1、Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549_FORM 10-K_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31,2013ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHA
2、NGE ACT OF 1934For the transition period from _ to _Commission File Number 001-35504FORUM ENERGY TECHNOLOGIES,INC.(Exact name of registrant as specified in its charter)Delaware 61-1488595(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)920 Memorial Cit
3、y Way,Suite 1000Houston,Texas 77024(Address of principal executive offices)Registrants telephone number,including area code:(281)949-2500Securities registered pursuant to Section 12(b)of the Act:Common stock,$0.01 par value New York Stock Exchange(Title of Each Class)(Name of Each Exchange on Which
4、Registered)Securities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Se
5、ction 15(d)of the Act.Yes o No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the registrant was required to file such reports),and(2
6、)has been subject to such filing requirements for the past 90 days.Yes No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any,every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T duri
7、ng the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrantsk
8、nowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.oIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.Se
9、e the definitions of largeaccelerated filer,accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company)Indicate by check mar
10、k whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes o No The aggregate market value of Common Stock held by non-affiliates on June 30,2013,determined using the per share closing price on the New York Stock ExchangeComposite tape of$30.43 on June 28,2013,was
11、approximately$1.3 billion.For this purpose,our executive officers and directors and SCF Partners L.P.and its affiliates areconsidered affiliates.As of February 26,2014,there were 92,902,767 common shares outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of our Proxy Statement for the 2014 Annu
12、al Meeting of Stockholders are incorporated by reference into Part III of this report.Table of Contents Forum Energy Technologies,Inc.Index to Form 10-KPART IItem 1.Business3Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments26Item 2.Properties27Item 3.Legal Proceedings27Item 4.Mine Safety Discl
13、osures28PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of EquitySecurities31Item 6.Selected Financial Data33Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations35Item 7A.Quantitative and Qualitative Disclosur
14、es About Market Risk53Item 8.Financial Statements and Supplementary Data53Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure83Item 9A.Controls and Procedures83Item 9B.Other Information83PART IIIItem 10.Directors,Executive Officers and Corporate Governance83It
15、em 11.Executive Compensation84Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters84Item 13.Certain Relationships and Related Transactions,and Director Independence84Item 14.Principal Accounting Fees and Services84PART IVItem 15.Exhibits,Financial St
16、atement Schedules84SIGNATURES88 2Table of Contents PART IItem 1.BusinessOn April 17,2012,Forum Energy Technologies,Inc.(Forum,the Company,we,or us),a Delaware corporation incorporated in2005,closed its initial public offering(the IPO).Our common shares are listed on the New York Stock Exchange(NYSE)
17、under thesymbol FET.Our principal executive offices are located at 920 Memorial City Way,Suite 1000,Houston,Texas 77024,our telephonenumber is(281)949-2500,and our website is www.f-e-.Our Annual Reports on Form 10-K,quarterly reports on Form 10-Q andcurrent reports on Form 8-K,and all amendments the
18、reto,are available free of charge on our Internet website as soon as reasonablypracticable after such reports are electronically filed with or furnished to the Securities and Exchange Commission(SEC).These reportsare also available at the SECs Internet website at www.sec.gov.Information contained on
19、 or accessible from our website is not incorporatedby reference into this Annual Report on Form 10-K and should not be considered part of this report or any other filing that we make with theSEC.OverviewWe are a global oilfield products company,serving the subsea,drilling,completion,production and i
20、nfrastructure sectors of the oil and naturalgas industry.We design,manufacture and distribute products and engage in aftermarket services,parts supply and related services that complement ourproduct offering.Our product offering includes a mix of highly engineered capital products and frequently rep
21、laced items that are used in theexploration,development,production and transportation of oil and natural gas.Our capital products are targeted at:drilling rig equipment fornew rigs,upgrades and refurbishment projects;subsea construction and development projects;the placement of production equipment
22、onnew producing wells;and downstream capital projects.Our engineered systems are critical components used on drilling rigs or in the courseof subsea operations,while our consumable products are used to maintain efficient and safe operations at well sites in the well constructionprocess,within the su
23、pporting infrastructure and at processing centers and refineries.Historically,a little more than half of our revenue isderived from activity-based consumable products,while the balance is derived from capital products and a small amount from rental andother services.We seek to design,manufacture and
24、 supply reliable products that create value for our diverse customer base,which includes,among others,oil and gas operators,land and offshore drilling contractors,well stimulation and intervention service providers,subsea construction andservice companies and pipeline and refinery operators.We opera
25、te two business segments,Drilling&Subsea and Production&Infrastructure.The table below provides a summary of proportionalrevenue contributions from our two business segments and our primary geographic markets over the last three years:Percentage of revenue Year ended December 31,2013 2012 2011Drilli
26、ng&Subsea62%58%58%Production&Infrastructure38%42%42%Total100%100%100%United States60%63%63%Canada6%8%9%Other International34%29%28%Total100%100%100%We incorporate by reference in response to this item the segment and geographic information for the last three years set forth inManagements Discussion
27、and Analysis of Financial Condition and Results of Operations Results of operations in Item 7 of this AnnualReport on Form 10-K and Note 15 of the Notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.We also incorporate by reference in response to this ite
28、m the information with respect to acquisitions set forth in Managements Discussionand Analysis of Financial Condition and Results of Operations Acquisitions in Item 7 and in Note 3 of our Notes to consolidated financialstatements included in Item 8 of this Annual Report on Form 10-K.3Table of Conten
29、ts Drilling&Subsea segmentIn our Drilling&Subsea segment,we design and manufacture products and provide related services to the subsea construction,drilling,wellconstruction,completion and intervention markets.Through this segment,we offer subsea technologies,including robotic vehicles and othercapi
30、tal equipment,specialty components and tooling,a broad suite of complementary subsea technical services and rental items,and appliedproducts for subsea pipelines;drilling technologies,including capital equipment and a broad line of products consumed in the drilling andwell intervention process;and d
31、ownhole technologies,including cementing and casing tools,completion products,and a range of downholeprotection solutions.There are several factors driving demand for our Drilling&Subsea segment.Demand for our subsea products is impacted by global offshoreactivity,subsea construction spending,and gr
32、owth in deepwater resource development.Meanwhile,our Drilling Technologies product line isinfluenced by global drilling,workover and intervention activity,the level of capital investment in drilling rigs,rig upgrades and equipmentreplacement as drilling contractors modify their existing rigs to impr
33、ove efficiency and safety,and the severity of the conditions under whichthe rigs and well service equipment operate.In addition,our Downhole Technologies product line is impacted by the level of well completionactivity and complexity of well construction and completion.Subsea Technologies.We design
34、and manufacture subsea capital equipment and specialty components,as well as applied products forsubsea pipelines,and provide a broad suite of complementary subsea technical services and rental items.We have a core focus on thedesign and manufacture of remotely operated vehicle(ROV)systems and other
35、 specialty subsea vehicles,as well as critical components ofthese vehicles.Many of our related technical services complement our vehicle offerings.We operate primarily from facilities in Houston,Texas;Kirkbymoorside and Great Yarmouth,England;Aberdeen,Scotland;Singapore and Brazil.Subsea vehicles.We
36、 are a leading designer and manufacturer of a wide range of ROVs to the offshore subsea construction,observation andrelated service markets.The market for subsea ROVs can be segmented into three broad classes of vehicles based on size and category ofoperations:(1)large work-class vehicles for subsea
37、 construction activities,(2)drilling-class vehicles deployed from and for use around anoffshore rig and(3)observation-class vehicles for inspection and light manipulation.We are a leading provider of work-class and observation-class vehicles.We design and manufacture large work-class ROVs through ou
38、r Perry brand.These vehicles are principally used in deepwater constructionapplications with the largest vehicles providing up to 200 horsepower,exceeding 1,200 pounds of payload capacity and having the capability ofworking in depths up to 4,000 meters.Our Sub-Atlantic branded observation-class vehi
39、cles are electrically powered and are principally usedfor inspection,survey,and light manipulation and serve a wide range of industries.In addition to observation and work-class ROVs,wedesign and manufacture specialty vehicles that are primarily used in subsea trenching operations.Larger than a work
40、-class or observation-class ROV,these vehicles travel along the sea floor conducting digging,installation and burial operations.Providing up to 1,500 horsepower,the largest of these subsea trenchers are able to cut over three meters deep into the seafloor to lay pipelines,power cables orcommunicatio
41、ns cables.Our subsea vehicle customers are primarily large offshore construction companies,but also include non-oil and gas industry entities,suchas a range of governmental organizations including navies,maritime science and geosciences research organizations,offshore wind powercompanies and other i
42、ndustries operating in marine environments.Subsea products.In addition to subsea vehicles,we are a leading manufacturer of subsea products and components.We design andmanufacture a group of products that are used in and around the ROV.For example,we manufacture Dynacon branded ROV launch andrecovery
43、 systems,Syntech branded syntactic foam buoyancy components,Sub-Atlantic branded ROV thrusters,and a wide range ofhydraulic power units and valve packs.We design and manufacture these ROV components for incorporation into our own vehicles as wellas for sale to other ROV manufacturers.We also provide
44、 a broad suite of subsea tooling,both industry standard and custom designed.In addition to vehicle-related subsea products,we provide products used in subsea infrastructure.Through our acquisition of Moffat 2000 Ltd.,we manufacture subsea pipeline inspection gauge launching and receiving systems,and
45、 subsea connectors.Our primary customers in thisproduct line are offshore pipeline construction companies.Subsea technical services and rental.We maintain a fleet of subsea rental items,primarily subsea positioning equipment,and provide ourcustomers with complementary subsea technical services.Among
46、 the technical services we offer is the provisioning of ROV pilots and otheroffshore personnel on a contract basis for those customers who need to supplement their own employees.Our customers for rental itemsand personnel are primarily subsea construction and offshore service companies.In addition,w
47、e offer a system that offers a completesolution for digital4Table of Contents video capture,playback,processing and reporting of subsea inspection survey data.We also maintain a geophysical and geotechnicalengineering group that provides consulting services to the oil and gas,and marine industries,t
48、ypically to interpret and analyze third partysubsea data provided by clients.Drilling Technologies.We provide both drilling consumables and capital equipment,with a focus on products that enhance our customershandling of tubulars on the drilling rig.Our product offering includes powered and manual t
49、ubular handling equipment;specialized torqueequipment;customized offline crane systems;drilling data acquisition management systems;pumps,pump parts,valves,and manifolds;drilling,well servicing and hydraulic fracturing fluid end components;pressure control equipment for both coiled tubing and wireli
50、ne wellintervention operations and a broad line of items consumed in the drilling process.Tubular handling.Our core focus in Drilling Technologies is in powered and manual tubular handling equipment used on onshore andoffshore drilling rigs.We expanded our offering of products,geographic coverage an
51、d customer base in this area through our recentacquisition of Blohm+Voss Oil Tools GmbH(B+V).Our B+V and Wrangler branded systems reduce direct human involvement in thehandling of pipe during drilling operations,improving the safety,speed and efficiency of operations.In addition,we manufacture make-
52、up andbreak-out tools,called B+V Floorhand and Wrangler Roughneck,which automate a potentially dangerous rig floor task and improve rigdrilling speed and safety.We design and manufacture specialized torque equipment and related control systems for tubular connections,including high torquestroking,or
53、 bucking,units,fully rotational torque units,portable torque units for field deployment,and provide aftermarket service.Inaddition,we design and manufacture a range of rig-based offline activity cranes,multi-purpose cranes and personnel transfer solutions.Many of these cranes are fit-for-purpose mul
54、ti-axis cranes that provide access to hard-to-reach places and eliminate the need for manualinterface.Flow control and intervention.We manufacture flow control and pressure control equipment for the drilling,well servicing,pressure pumpingand hydraulic fracturing markets.Many of our flow control pro
55、ducts are consumable items used on drilling rigs,well servicing rigs,pressure pumping units,and hydraulicfracturing systems.Examples of these products include valves,centrifugal pumps,mud pump parts,rig sensors,and inserts and dies,aswell as an extensive handling tool line.Our pressure control produ
56、cts are used for well intervention operations and are sold directly to oilfield service companies and equipmentrental companies.These products include both coiled tubing and wireline blowout preventers and their accessories.We also conductaftermarket refurbishment and recertification services for pr
57、essure control equipment.We also manufacture data acquisition products that include integrated drill floor instrumentation and monitoring systems.These systemsprovide real-time monitoring and logging of drilling data to drilling contractors and oil and gas producers on the rig and at remote location
58、s.They measure,collect,store and display drilling data on a real-time basis,as required on all drilling rigs in todays drilling environment.We are also a large supplier of oilfield bearings to original equipment manufacturers and repair businesses for use on drilling and wellstimulation equipment.In
59、 addition to designing and manufacturing capital products and providing consumable products,we repair andservice drilling equipment for both land and offshore rigs.Many of our service employees work in the field to address problems at the rig site.Downhole Technologies.We manufacture a broad line of
60、 downhole products that are consumed during the well construction,completionand production enhancement process.Casing and cementing tools.Through our Davis-Lynch branded downhole well construction and completion tools product line,we designand manufacture products used in the construction of oil and
61、 gas wells.We design and manufacture a full range of centralizers,floatequipment,stage cementing tools,inflatable packers,flotation collars,cementing plugs,fill and circulation tools for running casing,casinghangers and surge reduction equipment.Our products are used in the construction of onshore a
62、nd offshore wells.5Table of Contents Completion products.We manufacture a line of downhole completion tools,including composite plugs and wireline flow-control products.Our composite plugs are primarily used for zonal isolation during multi-stage hydraulic fracturing in horizontal and vertical wells
63、.Thecomposite construction with metal slips allows the plugs to be drilled out quickly to improve service efficiency.We offer a variety of plug sizesto fit various casings as well as a range of temperature and pressure ratings to accommodate different well environments.Our wireline flow-control prod
64、ucts include a number of components included in most completions such as landing nipples,circulating sleeves,blanking plugsand separation tools.Downhole protection systems.We offer a full range of downhole protection solutions through our Cannon Services brand.The clamp andprotection system is used
65、to shield downhole control lines,cables and gauges during installation and to provide protection during productionenhancement operations.We design and manufacture a full range of downhole protection solutions for electrical submersible pump(ESP)cabling,encapsulated control lines,sub-surface safety v
66、alves(SSSV)and permanent downhole gauges,including gauges used inintelligent wells and the steam-assisted gravity drainage(SAGD)wells of the Canadian heavy oil developments.We provide both standardand customized protection systems,and we supply a range of materials for various downhole environments.
67、Our primary customers in this product line are producers and service companies providing completion,ESP and other intervention servicesto oil and gas producers.Production&Infrastructure segmentIn our Production&Infrastructure segment,we design and manufacture products and provide related equipment a
68、nd services to the wellstimulation,completion,production and infrastructure markets.Through this segment,we supply flow equipment,including wellstimulation consumable products and related recertification and refurbishment services;production equipment,including well site productionequipment and proc
69、ess equipment;and valve solutions,which includes a broad range of industrial and process valves.The level of spending on completion of new wells and related infrastructure is the primary driver for our Production&Infrastructure segment.In addition,the use of hydraulic fracturing to develop oil and g
70、as reserves in shale or tight sands basins across North America has asignificant impact on our Flow Equipment product line.Our Production Equipment product line also has exposure to the amount of spendingon midstream and downstream projects as it offers products that go from the well site to inside
71、the refinery fence.Our Valve Solutionsproduct line is impacted by the level of infrastructure additions,upgrades and maintenance activities across the oil and gas industry,includingthe upstream,midstream and downstream sectors.This includes heavy oil development in Canada and investments in new petr
72、ochemicalfacilities.In addition,our valves are used in the process and mining industries.Flow Equipment.We provide a broad range of high pressure flow equipment used by well stimulation,or pressure pumping,companiesduring the stimulation,intervention and flowback process.Our focus is on consumable p
73、roducts that experience high rates of wear andreplacement.We design and manufacture pressure control plug,choke and relief valves,swivel joints,pup joints and integral fittings,manifolds and manifold trailers,as well as triplex and quintuplex fluid-end assemblies.Frequent refurbishment and recertifi
74、cation of flowequipment is critical to ensuring the reliable and safe operation of a pressure pumping companys fleet.We perform these services at oureight locations and operate a fleet of mobile refurbishment and recertification tractor trailers,which can deploy to the customers yard.Weserve many of
75、 the unconventional basins across North America and seek to position our stocking and service locations in proximity to ourcustomers operations.Our primary customers in the Flow Equipment product line are pressure pumping and flowback service companies,although we also generate sales to original equ
76、ipment manufacturers of pressure pumping units.In 2013,we acquired Global Tubing,LLC(Global Tubing)jointly with an equal partner,with management retaining a small interest.Global Tubing is a manufacturer of coiled tubing strings and related services.Global Tubing coiled tubing strings are consumable
77、components of coiled tubing units that perform well completion and intervention activities.Our investment in Global Tubing is reported in theProduction&Infrastructure segment using the equity method of accounting.Production Equipment.Our surface Production Equipment product line provides engineered
78、process systems and field services for capitalequipment used at the wellsite,for production processing,and at the refinery.We serve the upstream,midstream and downstreamsegments in oil and gas production equipment and services.Once a well has been drilled,completed and brought on stream,we provide t
79、hewell operator-producer with the process equipment necessary to make the oil or gas ready for transmission.We also provide desalination anddehydration equipment.We engineer,fabricate and install tanks,separators,packaged production systems and American Society ofMechanical Engineers(ASME)and Americ
80、an Petroleum Institute(API)coded and non-coded pressure vessels,skidded vessels6Table of Contents with gas measurement,modular process plants,header and manifold skids,process and flow control equipment and separators to helpclean and process oil or gas as it travels from the wellhead and along the
81、transmission line to the refinery.Our customers are principally oiland gas operators/producers,and our manufacturing and staging locations are positioned across North America to best serve the keyemerging shale and unconventional resource plays.A key to our competiveness is manufacturing tanks and p
82、ressure vessels in relatively close proximity to their location of use to reduce freightcosts,as well as helping our customers manage their production equipment needs as their drilling programs progress.We have six NorthAmerican manufacturing locations and two service centers.To ensure smooth delive
83、ry of equipment,we maintain a fleet of specializedtrucks and crews that can deliver and install the production equipment on the well site.Valve Solutions.We design,manufacture and provide a wide range of industrial valves that principally serve the upstream,midstream anddownstream markets of the oil
84、 and gas industry.To a lesser extent,our valves serve general industrial,power and process industrycustomers as well as the mining industry.We provide ball,gate,globe,check and butterfly valves across a range of sizes and applications.We market our valves to our customers and end users through our f
85、our recognized brands:PBV,DSI,Quadrant and ABZ.Much ofour production is sold through distribution supply companies,with our marketing efforts targeting end users for pull through of our products.Our global sales force and representatives cover approximately 30 countries,with local sales and distribu
86、tion in Australia,Brazil,Canadaand South Africa.Our Canadian company provides significant exposure to the heavy oil projects,while our South African affiliate serveschemical,petrochemical and refining customers.Our manufacturing and supply chain systems enable us to design and produce high-quality e
87、ngineered valves,as well as providestandardized products,while maintaining competitive pricing and minimizing capital requirements.We manufacture and warehouse ourengineered PBV ball valves at our 200,000 square foot valve manufacturing facility in Stafford,Texas and our 250,000 square foot warehous
88、ein Houston,Texas,which is also utilized by our other product lines.We also utilize our international manufacturing partners to producecomponents and completed products for a number of our other valve brands.Depending on the product,we manufacture our valves to conform to the standards of one or mor
89、e of the API,American National StandardsInstitute,American Bureau of Shipping,and International Organization for Standardization and/or other relevant standards governing thedesign and manufacture of industrial valves.Through our Valve Solutions product line,we participate in the APIs standard-setti
90、ng process.Business historyForum was formed through a series of acquisitions.Between May 2005 and August 2007,SCF Partners(SCF),a private equity firmspecializing in investments in the oilfield services sector since it was founded in 1989,acquired various entities to form each of the following:Forum
91、Oilfield Technologies,Inc.(FOT),a capital equipment provider focused on the drilling sector;Global Flow Technologies,Inc.(Global Flow),a manufacturer of industrial valves;Triton Group Holdings,LLC(Triton),a provider of products and services to theinternational offshore oil and gas industry;Allied Pr
92、oduction Services,Inc.(Allied),a provider of production equipment associated withunconventional gas and liquids developments in North America;and Subsea Services International,Inc.(Subsea),a provider of subseapipeline infield joint coatings and other applied products.In August 2010,FOT,Global Flow,T
93、riton,Allied and Subsea were combined in atransaction we refer to as the Combination.FOT became the parent company and was renamed Forum Energy Technologies,Inc.On April 17,2012,we completed our IPO.BacklogAs we provide a mix of capital goods,consumable products,repair parts,and rental services,a ma
94、jority of our business does not requirelengthy lead times.We therefore believe that the size of our backlog is mostly representative of the activity level of our capital equipmentrelated businesses.A majority of the orders and commitments included in our backlog as of December 31,2013 were scheduled
95、 to bedelivered within six months.Our backlog was approximately$395 million at December 31,2013 compared to approximately$399 million atDecember 31,2012.We can give no assurance that our level of backlog will remain at current levels.Sales of our products are affected by prices for oil and naturalga
96、s,which may fluctuate significantly.Additional future declines in oil and natural gas prices and production or additional regulatoryprovisions could reduce new customer orders,possibly causing a decline in7Table of Contents our future backlog levels.Substantially all of our projects currently includ
97、ed in our backlog are subject to change and/or termination at theoption of the customer.In the case of a change or termination,the customer is required to pay us for work performed and other costsnecessarily incurred as a result of the change or termination.In the past,terminations and cancellations
98、 have not been material to our overalloperating results.Our consumable and repair products are predominantly off-the-shelf items requiring short lead-times,generally less than six months,andour related refurbishment or other services are also not contracted with significant lead time.The composition
99、 of our backlog is reflective ofour mix of capital equipment,consumable products,aftermarket and other related items.Given this product mix in our backlog,we believethat an appropriate measure of our business ongoing activity is the level of bookings,which consist of written orders or commitments fo
100、r ourproducts or related services.Our bookings levels during the years ended December 31,2013 and 2012 were approximately$1.5 billion and$1.4 billion,respectively.CustomersNo customer represented more than 10%of consolidated revenue in any of the last three years.SeasonalityA substantial portion of
101、our business is not significantly impacted by seasonality.Generally,the fourth quarter experiences lower sales andprofitability due to a decrease in working days caused by the U.S.Thanksgiving and calendar year-end holidays.A small portion of therevenue we generate from selected Canadian operations
102、often benefits from higher first quarter activity levels,as operators take advantage ofthe winter freeze to gain access to remote drilling and production areas.We also experience some exposure to seasonality through the portionof our subsea rental business that serves the North Sea.It is customary f
103、or North Sea activity to slow down between the months ofNovember and February.Revenue exposed to this type of seasonality,however,comprised less than 5%of our overall revenue in 2013.CompetitionThe markets in which we operate are highly competitive.We compete with a number of companies,some of which
104、 have greater financialand other resources than us.The principal competitive factors in our markets are the quality,price and availability of products and servicesand a companys responsiveness to customer needs and reputation for service.We believe our products and services in each segment are atlea
105、st comparable in price,quality,performance and dependability with our competitors offerings.We seek to differentiate ourselves from ourcompetitors by providing a rapid response to the needs of our customers,a high level of customer service,and innovative productdevelopment initiatives.Some of our co
106、mpetitors expend greater amounts of money on formal research and engineering efforts than we do.We believe,however,that our product development efforts are enhanced by the investment of management time we make to improve ourcustomer service and to work with our customers on their specific product ne
107、eds and challenges.Although we have no single competitor across all of our product lines,the companies we compete with across the greatest number of ourproduct lines include Cameron International Corporation and FMC Technologies,Inc.We have no one direct competitor across all of the products and ser
108、vices within our Drilling&Subsea segment.We hold what we consider tobe market leading positions in several of our core businesses on a global basis,and we generally compete with a small number ofcompetitors.The significant competitors within our Drilling&Subsea segment include Schilling Robotics,a s
109、ubsidiary of FMC Technologies,Inc.,Cameron International Corporation,National Oilwell Varco,Inc.and Weatherford International,Ltd.We have no one direct competitor across all of the products and services within our Production&Infrastructure segment,although CameronInternational Corporation is a signi
110、ficant competitor for many of our products.Other competitors include Exterran Holdings,Inc.,FMCTechnologies,Inc.and Weir SPM,a subsidiary of The Weir Group PLC.Patents,trademarks and other intellectual propertyWe currently hold multiple U.S.and international patents and trademarks and have a number
111、of pending patent and trademark applications.Although in the aggregate our patents,trademarks and licenses are important to us,we do not regard any single patent,trademark or licenseas critical or essential to our business as a whole.8Table of Contents Raw materialsWe acquire component parts,product
112、s and raw materials from suppliers,including foundries,forge shops,and original equipmentmanufacturers.The prices we pay for our raw materials may be affected by,among other things,energy,steel and other commodity prices,tariffs and duties on imported materials and foreign currency exchange rates.Ce
113、rtain of our component parts,products or raw materials,such as bearings,are only available from a limited number of suppliers.Please see Risk factorsRisks related to our businessWe aresubject to the risk of supplier concentration.We cannot assure you that we will be able to continue to purchase raw
114、materials on a timely basis or at acceptable prices.We generally try topurchase our raw materials from multiple suppliers so we are not dependent on any one supplier,but this is not always possible.Working capitalWe fund our business operations through a combination of available cash and equivalents
115、,short-term investments,and cash flow generatedfrom operations.In addition,the revolving portion of our senior secured credit facility(Credit Facility)is available for working capital needs.For a summary of our Credit Facility,please read Managements Discussion and Analysis of Financial Condition an
116、d Results of Operations Liquidity and capital resources.InventoryAn important consideration for many of our customers in selecting a vendor is timely availability of the product.Often customers will pay apremium for earlier or immediate availability because of the cost of delays in critical operatio
117、ns.We stock our consumable products inregional warehouses around the world so that we can have these products available for our customers when needed.This availability isespecially critical for certain consumable products,causing us to carry substantial inventories for these products.For critical ca
118、pital items inwhich demand is expected to be strong,we often build certain items before we have a firm order.Our having such goods available on shortnotice can be of great value to our customers.We typically offer our customers payment terms of net 30 days.For sales into certain countries or for sel
119、ect customers,we might requirepayment upfront or credit support through a letter of credit.For longer term projects we typically require progress payments as importantmilestones are reached.On average we collect our receivables in about 60 days from shipment resulting in a substantial investment ina
120、ccounts receivable.Likewise,standard terms with our vendors are net 30 days.For critical items sourced from significant vendors we havesettled accounts more quickly,sometimes in exchange for early payment discounts.Environmental,health and safety regulationOur operations are subject to numerous stri
121、ngent and complex laws and regulations governing the discharge of materials into theenvironment,health and safety aspects of our operations,or otherwise relating to human health and environmental protection.Failure tocomply with these laws or regulations or to obtain or comply with permits may resul
122、t in the assessment of administrative,civil and criminalpenalties,imposition of remedial or corrective action requirements,and the imposition of injunctions to prohibit certain activities or forcefuture compliance.The trend in environmental regulation has been to impose increasingly stringent restri
123、ctions and limitations on activities that may impact theenvironment,and thus,any changes in environmental laws and regulations or in enforcement policies that result in more stringent andcostly waste handling,storage,transport,disposal,or remediation requirements could have a material adverse effect
124、 on our operations andfinancial position.Moreover,accidental releases or spills of regulated substances may occur in the course of our operations,and we cannotassure you that we will not incur significant costs and liabilities as a result of such releases or spills,including any third party claims f
125、ordamage to property,natural resources or persons.The following is a summary of the more significant existing environmental,health and safety laws and regulations to which our businessoperations are subject and for which compliance may have a material adverse impact on our capital expenditures,resul
126、ts of operations orfinancial position.9Table of Contents Hazardous substances and wasteThe Resource Conservation and Recovery Act(the RCRA)and comparable state statutes,regulate the generation,transportation,treatment,storage,disposal and cleanup of hazardous and non-hazardous wastes.Under the auspi
127、ces of the Environmental ProtectionAgency(the EPA),the individual states administer some or all of the provisions of the RCRA,sometimes in conjunction with their own,more stringent requirements.We are required to manage the transportation,storage and disposal of hazardous and non-hazardous wastes in
128、compliance with the RCRA.The Comprehensive Environmental Response,Compensation,and Liability Act(the CERCLA),also known as the Superfund law,imposes joint and several liability,without regard to fault or legality of conduct,on classes of persons who are considered to be responsible forthe release of
129、 a hazardous substance into the environment.These persons include the owner or operator of the site where the releaseoccurred,and anyone who disposed or arranged for the disposal of a hazardous substance released at the site.We currently own,lease,oroperate numerous properties that have been used fo
130、r manufacturing and other operations for many years.We also contract with wasteremoval services and landfills.These properties and the substances disposed or released on them may be subject to the CERCLA,RCRAand analogous state laws.Under such laws,we could be required to remove previously disposed
131、substances and wastes,remediatecontaminated property,or perform remedial operations to prevent future contamination.In addition,it is not uncommon for neighboringlandowners and other third-parties to file claims for personal injury and property damage allegedly caused by hazardous substances release
132、dinto the environment.Water dischargesThe Federal Water Pollution Control Act(the Clean Water Act)and analogous state laws impose restrictions and strict controls with respectto the discharge of pollutants,including spills and leaks of oil and other substances,into waters of the United States.The di
133、scharge ofpollutants into regulated waters is prohibited,except in accordance with the terms of a permit issued by the EPA or an analogous stateagency.A responsible party includes the owner or operator of a facility from which a discharge occurs.The Clean Water Act and analogousstate laws provide fo
134、r administrative,civil and criminal penalties for unauthorized discharges and,together with the Oil Pollution Act of 1990,impose rigorous requirements for spill prevention and response planning,as well as substantial potential liability for the costs of removal,remediation,and damages in connection
135、with any unauthorized discharges.Air emissionsThe Federal Clean Air Act(the Clean Air Act)and comparable state laws regulate emissions of various air pollutants through air emissionspermitting programs and the imposition of other emission control requirements.In addition,the EPA has developed,and co
136、ntinues todevelop,stringent regulations governing emissions of toxic air pollutants at specified sources.Non-compliance with air permits or otherrequirements of the Clean Air Act and associated state laws and regulations can result in the imposition of administrative,civil and criminalpenalties,as w
137、ell as the issuance of orders or injunctions limiting or prohibiting non-compliant operations.Climate changeIn December 2009,the EPA determined that emissions of carbon dioxide,methane and other greenhouse gases present anendangerment to public health and the environment because emissions of such ga
138、ses are,according to the EPA,contributing to warming ofthe earths atmosphere and other climatic changes.Based on these findings,the EPA has begun adopting and implementing regulations torestrict emissions of greenhouse gases under existing provisions of the Clean Air Act.The EPA adopted two sets of
139、rules regulatinggreenhouse gas emissions under the Clean Air Act,one of which requires a reduction in emissions of greenhouse gases from motorvehicles and the other of which regulates emissions of greenhouse gases from certain large stationary sources,effective January 2,2011.The EPAs rules relating
140、 to emissions of greenhouse gases from large stationary sources of emissions are currently subject to a number oflegal challenges,but the federal courts have thus far declined to issue any injunctions to prevent the EPA from implementing,or requiringstate environmental agencies to implement,the rule
141、s.The EPA has also adopted rules requiring the reporting of greenhouse gas emissionsfrom specified large greenhouse gas emission sources in the U.S.In addition,the U.S.Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases and almostone-half of the sta
142、tes have already taken legal measures to reduce emissions of greenhouse gases primarily through the planneddevelopment of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs.Most of these cap and tradeprograms work by requiring major sources of emissions,such as
143、 electric power plants,or major producers of fuels,such as refineries andgas processing plants,to acquire and10Table of Contents surrender emission allowances.The number of allowances available for purchase is reduced each year in an effort to achieve the overallgreenhouse gas emission reduction goa
144、l.The adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased operatingcosts,such as costs to purchase and operate emissions control systems,to acquire emissions allowances or comply with new regulatory orreporting requirements.Any s
145、uch legislation or regulatory programs could also increase the cost of consuming,and thereby reduce demandfor,the oil and natural gas produced by our customers.Consequently,legislation and regulatory programs to reduce emissions ofgreenhouse gases could have an adverse effect on our business,financi
146、al condition and results of operations.Finally,it should be noted thatsome scientists have concluded that increasing concentrations of greenhouse gases in the earths atmosphere may produce climate changesthat have significant physical effects,such as increased frequency and severity of storms,drough
147、ts,and floods and other climatic events.Ifany such effects were to occur,they could have an adverse effect on our business,financial condition,results of operations and cash flow.Hydraulic fracturingA significant percentage of our customers oil and natural gas production is being developed from unco
148、nventional sources,such ashydrocarbon shales.These formations require hydraulic fracturing completion processes to release the oil or natural gas from the rock so thatit can flow through the formations.Hydraulic fracturing involves the injection of water,sand and chemicals under pressure into the fo
149、rmationto stimulate production.A number of federal agencies,including the EPA and the U.S.Department of Energy,are analyzing,or have beenrequested to review,a variety of environmental issues associated with shale development,including hydraulic fracturing.Along these lines,on May 16,2013,the Bureau
150、of Land Management(the BLM)issued a proposed rule that would require the public disclosure of chemicalsused in hydraulic fracturing operations,set requirements for well-bore integrity and establish flowback water standards for all hydraulicfracturing operations on federal public lands and American I
151、ndian Tribal lands.In addition,the EPA has asserted federal regulatory authorityover hydraulic fracturing involving diesel additives under the Safe Drinking Water Acts Underground Injection Control Program and hasbegun the process of drafting guidance documents related to this assertion of regulator
152、y authority.Further,some states and municipalitieshave adopted,and other states and municipalities are considering adopting,regulations that could prohibit hydraulic fracturing in certainareas or impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operation
153、s.At the same time,certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulicfracturing process,and legislation has been proposed by some members of Congress to provide for such regulation.We cannot predictwhether any such legi
154、slation will ever be enacted and if so,what its provisions would be.If additional levels of regulation and permits wererequired through the adoption of new laws and regulations at the federal or state level,that could lead to delays,increased operating costs andprocess prohibitions for our customers
155、 that could reduce demand for our products and services,which would materially adversely affect ourrevenues,results of operations and cash flow.Employee health and safetyWe are subject to a number of federal and state laws and regulations,including the federal Occupational Safety and Health Act(OSHA
156、)andcomparable state statutes,establishing requirements to protect the health and safety of workers.In addition,the OSHA hazardcommunication standard,the EPA community right-to-know regulations under Title III of the federal Superfund Amendment andReauthorization Act and comparable state statutes re
157、quire that information be maintained concerning hazardous materials used or producedin our operations and that this information be provided to employees,state and local government authorities and the public.Substantial finesand penalties can be imposed and orders or injunctions limiting or prohibiti
158、ng certain operations may be issued in connection with any failureto comply with laws and regulations relating to worker health and safety.We also operate in non-U.S.jurisdictions,which may impose similar liabilities against us.11Table of Contents Offshore regulationEvents in recent years have heigh
159、tened environmental and regulatory concerns about the offshore oil and natural gas industry.From time totime,governing bodies may propose and have enacted legislation or regulations that may materially limit or prohibit offshore drilling incertain areas.If laws are enacted or other governmental acti
160、on is taken that delay,restrict or prohibit offshore operations in our customersexpected areas of operation,our business could be materially adversely affected.New or newly interpreted regulations and other regulatoryinitiatives by U.S.governmental agencies have created significant uncertainty regar
161、ding the outlook of offshore activity in the U.S.Gulf ofMexico and possible implications for regions outside of the U.S.Gulf of Mexico.Third party challenges to industry operations in the U.S.Gulfof Mexico may also serve to further delay or restrict activities.If the new regulations,operating proced
162、ures and possibility of increased legalliability are viewed by our current or future customers as a significant impairment to expected profitability on projects,then they coulddiscontinue or curtail their offshore operations thereby reducing demand for our offshore products and services.Operating ri
163、sk and insuranceWe maintain insurance coverage of types and amounts that we believe to be customary and reasonable for companies of our size and withsimilar operations.In accordance with industry practice,however,we do not maintain insurance coverage against all of the operating risks towhich our bu
164、siness is exposed.Therefore,there is a risk our insurance program may not be sufficient to cover any particular loss or alllosses.Currently,our insurance program includes,among other things,general liability,umbrella liability,sudden and accidental pollution,personal property,vehicle,workers compens
165、ation,and employers liability coverage.EmployeesAs of December 31,2013,we had approximately 3,500 employees.Of our total employees,approximately 2,600 were in the United States,550 were in the United Kingdom,150 were in Canada and 200 were in other locations.We are not a party to any collective barg
166、ainingagreements,other than in our Hamburg,Germany and Monterrey,Mexico facilities,and we consider our relations with our employees to besatisfactory.Item 1A.Risk FactorsRisks related to our businessWe derive a substantial portion of our revenues from companies in or affiliated with the oil and natu
167、ral gas industry,ahistorically cyclical industry,with levels of activity that are significantly affected by the levels and volatility of oil and naturalgas prices.As a result,this cyclicality may cause fluctuations in our revenues and results of our operations.We have experienced,and expect to conti
168、nue to experience,fluctuations in revenues and operating results due to economic and businesscycles.The willingness of oil and natural gas operators to make capital expenditures to explore for and produce oil and natural gas,thewillingness of oilfield service companies to invest in capital equipment
169、 and the need of these customers to replenish consumable partsdepends largely upon prevailing industry conditions that are influenced by numerous factors over which we have no control.Such factorsinclude:the supply of and demand for oil and natural gas;the level of prices,and expectations about futu
170、re prices,of oil and natural gas;the cost of exploring for,developing,producing and delivering oil and natural gas;the level of drilling activity and drilling day rates;the expected decline rates of current and future production;the discovery rates of new oil and natural gas reserves;the ability of
171、our customers to access new markets or areas of production or to continue to access current markets;weather conditions,including hurricanes,that can affect oil and natural gas operations over a wide area;more stringent restrictions in environmental regulation on activities that may impact the enviro
172、nment;moratoriums on drilling activity resulting in a cessation or disruption of operations;domestic and worldwide economic conditions;political instability in oil and natural gas producing countries;12Table of Contents conservation measures and technological advances affecting energy consumption;th
173、e price and availability of alternative fuels;andmerger and divestiture activity among oil and natural gas producers and drilling contractors.A prolonged reduction in the overall level of exploration and development activities,or a reduction in activity in certain areas such as weexperienced when la
174、nd based drilling activity in the U.S.decreased due to low natural gas prices,whether resulting from changes in oil andnatural gas prices or otherwise,could adversely impact our business in many ways by negatively affecting:revenues,cash flows,and profitability;the ability to maintain or increase bo
175、rrowing capacity;the ability to obtain additional capital to finance our business and the cost of that capital;andthe ability to attract and retain skilled personnel needed in the event of an upturn in the demand for services.Our inability to control the inherent risks of acquiring and integrating b
176、usinesses could disrupt our business and adverselyaffect our operating results going forward.We continuously evaluate acquisitions and dispositions and may elect to acquire or dispose of assets in the future.These activities maydistract management from day-to-day tasks.Acquisitions involve numerous
177、risks,including:unanticipated costs and exposure to unforeseen liabilities;difficulty in integrating the operations and assets of the acquired businesses;potential loss of key employees and customers of the acquired company;potential inability to properly establish and maintain effective internal co
178、ntrol over an acquired company;andrisk of entering markets in which we have limited prior experience.Achieving the anticipated or desired benefits of our recent or potential future acquisitions will depend,in part,upon whether the integration ofthe various businesses,products,services,technology and
179、 employees is accomplished in an efficient and effective manner.There can be noassurance that we will obtain these anticipated or desired benefits of our past or future acquisitions,and if we fail to manage these riskssuccessfully,our results of operations could be adversely affected.Our failure to
180、achieve consolidation savings,to incorporate the acquired businesses and assets into our existing operations successfully or tominimize any unforeseen operational difficulties could have a material adverse effect on our business.In addition,we may incur liabilitiesarising from events prior to the ac
181、quisition or prior to our establishment of adequate compliance oversight.While we generally seek to obtainindemnities for liabilities for events occurring before such acquisitions,these are limited in amount and duration or may be held to beunenforceable or the seller may not be able to indemnify us
182、.We may also incur indebtedness or issue additional equity securities to financefuture acquisitions.Debt service requirements could represent a burden on our results of operations and financial condition and the issuanceof additional equity securities could be dilutive to our existing stockholders.I
183、n addition,we may dispose of assets or products that investorsmay consider beneficial to us.Our operating history may not be sufficient for investors to evaluate our business and prospects.We are a recently combined company with a short combined operating history.In addition,we have completed a numb
184、er of acquisitions sincethe Combination in August 2010.These factors may make it more difficult for investors to evaluate our business and prospects and toforecast our future operating results.As a result,the historical financial data may not give you an accurate indication of what our actual result
185、swould have been if the Combination or the subsequent acquisitions had been completed at the beginning of the periods presented or of whatour future results of operations are likely to be.Our future results will depend on our ability to efficiently manage our combined operationsand execute our busin
186、ess strategy.If we cannot continue operating our manufacturing facilities at current levels,our results of operations could be adverselyaffected.We operate a number of manufacturing facilities.The equipment and management systems necessary for such operations may break down,perform poorly or fail,re
187、sulting in fluctuations in manufacturing efficiencies.Such fluctuations may affect our ability to deliver products to ourcustomers on a timely basis.13Table of Contents Growing our business organically through the expansion of our existing product lines and facilities subjects us to risks ofconstruc
188、tion delays and cost overruns.One of the ways that we grow our businesses is through the construction of new facilities and expansions to our existing facilities.Theseprojects,and any other capital asset construction projects which we may commence,are subject to similar risks of delay or cost overru
189、ninherent in any construction project resulting from numerous factors,including the following:difficulties or delays in obtaining land;shortages of key equipment,materials or skilled labor;unscheduled delays in the delivery of ordered materials and equipment;unanticipated cost increases;weather inte
190、rferences;anddifficulties in obtaining necessary permits or in meeting permit conditions.We may be unable to employ a sufficient number of skilled and qualified workers.The delivery of our products and services requires personnel with specialized skills and experience.Our ability to be productive an
191、d profitabledepends upon our ability to employ and retain skilled workers.In addition,our ability to expand our operations depends in part on our abilityto increase the size of our skilled labor force.The demand for skilled workers is high,the supply is limited and the cost to attract and retainqual
192、ified personnel has increased over the past few years.For example,we have experienced shortages of drilling rig equipment engineers,software engineers,mechanical assemblers,machinists and code welders,which,in some instances,has slowed the productivity of certainof our operations.Furthermore,a signi
193、ficant increase in the wages paid by competing employers could result in a reduction of our skilledlabor force,increases in the wage rates that we must pay,or both.If any of these events were to occur,our capacity and profitability could bediminished,our ability to respond quickly to customer demand
194、s or strong market conditions may be inhibited and our growth potential couldbe impaired.A portion of our business is driven by spending on capital equipment such as drilling rigs.Over the last several years,therehave been high levels of spending on capital equipment.These high levels of investment
195、may not be sustainable over time,and,in some cases such as with land rigs,the pace of investment has slowed.In various segments of the energy industry there have been high levels of demand for construction of capital intensive equipment,some ofwhich has a long life once introduced into the industry.
196、High levels of investment can produce excess supply of equipment for many years,reducing dayrates and undermining the economics for new capital equipment orders.When these levels of activity fall,an increasedcompetitive environment for capital equipment can result,which could lead to lower prices an
197、d utilization for our customers and a decreaseddemand for capital equipment products.For example,starting in the second half of 2012 we saw spending levels on land drilling rigsdecrease relative to the pace of investment in the previous two years due to lower drilling activity.This resulted in lower
198、 revenues for us fromboth capital equipment orders and consumables in 2012 and 2013.Our strategy is to serve a variety of segments and spend cycles,but tothe extent our financial results are impacted by capital equipment construction,our results may decline should an excess supply of capitalequipmen
199、t materialize.In addition,our competitors may increase their manufacturing capacity,which would lead to even greater competitionin times of reduced demand.Our business depends upon our ability to obtain key raw materials and specialized equipment from suppliers.Increased costsof raw materials and ot
200、her components may result in increased operating expenses.Should our current suppliers be unable to provide the necessary raw materials or finished products or otherwise fail to deliver such materialsand products timely and in the quantities required,resulting delays in the provision of products or
201、services to customers could have amaterial adverse effect on our business.In particular,because many of our products are manufactured out of steel,we are particularlysusceptible to fluctuations in steel prices.Our results of operations may be adversely affected by our inability to manage the rising
202、costs andavailability of raw materials and components used in our products.14Table of Contents If suppliers cannot provide adequate quantities of materials to meet customers demands on a timely basis or if the quality ofthe materials provided does not meet established standards,we may lose customers
203、 or experience lower profitability.Some of our customer contracts require us to compensate customers if we do not meet specified delivery obligations.We expect to rely onnumerous suppliers to provide required materials and in many instances these materials must meet certain specifications.Managing a
204、geographically diverse supply base inherently poses significant logistical challenges.Furthermore,the ability of third party suppliers to delivermaterials to our specifications may be affected by events beyond our control.As a result,there is a risk that we could experience diminishedsupplier perfor
205、mance resulting in longer than expected lead times and/or product quality issues.For example,we have in the pastexperienced issues with the quality of certain forgings used to produce materials that are used in our products.As a result,we were requiredto seek alternative suppliers for those forgings
206、,which resulted in increased costs and a disruption in our supply chain.We have also beenrequired in certain circumstances to provide better economic terms to some of our suppliers in exchange for their agreement to increase theircapacity to satisfy our supply needs.The occurrence of any of the fore
207、going factors could have a negative impact on our ability to deliverproducts to customers within committed time frames.We are subject to the risk of supplier concentration.Certain of our product lines depend on a limited number of third party suppliers and vendors.As a result of this concentration i
208、n some of oursupply chains,our business and operations could be negatively affected if our key suppliers were to experience significant disruptionsaffecting the price,quality,availability or timely delivery of their products.For example,we have a limited number of vendors for our bearingsproduct lin
209、es.The partial or complete loss of any one of our key suppliers,or a significant adverse change in the relationship with any ofthese suppliers,through consolidation or otherwise,would limit our ability to manufacture and sell certain of our products.Our operations and our customers operations are su
210、bject to a variety of governmental laws and regulations that may increaseour and our customers costs,prohibit or curtail our customers operations in certain areas,limit the demand for our productsand services or restrict our operations.Our business and our customers businesses may be significantly a
211、ffected by:federal,state and local and non-U.S.laws and other regulations relating to oilfield operations,worker safety and protection of theenvironment;changes in these laws and regulations;andthe level of enforcement of these laws and regulations.In addition,we depend on the demand for our product
212、s and services from the oil and gas industry.This demand is affected by changingtaxes,price controls and other laws and regulations relating to the oil and gas industry in general.For example,the adoption of laws andregulations curtailing exploration and development drilling for oil and gas for econ
213、omic or other policy reasons could adversely affect ouroperations by limiting demand for our products.In addition,some non-U.S.countries may adopt regulations or practices that provide anadvantage to indigenous oil companies in bidding for oil leases,or require indigenous companies to perform oilfie
214、ld services currentlysupplied by international service companies.To the extent that such companies are not our customers,or we are unable to developrelationships with them,our business may suffer.We cannot determine the extent to which our future operations and earnings may beaffected by new legisla
215、tion,new regulations or changes in existing regulations.Because of our non-U.S.operations and sales,we are also subject to changes in non-U.S.laws and regulations that may encourage orrequire hiring of local contractors or require non-U.S.contractors to employ citizens of,or purchase supplies from,a
216、 particular jurisdiction.Ifwe fail to comply with any applicable law or regulation,our business,results of operations or financial condition may be adversely affected.If we are unable to accurately predict customer demand or if customers cancel their orders on short notice,we may holdexcess or obsol
217、ete inventory,which would reduce gross margins.Conversely,insufficient inventory would result in lostrevenue opportunities and,potentially,in loss of market share and damaged customer relationships.Customers can generally cancel or defer purchase orders on short notice without incurring a significan
218、t penalty.As a result,we cannotaccurately predict what or how many products such customers will need in the future.Anticipating15Table of Contents demand is difficult because our customers face unpredictable demand for their own products and are increasingly focused on cashpreservation and tighter i
219、nventory management.Orders are placed with our suppliers based on forecasts of customer demand and,in some instances,we may establish buffer inventories toaccommodate anticipated demand.For example,at certain times,we have built capital equipment before receiving customer orders,and wekept our stand
220、ardized downhole protection systems and certain of our flow iron products in stock and readily available for delivery on shortnotice from customers.Our forecasts of customer demand are based on multiple assumptions,each of which may introduce errors into theestimates.In addition,many of our supplier
221、s,such as those for certain of our standardized valves,require a longer lead time to provideproducts than our customers demand for delivery of our finished products.If we overestimate customer demand,we may allocate resourcesto the purchase of material or manufactured products that we may not be abl
222、e to sell when we expect to,if at all.As a result,we would holdexcess or obsolete inventory,which would reduce gross margin and adversely affect financial results.Conversely,if we underestimatecustomer demand or if insufficient manufacturing capacity is available,we would miss revenue opportunities
223、and potentially lose marketshare and damage our customer relationships.In addition,any future significant cancellations or deferrals of product orders or the return ofpreviously sold products could materially and adversely affect profit margins,increase product obsolescence and restrict our ability
224、to fund ouroperations.The markets in which we operate are highly competitive,and some of our competitors hold substantial market share and havesubstantially greater resources than we do.We may not be able to compete successfully in this environment and,in particular,against a much larger competitor.
225、The markets in which we operate are highly competitive and our products and services are subject to competition from significantly largerbusinesses.One competitor in particular holds substantial market share in our largest product lines market and has substantially greaterresources than we do.We als
226、o have several other competitors that are large national and multinational companies that have longer operatinghistories,greater financial,technical and other resources and greater name recognition than we do.Some of our competitors may be able torespond more quickly to new or emerging technologies
227、and services and changes in customer requirements.In addition,several of ourcompetitors provide a much broader array of services,and have a stronger presence in more geographic markets.Our larger competitorsmay be able to use their size and purchasing power to seek economies of scale and pricing con
228、cessions.Furthermore,some of ourcustomers are also our competitors and they may cease buying from us.We also have competitors outside of the United States with lowerstructural costs due to labor and raw material cost in and around their manufacturing centers.New competitors could also enter the mark
229、ets in which we compete.We consider product quality,performance,price,distribution capabilitiesand breadth of product offerings to be the primary competitive factors.Competitors may be able to offer more attractive pricing,duplicatestrategies,or develop enhancements to products that could offer perf
230、ormance features that are superior to our products.In addition,we maynot be able to retain key employees of entities that we acquire in the future and those employees may choose to compete against us.Competitive pressures,including those described above,and other factors could adversely affect our c
231、ompetitive position,resulting in a lossof market share or decreases in prices.In addition,some competitors are based in foreign countries and have cost structures and pricesbased on foreign currencies.Accordingly,currency fluctuations could cause U.S.dollar-priced products to be less competitive tha
232、n ourcompetitors products that are priced in other currencies.For more information about our competitors,please read Business-Competition.Our products are used in operations that are subject to potential hazards inherent in the oil and gas industry and,as a result,we are exposed to potential liabili
233、ties that may affect our financial condition and reputation.Our products are used in potentially hazardous drilling,completion and production applications in the oil and gas industry where an accidentor a failure of a product can potentially have catastrophic consequences.Risks inherent to these app
234、lications,such as equipmentmalfunctions and failures,equipment misuse and defects,explosions,blowouts and uncontrollable flows of oil,natural gas or well fluids andnatural disasters,on land or in deepwater or shallow-water environments,can cause personal injury,loss of life,suspension of operations,
235、damage to formations,damage to facilities,business interruption and damage to or destruction of property,surface water and drinking waterresources,equipment and the environment.In addition,we provide certain services that could cause,contribute to or be implicated in theseevents.If our products or s
236、ervices fail to meet specifications or are involved in accidents or failures,we could face warranty,contract or otherlitigation claims,which could expose us to substantial liability for personal injury,wrongful death,property damage,loss of oil and gasproduction,pollution and other environmental dam
237、ages.Our insurance policies may not be adequate to cover all liabilities.Further,insurance may not be generally16Table of Contents available in the future or,if available,insurance premiums may make such insurance commercially unjustifiable.Moreover,even if we aresuccessful in defending a claim,it c
238、ould be time-consuming and costly to defend.In addition,the frequency and severity of such incidents will affect operating costs,insurability and relationships with customers,employeesand regulators.In particular,our customers may elect not to purchase our services if they view our safety record as
239、unacceptable,which couldcause us to lose customers and substantial revenues.In addition,these risks may be greater for us because we may acquire companies thathave not allocated significant resources and management focus to safety and have a poor safety record requiring rehabilitative efforts during
240、the integration process and we may incur liabilities for losses before such rehabilitation occurs.Our operations are subject to environmental and operational safety laws and regulations that may expose us to significantcosts and liabilities.Our operations are subject to numerous stringent and comple
241、x laws and regulations governing the discharge of materials into theenvironment,health and safety aspects of our operations,or otherwise relating to human health and environmental protection.These lawsand regulations may,among other things,regulate the management and disposal of hazardous and nonhaz
242、ardous wastes;requireacquisition of environmental permits related to our operations;restrict the types,quantities,and concentrations of various materials that canbe released into the environment;limit or prohibit operational activities in certain ecologically sensitive and other protected areas;regu
243、latespecific health and safety criteria addressing worker protection;require compliance with operational and equipment standards;imposetesting,reporting and recordkeeping requirements;and require remedial measures to mitigate pollution from former and ongoing operations.Failure to comply with these
244、laws and regulations or to obtain or comply with permits may result in the assessment of administrative,civiland criminal penalties,imposition of remedial or corrective action requirements and the imposition of injunctions to prohibit certain activitiesor force future compliance.Certain environmenta
245、l laws may impose joint and several liability,without regard to fault or legality of conduct,onclasses of persons who are considered to be responsible for the release of a hazardous substance into the environment.In addition,theserisks may be greater for us because the companies we acquire or have a
246、cquired may not have allocated sufficient resources andmanagement focus to environmental compliance,potentially requiring rehabilitative efforts during the integration process or exposing us toliability before such rehabilitation occurs.The trend in environmental regulation has been to impose increa
247、singly stringent restrictions and limitations on activities that may impact theenvironment.The implementation of new laws and regulations could result in materially increased costs,stricter standards andenforcement,larger fines and liability and increased capital expenditures and operating costs,par
248、ticularly for our customers.We may incur liabilities,fines,penalties or additional costs,or we may be unable to sell to certain customers if we do notmaintain safe operations.If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities we may incur fines,p
249、enalties or otherliabilities,or may be held criminally liable.We may incur additional costs to upgrade equipment or conduct additional training,or otherwiseincur costs in connection with compliance with safety regulations.Failure to maintain safe operations or achieve certain safety performancemetri
250、cs could disqualify us from doing business with certain customers,particularly major oil companies.Our executive officers and certain key personnel are critical to our business and these officers and key personnel may notremain with us in the future.Our future success depends in substantial part on
251、our ability to hire and retain our executive officers and other key personnel.In particular,we are highly dependent on certain of our executive officers,including our Chairman,President and Chief Executive Officer,C.ChristopherGaut.These individuals possess extensive expertise,talent and leadership,
252、and they are critical to our success.The diminution or loss of theservices of these individuals,or other integral key personnel affiliated with entities that we acquire in the future,could have a materialadverse effect on our business.Furthermore,we may not be able to enforce all of the provisions i
253、n any employment agreement we haveentered into with certain of our executive officers and such employment agreements may not otherwise be effective in retaining suchindividuals.In addition,we may not be able to retain key employees of entities that we acquire in the future.This may impact our abilit
254、y tosuccessfully integrate or operate the assets we acquire.17Table of Contents The industry in which we operate is undergoing continuing consolidation that may impact results of operations.Some of our largest customers have consolidated and are using their size and purchasing power to achieve econo
255、mies of scale and pricingconcessions.This consolidation may result in reduced capital spending by such customers or the acquisition of one or more of our otherprimary customers,which may lead to decreased demand for our products and services.If we cannot maintain sales levels for customersthat have
256、consolidated or replace such revenues with increased business activities from other customers,this consolidation activity couldhave a significant negative impact on results of operations or financial condition.We are unable to predict what effect consolidations in theindustries may have on prices,ca
257、pital spending by customers,selling strategies,competitive position,ability to retain customers or ability tonegotiate favorable agreements with customers.If we are unable to continue operating successfully overseas or to successfully expand into new international markets,ourrevenues may decrease.Fo
258、r the year ended December 31,2013,we derived approximately 40%of our revenue from sales outside the United States(based onproduct destination).In addition,one of our key growth strategies is to market products in international markets.We may not succeed inmarketing,developing a recognized brand,sell
259、ing,distributing products and generating revenues in these new international markets.Our non-U.S.operations will subject us to special risks.We are subject to various risks inherent in conducting business operations in locations outside of the United States.These risks may includechanges in regional
260、,political or economic conditions,local laws and policies,including taxes,trade protection measures,and unexpectedchanges in regulatory requirements governing the operations of companies that operate outside of the United States.In addition,if a disputearises from international operations,courts out
261、side of the United States may have exclusive jurisdiction over the dispute,or we may not beable to subject persons outside of the United States to the jurisdiction of U.S.courts.Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could have an adverse
262、effect on our results of operations.From time to time,fluctuations in currency exchange rates could be material to us depending upon,among other things,our manufacturinglocations and the sourcing for our raw materials and components.In particular,we are sensitive to fluctuations in currency exchange
263、 ratesbetween the United States dollar and each of the Canadian dollar,the British pound sterling,and,to a lesser degree,the Mexican Peso,theEuro,the Chinese Yuan and the Singapore dollar.There may be instances in which costs and revenue will not be matched with respect tocurrency denomination.As a
264、result,to the extent that we continue our expansion on a global basis,management expects that increasingportions of revenue,costs,assets and liabilities will be subject to fluctuations in foreign currency valuations.We may experience economicloss and a negative impact on earnings or net assets solel
265、y as a result of foreign currency exchange rate fluctuations.Further,the markets inwhich we operate could restrict the removal or conversion of the local or foreign currency,resulting in our inability to hedge against theserisks.Our business operations in countries outside of the United States are s
266、ubject to a number of U.S.federal laws and regulations,including restrictions imposed by the United States Foreign Corrupt Practices Act as well as trade sanctions administered bythe Office of Foreign Assets Control and the Commerce Department.Local laws and customs in many countries differ signific
267、antly from those in the United States.In many countries,particularly in those withdeveloping economies,it is common to engage in business practices that are prohibited by the regulations applicable to us.The United StatesForeign Corrupt Practices Act(FCPA)and similar anti-bribery laws in other juris
268、dictions,including the UK Bribery Act 2010,prohibitcorporations and individuals,including us and our employees,from engaging in certain activities to obtain or retain business or to influence aperson working in an official capacity.We are responsible for any violations by our employees,contractors a
269、nd agents,whether based withinor outside of the United States,for violations of the FCPA.We may also be held responsible for any violations by an acquired company thatoccur prior to an acquisition,or subsequent to the acquisition but before we are able to institute our compliance procedures.In addit
270、ion,ournon-U.S.competitors that are not subject to the FCPA or similar laws may be able to secure business or other preferential treatment in suchcountries by means that such laws prohibit with respect to us.The UK Bribery Act 2010 is broader in scope than the FCPA and applies topublic and private s
271、ector corruption and contains no facilitating payments exception.A violation of any of these laws,even if prohibited by ourpolicies,could have a material adverse effect on our business.Actual or alleged violations could damage our reputation,be expensive todefend,and impair our ability to do busines
272、s.18Table of Contents Compliance with U.S.regulations on trade sanctions and embargoes administered by the United States Department of the Treasurys Officeof Foreign Assets Control(OFAC)also poses a risk to us.We cannot provide products or services to certain countries subject to U.S.tradesanctions.
273、Furthermore,the laws and regulations concerning import activity,export recordkeeping and reporting,export control and economicsanctions are complex and constantly changing.Any failure to comply with applicable legal and regulatory trading obligations could result incriminal and civil penalties and s
274、anctions,such as fines,imprisonment,debarment from governmental contracts,seizure of shipments andloss of import and export privileges.Unionization efforts and labor regulations in certain areas in which we operate could materially increase our costs or limit ourflexibility.We are not a party to any
275、 collective bargaining agreements,other than in our Monterrey,Mexico and Hamburg,Germany facilities.Weoperate in certain states within the United States and in international areas that have a history of unionization and we may become thesubject of a unionization campaign.If some or all of our workfo
276、rce were to become unionized and collective bargaining agreement terms,including any renegotiation of our Monterrey,Mexico and Hamburg,Germany collective bargaining agreements,were significantly differentfrom our current compensation arrangements or work practices,our costs could be increased,our fl
277、exibility in terms of work schedules andreductions in force could be limited,and we could be subject to strikes or work slowdowns among other things.We may incur liabilities to customers as a result of warranty claims.We provide warranties as to the proper operation and conformance to specifications
278、 of the products we manufacture or install.Failure of ourproducts to operate properly or to meet specifications may increase costs by requiring additional engineering resources and services,replacement of parts and equipment or monetary reimbursement to a customer.We have in the past received warran
279、ty claims,and weexpect to continue to receive them in the future.To the extent that we incur substantial warranty claims in any period,our reputation,ability toobtain future business and earnings could be adversely affected.We are subject to litigation risks that may not be covered by insurance.In t
280、he ordinary course of business,we become the subject of various claims,lawsuits and administrative proceedings seeking damages orother remedies concerning our commercial operations,products,employees and other matters,including occasional claims by individualsalleging exposure to hazardous materials
281、 as a result of our products or operations.Some of these claims relate to the activities of businessesthat we have acquired,even though these activities may have occurred prior to our acquisition of such businesses.Our insurance does notcover all of our potential losses,and we are subject to various
282、 self-insured retentions and deductibles under our insurance.A judgment maybe rendered against us in cases in which we could be uninsured or beyond the amounts that we currently have reserved or anticipateincurring for such matters.The number and cost of our current and future asbestos claims could
283、be substantially higher than we have estimated and thetiming of payment of claims could be sooner than we have estimated.One of our subsidiaries has been and continues to be named as a defendant in asbestos related product liability actions.The actual amountsexpended on asbestos-related claims in an
284、y year may be impacted by the number of claims filed,the nature of the allegations asserted in theclaims,the jurisdictions in which claims are filed,and the number of settlements.As of December 31,2013,our subsidiary had a recordedliability of$250,000 for the estimated indemnity cost associated with
285、 the resolution of its current open claims and future claims anticipated tobe filed during the next five years.Due to a number of uncertainties that may result in significant changes in the current estimate,the actual costs of resolving these pendingclaims could be substantially higher than the curr
286、ent estimate.Among these are uncertainties as to the ultimate number and type of claimsfiled,the amounts of claim costs,the impact of bankruptcies of other companies with asbestos claims or of our insurers,and potentiallegislative changes and uncertainties surrounding the litigation process from jur
287、isdiction to jurisdiction and from case to case.In addition,future claims beyond the five-year forecast period are possible,but the accrual does not cover losses that may arise from such additionalfuture claims.Therefore,any such future claims could result in a loss.Significant costs are incurred in
288、 defending asbestos claims and these costs are recorded at the time incurred.Receipt of reimbursement fromour insurers may be delayed for a variety of reasons.In particular,if our primary insurers claim that certain policy limits have beenexhausted,we may be delayed in receiving reimbursement as a r
289、esult of the19Table of Contents transition from one set of insurers to another.Our excess insurers may also dispute the claims of exhaustion,or may rely on certain policyrequirements to delay or deny claims.Furthermore,the various per occurrence and aggregate limits in different insurance policies m
290、ay resultin extended negotiations or the denial of reimbursement for particular claims.For more information on the cost sharing agreements related tothis risk,please read BusinessLegal proceedings.If we fail to maintain an effective system of internal control,we may not be able to accurately report
291、our financial results orprevent fraud.Effective internal control over financial processes and reporting are necessary for us to provide reliable financial reports and effectively preventfraud and to operate successfully.Our efforts to maintain internal control systems may not be successful.In additi
292、on,the entities that weacquire in the future may not maintain effective systems of internal control or we may encounter difficulties integrating our system of internalcontrol with those of acquired entities.If we are unable to maintain effective internal control and,as a result,fail to provide relia
293、ble financialreports and effectively prevent fraud,our reputation and operating results would be harmed.We may be impacted by disruptions in the political,regulatory,economic and social conditions of the foreign countries in whichwe are expected to conduct business.Instability and unforeseen changes
294、 in the international markets in which we conduct business,including economically and politically volatileareas such as North Africa,the Middle East,Latin America and the Asia Pacific region,could cause or contribute to factors that could have anadverse effect on the demand for the products and serv
295、ices we provide.For example,we have previously transferred management andoperations from certain Latin American countries,due to the presence of political turmoil,to other countries in the region that are morepolitically stable.In addition,worldwide political,economic,and military events have contri
296、buted to oil and natural gas price volatility and are likely to continueto do so in the future.Depending on the market prices of oil and natural gas,oil and natural gas exploration and development companiesmay cancel or curtail their drilling programs,thereby reducing demand for our products and ser
297、vices.Climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs orreduce demand for our products.Environmental advocacy groups and regulatory agencies in the United States and other countries have focused considerable attention on theemiss
298、ions of carbon dioxide,methane and other greenhouse gases and their potential role in climate change.The Environmental ProtectionAgency(the EPA)has already begun to regulate greenhouse gas emissions under the federal Clean Air Act.The adoption of additionallegislation or regulatory programs to reduc
299、e emissions of greenhouse gases could require us to incur increased operating costs to complywith new emissions-reduction or reporting requirements.Any such legislation or regulatory programs could also increase the cost ofconsuming,and thereby reduce demand for,hydrocarbons that our customers produ
300、ce.Consequently,legislation and regulatory programs toreduce emissions of greenhouse gases could have an adverse effect on our business,financial condition and results of operations.Finally,some scientists have concluded that increasing concentrations of greenhouse gases in the Earths atmosphere may
301、 produce climate changesthat have significant physical effects,such as increased frequency and severity of storms,droughts,and floods and other climatic events.Adverse weather conditions adversely affect demand for services and operations.Adverse weather conditions,such as hurricanes,tornadoes,ice o
302、r snow may damage or destroy our facilities,interrupt or curtail ouroperations,or our customers operations,cause supply disruptions and result in a loss of revenue,which may or may not be insured.Forexample,certain of our facilities located in Oklahoma and Pennsylvania have experienced suspensions i
303、n operations due to tornado activityor extreme cold weather conditions.A natural disaster,catastrophe or other event could result in severe property damage,which could curtail our operations.Some of our operations involve risks of,among other things,property damage,which could curtail our operations
304、.For example,disruptionsin operations or damage to a manufacturing plant could reduce our ability to produce products and satisfy customer demand.In particular,wehave offices and manufacturing facilities in Houston,Texas,and in various places throughout the U.S.Gulf Coast region.These offices andfac
305、ilities are particularly susceptible to severe tropical storms and hurricanes,which may disrupt our operations.If one or moremanufacturing facilities we own are20Table of Contents damaged by severe weather or any other disaster,accident,catastrophe or event,our operations could be significantly inte
306、rrupted.Similarinterruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants or otherstoppages arising from factors beyond our control.These interruptions might involve significant damage to,among other things,property andrepairs
307、might take from a week or less for a minor incident to many months or more for a major interruption.Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.Hydraulic fracturing is an important and common practice in the oil and gas indust
308、ry,which involves the injection of water,sand andchemicals under pressure into a formation to fracture the surrounding rock and stimulate production of hydrocarbons.Certain environmentaladvocacy groups have suggested that additional federal,state and local laws and regulations may be needed to more
309、closely regulate thehydraulic fracturing process,and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking waterresources.Various governmental entities(within and outside the United States)are in the process of studying,restricting,regulating orpreparing to
310、regulate hydraulic fracturing,directly or indirectly.For example,the EPA has already begun to regulate certain hydraulicfracturing operations involving diesel under the auspices of the Underground Injection Control Program under the federal Safe DrinkingWater Act,and is conducting a study to determi
311、ne if additional regulation of hydraulic fracturing is warranted.Likewise,the Department of theInteriors Bureau of Land Management has proposed new regulations of hydraulic fracturing activities conducted on federal and tribal lands.The adoption of legislation or regulatory programs that restrict hy
312、draulic fracturing could adversely affect,reduce or delay well drilling andcompletion activities,increase the cost of drilling and production,and thereby reduce demand for our products and services.Compliance with government regulations regarding the use of conflict minerals may result in increased
313、costs and risks tous.As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010(Dodd-Frank),the SEC has promulgated disclosurerequirements regarding the use of certain minerals,which are mined from the Democratic Republic of Congo and adjoining countries,known as conflict miner
314、als.The disclosure rules will take effect for us in May 2014.We may have to publicly disclose whether the productswe sell contain conflict minerals and could incur significant costs related to implementing a process that will meet the mandates of Dodd-Frank.Additionally,customers may rely on us to p
315、rovide critical data regarding the parts they purchase and will likely request conflict mineralinformation.We have many suppliers and each will provide conflict mineral information in a different manner,if at all.Accordingly,becausethe supply chain is complex,we may face reputational challenges if w
316、e are unable to sufficiently verify the origins of conflict minerals used inour products.Additionally,customers may demand that the products they purchase be free of conflict minerals.The implementation of thisrequirement could affect the sourcing and availability of products we purchase from our su
317、ppliers.This may reduce the number of suppliersthat may be able to provide conflict free products,and may affect our ability to obtain products in sufficient quantities to meet customerdemand or at competitive prices.In addition,there may be material costs associated with complying with the disclosu
318、re requirements,suchas costs related to determining the source of any relevant minerals used in our products,as well as costs arising from any changes as aconsequence of such verification activities.Our financial results could be adversely impacted by changes in regulation of oil and natural gas exp
319、loration and developmentactivity,in response to significant environmental incidents.The U.S.Department of the Interior implemented additional safety and certification requirements applicable to drilling activities in the U.S.Gulf of Mexico,imposed additional requirements with respect to exploration,
320、development and production activities in U.S.waters andimposed a moratorium that delayed the approval of drilling plans and well permits in both deepwater and shallow-water areas due to theMacondo well incident.Although neither we nor our products were involved in the incident,the delays caused by t
321、he new regulations andrequirements had an overall negative effect on drilling activity in U.S.waters,and to a certain extent,our financial results.Another similarenvironmental incident could result in similar drilling moratoria,and could result in increased state,international and additional federal
322、regulation of our and our customers operations that could negatively impact our earnings,prospects and the availability and cost of insurancecoverage.Any additional regulation of the exploration and production industry as a whole could result in fewer companies being financiallyqualified to operate
323、offshore or onshore in the U.S.or in non-U.S.jurisdictions,result in higher operating costs for our customers and reducedemand for our products and services.21Table of Contents We may not be able to satisfy technical requirements,testing requirements,code requirements or other specifications underco
324、ntracts and contract tenders.Many of our products are used in harsh environments and severe service applications.Our contracts with customers and customer requestsfor bids often set forth detailed specifications or technical requirements(including that they meet certain industrial code requirements,
325、suchas API,ASME or similar codes,or that our processes and facilities maintain ISO or similar certifications)for our products and services,whichmay also include extensive testing requirements.We anticipate that such code testing requirements will become more common in ourcontracts.We cannot assure y
326、ou that our products or facilities will be able to satisfy the specifications or requirements,or that we will be ableto perform the full-scale testing necessary to prove that the product specifications are satisfied in future contract bids or under existingcontracts,or that the costs of modification
327、s to our products or facilities to satisfy the specifications and testing will not adversely affect ourresults of operations.If our products or facilities are unable to satisfy such requirements,or we are unable to perform or satisfy any requiredfull-scale testing,we may suffer reputational harm and
328、 our customers may cancel their contracts and/or seek new suppliers,and ourbusiness,results of operations or financial position may be adversely affected.Our success depends on our ability to implement new technologies and services.Our success depends on the ongoing development and implementation of
329、 new product designs and improvements,and on our ability toprotect and maintain critical intellectual property assets related to these developments.If we are not able to obtain patent or other intellectualproperty protection of our technology,we may not be able to recoup development costs or fully e
330、xploit systems,services and technologies in amanner that allows us to meet evolving industry requirements at prices acceptable to our customers.In addition,some of our competitors arelarge national and multinational companies that may be able to devote greater financial,technical,manufacturing and m
331、arketing resources toresearch and development of new systems,services and technologies than we are able to do.We have not spent material amounts onresearch and development activities during the three most recent fiscal years.Our success will be affected by the use and protection of our proprietary t
332、echnology.There are limitations to our intellectualproperty rights in our proprietary technology,and thus our right to exclude others from the use of such proprietary technology.Our success will be affected by our development and implementation of new product designs and improvements and by our abil
333、ity to protectand maintain critical intellectual property assets related to these developments.Although in many cases our products are not protected by anyregistered intellectual property rights,in other cases we rely on a combination of patents and trade secret laws to establish and protect thisproprietary technology.We currently hold multiple U.S.and international patents and have multiple pendi
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