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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements based on our current expectations, estimates and projections about our operations and the industry in which we operate. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in “Risk Factors” and “Cautionary note regarding forward-looking statements” and elsewhere in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements.

Overview

We are a global company serving the oil, natural gas, industrial and renewable energy industries. FET provides value added solutions aimed at improving the safety, efficiency, and environmental impact of our customers' operations. We are an environmentally and socially responsible company headquartered in Houston, Texas with manufacturing, distribution and service facilities strategically located throughout the world. Our products include highly engineered capital equipment as well as consumable products. These consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects. In 2021, over 78% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

We design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators. In addition, we offer some of our products to renewable energy and new energy companies.

We expect that the world's long-term energy demand will continue to rise. We also expect hydrocarbons will continue to play a vital role in meeting the world's long-term energy needs while renewable energy sources continue to develop. As such, we remain focused on serving our customers in both oil and natural gas as well as renewable energy applications. We are also continuing to develop products to help oil and gas operators lower their current emissions while also deploying our existing product technologies in renewable energy applications and seeking to develop innovative equipment.

A summary of the products and services offered by each segment is as follows:

•Drilling & Downhole. This segment designs, manufactures and supplies products and provides related services to the drilling, well construction, artificial lift and subsea energy construction markets, including applications in oil and natural gas, renewable energy, defense, and communications. The products and related services consist primarily of: (i) capital equipment and a broad line of expendable products consumed in the drilling process; (ii) well construction casing and cementing equipment and protection products for artificial lift equipment and cables; and (iii) subsea remotely operated vehicles and trenchers, submarine rescue vehicles, specialty components and tooling, and complementary subsea technical services.

•Completions. This segment designs, manufactures and supplies products and provides related services to the coiled tubing, well stimulation and intervention markets. The products and related services consist primarily of: (i) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems, high-pressure flexible hoses and flow iron as well as wireline cable and pressure control equipment used in the well completion and intervention service markets; and (ii) coiled tubing strings and coiled line pipe and related services.

•Production. This segment designs, manufactures and supplies products and provides related equipment and services for production and infrastructure markets. The products and related services consist primarily of: (i) engineered process systems, production equipment, as well as specialty separation equipment; and (ii) a wide range of industrial valves focused on serving oil and natural gas customers as well as power generation, renewable energy and other general industrial applications.

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Market Conditions

The level of demand for our products is directly related to the activity levels and the capital and operating budgets of our customers, which in turn are heavily influenced by energy prices and expectations as to future price trends. In addition, the availability of existing capital equipment adequate to serve exploration and production requirements, or lack thereof, drives demand for our capital equipment products.

In 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused unprecedented declines in economic activity, energy demand and oil and natural gas prices. In response, OPEC+ implemented significant reductions in oil production and North American exploration and production companies aggressively reduced drilling and completion activities. In response to the decline in demand for our products in 2020, we implemented significant cost reduction actions, including exiting facilities, lowering headcount, reducing salaries, temporarily suspending the Company’s matching contribution to the U.S. and Canada defined contribution retirement plans, and furloughing select employee groups. Certain facility closures and headcount reduction efforts continued into 2021.

During 2021, distribution of vaccines and reopening of certain economies resulted in increasing demand for oil and natural gas. At the same time, the supply of oil and natural gas has been impacted by ongoing constraints by OPEC+ and North American exploration and production companies. As a result of these supply and demand factors, commodity prices increased substantially in 2021. In addition, ongoing COVID-19 outbreaks and worldwide labor constraints continue to cause disruptions in global supply chains, which have led to inflationary pressures for certain goods and services.

Our revenues are highly correlated to the U.S. drilling rig count, which has increased to 586 rigs as of the end of 2021 from a low of 244 rigs in August 2020. The level of active hydraulic fracturing fleets also increased substantially in 2021 in order to meet increasing oil demand. Despite these improvements, drilling and completions activity remains significantly below pre-pandemic levels. In addition, publicly owned exploration and production companies in North America remain under pressure to generate positive cash flows and constrain capital expenditures. In contrast, privately owned exploration and production companies in North America have increased their drilling and completions activity in response to the higher oil and natural gas price environment. Furthermore, consolidation of exploration and production and service companies continued in 2021.

Activity levels have also increased in international markets, as well as in global offshore and subsea activity. As a result, demand for our drilling and subsea capital equipment offerings increased during 2021 due to an improved outlook for our international drilling customers and the diversification of our subsea product line outside of the oil and natural gas industry.

On December 31, 2020, we sold assets pertaining to our ABZ and Quadrant valve brands for total consideration of $104.6 million, and recognized a gain on disposition of $88.4 million. The disposition of these brands resulted in a substantial decrease in our Valve Solutions product line’s revenue compared to the prior year.

The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (WTI), United Kingdom Brent crude oil (Brent), and Henry Hub natural gas:

Average global oil, $/bbl

Average North American Natural Gas, $/Mcf

The price of oil has varied dramatically over the last two years. The spot prices for WTI and Brent fell from $61.14 and $67.77 per barrel, respectively, as of December 31, 2019 to lows below $15.00 per barrel in April 2020. Since that time, oil prices have rebounded to an average of $68.13 and $70.86 for WTI and Brent, respectively, as of December 31, 2021. In addition, average natural gas prices were 91.6% higher in 2021 compared to 2020.

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The table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on the weekly rig count information published by Baker Hughes Company.

Active Rigs by Location

Land vs. Offshore Rigs

U.S. Commodity Target

Unclassified 1 3

U.S. Well Path

A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. The average U.S. rig count for 2021 increased 10% as compared to 2020, while the international rig count decreased 8% compared to 2020. The U.S. rig count started 2020 at 805 working rigs and fell 70% to a low of 244 rigs in August 2020. Since that time, the number of active rigs has partially recovered, ending with 586 rigs as of December 31, 2021. Despite this improvement, the U.S. drilling rig count remains significantly below pre-pandemic levels.

The table below shows the amount of total inbound orders by segment for the years ended December 31, 2021 and 2020:

Orders:

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Results of operations

Year ended December 31, Change

(in thousands of dollars, except per share information) 2021 2020 $ %

Revenue:

Cost of sales:

Gross profit:

Selling, general and administrative expenses:

Segment operating income (loss):

Operating margin % 2.0 % (22.1) %

Operating margin % (2.4) % (82.0) %

Operating margin % (12.3) % (18.8) %

Operating margin % (8.4) % (40.7) %

Impairments of intangible assets, property and equipment — 20,394 (20,394) *

Loss (gain) on disposal of assets and other (1,052) 2,531 (3,583) *

Foreign exchange losses and other, net 217 6,470 (6,253) *

Deferred loan costs written off — 2,262 (2,262) *

Gain on disposition of business — (88,375) 88,375 *

Weighted average shares outstanding

Loss per share

* not meaningful

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Revenue

Our revenue for the year ended December 31, 2021 was $541.1 million, an increase of $28.6 million, or 5.6%, compared to the year ended December 31, 2020. For the year endedDecember 31, 2021, our Drilling & Downhole segment, Completions segment, and Production segment comprised 44.3%, 34.1% and 21.6% of our total revenue, respectively, compared to 42.3%, 23.1% and 34.6%, respectively, for the year ended December 31, 2020. The overall increase in revenue is primarily related to higher sales volumes in the Drilling and Downhole and Completions segments due to improving market conditions in 2021 compared to 2020, which was negatively impacted by the COVID 19 pandemic. Offsetting the overall increase is a $41.1 million decrease from the fourth quarter 2020 divestiture of our ABZ and Quadrant valve brands within our Production segment. The changes in revenue by operating segment consisted of the following:

Drilling & Downhole segment — Revenue was $239.9 million for the year ended December 31, 2021, an increase of $23.1 million, or 10.6%, compared to the year ended December 31, 2020. This increase includes an $18.5 million, or 33.3%, increase in revenue for our Subsea Technologies product line primarily due to higher sales of Work Class ROVs into international markets. Revenue for our Downhole Technologies product line increased by $5.1 million, or 8.0%, primarily due to higher sales volumes of casing and cementing tools as the number of wells drilled in 2021 recovered from the historically low activity levels in 2020 during the COVID 19 pandemic. Revenue for our Drilling Technologies product line was comparable year-over-year as higher sales volumes of consumable products were offset by lower repair and service revenues.

Completions segment — Revenue was $185.0 million for the year ended December 31, 2021, an increase of $66.3 million, or 55.9%, compared to the year ended December 31, 2020. This increase includes a $40.3 million, or 71.3%, increase in sales volumes for our Stimulation and Intervention product line and a $26.1 million, or 42%, increase in sales volumes for our Coiled Tubing product line. These higher revenue levels were driven by increasing U.S. hydraulic fracturing and well intervention service activity levels in 2021 compared to a rapidly declining market in 2020 when service companies were idling equipment in response to historically low levels of oil demand as a result of the COVID 19 pandemic.

Production segment — Revenue was $116.7 million for the year ended December 31, 2021, a decrease of $60.8 million, or 34.3%, compared to the year ended December 31, 2020. This decrease includes a $41.1 million decline from the divestiture of our ABZ and Quadrant valve brands in the fourth quarter 2020. The remaining decrease was driven by a $15.0 million decline in sales volumes of our valve products, particularly sales into the North America downstream and midstream markets, and a $4.8 million decrease in revenue for our Production Equipment product line from lower sales volumes of our surface production equipment, partially offset by higher sales volumes for our process oil treatment equipment due to increased project activity with international downstream customers.

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the year ended December 31, 2021 was $45.5 million compared to a loss of $208.7 million for the year ended December 31, 2020. For the year ended December 31, 2021, segment operating margin percentage was (8.4)% compared to (40.7)% for the year ended December 31, 2020. Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period. The change in operating loss and segment operating margin percentage for each segment is explained as follows:

Drilling & Downhole segment — Segment operating income was $4.7 million, or 2.0%, for the year ended December 31, 2021 compared to a loss of $48.0 million, or (22.1)%, for the year ended December 31, 2020. The $52.7 million improvement in segment operating results includes higher gross profit from the 10.6% increase in revenues discussed above. In addition, operating results improved due to a $20.4 million decrease in inventory write downs, a $5.3 million decrease in impairments of operating lease right of use assets and reductions in restructuring and employee related costs due to headcount, salary and other cost reductions implemented in 2020.

Completions segment — Segment operating loss was $4.5 million, or (2.4)%, for the year ended December 31, 2021 compared to a loss of $97.3 million, or (82.0)% for the year ended December 31, 2020. The $92.8 million improvement in segment operating results includes higher gross profit from the 55.9% increase in revenues discussed above. In addition, operating results improved due to a $51.4 million decrease in inventory write downs, a $6.1 million decrease in impairments of operating lease right of use assets and reductions in restructuring and employee related costs due to headcount, salary and other cost reductions implemented in 2020.

Production segment — Segment operating loss was $14.4 million, or (12.3)%, for the year ended December 31, 2021 compared to a loss of $33.4 million, or (18.8)% for the year ended December 31, 2020. The $19.1 million improvement in segment operating results is primarily attributable to a $20.9 million decrease in inventory write downs, a $2.2 million decrease in impairments of operating lease right of use assets and reductions in restructuring and employee related costs due to headcount, salary and other cost reductions implemented in 2020. These

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improvements in operating results were partially offset by the reduction in operating income from the fourth quarter 2020 disposition of our ABZ and Quadrant valve brands.

Corporate — Selling, general and administrative expenses for Corporate were $31.4 million for the year ended December 31, 2021, a $1.4 million increase compared to the year ended December 31, 2020. This increase was primarily related to higher variable compensation costs, partially offset by a $1.5 million decrease in impairments of operating lease right of use assets and a decrease in professional fees. Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel; professional fees for legal, accounting and related services; and marketing costs.

Other items not included in segment operating loss

Several items are not included in segment operating loss, but are included in the total operating loss. These items include impairments of intangible assets, property and equipment, and loss (gain) on disposal of assets and other. For further information related to impairments of intangible assets, property and equipment, see Note 8 Impairments of Long-Lived Assets.

Other income and expense

Other income and expense includes interest expense, loss (gain) on extinguishment of debt, deferred loan costs written off, foreign exchange losses and other, net, and gain on disposition of business.

We incurred $32.0 million of interest expense during the year ended December 31, 2021, an increase of $1.7 million compared to the year ended December 31, 2020 due to higher non-cash amortization of debt discount and debt issuance costs associated with our 2025 Notes as well as a higher interest rate on our 2025 Notes compared to our previous 2021 Notes. These increases were partially offset by lower average debt balances outstanding in 2021 compared to 2020.

The foreign exchange losses are primarily the result of movements in the British pound, Euro and Canadian dollar relative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S. dollar.

During the year ended December 31, 2021, we recognized a $5.3 million loss on extinguishment of debt from the repurchase of an aggregate $59.9 million of principal amount of our 2025 Notes for $58.6 million. The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $53.3 million.

During the year ended December 31, 2020, we recognized $72.5 million of gains on extinguishment of debt, including a $43.8 million gain from the repurchase of notes in the first half of 2020 and a $28.7 million gain from the exchange of notes in the third quarter of 2020. During the first half of 2020, we repurchased an aggregate $71.9 million of principal amount of our 6.25% unsecured notes due 2021 (the “2021 Notes”) for $27.7 million and recognized a net gain of $43.8 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs and unamortized debt premium. In the third quarter of 2020, we exchanged $315.5 million principal amount of 2021 Notes for new 2025 Notes. This transaction was accounted for as an extinguishment of the 2021 Notes with the new 2025 Notes recorded at fair value on the transaction date, resulting in a $28.7 million gain on extinguishment of debt. See Note 9 Debt for further information.

During the year ended December 31, 2020, we wrote-off $2.3 million of deferred loan costs including $2.0 million for the termination of previous discussions related to a potential exchange offer for our 2021 Notes and $0.3 million related to amending our Credit Facility.

In the fourth quarter of 2020, we sold certain assets of our ABZ and Quadrant valve brands and recognized a gain on disposition totaling $88.4 million. See Note 4 Acquisitions & Dispositions for further information related to this transaction.

Taxes

We recorded tax expense of $0.6 million for the year ended December 31, 2021 compared to a tax benefit of $12.9 million for the year ended December 31, 2020. The estimated annual effective tax rates for the years ended December 31, 2021 and 2020 were impacted by losses in jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

The tax benefit for the year ended December 31, 2020 included a $16.6 million benefit related to a carryback claim for U.S. federal tax losses based on provisions in the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020. The CARES Act provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30% limitation on interest expense

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deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerated refunds for minimum tax credit carryforwards, among other provisions. The tax effects of changes in tax laws are recognized in the period in which the law is enacted. See Note 11 Income Taxes for additional information.

Liquidity and capital resources

Sources and uses of liquidity

Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, the Credit Facility and the 2025 Notes. Our primary uses of capital have been for inventory, sales on credit to our customers, maintenance and growth capital expenditures, and debt repayments. We continually monitor other potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to generate positive operating cash flow and access outside sources of capital.

As of December 31, 2020, we had $316.9 million principal amount of 2025 Notes outstanding and $13.1 million outstanding under our revolving Credit Facility. During the year ended December 31, 2021 we repurchased $59.9 million principal amount of our 2025 Notes and repaid the $13.1 million outstanding under our revolving Credit Facility. Following these transactions, we had $257.0 million principal amount of 2025 Notes and no borrowings outstanding under our Credit Facility as of December 31, 2021.

In September 2021, we amended our Credit Facility to, among other things, extend the maturity date to September 2026, reduce the aggregate amount of the commitment under the Credit Facility to $179.0 million, and change the interest rate applicable to outstanding loans.

See Note 9 Debt for further details related to the terms for our 2025 Notes and Credit Facility.

As of December 31, 2021, we had cash and cash equivalents of $46.9 million and $127.4 million of availability under our Credit Facility. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability under our Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits. In addition, we expect total 2022 capital expenditures to be less than $10.0 million, consisting of, among other items, replacing end of life machinery and equipment.

We expect our available cash on-hand, cash generated by operations, and estimated availability under our Credit Facility to be adequate to fund current operations during the next 12 months. In addition, based on existing market conditions and our expected liquidity needs, among other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce the principal amount of our 2025 Notes outstanding.

In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $10.0 million. Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations. In the fourth quarter of 2021, we repurchased approximately 56,000 shares of our common stock for aggregate consideration of approximately $1.1 million. Remaining authorization under this program is $8.9 million.

In the fourth quarter of 2021, we completed the acquisition of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of $5.1 million, of which, $3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years. In 2020, we completed the disposition of our ABZ and Quadrant valve brands for total cash consideration of $103.4 million. For additional information, see Note 4 Acquisitions & Dispositions. We may pursue acquisitions in the future, which may be funded with cash and/or equity. Our ability to make significant acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

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Our cash flows for the years ended December 31, 2021 and 2020 are presented below (in thousands):

Year ended December 31,

Net cash provided by (used in) operating activities $ (15,775) $ 3,883

Net cash provided by investing activities 10,698 108,250

Net cash used in financing activities (76,243) (41,765)

Effect of exchange rate changes on cash (439) 338

Net cash provided by (used in) operating activities

Net cash used in operating activities was $15.8 million for the year ended December 31, 2021 compared to $3.9 million of cash provided by operating activities for the year ended December 31, 2020. The decline in operating cash flows is primarily attributable to changes in working capital which provided cash of $6.7 million for the year ended December 31, 2021 compared to providing $57.3 million for the year ended December 31, 2020. This decline was partially offset by an improvement in net income adjusted for non-cash items which used $9.1 million of cash for the year ended December 31, 2021 compared to using $53.5 million of cash for the year ended December 31, 2020.

Net cash provided by investing activities

Net cash provided by investing activities was $10.7 million for the year ended December 31, 2021 including $10.8 million of cash received to settle a note receivable from the 2019 sale of our equity interest in Ashtead Technology and $7.0 million of proceeds from the sale of property and equipment. These cash inflows were partially offset by $3.4 million of cash paid for the acquisition of Hawker and $2.4 million of capital expenditures. Net cash provided by investing activities was $108.3 million for the year ended December 31, 2020 including $104.6 million from the sale of certain assets of our ABZ and Quadrant brands of valve products and $5.3 million of proceeds from the sale of property and equipment, partially offset by $2.2 million of capital expenditures.

Net cash used in financing activities

Net cash used in financing activities was $76.2 million for the year ended December 31, 2021 including $58.6 million of cash used to repurchase 2025 Notes and $13.1 of repayments on the revolving Credit Facility. Net cash used in financing activities was $41.8 million for the year ended December 31, 2020 including $40.3 million of cash used to repurchase 2021 Notes, $9.7 million paid for deferred financing costs and a $3.5 million early participation payment for the bond exchange. These cash outflows were partially offset by $13.1 million of net borrowings on our Credit Facility in 2020.

Off-balance sheet arrangements

As of December 31, 2021, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business. For additional information, refer to Note 13 Commitments and Contingencies.

Supplemental Guarantor Financial Information

The Company’s 2025 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.

The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor, including all obligations under our Credit Facility; (ii) secured by certain collateral of such guarantor, subject to permitted liens under the indenture governing the 2025 Notes; (iii) effectively senior to all unsecured indebtedness of that guarantor, to the extent of the value of the collateral securing the 2025 Notes (after giving effect to the liens securing our Credit Facility and any other senior liens on the collateral); and (v) senior in right of payment to any future subordinated indebtedness of that guarantor.

In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries of the 2025 Notes, the non-guarantor subsidiaries of such notes will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Company or to any guarantors.

The 2025 Notes guarantees shall each be released upon (i) any sale or other disposition of all or substantially all of the assets of such guarantor (by merger, consolidation or otherwise) to a person that is not (either before or after giving effect to such transaction) the Company or a subsidiary, if the sale or other disposition does not violate the

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applicable provisions of the indenture governing such notes; (ii) any sale, exchange or transfer (by merger, consolidation or otherwise) of the equity interests of such guarantor after which the applicable guarantor is no longer a subsidiary, which sale, exchange or transfer does not violate the applicable provisions of the indenture governing such notes; (iii) legal or covenant defeasance or satisfaction and discharge of the indenture governing such notes; or (iv) dissolution of such guarantor, provided no default or event of default has occurred that is continuing.

The obligations of each guarantor of the 2025 Notes under its guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor (including, without limitation, any guarantees under the Credit Facility) and any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution obligations under the applicable indenture, result in the obligations of such guarantor under its guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under applicable law. Nonetheless, in the event of the bankruptcy, insolvency or financial difficulty of a guarantor, such guarantor’s obligations under its guarantee may be subject to review and avoidance under applicable fraudulent conveyance, fraudulent preference, fraudulent transfer and insolvency laws.

We are presenting the following summarized financial information for the Company and the subsidiary guarantors (collectively referred to as the "Obligated Group") pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Company and the subsidiary guarantors, presented on a combined basis, have been eliminated and information for the non-guarantor subsidiaries have been excluded. Amounts due to the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented within the summarized financial information below.

Summarized financial information was as follows (in thousands):

Year ended December 31,

(in thousands, except per share information) 2021 2020

Year ended December 31,

(in thousands, except per share information) 2021 2020

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing our consolidated financial statements, we make judgments, estimates and assumptions affecting the amounts reported. We base our estimates on factors including historical experience and various assumptions that we believe are reasonable under the circumstances. These factors form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements.

In order to provide a better understanding of how we make judgments, and develop estimates and assumptions about future events, we have described our most critical accounting policies and estimates used in preparation of our consolidated financial statements below.

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Revenue recognition

Revenue is recognized in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For the year ended December 31, 2021, approximately 91% of our revenue was recognized from goods transferred to customers at a point in time while 9% of our revenue was recognized from goods transferred to customers over time.

Although terms of our contracts may vary considerably, the 9% of revenues recognized over time relate to certain contracts in our Subsea and Production Equipment product lines which are typically based on a fixed amount for the entire contract. Recognition over time for these contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date. We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount of revenue recognized is calculated based on the ratio of costs incurred to date compared to total estimated costs which requires management to calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized during the period.

Accounting estimates during the course of projects may change. The effect of such a change, which can be upward as well as downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a prospective basis.

Contracts are sometimes modified to account for changes in product specifications or requirements. Most of our contract modifications are for goods and services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.

Inventories

Inventory, consisting of finished goods and materials and supplies held for resale, is carried at the lower of cost or net realizable value. We evaluate our inventories based on an analysis of stocking levels, historical sales levels and future sales forecasts, to determine obsolete, slow-moving and excess inventory. While we have policies for calculating and recording reserves against inventory carrying values, we exercise judgment in establishing and applying these policies.

As of December 31, 2021 and 2020, our inventory reserve balances were $62.9 million and $144.9 million, respectively. For the years ended December 31, 2021 and 2020, we recognized inventory write downs totaling $8.1 million and $100.8 million, respectively. These charges are all included in “Cost of sales” in the consolidated statements of comprehensive loss. See Note 5 Inventories for further information related to these charges.

Long-lived assets

As of December 31, 2021, our long-lived assets included property and equipment, definite lived intangibles, and operating lease right of use assets with balances of $94.0 million, $217.4 million and $25.4 million, respectively. Key estimates related to long-lived assets include useful lives and recoverability of carrying values and changes in such estimates could have a significant impact on financial results.

We review long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows based on expected utilization. The impairment loss recognized represents the excess of an assets’ carrying value as compared to its estimated fair value.

For the year ended December 31, 2021, we did not recognize any impairment charges. For the year ended December 31, 2020, we recognized impairment charges for property and equipment, intangible assets and operating lease right of use assets totaling $15.1 million, $5.3 million and $15.4 million, respectively. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

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Income taxes

We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based upon temporary differences between the carrying amounts and tax bases of our assets and liabilities at the balance sheet date, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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 reversals of existing temporary differences, projected future taxable income, tax-planning and recent operating results. Any changes in our judgment as to the realizability of our deferred tax assets are recorded as an adjustment to the deferred tax asset valuation allowance in the period the change occurs. For the year ended December 31, 2020, we recognized tax expense for valuation allowances totaling $25.3 million. See Note 11 Income Taxes for further information related to these charges.

The accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. If a tax position meets the “more likely than not” recognition criteria, the accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement. If management determines that likelihood of sustaining the realization of the tax benefit is less than or equal to 50%, then the tax benefit is not recognized in the consolidated financial statements.

We have operations in countries other than the U.S. Consequently, we are subject to the jurisdiction of a number of taxing authorities. The final determination of tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law or interpretation of tax law and currency repatriation controls, could impact the determination of our tax liabilities for a given tax year.

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. Refer to Note 2 Summary of Significant Accounting Policies for information related to recent accounting pronouncements.

Cautionary note regarding forward-looking statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. All statements, other than statements of historical fact, included in this Annual Report on Form 10-K regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report on Form 10-K, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on Form 10-K are reasonable, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause actual results to differ materially from ourplans, intentions or expectations. This may be the result of various factors, including, but not limited to, those factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K.

Item 7A. Quantitative and qualitative disclosures about market risk

Not required under Regulation S-K for “smaller reporting companies.”

Item 8. Consolidated Financial Statements and Supplementary Data

Page

Consolidated balance sheets as of December 31, 2021 and 2020 47

Notes to consolidated financial statements 50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Forum Energy Technologies, Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Forum Energy Technologies, Incorporated and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive loss, changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory — Refer to Notes 2 and 5 to the financial statements

Critical Audit Matter Description

Inventory consists of finished goods and materials and supplies which are carried at the lower of cost or net realizable value. The Company evaluates the net realizable values of inventories based on analysis of inventory levels including excess, obsolete and slow-moving items, historical sales experience and future sales forecasts. The Company’s evaluation of net realizable value is performed at each location and is based on information and assumptions specific to that location. Changes in these assumptions could have a significant impact on the recorded inventory amounts or the amount of inventory write-downs. The inventory, net balance at December 31, 2021 was $241.7 million and the amount of inventory reserve was $62.9 million.

Given the significant judgments and assumptions made by management in applying the methodology used to determine net realizable value, future sales forecasts, and the reports utilized to determine inventory levels and

historical sales experiences, performing audit procedures required a high degree of auditor judgment and increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the net realizable value of inventory included the following, among others:

•We made inquiries of business unit managers as well as executives, sales, and operations personnel about the expected product lifecycles and product development plans and historical usage by product.

•We have tested the forecasted demand by comparing internal and external information (e.g. historical usage, contracts, communications with customers, product development plans, and macroeconomic conditions) with the Company’s forecasted demand.

•We evaluated management’s overall forecasted demand by comparing actual results to historical forecasts.

•We considered the existence of contradictory evidence based on reading of internal communications to management and the board of directors, Company press releases, and analysts' reports, as well as our observations and inquiries as to changes within the business.

/s/ Deloitte & Touche LLP

Houston, Texas

March 4, 2022

We have served as the Company’s auditor since 2019.

Forum Energy Technologies, Inc. and subsidiaries

Consolidated statements of comprehensive loss

Year ended December 31,

(in thousands, except per share information) 2021 2020

Operating expenses

Impairments of intangible assets, property and equipment — 20,394

Loss (gain) on disposal of assets and other (1,052) 2,531

Other expense (income)

Loss (gain) on extinguishment of debt 5,290 (72,478)

Deferred loan costs written off — 2,262

Foreign exchange losses and other, net 217 6,470

Gain on disposition of business — (88,375)

Income tax expense (benefit) 642 (12,881)

Weighted average shares outstanding

Loss per share

Other comprehensive income (loss), net of tax of $0:

Change in foreign currency translation (1,479) 9,249

Gain (loss) on pension liability 840 (700)

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

Forum Energy Technologies, Inc. and subsidiaries

Consolidated balance sheets

(in thousands, except share information) December 31,2021 December 31,2020

Assets

Current assets

Prepaid expenses and other current assets 23,702 19,018

Costs and estimated profits in excess of billings 8,285 8,516

Property and equipment, net of accumulated depreciation 94,005 113,668

Deferred financing costs, net 1,484 249

Deferred income taxes, net 203 102

Liabilities and equity

Current liabilities

Current portion of long-term debt $ 860 $ 1,322

Billings in excess of costs and profits recognized 9,705 1,817

Deferred income taxes, net 834 1,952

Commitments and contingencies

Equity

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

Forum Energy Technologies, Inc. and subsidiaries

Consolidated statements of cash flows

Year ended December 31,

(in thousands, except share information) 2021 2020

Cash flows from operating activities

Impairments of intangible assets, property and equipment — 20,394

Impairments of operating lease assets — 15,370

Stock-based compensation expense 7,594 9,784

Provision for doubtful accounts 2,424 1,127

Gain on disposition of business — (88,375)

Loss (gain) on extinguishment of debt 5,290 (72,478)

Deferred loan costs written off — 2,262

Changes in operating assets and liabilities

Prepaid expenses and other current assets (8,078) 17,794

Cost and estimated profits in excess of billings 84 (4,317)

Accounts payable, deferred revenue and other accrued liabilities 36,327 (69,399)

Billings in excess of costs and estimated profits earned 7,986 (3,900)

Net cash provided by (used in) operating activities $ (15,775) $ 3,883

Cash flows from investing activities

Capital expenditures for property and equipment (2,399) (2,246)

Proceeds from the sale of property and equipment 7,007 5,292

Proceeds from settlement of note receivable 10,784 —

Acquisition of businesses, net of cash acquired (3,411) —

Net cash provided by investing activities $ 10,698 $ 108,250

Cash flows from financing activities

Borrowings on revolving Credit Facility — 182,322

Repayments on revolving Credit Facility (13,126) (169,196)

Bond exchange early participation payment — (3,500)

Payment of capital lease obligations (1,517) (1,179)

Net cash used in financing activities $ (76,243) $ (41,765)

Effect of exchange rate changes on cash (439) 338

Cash, cash equivalents and restricted cash at beginning of period 128,617 57,911

Cash, cash equivalents and restricted cash at end of period $ 46,858 $ 128,617

Supplemental cash flow disclosures

Cash paid (refunded) for income taxes 2,444 (13,941)

Noncash investing and financing activities

Accrued purchases of property and equipment — —

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

Forum Energy Technologies, Inc. and subsidiaries

Consolidated statements of changes in stockholders’ equity

Restricted stock issuance, net of forfeitures 7 (196) — — — (189)

Stock-based compensation expense — 9,784 — — — 9,784

Shares issued in employee stock purchase plan 2 344 — — — 346

Treasury stock — — (6) — — (6)

Change in pension liability — — — — (700) (700)

Currency translation adjustment — — — — 9,249 9,249

Restricted stock issuance, net of forfeitures 1 (352) — — — (351)

Stock-based compensation expense — 7,594 — — — 7,594

Change in pension liability — — — — 840 840

Currency translation adjustment — — — — (1,479) (1,479)

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

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Forum Energy Technologies, Inc. and subsidiaries

Notes to consolidated financial statements

1. Nature of Operations

Forum Energy Technologies, Inc. (the “Company,” “FET,” “we,” “our,” or “us”), a Delaware corporation, is a global company serving the oil, natural gas, industrial and renewable energy industries. FET provides value added solutions that increase the safety and efficiency of energy exploration and production. We are an environmentally and socially responsible company headquartered in Houston, Texas with manufacturing, distribution and service facilities strategically located throughout the world.

2. Summary of Significant Accounting Policies

Basis of presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries after elimination of intercompany balances and transactions.

COVID-19 Impacts

The outbreak of COVID-19 in 2020 caused significant disruptions in the U.S. and world economies which led to significant reductions in demand for crude oil. During 2021, distribution of vaccines resulted in reopening of certain economies and increasing demand for oil and natural gas. However, ongoing COVID-19 outbreaks and related work restrictions continue to contribute to disruptions in global supply chains which have led to inflationary pressures for certain goods and services. We anticipate that our liquidity, financial condition and future results of operations will continue to be impacted by ongoing developments from the COVID-19 pandemic.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

In the preparation of these consolidated financial statements, estimates and assumptions have been made by management including, among others, an assessment of percentage of completion of projects based on costs to complete contracts, the selection of useful lives of tangible and intangible assets, expected future cash flows from long lived assets to support impairment tests, provisions necessary for trade receivables, amounts of deferred taxes and income tax contingencies. Actual results could differ from these estimates.

The financial reporting of contracts depends on estimates, which are assessed continually during the term of those contracts. The amounts of revenues and income recognized are subject to revisions as the contract progresses to completion and changes in estimates are reflected in the period in which the facts that give rise to the revisions become known. Additional information that enhances and refines the estimating process that is obtained after the balance sheet date, but before issuance of the consolidated financial statements, is reflected in the consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit and high quality, short term money market instruments with an original maturity of three months or less. Cash equivalents are based on quoted market prices, a Level 1 fair value measure.

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Forum Energy Technologies, Inc. and subsidiaries

Notes to consolidated financial statements (continued)

Accounts receivable-trade

Trade accounts receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus receivables do not bear interest, although a finance charge may be applied to amounts past due. We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make required payments. Such allowances are based upon several factors including, but not limited to, credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer. Accounts receivable outstanding longer than contractual terms are considered past due. We write off accounts receivable to the allowance for doubtful accounts when they become uncollectible. Any payments subsequently received on receivables previously written off are credited to bad debt expense.

The change in amounts of the allowance for doubtful accounts during the two year period ended December 31, 2021 is as follows (in thousands):

Inventories

Inventory consisting of finished goods and materials and supplies held for resale is carried at the lower of cost or net realizable value. For certain operations, cost, which includes the cost of raw materials and labor for finished goods, is determined using standard cost which approximates a first-in first-out basis. For other operations, this cost is determined on an average cost, first-in first-out or specific identification basis. Net realizable value means estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. We continuously evaluate inventories based on an analysis of inventory levels, historical sales experience and future sales forecasts, to determine obsolete, slow-moving and excess inventory.

For the years ended December 31, 2021 and 2020, we recognized inventory write downs totaling $8.1 million and $100.8 million, respectively. These charges are all included in “Cost of sales” in the consolidated statements of comprehensive loss. See Note 5 Inventories for further information related to these charges.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Finance leases of property and equipment are stated at the present value of future minimum lease payments. Expenditures for property and equipment and for items which substantially increase the useful lives of existing assets are capitalized at cost and depreciated over their estimated useful life utilizing the straight-line method. Routine expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets, generally 2 to 30 years. Property and equipment held under finance leases are amortized straight-line over the shorter of the lease term or estimated useful life of the asset. Gains or losses resulting from the disposition of assets are recognized in income with the related asset cost and accumulated depreciation removed from the balance sheet. Assets acquired in connection with business combinations are recorded at fair value.

For the year ended December 31, 2021, we did not recognize any property and equipment impairment charges. For the year ended December 31, 2020, we recognized property and equipment impairment charges totaling $15.1 million which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

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Notes to consolidated financial statements (continued)

Lease Obligations

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 consolidated balance sheets. Leases with an initial term greater than 12 months are recognized in our 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 the commencement date in determining the present value of future payments. Our leases have remaining terms of 1 year to 12 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 assets also include any upfront lease payments made and exclude lease incentives and initial direct costs incurred. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

We review lease ROU assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset. The fair value is determined by means of an analysis of discounted future cash flows based on expected utilization.

For the year ended December 31, 2021, we did not recognize any impairments of operating lease assets. For the year ended December 31, 2020, we recognized impairments of operating lease assets totaling $15.4 million which are included in “Cost of Sales” and “Selling, general and administrative expenses” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

Intangible assets

Intangible assets with definite lives are comprised of customer and distributor relationships, patents and technology, trade names, trademarks and non-compete agreements which are amortized on a straight-line basis over the life of the intangible asset, generally two to twenty-two years. These assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of the asset are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows. The impairment loss recognized represents the excess of an assets’ carrying value as compared to its estimated fair value.

For the year ended December 31, 2021, we did not recognize any impairments of intangible assets. For the year ended December 31, 2020, we recognized intangible asset impairment charges totaling $5.3 million which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

Recognition of provisions for contingencies

In the ordinary course of business, we are subject to various claims, suits and complaints. We, in consultation with internal and external legal advisors, will provide for a contingent loss in the consolidated financial statements if, at the date of the consolidated financial statements, it is probable that a liability has been incurred and the amount can be reasonably estimated. If it is determined that the reasonable estimate of the loss is a range and that there is no best estimate within that range, a provision will be made for the lower amount of the range. Legal costs are expensed as incurred.

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Forum Energy Technologies, Inc. and subsidiaries

Notes to consolidated financial statements (continued)

An assessment is made of the areas where potential claims may arise under contract warranty clauses. Where a specific risk is identified, and the potential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded. Warranty provisions are eliminated at the end of the warranty period except where warranty claims are still outstanding. The liability for product warranty is included in other accrued liabilities in the consolidated balance sheets.

Revenue recognition and deferred revenue

Contract Identification. We account for a contract when it is approved, both parties are committed, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collection of consideration is probable.

Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under ASC 606. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. In accordance with ASC 606, we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. We have elected to apply the practical expedient to account for shipping and handling costs associated with outbound freight after control of a product has transferred to a customer as a fulfillment cost which is included in Cost of Sales. Furthermore, since our customer payment terms are short-term in nature, we have also elected to apply the practical expedient which allows an entity to not adjust for the effects of a significant financing component if it expects that the customer’s payment period will be less than one year in duration.

Contract Value. Revenue is measured based on the amount of consideration specified in the contracts with our customers and excludes any amounts collected on behalf of third parties. We have elected the practical expedient to exclude amounts collected from customers for all sales (and other similar) taxes.

The estimation of total revenue from a customer contract is subject to elements of variable consideration. Certain customers may receive rebates or discounts which are accounted for as variable consideration. We estimate variable consideration as the most likely amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historic, current, forecast) that is reasonably available to us.

Timing of Recognition. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer. Our performance obligations are satisfied at a point in time or over time as work progresses.

Revenue from goods transferred to customers at a point in time accounted for 91% of revenues for the year ended December 31, 2021. The majority of this revenue is product sales, which are generally recognized when items are shipped from our facilities and title passes to the customer. The amount of revenue recognized for products is adjusted for expected returns, which are estimated based on historical data.

Revenue from goods transferred to customers over time accounted for 9% of revenues for the year ended December 31, 2021, which is related to certain contracts in our Subsea and Production Equipment product lines. Recognition over time for these contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an enforceable right to payment for performance completed to date. We use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount of revenue recognized is calculated based on the ratio of costs incurred to-date compared to total estimated costs which requires management to calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of

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Forum Energy Technologies, Inc. and subsidiaries

Notes to consolidated financial statements (continued)

completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized during the period.

Accounting estimates during the course of projects may change, primarily related to our remotely operated vehicles (“ROVs”) which may take longer to manufacture. The effect of such a change, which can be upward as well as downward, is accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a prospective basis.

We sell our products through a number of channels including a direct sales force, marketing representatives, and distributors. We have elected to expense sales commissions when incurred as the amortization period would be less than one year. These costs are recorded within cost of sales.

Portfolio Approach. We have elected to apply ASC 606 to a portfolio of contracts with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within that portfolio.

Disaggregated Revenue. Refer to Note 18 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 and advance payments received on product sales.

Concentration of credit risk

Trade accounts receivable are financial instruments which potentially subject the Company to credit risk. Trade accounts receivable consist of uncollateralized receivables from domestic and international customers. For the years ended December 31, 2021 and 2020, no one customer accounted for 10% or more of the total revenue or 10% or more of the total accounts receivable balance at the end of the respective period.

Stock based compensation

We measure all stock based compensation awards at fair value on the date they are granted to employees and directors, and recognize compensation cost over the requisite service period for awards with only a service condition, and over a graded vesting period for awards with service and performance or market conditions.

The fair value of stock based compensation awards with market conditions is measured using a Monte Carlo Simulation model and, in accordance with Accounting Standards Codification Topic 718, is not adjusted based on actual achievement of the performance goals. The Black-Scholes option pricing model is used to measure the fair value of options. Forfeitures are accounted for as they occur.

Income taxes

We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based upon temporary differences between the carrying amounts and tax bases of our assets and liabilities at the balance sheet date, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period in which the change occurs. We record a valuation allowance in each reporting period when management believes that it is more likely than not that any deferred tax asset created will not be realized. See Note 11 Income Taxes for more information on valuation allowances recognized.

Accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an

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Forum Energy Technologies, Inc. and subsidiaries

Notes to consolidated financial statements (continued)

audit. If a tax position meets the “more likely than not” recognition criteria, accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement.

Non-U.S. local currency translation

We have global operations and the majority of our non-U.S. operations have designated the local currency as the functional currency. Realized and unrealized gains and losses resulting from re-measurements of monetary assets and liabilities denominated in a currency other than the local entity’s functional currency are included in the consolidated statements of comprehensive loss as incurred.

Financial statements of our foreign operations where the functional currency is not the U.S. dollar are translated into U.S. dollars using the current rate method whereby assets and liabilities are translated at the balance sheet rate and income and expenses are translated at the average exchange rates in effect during the period. The resultant translation adjustments are reported as a component of accumulated other comprehensive loss within stockholders’ equity in our consolidated balance sheets.

Fair value

The carrying amounts for financial instruments classified as current assets and current liabilities approximate fair value, due to the short maturity of such instruments. The book values of other financial instruments, such as our debt related to the Credit Facility, approximates fair value because interest rates charged are similar to other financial instruments with similar terms and maturities and the rates vary in accordance with a market index.

For financial assets and liabilities disclosed at fair value, fair value is determined as the exit price, or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The established fair value hierarchy divides fair value measurement into three broad levels:

•Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

•Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

•Level 3 - inputs are unobservable for the asset or liability, which reflect the best judgment of management.

The financial assets and liabilities that are disclosed at fair value for disclosure purposes are categorized in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

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 2021

Income Tax. In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Disclosure Framework - Simplifying the Accounting for Income Taxes, which simplified the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and clarifying and amending existing guidance. We adopted this new standard as of January 1, 2021. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

Convertible Debt. In August 2020, the FASB issued ASU No. 2020-06 Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This update reduces the number of accounting models for convertible debt instruments resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the

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Notes to consolidated financial statements (continued)

definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this update also makes targeted changes to the disclosures for convertible instruments and earnings-per-share guidance. This guidance may be adopted through either a modified retrospective or fully retrospective method of transition. This guidance will be effective for us in the first quarter of 2022. We currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.

3. Revenues

Disaggregated Revenue

Refer to Note 18 Business Segments for disaggregated revenue by product line and geography.

Contract Balances

The following table reflects the changes in our contract assets and contract liabilities balances for the year ended December 31, 2021:

$ %

Costs and estimated profits in excess of billings 8,285 8,516

Billings in excess of costs and profits recognized 9,705 1,817

During the year ended December 31, 2021, our contract assets increased by $0.3 million and our contract liabilities increased by $7.3 million primarily due to the timing of billings on large projects in our Subsea Technologies product line.

During the year ended December 31, 2021, we recognized revenue of $8.2 million that was included in the contract liability balance at the beginning of the period.

Substantially all of our 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.

4. Acquisitions & Dispositions

2021 Acquisition of Hawker Equipment Solutions

On December 20, 2021, we acquired certain assets of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of $5.1 million, of which, $3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years. Hawker is a manufacturer of hydraulic pickup and laydown units. This acquisition is included in the Drilling product line within 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.

2020 Disposition of ABZ and Quadrant Valves

On December 31, 2020, we sold certain assets of our ABZ and Quadrant valve brands for cash consideration of $104.6 million. This transaction was accounted for as a disposition of a business. We recognized a gain on disposition of $88.4 million based on the difference in cash received less $15.0 million of net book value of assets sold and a $1.2 million working capital settlement liability which was paid in 2021. Pro forma results of operations for this disposition have not been presented because the effects were not material to the consolidated financial statements.

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Notes to consolidated financial statements (continued)

5. Inventories

The Company’s significant components of inventory at December 31, 2021 and 2020 were as follows (in thousands):

The change in the amounts of the inventory reserve during the two year period ended December 31, 2021 is as follows (in thousands):

The $100.8 million charged to expense during the year ended December 31, 2020 includes significant write downs of inventory related to the Company’s decision to discontinue certain products and other changes to sourcing and manufacturing strategies.

6. Property and Equipment

Property and equipment consists of the following (in thousands):

Estimated useful lives December 31,

Right of use assets - finance leases 2-6 3,530 3,823

Depreciation expense was $17.1 million and $24.5 million for the years ended December 31, 2021 and 2020, respectively.

For the year ended December 31, 2021, we did not recognize any property and equipment impairment charges. For the year ended December 31, 2020, we recognized property and equipment impairment charges totaling $15.1 million, which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

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7. Intangible Assets

At December 31, 2021and 2020, intangible assets consisted of the following, respectively (in thousands):

Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. For the year ended December 31, 2021, we did not recognize any intangible asset impairment charges. For the year ended December 31, 2020, we recognized intangible asset impairment charges totaling $5.3 million, which are included in “Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.

Amortization expense was $25.1 million and $26.5 million for the years ended December 31, 2021 and 2020, respectively. The estimated future amortization expense for the next five years is as follows (in thousands):

Year ending December 31, Amount

8. Impairments of Long-Lived Assets

During the year ended December 31, 2020, the COVID-19 pandemic and associated preventative actions taken around the world to mitigate its spread caused oil demand to deteriorate and economic activity to decrease. As a result, oil prices declined significantly during the period and created an extremely challenging market for all sub-sectors of the oil and natural gas industry. In addition, responses to the spread of COVID-19, including significant government restrictions on movement, led to sharp declines in global economic activity.

As a result, we determined that certain long-lived assets were impaired as their carrying values exceeded their fair values. The amount of the impairment charges were measured as the difference between the carrying value and the estimated fair value of the assets. The fair value was determined either through analysis of discounted future cash flows or, for certain real estate, based on a third party's sales price estimate (classified within level 3 of the fair value hierarchy).

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Notes to consolidated financial statements (continued)

Following is a summary of impairment charges recognized in our segments during the year ended December 31, 2020 (in thousands):

(1) These charges are included in Impairments of intangible assets, property and equipment in the condensed consolidated statements of comprehensive loss.

(2) $10.8 million of these charges are included in Cost of sales, while $4.5 million are included in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss.

9. Debt

Notes payable and lines of credit as of December 31, 2021 and 2020 consisted of the following (in thousands):

Less: current maturities (860) (1,322)

2025 Notes

In August 2020, we exchanged $315.5 million principal amount of our previous 6.25% unsecured notes due 2021 (“2021 Notes”) for new 9.00% convertible secured notes due August 2025 (the “2025 Notes”). This transaction was accounted for as an extinguishment of the 2021 Notes with the new 2025 Notes recorded at fair value on the transaction date. We estimated the fair value of the 2025 Notes to be $282.6 million at the issuance date, resulting in a $32.9 million discount (“Debt Discount”) at issuance. As a result, we recognized a $28.7 million gain on extinguishment of debt that reflects the difference in the $314.8 million net carrying value of the 2021 Notes exchanged, including debt issuance costs and unamortized debt premium, less the $282.6 million estimated fair value of 2025 Notes and a $3.5 million early participation fee paid to bondholders that participated in the exchange. The Debt Discount is being amortized as non-cash interest expense over the term of the 2025 Notes using the effective interest method.

The 2025 Notes pay interest at the rate of 9.00%, of which 6.25% is payable in cash and 2.75% is payable in cash or additional notes, at the Company’s option. The 2025 Notes are secured by a first lien on substantially all of the Company’s assets, except for Credit Facility priority collateral, which secures the 2025 Notes on a second lien basis. As of December 31, 2021, approximately $116.0 million principal amount of the 2025 Notes is mandatorily convertible into shares of our common stock at a conversion rate of 37.0370 shares per $1,000 principal amount of 2025 Notes converted, equivalent to a conversion price of $27.00 per share, subject, however, to the condition that the average of the daily trading prices for the common stock over the preceding 20-trading day period is at least $30.00 per share. Holders of the 2025 Notes also have optional conversion rights in the event that the Company elects to redeem the 2025 Notes in cash and at the final maturity of the new notes. Any interest that the Company elects to pay in additional notes is also subject to the mandatory and optional conversion rights.

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Notes to consolidated financial statements (continued)

During the year endedDecember 31, 2021, we repurchased an aggregate $59.9 million of principal amount of our 2025 Notes for $58.6 million. The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $53.3 million, resulting in a $5.3 million loss on extinguishment of debt.

Credit Facility

In September 2021, we amended our senior secured revolving credit facility ("Credit Facility") to, among other things, extend the maturity date to September 2026, reduce the aggregate amount of the commitment under the Credit Facility, and change the interest rate applicable to outstanding loans. Following such amendment, our Credit Facility provides revolving credit commitments of $179.0 million (with a sublimit of up to $45.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries) (the “U.S. Line”), of which up to $20.0 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”).

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. Such eligible accounts receivable and eligible inventory serve as priority collateral for the Credit Facility, which is also secured on a second lien basis by substantially all of the Company's other assets. The amount of eligible inventory included in the borrowing base is restricted to the lesser of $127.5 million (subject to a quarterly reduction of $0.5 million) and 80.0% of the total borrowing base. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our receivables and inventory. As of December 31, 2021, our total borrowing base was $146.1 million, of which no amounts were drawn and $18.7 million was used for security of outstanding letters of credit, resulting in remaining availability of $127.4 million.

Borrowings under the U.S. line bear interest at a rate equal to, at our option, either (a) the LIBOR rate, subject to a floor of 0.00%, plus a margin of 2.25% to 2.75%, or (b) a base rate plus a margin of 1.25% to 1.75%, in each case based upon the Company's quarterly total net leverage ratio. The U.S. line base rate is determined by reference to the greatest of (i) the federal funds rate plus 0.50% per annum, (ii) the one-month adjusted LIBOR plus 1.00% per annum, and (iii) the rate of interest announced, from time to time, by Wells Fargo at its principal office in San Francisco as its prime rate, subject to a floor of 0.00%.

Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate, subject to a floor of 0.00%, plus a margin of 2.25% to 2.75%, or (b) a base rate plus a margin of 1.25% to 1.75%, in each case based upon the Company's quarterly net leverage ratio. The Canadian line base rate is determined by reference to the greater of (i) the one-month CDOR rate plus 1.00% and (ii) the prime rate for Canadian dollar commercial loans made in Canada as reported by Thomson Reuters, subject to a floor of 0.00%.

The Credit Facility also provides for a commitment fee in the amount of (a) 0.375% on the unused portion of commitments if average usage of the Credit Facility is greater than 50% and (b) 0.500% on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50%.

If excess availability under the Credit Facility falls below the greater of 12.5% of the borrowing base and $22.4 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. Furthermore, the Credit Facility includes an obligation to prepay outstanding loans with cash on hand in excess of certain thresholds and includes a cross-default to the 2025 Notes.

Other Debt

Other debt consists of various finance leases of equipment.

Deferred loan costs

We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the 2025 Notes and the Credit Facility. In the first quarter of 2020, we wrote-off $2.0 million of deferred loan costs for the termination of previous discussions related to a potential exchange offer for our 2021 Notes. In connection with the September 2021 Credit Facility amendment, we deferred approximately $1.6 million of loan costs that will be amortized over the facility's remaining life.

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Notes to consolidated financial statements (continued)

Future principal payments under long-term debt for each of the years ending December 31 are as follows (in thousands):

Thereafter —

Add: Unamortized debt discount (20,035)

Less: Debt issuance cost (4,918)

Less: present value discount on finance leases $ (66)

10. Leases

Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces, equipment and vehicles. The following table summarizes the supplemental balance sheet information related to leases as of December 31, 2021 and 2020 (in thousands):

As of

Assets

Operating lease assets Operating lease assets $ 25,431 $ 31,520

Liabilities

Current

Finance Current portion of long-term debt 860 1,322

Noncurrent

Operating Operating lease liabilities $ 34,745 44,536

Finance Long-term debt, net of current portion 353 $ 950

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Notes to consolidated financial statements (continued)

The following table summarizes the components of lease expenses for the twelve months ended December 31, 2021 (in thousands):

Twelve Months EndedDecember 31,

Finance lease cost

Interest on lease liabilities Interest expense 110 155

The maturities of lease liabilities as of December 31, 2021 are as follows (in thousands):

Operating Leases Finance Leases Total

The following table summarizes the weighted-average remaining lease term and weighted average discount rates related to leases as of December 31, 2021:

Lease Term and Discount Rate December 31, 2021 December 31, 2020

Weighted-average remaining lease term (years)

Operating leases 6.4 years 6.6 years

Financing leases 1.5 years 1.8 years

Weighted-average discount rate

The following table summarizes the supplemental cash flow information related to leases as of December 31, 2021:

Twelve Months EndedDecember 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 13,053 $ 11,038

Operating cash flows from finance leases 92 80

Financing cash flows from finance leases $ 1,517 $ 1,179

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Notes to consolidated financial statements (continued)

11. Income Taxes

The components of loss before income taxes for the years ended December 31, 2021 and 2020 are as follows (in thousands):

The components of income tax expense (benefit) for the years ended December 31, 2021 and 2020 are as follows (in thousands):

Current

Deferred

U.S. federal and state (169) 723

Income tax expense (benefit) $ 642 $ (12,881)

The reconciliation between the actual provision for income taxes and that computed by applying the U.S. statutory rate to loss before income taxes are outlined below (in thousands):

State taxes, net of federal tax benefit 22 — % (4,190) (3.8) %

Prior year federal, non-U.S. and state tax (7,183) (8.8) % (1,827) (1.7) %

Our effective tax rate was 0.8% and (11.7)% for the years ended December 31, 2021 and 2020, respectively.

For the year ended December 31, 2020, we recognized a $16.0 million benefit related to a carryback claim for U.S. federal tax losses based on provisions in the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020. The CARES Act provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerated refunds for minimum tax credit carryforwards, among other provisions. The tax effects of changes in tax laws are recognized in the period in which the law is enacted.

The tax benefit for the year ended December 31, 2021 and 2020 includes an increase in our valuation allowance of $31.1 million and $25.3 million, respectively, consisting of a full valuation allowance against our deferred tax assets in the U.S., U.K., Germany, Singapore, China and Saudi Arabia as further described below under the primary components of deferred taxes.

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Notes to consolidated financial statements (continued)

The primary components of deferred taxes include (in thousands):

Deferred tax assets

Net operating loss and other tax carryforwards 109,402 53,781

Property and equipment 6,424 —

Deferred tax liabilities

Property and equipment — (6,861)

Prepaid expenses and other (462) (3,519)

Total deferred tax liabilities (6,952) (17,198)

Net deferred tax liabilities $ (631) $ (1,850)

Goodwill from certain acquisitions is tax deductible due to the acquisition structure as an asset purchase or due to tax elections made by the Company and the respective sellers at the time of acquisition.

We have deferred tax assets related to net operating loss and other tax 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.

At December 31, 2021, we had $243.6 million of U.S. net operating loss carryforwards and $10.1 million of state net operating losses. Of these losses, $14.9 million will expire no later than 2037 if they are not utilized prior to that date. The remaining $238.8 million will not expire. We also had $186.9 million of non-U.S. net operating loss carryforwards with indefinite expiration dates. The ultimate realization of income tax benefits for these net operating loss carryforwards depends on our ability to generate sufficient taxable income in the respective taxing jurisdictions. Where we have unrecognized tax benefits in jurisdictions with existing net operating losses, we utilize the unrecognized tax benefits as a source of income to offset such losses. 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, Singapore, China and Saudi Arabia.

During 2021, we recognized $31.1 million of tax expense related to the increase in our valuation allowance provided against our deferred tax assets to write down our deferred tax assets in these jurisdictions to what is more likely than not realizable. We increased our valuation allowance related to our U.S. and foreign deferred tax assets by $15.6 million and $15.5 million, respectively. In making such a determination for each of these jurisdictions, we considered all available positive and negative evidence, including our recent history of pretax losses over the prior three year period, the goodwill and intangible asset impairments for various reporting units, the future reversals of existing taxable temporary differences, the projected future taxable income or loss and tax-planning.

Deferred tax liabilities arising from the difference between the financial reporting and income tax bases inherent in our foreign subsidiaries, referred to as outside basis differences, have not been provided for U.S. income tax purposes because we do not intend to sell, liquidate or otherwise trigger the recognition of U.S. taxable income with regard to our investment in these foreign subsidiaries. Determining the amount of U.S. deferred tax liabilities associated with outside basis differences is not practicable at this time.

We file income tax returns in the U.S. as well as in various states and non-U.S. jurisdictions. With few exceptions, we are no longer subject to income tax examination by tax authorities in these jurisdictions prior to 2015.

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Notes to consolidated financial statements (continued)

We account for uncertain tax positions in accordance with guidance in Accounting Standards Codification Topic 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):

Additional based on tax positions related to prior years 367

Additional based on tax positions related to current year 1,712

Reduction based on tax positions related to prior years —

Settlement with tax authorities —

Lapse of statute of limitations (6,103)

The total amount of unrecognized tax benefits at December 31, 2021 was $8.4 million, of which it is reasonably possible that $1.6 million could be settled during the next twelve-month period as a result of the conclusion of various tax audits or due to the expiration of the applicable statute of limitations. We estimate that $8.4 million of the unrecognized tax benefits at December 31, 2021, excluding consideration of valuation allowance, would impact our future effective income tax rate, if recognized.

We recognize interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of comprehensive loss. As of December 31, 2021 and 2020, we had accrued approximately $0.5 million and $1.4 million in interest and penalties, respectively. During the years ended December 31, 2021 and 2020, we recognized no material change in the interest and penalties related to uncertain tax positions.

12. Fair Value Measurements

The Company had zero and $13.1 million outstanding under the Credit Facility at December 31, 2021 and December 31, 2020, respectively. The Credit Facility 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 December 31, 2021, the fair value and the carrying value of the Company’s 2025 Notes approximated $225.0 million and $232.0 million, respectively. At December 31, 2020, the fair value and the carrying value of the Company’s 2021 Notes approximated $200.3 million and $279.3 million, respectively.

There were no other significant outstanding financial instruments as of December 31, 2021 and 2020 that required measuring the amounts at fair value on a recurring basis. 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 year ended December 31, 2021.

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Notes to consolidated financial statements (continued)

13. Commitments and Contingencies

Litigation

In the ordinary course of business, the Company is, and in the future, could be involved in various pending or threatened legal actions, some of which 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 believed to be probable and can be estimated. The reserves accrued at December 31, 2021 and 2020 are immaterial. In the opinion of management, 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.

Asbestos litigation

One of our subsidiaries has been named as one of many defendants in a number of product liability claims for alleged exposure to asbestos used in valves. These lawsuits are typically filed on behalf of plaintiffs who allege exposure to asbestos, against numerous defendants, often forty or more, who are alleged to have manufactured or distributed products containing asbestos. The injuries alleged by plaintiffs in these cases range from mesothelioma and other cancers to asbestosis. The earliest claims against our subsidiary were filed in New Jersey in 1998, and our subsidiary currently has active cases in Missouri, New Jersey, New York, Illinois and Delaware. These complaints do not typically include requests for a specific amount of damages. Our subsidiary acquired the trademark for the product line in question in 1985. To date, most of the claims against our subsidiary alleging illnesses due to asbestos have generally been based on products manufactured by the previous owner prior to 1985 that are alleged to have contained asbestos. Many claimants alleging illnesses due to asbestos sue on the basis of exposure prior to 1985, as by that date the hazards of asbestos exposure were well known and asbestos had begun to fall into disuse. Our subsidiary has been successful in obtaining dismissals in most lawsuits without any cash contribution including because the “successor liability” law in most states does not hold a purchaser in good faith liable for the actions of the seller prior to the acquisition date unless the purchaser contractually assumed the liabilities, which our subsidiary did not. There are exceptions to the successor liability doctrine in many states, so there are no assurances that our subsidiary will not be found liable for the actions of its predecessor. The law in other states on so called “successor liability” may be different or ambiguous in this regard, and could also expose our subsidiary to liability. Our subsidiary could also be found liable should a trier of fact reject our subsidiary’s position that it is not responsible for the alleged asbestos injuries, such as in a case where a plaintiff alleges post-1985 exposure. To date, asbestos claims have not had a material adverse effect on our business, financial condition, results of operations, or cash flow, as our annual out-of-pocket costs over the last five years has been less than $200,000. There were fewer than 25 new cases filed against our subsidiary in each of last two years, and a significant number of existing cases were dismissed, settled or otherwise disposed of over the last year. We currently have fewer than 150 lawsuits pending against this subsidiary. Our subsidiary has over $17 million in face amount of insurance per occurrence and over $23 million of aggregate primary insurance coverage. In addition, our subsidiary has over $950 million in face amount of excess coverage applicable to the claims. There can be no guarantee that all of this can be collected due to policy terms and conditions and insurer insolvencies in the past or in the future. In January 2011, we entered into an agreement with seven of our primary insurers under which they have agreed to pay 80% of the costs of handling and settling each asbestos claim against the affected subsidiary. The insurers’ portion of the settlements is funded by our primary insurance limits, which are eroded only by settlements and not legal fees. Approximately $2.0 million in settlements has been paid by insurers and our subsidiary to date, with approximately $40,000 paid over the course of the last two years. Our subsidiary and the subscribing insurers have the right to withdraw from this agreement, but to date, no party has exercised this right or expressed an intent to do so.

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Notes to consolidated financial statements (continued)

Portland Harbor Superfund litigation

In May 2009, one of the Company’s subsidiaries (which is presently a dormant company with nominal assets except for rights under insurance policies) was named along with many defendants in a suit filed by the Port of Portland, Oregon seeking reimbursement of costs related to a five-year study of contaminated sediments at the port. In March 2010, the subsidiary also received a notice letter from the Environmental Protection Agency indicating that it had been identified as a potentially responsible party with respect to environmental contamination in the “study area” for the Portland Harbor Superfund Site. Under a 1997 indemnity agreement, the subsidiary is indemnified by a third party with respect to losses relating to environmental contamination. As required under the indemnity agreement, the subsidiary provided notice of these claims, and the indemnitor has assumed responsibility and is providing a defense of the claims. Although the Company believes that it is unlikely that the subsidiary contributed to the contamination at the Portland Harbor Superfund Site, the potential liability of the subsidiary and the ability of the indemnitor to fulfill its indemnity obligations cannot be quantified at this time.

Tenaris litigation

In October of 2017, one of our subsidiaries, Global Tubing, LLC, filed suit against Tenaris Coiled Tubes, LLC and Tenaris, S.A. (together “Tenaris”) in the United States District Court for the Southern District of Texas seeking a declaration that its DURACOILTM products do not infringe certain Tenaris patents related to coiled tubing. Tenaris filed counterclaims against Global Tubing alleging DURACOILTM products infringe three patents. Tenaris seeks unspecified damages and a permanent injunction. Global Tubing is vigorously defending itself and alleges the Tenaris patents are invalid and unenforceable. While Global Tubing believes that it will prevail on all claims, if Tenaris were to obtain a permanent injunction, Global Tubing may be barred from selling certain of its DURACOILTM products.

Operating leases

The Company has operating leases for warehouses, office space, manufacturing facilities and equipment. The leases generally require the Company to pay certain expenses including taxes, insurance, maintenance, and utilities. See Note 10 Leases for further information.

Letters of credit and guarantees

The Company executes letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to guarantee the Company fulfilling certain performance obligations relating to certain large contracts. At December 31, 2021, the Company had $18.7 million in letters of credit outstanding.

14. Loss Per Share

The reconciliation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):

Year ended December 31,

Net loss attributable to common stockholders $ (82,651) $ (96,889)

Basic - weighted average shares outstanding 5,643 5,577

Dilutive effect of stock options and restricted stock — —

Dilutive effect of convertible 2025 Notes — —

Diluted - weighted average shares outstanding 5,643 5,577

Loss per share

For all periods presented, we excluded all potentially dilutive restricted shares and stock options in calculating diluted earnings per share as the effect was anti-dilutive due to net losses incurred for these periods.

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Notes to consolidated financial statements (continued)

15. Stockholders' Equity and Employee Benefit Plans

Employee benefit plans

We sponsor a 401(k) savings plan for U.S. employees and related savings plans for certain non-U.S. employees. These plans benefit eligible employees by allowing them the opportunity to make contributions up to certain limits. We contribute by matching a percentage of each employee’s contributions. In 2020, for certain plans, the Company temporarily suspended the matching of contributions. Matching contributions were reinstated at the beginning of 2022. Subsequent to the closing of all acquisitions, employees of those acquired entities will generally be eligible to participate in the Company’s 401(k) savings plan. We also have the discretion to provide a profit sharing contribution to each participant depending on the Company’s performance for the applicable year. The expense under the Company’s plan was zero and$2.3 million for the years ended December 31, 2021 and 2020, respectively.

Reverse stock split

In order to bring the Company into compliance with the listing requirements of the New York Stock Exchange, our Board of Directors approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $0.01 per share, accompanied by a corresponding decrease in the Company’s authorized shares of common stock. The Company’s stockholders previously approved the Reverse Stock Split at the annual meeting of stockholders on May 12, 2020.

The effective time of the Reverse Stock Split was after market close on November 9, 2020, with the common stock trading on a post-split basis under the Company’s existing trading symbol, “FET,” at the market open on November 10, 2020. No fractional shares of common stock were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to a fractional share received a cash payment in lieu of such fractional shares.

Following the completion of the Reverse Stock Split, the number of authorized shares of common stock was reduced from 296,000,000 to 14,800,000. Unless otherwise indicated, the number of shares of common stock outstanding and per-share amounts in these consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the effect of the Reverse Stock Split. The par value of our common stock remains at $0.01 per share.

16. Long-Term Incentive Compensation

FET stock based compensation plan

The following share and per-share information has been retroactively adjusted to reflect the effect of the 1-for-20 Reverse Stock Split. See Note 15. Stockholders' Equity and Employee Benefit Plans for further information.

FET US Equity

FET · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Consolidated Financial Statements and Supplementary Data

FET US Equity☆

FET · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Consolidated Financial Statements and Supplementary Data

FET US Equity