled Tubing product lines. Finally, we renamed Production & Infrastructure as the Production segment. Our historical results of operations have been recast to retrospectively reflect these changes in accordance with generally accepted accounting principles. Refer to Note 11 Business Segments for further information.
2. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Accounting Standards Adopted in 2019
Stranded Tax Effects from the Tax Cuts and Jobs Act. In February 2018, the FASB issued ASU No. 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. U.S. GAAP requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates, with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (referred to as “stranded tax effects”). The amendments in this ASU allow a specific exception for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
from the Tax Cuts and Jobs Act. The underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. In addition, the amendments in this update also require certain disclosures about stranded tax effects. We applied the update beginning January 1, 2019. The adoption of this new guidance had no material impact on our unaudited condensed consolidated financial statements.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 842”). Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases (finance and operating). The classification as either a financing or operating lease determines whether lease expense is recognized on an effective interest method basis or on a straight-line basis over the term of the lease, respectively.
We adopted this new standard as of January 1, 2019 using the modified retrospective transition method which requires leases existing at, or entered into after, January 1, 2019 to be recognized and measured. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We took advantage of various practical expedients provided by the new standard, including:
| |
• | use of the transition package of practical expedients which, among other things, allows us to carry forward the historical lease classification for existing leases; |
| |
• | making an accounting policy election for leases with an initial term of 12 months or less to be excluded from the balance sheet; and |
| |
• | electing to not separate non-lease components from lease components for all classes of underlying lease assets |
The adoption of this standard resulted in the recording of net operating lease assets of approximately $54 million and operating lease liabilities of approximately $65 million as of January 1, 2019. The new standard did not materially affect our Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2019. For additional information, please refer to Note 8 Leases.
Accounting Standards Issued But Not Yet Adopted
Accounting for Implementation Costs Related to a Cloud Computing Arrangement. In August 2018, the FASB issued ASU No. 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred by an entity related to a cloud computing arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, this guidance requires an entity to capitalize certain implementation costs incurred and then amortize them over the term of the cloud hosting arrangement. Furthermore, this guidance also requires an entity to present the expense, cash flows, and capitalized implementation costs in the same financial statement line items as the associated hosting service. This new guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact of adopting this guidance.
Fair Value Measurement Disclosure. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement. This new guidance eliminated, modified and added certain disclosure requirements related to fair value measurements. The amended disclosure requirements are effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We are evaluating the impact of adopting this guidance. However, we currently expect that the adoption of this guidance will not have a material impact on our unaudited condensed consolidated financial statements.
Financial Instruments—Credit Losses. In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326), which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. It requires an entity to estimate credit losses expected over the life of an exposure based on historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Revenues
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For a detailed discussion of revenue recognition policies, refer to the Company’s 2018 Annual Report on Form 10-K.
Disaggregated Revenue
Refer to Note 11 Business Segments for disaggregated revenue by product line and geography.
Contract Balances
Contract balances are determined on a contract by contract basis. Contract assets represent revenue recognized for goods and services provided to our customers when payment is conditioned on something other than the passage of time. Similarly, when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record a contract liability. Such contract liabilities typically result from billings in excess of costs incurred on construction contracts and advance payments received on product sales.
The following table reflects the changes in our contract assets and contract liabilities balances for the three months ended March 31, 2019:
|
| | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | Decrease |
| | | $ | | % |
Accrued revenue | $ | 1,020 |
| | $ | 862 |
| | | | |
Costs and estimated profits in excess of billings | 8,074 |
| | 9,159 |
| | | | |
Contract assets | $ | 9,094 |
| | $ | 10,021 |
| | $ | (927 | ) | | (9 | )% |
| | | | | | | |
Deferred revenue | $ | 7,010 |
| | $ | 8,335 |
| | | | |
Billings in excess of costs and profits recognized | 1,426 |
| | 3,210 |
| | | | |
Contract liabilities | $ | 8,436 |
| | $ | 11,545 |
| | $ | (3,109 | ) | | (27 | )% |
During the three months ended March 31, 2019, our contract assets decreased by $0.9 million primarily due to the timing of orders and billings in our Production Equipment product line and our contract liabilities decreased by $3.1 million primarily due the timing of billings for customer projects in our Subsea product line.
During the three months ended March 31, 2019, we recognized revenue of $7.6 million that was included in the contract liability balance at the beginning of the period.
In the second quarter of 2018, our Subsea Technologies product line received an order to supply a submarine rescue vehicle and related equipment which we expect to deliver in 2020. We use the cost-to-cost method to measure progress on this contract to recognize revenue over time. Other than this contract, all of our other contracts are less than one year in duration. As such, we have elected to apply the practical expedient which allows an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Acquisitions & Dispositions
2018 Acquisition of Houston Global Heat Transfer LLC
On October 5, 2018, we acquired 100% of the stock of Houston Global Heat Transfer LLC (“GHT”) for total aggregate consideration of $57.3 million, net of cash acquired. The aggregate consideration includes the estimated fair value (as of the acquisition date) of certain contingent cash payments due to the former owners of GHT if certain conditions are met in 2019 and 2020. Based in Houston, Texas, GHT designs, engineers, and manufactures premium industrial heat exchanger and cooling systems used primarily on hydraulic fracturing equipment. GHT’s flagship product, the Jumbotron, is an innovative cube-style radiator that substantially reduces customer maintenance expense. This acquisition is included in the Completions segment. We updated the estimated fair value of the contingent cash payments in the first quarter of 2019 and recognized a $4.6 million reduction in the contingent cash liability. This gain is included in contingent consideration benefit in the condensed consolidated statement of comprehensive income.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):
|
| | | | |
Current assets, net of cash acquired | | $ | 18,655 |
|
Property and equipment | | 2,408 |
|
Non-current assets | | 238 |
|
Intangible assets (primarily customer relationships) | | 30,400 |
|
Tax-deductible goodwill | | 20,559 |
|
Current liabilities | | (12,633 | ) |
Long-term liabilities | | $ | (2,355 | ) |
Net assets acquired, net of cash acquired | | $ | 57,272 |
|
Revenue and net income for this acquisition were not significant for the three months ended March 31, 2019. Pro forma results of operations for this acquisition have not been presented because the effects were not material to the consolidated financial statements.
2018 Acquisition of ESP Completion Technologies LLC
On July 2, 2018, we acquired certain assets of ESP Completion Technologies LLC ("ESPCT"), a subsidiary of C&J Energy Services, for cash consideration of $8.0 million. ESPCT consists of a portfolio of early stage technologies that maximize the run life of artificial lift systems, primarily electric submersible pumps. This acquisition is included in the Drilling and Downhole segment. 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.
2018 Disposition of Forum Subsea Rentals
On January 3, 2018, we contributed our subsea rentals business to Ashtead Technology to create an independent provider of subsea survey and equipment rental services. In exchange, we received a 40% interest in the combined business (“Ashtead”), a cash payment of £2.7 million British Pounds and a note receivable from Ashtead of £3.0 million British Pounds. Our 40% interest in Ashtead is accounted for as an equity method investment and reported as Investment in unconsolidated subsidiary in our condensed consolidated balance sheets. In the first quarter of 2018, we recognized a gain of $33.5 million as a result of the deconsolidation of our Forum Subsea Rentals business, which is classified as Gain on contribution of subsea rentals business in the condensed consolidated statements of comprehensive income (loss). This gain is equal to the sum of the consideration received, which includes the fair value of our 40% interest in Ashtead, £2.7 million British Pounds in cash, and the £3.0 million British Pounds note receivable from Ashtead, less the $18.1 million carrying value of the Forum subsea rentals assets at the time of closing. The fair value of our 40% interest in Ashtead was determined based on the present value of estimated future cash flows of the combined entity as of January 3, 2018. The difference between the fair value of our 40% interest in Ashtead of $43.8 million and the book value of the underlying net assets resulted in a basis difference, which was allocated to fixed assets, intangible assets and goodwill based on their respective fair values as of January 3, 2018. The basis difference allocated to fixed assets and intangible assets is amortized through equity earnings (loss) over the estimated life of the respective assets. Pro forma results of operations for this transaction have not been presented because the effects were not material to the consolidated financial statements.
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Inventories
Our significant components of inventory at March 31, 2019 and December 31, 2018 were as follows (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Raw materials and parts | $ | 197,598 |
| | $ | 212,526 |
|
Work in process | 38,206 |
| | 39,494 |
|
Finished goods | 303,275 |
| | 302,590 |
|
Gross inventories | 539,079 |
| | 554,610 |
|
Inventory reserve | (67,438 | ) | | (75,587 | ) |
Inventories | $ | 471,641 |
| | $ | 479,023 |
|
6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2018 to March 31, 2019, were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Drilling & Downhole | | Completions | | Production | | Total |
Goodwill Balance at December 31, 2018 | $ | 191,151 |
| | $ | 259,280 |
| | $ | 19,216 |
| | $ | 469,647 |
|
Purchase accounting adjustments | 427 |
| | — |
| | — |
| | 427 |
|
Impact of non-U.S. local currency translation | 68 |
| | 485 |
| | 47 |
| | 600 |
|
Goodwill Balance at March 31, 2019 | $ | 191,646 |
| | $ | 259,765 |
| | $ | 19,263 |
| | $ | 470,674 |
|
We perform our annual impairment tests of goodwill as of October 1 or when there is an indication an impairment may have occurred. There were no impairments of goodwill during the three months ended March 31, 2019 and 2018. Accumulated impairment losses on goodwill were $535.6 million as of March 31, 2019 and December 31, 2018.
Intangible assets
Intangible assets consisted of the following as of March 31, 2019 and December 31, 2018, respectively (in thousands): |
| | | | | | | | | | | | | |
| March 31, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Amortizable Intangibles | | Amortization Period (In Years) |
Customer relationships | $ | 337,758 |
| | $ | (115,819 | ) | | $ | 221,939 |
| | 4-15 |
Patents and technology | 104,384 |
| | (18,855 | ) | | 85,529 |
| | 5-17 |
Non-compete agreements | 6,259 |
| | (5,694 | ) | | 565 |
| | 3-6 |
Trade names | 47,560 |
| | (19,336 | ) | | 28,224 |
| | 10-15 |
Distributor relationships | 22,160 |
| | (17,918 | ) | | 4,242 |
| | 8-15 |
Trademarks | 10,319 |
| | (509 | ) | | 9,810 |
| | 15 - Indefinite |
Intangible Assets Total | $ | 528,440 |
| | $ | (178,131 | ) | | $ | 350,309 |
| | |
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| | | | | | | | | | | | | |
| December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Amortizable Intangibles | | Amortization Period (In Years) |
Customer relationships | $ | 337,546 |
| | $ | (110,228 | ) | | $ | 227,318 |
| | 4-15 |
Patents and technology | 104,394 |
| | (17,148 | ) | | 87,246 |
| | 5-17 |
Non-compete agreements | 6,245 |
| | (5,600 | ) | | 645 |
| | 3-6 |
Trade names | 47,493 |
| | (18,107 | ) | | 29,386 |
| | 10-15 |
Distributor relationships | 22,160 |
| | (17,602 | ) | | 4,558 |
| | 8-15 |
Trademarks | 10,319 |
| | (424 | ) | | 9,895 |
| | 15 - Indefinite |
Intangible Assets Total | $ | 528,157 |
| | $ | (169,109 | ) | | $ | 359,048 |
| | |
Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. There were no intangible asset impairments during the three months ended March 31, 2019 and 2018.
7. Debt
Notes payable and lines of credit as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands): |
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
6.25% Senior Notes due October 2021 | $ | 400,000 |
| | $ | 400,000 |
|
Unamortized debt premium | 1,075 |
| | 1,176 |
|
Debt issuance cost | (2,845 | ) | | (3,121 | ) |
Senior secured revolving credit facility | 89,000 |
| | 119,000 |
|
Other debt | 794 |
| | 1,656 |
|
Total debt | 488,024 |
| | 518,711 |
|
Less: current maturities | (108 | ) | | (1,167 | ) |
Long-term debt | $ | 487,916 |
| | $ | 517,544 |
|
Senior Notes Due 2021
In October 2013, we issued $300.0 million of 6.25% senior unsecured notes due 2021 at par, and in November 2013, we issued an additional $100.0 million aggregate principal amount of the notes at a price of 103.25% of par (the “Senior Notes”). The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. The Senior Notes are senior unsecured obligations, and are guaranteed on a senior unsecured basis by our subsidiaries that guarantee the Credit Facility and rank junior to, among other indebtedness, the Credit Facility to the extent of the value of the collateral securing the Credit Facility.
Credit Facility
On October 30, 2017, we amended and restated our credit facility (such amended and restated credit facility, the “Credit Facility”) to, among other things, increase revolving credit commitments from $140.0 million to $300.0 million (with a sublimit of up to $25.0 million available for the issuance of letters of credit for the account of the Company and certain of our domestic subsidiaries) (the “U.S. Line”), of which up to $30.0 million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $3.0 million available for the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”). Lender commitments under the Credit Facility, subject to certain limitations, may be increased by an additional $100.0 million. The Credit Facility matures in July 2021, but if our outstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the Credit Facility will automatically extend to October 2022.
Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada.
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our balances of receivables and inventory. As of March 31, 2019, our total borrowing base was $299.4 million, of which $89.0 million was drawn and $16.0 million was used for security of outstanding letters of credit, resulting in availability of $194.4 million.
Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in San Francisco, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus an applicable margin. Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) a base rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from time to time by Thomson Reuters and (ii) the CDOR rate plus 1.00%, in each case plus an applicable margin. The applicable margin for LIBOR and CDOR loans will initially range from 1.75% to 2.25%, depending upon average excess availability under the Credit Facility. After the first quarter in which our total leverage ratio is less than or equal to 4.00:1.00, the applicable margin for LIBOR and CDOR loans will range from 1.50% to 2.00%, depending upon average excess availability under the Credit Facility. The weighted average interest rate under the Credit Facility was approximately 4.50% for the three months ended March 31, 2019.
The Credit Facility also provides for a commitment fee in the amount of (a) 0.375% per annum on the unused portion of commitments if average usage of the Credit Facility is greater than 50% and (b) 0.500% per annum on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50%. After the first quarter in which our total leverage ratio is less than or equal to 4.00:1.00, the commitment fees will range from 0.25% to 0.375%, depending upon average usage of the Credit Facility.
If excess availability under the Credit Facility falls below the greater of 10% of the borrowing base and $20.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such thresholds for at least 60 consecutive days.
Deferred Loan Costs
We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the Senior Notes and the Credit Facility.
Other Debt
Other debt consists primarily of various capital leases.
Letters of Credit and Guarantees
We execute letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to guarantee our fulfillment of performance obligations relating to certain large contracts. We had $16.5 million and $13.6 million in total outstanding letters of credit as of March 31, 2019 and December 31, 2018, respectively.
8. Leases
We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in our condensed consolidated balance sheets. Leases with an initial term greater than 12 months are recognized in our condensed consolidated balance sheets based on lease classification as either operating or financing. Operating leases are included in operating lease assets, accrued liabilities and operating lease liabilities. Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt. Some of our lease agreements include lease and non-lease components for which we have elected to not separate for all classes of underlying assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain real estate to third parties when we have no future use for the property.
Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces, equipment and vehicles. Operating lease Right of Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our leases have remaining terms of 1 year to 15 years and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The operating lease ROU asset also includes any upfront lease payments
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
made and excludes lease incentives and initial direct costs incurred. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
The following table summarizes the supplemental balance sheet information related to lease as of March 31, 2019 (in thousands, unaudited):
|
| | | | | |
| | | | As of |
| | Classification | | March 31, 2019 |
Assets | | | | |
Operating lease assets | | Operating lease assets | | 55,408 |
|
Finance lease assets | | Property and equipment, net of accumulated depreciation | | 903 |
|
Total lease assets | | | | 56,311 |
|
Liabilities | | | | |
Current | | | | |
Operating | | Accrued liabilities | | 13,670 |
|
Finance | | Current portion of long-term debt | | 108 |
|
Noncurrent | | | | |
Operating | | Operating lease liabilities | | 55,952 |
|
Finance | | Long-term debt, net of current portion | | 687 |
|
Total lease liabilities | | | | 70,417 |
|
The following table summarizes the components of lease expenses for the three months ended March 31, 2019 (in thousands, unaudited):
|
| | | | | | |
Lease Cost | | Classification | | Three Months Ended March 31, 2019 |
Operating lease cost | | Cost of sales and Selling, general and administrative expenses | | $ | 4,140 |
|
Finance lease cost | | | | |
Amortization of leased assets | | Selling, general and administrative expenses | | 72 |
|
Interest on lease liabilities | | Interest expense | | 16 |
|
Sublease income | | Cost of sales and Selling, general and administrative expenses | | (209 | ) |
Net lease cost | | | | $ | 4,019 |
|
The maturities of lease liabilities as of March 31, 2019 are as follows (in thousands, unaudited): |
| | | | | | | | | | | | |
| | Operating Leases | | Finance Leases | | Total |
Remainder of 2019 | | $ | 13,352 |
| | $ | 316 |
| | $ | 13,668 |
|
2020 | | 15,614 |
| | 349 |
| | 15,963 |
|
2021 | | 13,278 |
| | 349 |
| | 13,627 |
|
2022 | | 9,428 |
| | 53 |
| | 9,481 |
|
2023 | | 6,266 |
| | 7 |
| | 6,273 |
|
2024 | | 5,388 |
| | — |
| | 5,388 |
|
Thereafter | | 24,341 |
| | — |
| | 24,341 |
|
Total lease payments | | 87,667 |
| | 1,074 |
| | 88,741 |
|
Less: present value discount | | (18,045 | ) | | (279 | ) | | (18,324 | ) |
Present value of lease liabilities | | $ | 69,622 |
| | $ | 795 |
| | $ | 70,417 |
|
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table summarizes the weighted-average remaining lease term and weighted average discount rates related to leases as of March 31, 2019:
|
| | | |
Lease Term and Discount Rate | | March 31, 2019 |
Weighted-average remaining lease term (years) | | |
Operating leases | | 7.07 years |
|
Financing leases | | 3.20 years |
|
Weighted-average discount rate | | |
Operating leases | | 6.58 | % |
Financing leases | | 6.58 | % |
The following table summarizes the supplemental cash flow information related to leases as of March 31, 2019:
|
| | | | |
| | Three Months Ended March 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows from operating leases | | $ | 4,755 |
|
Operating cash flows from finance leases | | 16 |
|
Financing cash flows from finance leases | | 1,063 |
|
Noncash activities from right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases | | 6,568 |
|
Finance leases | | 453 |
|
Noncash activities from adoption of ASC 842 as of January 1, 2019 | | |
Prepaid expenses and other current assets | | $ | (884 | ) |
Operating lease assets | | $ | 54,069 |
|
Operating lease liabilities | | $ | 64,506 |
|
Accrued liabilities | | $ | (11,321 | ) |
9. Income Taxes
We recorded a tax expense of $1.7 million for the three months ended March 31, 2019 compared to a tax benefit of $12.9 million for the three months ended March 31, 2018.
For interim periods, our income tax expense or benefit is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods.The estimated annual effective tax rate for the three months ended March 31, 2019 is different than the comparable period in 2018 primarily due to losses in jurisdictions where the recording of a tax benefit is not available, as well as a $16.2 million tax benefit recorded in the first quarter of 2018 related to an adjustment of the provisional tax impact of U.S. tax reform. The tax benefit or expense recorded can vary from period to period depending on the Company’s relative mix of U.S. and non-U.S. earnings and losses by jurisdiction.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017, a comprehensive U.S. tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries. The effects of U.S. tax reform on us include two major categories: (i) recognition of liabilities for taxes on mandatory deemed repatriation and (ii) re-measurement of deferred taxes.
During 2018, we completed our analysis of the impact of U.S. tax reform based on further guidance provided on the new tax law by the U.S. Treasury Department and Internal Revenue Service. We finalized our accounting for the effects of U.S. tax reform during 2018 based on the additional guidance issued and recognized an income tax benefit of $15.6 million for the year ended December 31, 2018, including the $16.2 million tax benefit recorded for the three months ended March 31, 2018.
We have deferred tax assets related to net operating loss carryforwards in the U.S and in certain states and foreign jurisdictions. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
reversals of existing taxable temporary differences, projected future taxable income, including the effect of U.S. tax reform, tax-planning and recent operating results. As of March 31, 2019, we do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions: the U.S, the U.K, Germany and Singapore. As a result, we have certain valuation allowances against our deferred tax assets as of March 31, 2019.
10. Fair Value Measurements
At March 31, 2019 and December 31, 2018, the Company had $89.0 million and $119.0 million, respectively, of debt outstanding under the Credit Facility which incurs interest at a variable interest rate, and therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.
The fair value of our Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At March 31, 2019, the fair value and the carrying value of our Senior Notes approximated $355.0 million and $398.2 million, respectively. At December 31, 2018, the fair value and the carrying value of our Senior Notes approximated $362.0 million and $398.1 million, respectively.
There were no other outstanding financial assets as of March 31, 2019 and December 31, 2018 that required measuring the amounts at fair value. We did not change our valuation techniques associated with recurring fair value measurements from prior periods, and there were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2019.
11. Business Segments
In the first quarter 2019, we changed our reporting segments in order to align with business activity drivers and the manner in which management reviews and evaluates operating performance. Forum now operates in the following three reporting segments: Drilling & Downhole, Completions and Production. This move better aligns with the key phases of the well cycle and provides improved operating efficiencies. Historically, we operated in three business segments: Drilling & Subsea, Completions, and Production & Infrastructure. We have moved the Downhole product line from Completions to Drilling & Subsea to form the new Drilling & Downhole segment. Completions retains the Stimulation & Intervention and Coiled Tubing product lines. Finally, we renamed Production & Infrastructure as the Production segment. Our historical results of operations have been recast to retrospectively reflect these changes in accordance with generally accepted accounting principles.
The Drilling & Downhole segment designs and manufactures products and provides related services to the drilling, well construction, artificial lift and subsea energy construction and services markets as well as other markets such as alternative energy, defense and communications. The Completions segment designs, manufactures and supplies products and provides related services to the completion, stimulation and intervention markets. The Production segment designs, manufactures and supplies products, and provides related equipment and services for production and infrastructure markets.
The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. The Company evaluates the performance of its reportable segments based on operating income. This segmentation is representative of the manner in which our Chief Operating Decision Maker and our board of directors view the business. We consider the Chief Operating Decision Maker to be the Chief Executive Officer.
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 March 31, |
| 2019 | | 2018 |
Revenue: | | | |
Drilling & Downhole | $ | 85,940 |
| | $ | 76,864 |
|
Completions | 94,659 |
| | 88,054 |
|
Production | 91,995 |
| | 86,421 |
|
Eliminations | (752 | ) | | (1,108 | ) |
Total revenue | $ | 271,842 |
| | $ | 250,231 |
|
| | | |
Operating income (loss) | | | |
Drilling & Downhole | $ | (2,499 | ) | | $ | (10,310 | ) |
Completions | 6,851 |
| | 8,961 |
|
Production | 4,335 |
| | 4,162 |
|
Corporate | (8,406 | ) | | (8,580 | ) |
Segment operating income (loss) | 281 |
| | (5,767 | ) |
Transaction expenses | 593 |
| | 1,336 |
|
Contingent consideration benefit | (4,629 | ) | | — |
|
Loss (gain) on disposal of assets and other | 20 |
| | (397 | ) |
Operating income (loss) | $ | 4,297 |
| | $ | (6,706 | ) |
A summary of consolidated assets by reportable segment is as follows (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Drilling & Downhole | $ | 679,735 |
| | $ | 663,414 |
|
Completions | 870,569 |
| | 872,731 |
|
Production | 251,623 |
| | 243,354 |
|
Corporate | 48,243 |
| | 50,153 |
|
Total assets | $ | 1,850,170 |
| | $ | 1,829,652 |
|
Corporate assets include, among other items, cash, prepaid assets and deferred financing costs.
Forum Energy Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table presents our revenues disaggregated by product line (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Drilling Technologies | $ | 41,926 |
| | $ | 42,757 |
|
Downhole Technologies | 30,425 |
| | 24,527 |
|
Subsea Technologies | 13,589 |
| | 9,580 |
|
Stimulation and Intervention | 51,311 |
| | 51,060 |
|
Coiled Tubing | 43,348 |
| | 36,994 |
|
Production Equipment | 36,568 |
| | 31,456 |
|
Valve Solutions | 55,427 |
| | 54,965 |
|
Eliminations | (752 | ) | | (1,108 | ) |
Total revenue | $ | 271,842 |
| | $ | 250,231 |
|
The following table presents our revenues disaggregated by geography (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
United States | $ | 196,967 |
| | $ | 190,064 |
|
Canada | 16,463 |
| | 19,194 |
|
Europe & Africa | 17,597 |
| | 13,890 |
|
Middle East | 19,285 |
| | 10,570 |
|
Asia-Pacific | 14,759 |
| | 8,850 |
|
Latin America | 6,771 |
| | 7,663 |
|
Total Revenue | $ | 271,842 |
| | $ | 250,231 |
|
12. 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 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, 2019 and December 31, 2018, 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)
13. 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, |
| 2019 | | 2018 |
Net income (loss) | $ | (7,888 | ) | | $ | 28,066 |
|
| | | |
Basic - weighted average shares outstanding | 109,643 |
| | 108,423 |
|
Dilutive effect of stock options and restricted stock | — |
| | 2,434 |
|
Diluted - weighted average shares outstanding | 109,643 |
| | 110,857 |
|
| | | |
Earnings (loss) per share | | | |
Basic | $ | (0.07 | ) | | $ | 0.26 |
|
Diluted | $ | (0.07 | ) | | $ | 0.25 |
|
The calculation of diluted earnings per share excludes approximately 3.3 million shares that were anti-dilutive for the three months ended March 31, 2018. The calculation of diluted loss per share excludes all potentially dilutive shares for the three months ended March 31, 2019 because there was a net loss for the period.
14. Stockholders' Equity
Stock-based compensation
During the three months ended March 31, 2019, the Company granted 1,324,319 shares of restricted stock and restricted stock units and 390,896 performance share awards with a market condition.
The 1,324,319 shares of restricted stock and restricted stock units include 1,089,871 shares granted to employees that vest ratably over 3 years and 234,448 shares granted to non-employee members of the Board of Directors that have a vesting period of 12 months.
The performance share awards granted may settle for between zero and two shares of the Company’s common stock. The number of shares issued pursuant to the performance share award agreements will be determined based on the total shareholder return of the Company’s common stock as compared to a group of peer companies. The performance share awards granted in February 2019 are measured over a three year performance period.
15. Related Party Transactions
The Company has sold and purchased equipment and services to and from certain affiliates of our directors. The dollar amounts related to these related party activities are not material to the Company’s unaudited condensed consolidated financial statements.
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 March 31, 2019 |
| | FET (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Revenue | | $ | — |
| | $ | 236,806 |
| | $ | 50,213 |
| | $ | (15,177 | ) | | $ | 271,842 |
|
Cost of sales | | — |
| | 175,854 |
| | 40,093 |
| | (14,203 | ) | | 201,744 |
|
Gross Profit | | — |
| | 60,952 |
| | 10,120 |
| | (974 | ) | | 70,098 |
|
Operating Expenses | | | | | | | | | | |
|