Item 1. Business
On April 17, 2012, Forum Energy Technologies, Inc. ("Forum," the "Company," "we," or "us"), a Delaware corporation incorporated in 2005, closed its initial public offering (the "IPO"). Our common shares are listed on the New York Stock Exchange ("NYSE") under the symbol "FET." Our principal executive offices are located at 920 Memorial City Way, Suite 1000, Houston, Texas 77024, our telephone is (281) 949-2500, and our website is www.f-e-t.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, are available free of charge on our Internet website as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). These reports are also available at the SEC's Internet website at www.sec.gov. Information contained on or accessible from our website is not incorporated by 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 the SEC.
Overview
We are a global oilfield products company, serving the subsea, drilling, completion, production and infrastructure sectors of the oil and natural gas industry.
Through our two business segments, Drilling & Subsea and Production & Infrastructure, we design and manufacture products and engage in aftermarket services, parts supply and related services that complement our product offering. Our product offering includes a mix of highly engineered capital products and frequently replaced items that are consumed in the exploration, development and transportation of oil and natural gas. Our capital products are directed at: drilling rig equipment for new rigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on new producing wells; and downstream capital projects. Our engineered systems are critical components used on drilling rigs or in the course of subsea operations, while our consumable products are used to maintain efficient and safe operations at well sites in the well construction process, within the supporting infrastructure and at processing centers and refineries. Historically, a little more than half of our revenue is derived from activity-based consumable products, while the balance is derived from capital products and a small amount from rental and other services.
We seek to design, manufacture and 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 and service companies and pipeline and refinery operators.
The table below provides a summary of proportional revenue contributions from our two business segments and our primary geographic markets over the last three years:
Percentage of revenue
Year ended December 31,
2012
2011
2010
Drilling & Subsea
58
%
63
Production & Infrastructure
42
37
Total
100
United States
55
Canada
8
9
Other International
29
28
36
We incorporate by reference in response to this item the segment and geographic information for the last three years set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of operations" in Item 7 of this annual report and Note 14 of the Notes to consolidated financial statements included in Item 8 of this annual report. We also incorporate by reference in response to this item the information with respect to acquisitions set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations – Acquisitions" in Item 7 and in Note 3 of our Notes to consolidated financial statements included in Item 8 of this annual report.
Drilling & Subsea segment
In our Drilling & Subsea segment, we design and manufacture products and provide related services to the subsea construction, drilling, well construction, completion and intervention markets. Through this segment, we offer Subsea Technologies, including robotic vehicles and other capital equipment, specialty components and tooling, a broad suite of complementary subsea technical services and rental items, and applied products for subsea pipelines; Drilling Technologies, including capital equipment and a broad line of products consumed in the drilling and well intervention process; and Downhole Technologies, including cementing and casing tools, completion products, and a range of downhole protection solutions.
There are several factors driving demand for our Drilling & Subsea segment. Demand for our subsea products is impacted by global offshore activity, subsea construction spending, and growth in deepwater resource development. Meanwhile, our Drilling Technologies product line is influenced by global drilling, workover and intervention activity, the level of capital investment in drilling rigs, rig upgrades and equipment replacement as drilling contractors modify their existing rigs to improve efficiency and safety, and the severity of the conditions under which the rigs and well service equipment operate. In addition, our Downhole Technologies product line is impacted by the level of well completion activity and complexity of well construction and completion.
Subsea Technologies. We design and manufacture subsea capital equipment and specialty components, as well as applied products for subsea pipelines, and also provide a broad suite of complementary subsea technical services and rental items. We have a core focus on the design and manufacture of remotely operated vehicle ("ROV") systems and other specialty subsea vehicles, as well as critical components of these vehicles. We believe that our vehicle and component brands are among the most respected in the industry. 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 are a leading designer and manufacturer of a wide range of ROVs to the offshore subsea construction, observation and related service markets. The market for subsea ROVs can be segmented into three broad classes of vehicles based on size and category of operations: (1) large work-class vehicles for subsea construction activities, (2) drilling-class vehicles deployed from and for use around an offshore rig and (3) observation-class vehicles for inspection and light manipulation. We are a leading provider of work-class and observation-class vehicles.
We believe that our Perry and Sub-Atlantic branded ROVs are among the most well-known in the industry. We design and manufacture large work-class ROVs through our Perry brand, which has delivered over 500 systems in its history. These vehicles are principally used in deepwater construction applications with the largest vehicles providing up to 250 horsepower, exceeding 550 pounds of payload capacity and having the capability of working in depths exceeding 4,000 meters. Our Sub-Atlantic branded observation-class vehicles are electrically powered and are principally used for inspection, survey, and light manipulation and serve a wide range of industries. In addition to observation and work-class ROVs, we design and manufacture specialty vehicles that are primarily used in subsea trenching operations. Larger than a work-class and 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 can cut over three meters deep into the seafloor to lay pipelines, power cables or communications cables.
Our subsea vehicle customers are primarily large offshore construction companies, but also include non-oil and gas industry entities, such as a range of governmental organizations including navies, maritime science and geosciences research organizations, offshore wind power companies and other industries operating in marine environments.
Subsea products. In addition to subsea vehicles, we are a leading manufacturer of subsea products and components. We design and manufacture a group of products that are used in and around vehicles. For example, we manufacture a wide range of Sub-Atlantic branded ROV thrusters, hydraulic power units and valve packs, and, through two recent acquisitions, we now supply Dynacon branded ROV launch and recovery systems ("LARS") and Syntech branded syntactic foam buoyancy components. We design and manufacture these ROV components for incorporation into our own vehicles as well as for sale to other ROV manufacturers. We also design and manufacture a tether management system ("TMS"). The TMS stores and deploys the ROV tether, thus decoupling the ROV from the motion of the surface vessel and enabling operations within a larger radius. The TMS is critical to the reliable and safe operation of subsea vehicles, and we have a long history of manufacturing these systems for use across our entire range of ROVs. In addition, we provide a broad suite of subsea tooling, both industry standard and custom designed. Industry standard tooling includes hot stabs, cable cutters, torque tools and indicators. Examples of our specialized tooling include: a blowout preventer ("BOP") actuation tool that can actuate a BOP; a riser repair system; a manipulator for nuclear decommissioning; and control systems for subsea well intervention.
In addition to vehicle-related subsea products, our Offshore Joint Services ("OJS") brand is a provider of applied protective coatings on rigid subsea pipeline field joints, spools, and structures. Our field joint coatings address the corrosion protection, thermal insulation and concrete weight coating infill requirements. Our primary customers in this product 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 our customers with complementary subsea technical services. Among the technical services we offer is the provisioning of ROV pilots and other offshore personnel on a contract basis for those customers who need to supplement their own employees. Our customers for rental items and personnel are primarily subsea construction and offshore service companies.
Our VisualSoft™ product line provides another technical product that offers a complete solution for digital video capture, playback, processing and reporting of pipeline, structural or other inspection survey data. We sell or rent VisualWorks and VisualDVR Digital Video Systems, which are often used in conjunction with the operation of inspection class ROVs or diving personnel when conducting survey work.
Geoscience Earth and Marine Science ("GEMS") is our geophysical and geotechnical engineering group that provides consulting services to the oil and gas, and marine industries. We typically interpret and analyze third party subsea data provided by clients. In recent years, the business has broadened into managing additional phases of project development, including scope of work, liaising with data acquirers, interpretation and analysis. Our primary customer base consists of oil and gas operators and producers.
Drilling Technologies. We provide both drilling consumables and capital equipment, with a focus on products that enhance our customers' handling of tubulars on the drilling rig. Our product offering includes powered and manual tubular handling equipment; specialized torque equipment; 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 wireline well intervention operations and a broad line of items consumed in the drilling process.