NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of FMC Technologies, Inc. and its consolidated subsidiaries (“FMC Technologies”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission (“SEC”) pertaining to interim financial information. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, which are included in our Annual Report on Form 10-K for the year ended
December 31, 2015
.
We revised our current derivative financial instrument asset and liability balances as of December 31, 2015 to eliminate certain intercompany derivative transactions. As a result, our total financial position as of December 31, 2015 decreased by
$38.0 million
.
Our accounting policies are in accordance with GAAP. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from our estimates.
In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these financial statements may not be representative of the results that may be expected for the year ending
December 31, 2016
.
Reclassifications—
Certain prior-year amounts have been reclassified to conform to the current year’s presentation.
NOTE 2. MERGER OF FMC TECHNOLOGIES AND TECHNIP
On June 14, 2016, FMC Technologies and Technip S.A. (“Technip”) entered into a definitive business combination agreement providing for the business combination among FMC Technologies, FMC Technologies SIS Limited, a private limited company incorporated under the laws of England and Wales and a wholly owned subsidiary of FMC Technologies, and Technip. The business combination agreement was unanimously approved by the board of directors of both companies. The entry into the business combination agreement followed FMC Technologies’ announcement on May 19, 2016, of its intention to enter into a business combination with Technip. At the effective completion of the merger, each issued and outstanding ordinary share of FMC Technologies and Technip, other than shares owned by each respective company or its subsidiaries, will be converted into the right to receive
1.0
and
2.0
ordinary shares of the new company, respectively.
Consummation of the merger is subject to customary closing conditions as specified in the business combination agreement, including but not limited to: (i) receipt of FMC Technologies and Technip stockholder approvals, (ii) clearance from certain competition and foreign investment authorities in the areas where the companies operate, and (iii) clearance from the French Ministry for Economy, Industry and the Digital Sector. Should FMC Technologies or Technip terminate the business combination agreement under specified circumstances, either party would be required to pay the other party a termination fee equal to
$250 million
. The transaction is expected to close during the first quarter of 2017.
During the three months ended June 30, 2016, approximately
$18.2 million
of business combination transaction costs associated with the pending merger were expensed and are included in selling, general and administrative expense on the accompanying condensed consolidated statement of income.
NOTE 3. NEW ACCOUNTING STANDARDS
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This update requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will supersede most existing GAAP related to revenue recognition and will supersede some cost guidance in existing GAAP related to construction-type and production-type contract accounting. Additionally, the ASU will significantly increase disclosures related to revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU No. 2014-09 by one year, and as a result, is now effective for us on January 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” which gives further guidance on identifying performance obligations and clarification of the licensing implementation guidance. Early application is permitted to the original effective date of January 1, 2017. Entities are permitted to apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. We are nearing the final stages of completing the evaluation of the new standard and the related assessment and review of a representative sample of existing revenue contracts with customers. The impacts that adoption of the ASU is expected to have on our consolidated financial statements and related disclosures are being evaluated. Additionally, we have not determined the effect of the ASU on our internal control over financial reporting or other changes in business practices and processes.
In July 2015, the FASB issued ASU No. 2015-11, “
Simplifying the Measurement of Inventory
.” This update requires in scope inventory to be measured at the lower of cost and net realizable value rather than at the lower of cost or market under existing guidance. The amendments in this ASU are effective for us on January 1, 2017. Early application is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases.”
This update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. Early application is permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The guidance will become effective for us on January 1, 2019. The impacts that adoption of the ASU is expected to have on our consolidated financial statements and related disclosures are being evaluated. Additionally, we have not determined the effect of the ASU on our internal control over financial reporting or other changes in business practices and processes.
In March 2016, the FASB issued ASU No. 2016-09,
“Improvements to Employee Share-Based Payment Accounting.”
Among other amendments, this update requires that excess tax benefits or deficiencies are recognized as income tax expense or benefit in the income statement, gives an entity the ability to elect to estimate the number of awards that are expected to vest or account for forfeitures as they occur and permits withholding up to the maximum statutory tax rates as the threshold to qualify for equity classification. The guidance will become effective for us on January 1, 2017. Early application is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
Change in Accounting Principle
Effective January 1, 2016, we changed the method of valuing inventory for certain domestic inventories in our surface integrated services business from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method under GAAP. The cumulative effect, net of income taxes, of the change in accounting principle was approximately
$12.3 million
and was recorded as an increase to retained earnings as of January 1, 2013. The statements of income for the years ended December 31, 2013, 2014, and 2015, including interim periods therein, were not retroactively adjusted as the adjustment for each of the periods was not material. We believe the FIFO method is preferable as it better reflects the current value of inventory reported in the consolidated balance sheets, provides for better matching of costs of goods sold with related revenue, provides for greater consistency and uniformity across our operations with respect to the method of inventory valuation, and is the method used by management to monitor the financial results of the business for operational and financial planning.
NOTE 4. EARNINGS PER SHARE
A reconciliation of the number of shares used for the basic and diluted earnings per share calculation was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
(In millions, except per share data)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income attributable to FMC Technologies, Inc.
|
$
|
2.2
|
|
|
$
|
107.9
|
|
|
$
|
22.0
|
|
|
$
|
255.5
|
|
Weighted average number of shares outstanding
|
226.9
|
|
|
232.3
|
|
|
227.5
|
|
|
232.7
|
|
Dilutive effect of restricted stock units
|
1.4
|
|
|
0.6
|
|
|
1.0
|
|
|
0.5
|
|
Total shares and dilutive securities
|
228.3
|
|
|
232.9
|
|
|
228.5
|
|
|
233.2
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to FMC Technologies, Inc.
|
$
|
0.01
|
|
|
$
|
0.46
|
|
|
$
|
0.10
|
|
|
$
|
1.10
|
|
Diluted earnings per share attributable to FMC Technologies, Inc.
|
$
|
0.01
|
|
|
$
|
0.46
|
|
|
$
|
0.10
|
|
|
$
|
1.10
|
|
NOTE 5. RESTRUCTURING AND IMPAIRMENT EXPENSE
Restructuring and impairment expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Restructuring expense:
|
|
|
|
|
|
|
|
Subsea Technologies
|
$
|
2.4
|
|
|
$
|
5.4
|
|
|
$
|
2.5
|
|
|
$
|
6.1
|
|
Surface Technologies
|
3.9
|
|
|
2.6
|
|
|
7.8
|
|
|
7.0
|
|
Energy Infrastructure
|
—
|
|
|
1.3
|
|
|
1.9
|
|
|
2.7
|
|
Total restructuring expense
|
6.3
|
|
|
9.3
|
|
|
12.2
|
|
|
15.8
|
|
Impairment expense:
|
|
|
|
|
|
|
|
Subsea Technologies
|
2.2
|
|
|
0.2
|
|
|
2.3
|
|
|
0.5
|
|
Surface Technologies
|
1.6
|
|
|
0.2
|
|
|
35.9
|
|
|
3.8
|
|
Energy Infrastructure
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate and other
|
1.2
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
Total impairment expense
|
5.0
|
|
|
0.4
|
|
|
39.4
|
|
|
4.3
|
|
Total restructuring and impairment expense
|
$
|
11.3
|
|
|
$
|
9.7
|
|
|
$
|
51.6
|
|
|
$
|
20.1
|
|
Restructuring
—As a result of the decline in crude oil prices and its effect on the demand for products and services in the oilfield services industry worldwide, beginning in 2015, we initiated a company-wide reduction in workforce intended to reduce costs and better align our workforce with current and anticipated activity levels, which resulted in the continued recognition of severance costs relating to termination benefits and other restructuring charges.
Asset impairments—
We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition over the asset’s remaining useful life. Our review of recoverability of the carrying value of our assets considers several assumptions including the intended use and service potential of the asset.
The prolonged downturn in the energy market and its corresponding impact on our business outlook led us to conclude the carrying amount of certain long-lived assets in our U.S. surface integrated services business exceeded their fair values. The low commodity price environment’s impact on our outlook for revenue growth and profitability of our U.S. surface integrated services business led us to record impairment charges in our Surface Technologies segment during the six months ended
June 30, 2016
. These asset impairments included impairment charges of our flowback plant, property and equipment and related customer relationships intangible assets of
$12.4 million
and
$3.4 million
, respectively, to record the assets to their combined fair value of
$44.7 million
as of March 31, 2016.
Also, we recorded impairment charges of
$15.3 million
and
$2.8 million
, to our wireline equipment and allocated goodwill, respectively, to record the assets to their combined fair value of
$20.0 million
as of March 31, 2016. The impairment charges, recorded in our Surface Technologies segment, include wireline operations in both the United States and Canada and relate to the sale of these assets. Refer to Note 6 for information related to the sale of these assets.
NOTE 6. SALE OF WIRELINE
On June 1, 2016, we completed the sale of property, plant, and equipment related to our wireline operations in our surface integrated services businesses in the United States and Canada (“Wireline”) to Reliance Oilfield Services, LLC. Wireline was historically reported in our Surface Technologies segment. We recognized a
$0.4 million
loss on the sale during the
six
months ended
June 30, 2016
.
NOTE 7. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
As Adjusted
|
Raw materials
|
$
|
140.6
|
|
|
$
|
149.9
|
|
Work in process
|
104.3
|
|
|
114.8
|
|
Finished goods
|
667.2
|
|
|
723.4
|
|
|
912.1
|
|
|
988.1
|
|
LIFO and valuation adjustments
|
(233.1
|
)
|
|
(224.0
|
)
|
Inventories, net
|
$
|
679.0
|
|
|
$
|
764.1
|
|
NOTE 8. EQUITY METHOD INVESTMENTS
FTO Services
—FMC Technologies Offshore, LLC (“FTO Services”) is an affiliated company in the form of a joint venture between FMC Technologies and Edison Chouest Offshore LLC. We have accounted for our
50%
investment using the equity method of accounting, and its results are reported in our Subsea Technologies segment. Additionally, debt obligations under a revolving credit facility of FTO Services are jointly and severally guaranteed by FMC Technologies and Edison Chouest Offshore LLC. Refer to Note 11 for additional information regarding the guarantee.
FTO Services has experienced net losses since formation due to expenses related to startup of operations and as a result of the downturn in the oilfield services industry. We recognized
$10.0 million
and
$10.1 million
of losses from equity earnings in affiliates for the three months ended
June 30, 2016
and
2015
, respectively, and
$17.3 million
and
$18.4 million
of losses from equity earnings in affiliates for the
six
months ended
June 30, 2016
and
2015
, respectively, which are included in lease and other income in the accompanying condensed consolidated statements of income. The carrying value of our equity method investment in FTO Services was
$(20.0) million
as of
June 30, 2016
, and is included as a component of other liabilities in the accompanying condensed consolidated balance sheets. As a result of our joint guarantee of FTO Services’ debt obligations under its revolving credit facility and additional financial support provided and committed, we recognized losses up to our joint share of such obligations and suspended the recognition of
$2.4 million
of equity method losses as of
June 30, 2016
. Due to market conditions, FMC Technologies and Edison Chouest Offshore LLC agreed to dissolve FTO Services during the third quarter of 2016.
Forsys Subsea
—Forsys Subsea Limited (“Forsys Subsea”) is an affiliated company in the form of a joint venture between FMC Technologies and Technip S.A. We have accounted for our
50%
investment using the equity method of accounting, and its results are reported in our Subsea Technologies segment. Forsys Subsea has experienced net losses since formation due to expenses related to startup of operations and as a result of the downturn in the oilfield services industry. We recognized
$4.2 million
and
$8.2 million
of losses from equity earnings in affiliates for the
three
and
six months ended
June 30, 2016
, respectively, which are included in lease and other income in the accompanying consolidated statements of income.
Summarized financial information
—Summarized financial information for the entirety of FTO Services and Forsys Subsea is presented below.
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|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
(1)
|
Revenue
|
$
|
17.1
|
|
|
$
|
5.4
|
|
Gross profit (loss)
|
$
|
(12.0
|
)
|
|
$
|
0.6
|
|
Net income (loss)
|
$
|
(54.2
|
)
|
|
$
|
(40.5
|
)
|
______________________________
|
|
(1)
|
Due to its formation late in the second quarter of 2015, financial results for Forsys Subsea were not included for the six months ended June 30, 2015 as the financial results were not material.
|
NOTE 9. GOODWILL
The carrying amount of goodwill by business segment was as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Subsea
Technologies
|
|
Surface
Technologies
|
|
Energy
Infrastructure
|
|
Total
|
December 31, 2015
|
$
|
357.4
|
|
|
$
|
71.9
|
|
|
$
|
85.4
|
|
|
$
|
514.7
|
|
UCOS
®
product group transfer
(1)
|
2.7
|
|
|
—
|
|
|
(2.7
|
)
|
|
—
|
|
Impairment
(2)
|
—
|
|
|
(2.8
|
)
|
|
—
|
|
|
(2.8
|
)
|
Translation
|
8.3
|
|
|
2.3
|
|
|
—
|
|
|
10.6
|
|
June 30, 2016
|
$
|
368.4
|
|
|
$
|
71.4
|
|
|
$
|
82.7
|
|
|
$
|
522.5
|
|
______________________________
|
|
(1)
|
Beginning in the first quarter of 2016, UCOS
®
product group results are included in Subsea Technologies. Refer to Note 18 for additional disclosure.
|
|
|
(2)
|
Refer to Note 5 for additional disclosure related to impairment of goodwill during the
six
months ended
June 30, 2016
.
|
NOTE 10. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2016
|
|
December 31,
2015
|
Revolving credit facility
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
(1)
|
501.7
|
|
|
337.2
|
|
2.00% Notes due 2017
|
299.3
|
|
|
299.1
|
|
3.45% Notes due 2022
|
497.7
|
|
|
497.5
|
|
Term loan
|
18.9
|
|
|
15.6
|
|
Capital leases
|
0.5
|
|
|
0.7
|
|
Total long-term debt
|
1,318.1
|
|
|
1,150.1
|
|
Less: current portion
|
(19.4
|
)
|
|
(16.0
|
)
|
Long-term debt, less current portion
|
$
|
1,298.7
|
|
|
$
|
1,134.1
|
|
_______________________
|
|
(1)
|
Committed credit available under our revolving credit facility provided the ability to refinance our commercial paper obligations on a long-term basis. As we have both the ability and intent to refinance these obligations on a long-term basis, our commercial paper borrowings were classified as long-term in the condensed consolidated balance sheets at
June 30, 2016
and
December 31, 2015
. As of
June 30, 2016,
our commercial paper borrowings had a weighted average interest rate of
1.01%
.
|
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments associated with leases—
In March 2014 we entered into construction and operating lease agreements to finance the construction of manufacturing and office facilities located in Houston, TX. In January 2016 construction of the facilities was completed and rental payments under the operating lease commenced. Upon expiration of the operating lease in September 2021, we have the option to renew the lease, purchase the facilities or re-market the facilities on behalf of the lessor, including certain guarantees of residual value under the re-marketing option.
Contingent liabilities associated with guarantees—
In the ordinary course of business, we enter into standby letters of credit, performance bonds, surety bonds and other guarantees with financial institutions for the benefit of our customers, vendors and other parties. The majority of these financial instruments represent guarantees of our future performance.
In August 2014, FMC Technologies entered into an arrangement to guarantee the debt obligations under a revolving credit facility of FMC Technologies Offshore, LLC (“FTO Services”), our joint venture with Edison Chouest Offshore LLC. Under the terms of the guarantee, FMC Technologies and Edison Chouest Offshore LLC jointly and severally guaranteed amounts under the revolving credit facility with a maximum potential amount of future payments of
$40.0 million
that would become payable if FTO Services defaults in payment under the terms of the revolving credit facility. The approximate term of the guarantee is
two
years. The liability recognized at inception for the fair value of our obligation as a guarantor was not material. As of June 30, 2016, FTO Services’ revolving credit facility was fully drawn, and we expect to perform under the guarantee with joint and equal payments to be made by FMC Technologies and Edison Chouest Offshore LLC in the third quarter of 2016. Refer to Note 8 for additional information regarding the accounting for our investment in FTO Services.
Management does not expect any of these financial instruments to result in losses that, if incurred, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Contingent liabilities associated with legal matters—
We are involved in various pending or potential legal actions or disputes in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions because of their inherent uncertainty. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
NOTE 12. STOCKHOLDERS’ EQUITY
The following table summarizes activity within certain components of stockholders’ equity during the
six
months ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Common Stock
Held in Treasury
and Employee
Benefit Trust
|
|
Capital in
Excess of Par
Value of
Common Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Balance as of December 31, 2015
|
$
|
(1,614.8
|
)
|
|
$
|
759.0
|
|
|
$
|
(872.7
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
110.2
|
|
Taxes withheld on issuance of stock-based awards
|
—
|
|
|
(7.8
|
)
|
|
—
|
|
Purchases of treasury stock
|
(50.6
|
)
|
|
—
|
|
|
—
|
|
Reissuances of treasury stock
|
19.9
|
|
|
(19.9
|
)
|
|
—
|
|
Net purchases of common stock for employee benefit trust
|
0.1
|
|
|
(0.8
|
)
|
|
—
|
|
Stock-based compensation (Note 15)
|
—
|
|
|
31.0
|
|
|
—
|
|
Other
|
(0.1
|
)
|
|
0.1
|
|
|
—
|
|
Balance as of June 30, 2016
|
$
|
(1,645.5
|
)
|
|
$
|
761.6
|
|
|
$
|
(762.5
|
)
|
There were
no
cash dividends declared during the
three
and
six
months ended
June 30, 2016
and
2015.
The following is a summary of our treasury stock activity for the
six
months ended
June 30, 2016
and
2015
:
|
|
|
|
(Number of shares in thousands)
|
Treasury Stock
|
Balance as of December 31, 2014
|
54,626
|
|
Stock awards
|
(466
|
)
|
Treasury stock purchases
|
2,235
|
|
Balance as of June 30, 2015
|
56,395
|
|
|
|
Balance as of December 31, 2015
|
59,356
|
|
Stock awards
|
(734
|
)
|
Treasury stock purchases
|
1,889
|
|
Balance as of June 30, 2016
|
60,511
|
|
We repurchased
$50.6 million
and
$91.6 million
of common stock during the
six
months ended
June 30, 2016
and
June 30, 2015
, respectively, under our authorized share repurchase program. As of
June 30, 2016,
our Board of Directors had authorized
90.0 million
shares of common stock under our share repurchase program, and approximately
15.9 million
shares of common stock remained available for purchase. Pursuant to the business combination agreement executed by FMC Technologies and Technip, repurchases of common stock during the period prior to the closing of the merger is suspended. We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under our stock-based compensation plan. Treasury shares are accounted for using the cost method.
Accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Foreign Currency
Translation
|
|
Hedging
|
|
Defined Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
December 31, 2015
|
$
|
(494.2
|
)
|
|
$
|
(87.1
|
)
|
|
$
|
(291.4
|
)
|
|
$
|
(872.7
|
)
|
Other comprehensive income (loss) before reclassifications, net of tax
|
57.8
|
|
|
15.1
|
|
|
—
|
|
|
72.9
|
|
Reclassification adjustment for net losses (gains) included in net income, net of tax
|
—
|
|
|
28.4
|
|
|
8.9
|
|
|
37.3
|
|
Other comprehensive income (loss), net of tax
|
57.8
|
|
|
43.5
|
|
|
8.9
|
|
|
110.2
|
|
June 30, 2016
|
$
|
(436.4
|
)
|
|
$
|
(43.6
|
)
|
|
$
|
(282.5
|
)
|
|
$
|
(762.5
|
)
|
Reclassifications out of accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
(In millions)
|
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified out of Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Condensed Consolidated Statement of Income
|
Gains (losses) on hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
$
|
(13.7
|
)
|
|
$
|
(35.3
|
)
|
|
$
|
(51.6
|
)
|
|
$
|
(61.7
|
)
|
|
Revenue
|
|
|
6.3
|
|
|
7.5
|
|
|
15.2
|
|
|
19.0
|
|
|
Cost of sales
|
|
|
0.1
|
|
|
(0.4
|
)
|
|
(0.1
|
)
|
|
(0.9
|
)
|
|
Selling, general and administrative expense
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Research and development expense
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
Net interest expense
|
|
|
(7.3
|
)
|
|
(27.3
|
)
|
|
(36.5
|
)
|
|
(43.7
|
)
|
|
Income before income taxes
|
|
|
1.5
|
|
|
6.3
|
|
|
8.1
|
|
|
8.7
|
|
|
Provision for income taxes
|
|
|
$
|
(5.8
|
)
|
|
$
|
(21.0
|
)
|
|
$
|
(28.4
|
)
|
|
$
|
(35.0
|
)
|
|
Net income
|
Defined pension and other post-retirement benefits
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial gain (loss)
|
|
$
|
(6.2
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(12.4
|
)
|
|
$
|
(15.7
|
)
|
|
(a)
|
Amortization of prior service credit (cost)
|
|
(0.3
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(a)
|
|
|
(6.5
|
)
|
|
(7.9
|
)
|
|
(12.8
|
)
|
|
(15.7
|
)
|
|
Income before income taxes
|
|
|
2.0
|
|
|
2.5
|
|
|
3.9
|
|
|
5.0
|
|
|
Provision for income taxes
|
|
|
$
|
(4.5
|
)
|
|
$
|
(5.4
|
)
|
|
$
|
(8.9
|
)
|
|
$
|
(10.7
|
)
|
|
Net income
|
_______________________
|
|
|
|
|
|
(a)
|
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).
|
NOTE 13. INCOME TAXES
Our income tax provisions for the
three
months ended
June 30, 2016
and
2015,
reflected effective tax rates of
77.6%
and
34.1%
, respectively. The year-over-year increase in the effective tax rate was primarily due to nondeductible reorganization costs associated with the pending merger with Technip and an unfavorable change in valuation allowances related to net operating losses, partially offset by a favorable change in the forecasted country mix of earnings.
Our income tax provisions for the
six
months ended
June 30, 2016
and
2015,
reflected effective tax rates of
38.0%
and
26.6%
, respectively. The year-over-year increase in the effective tax rate was primarily due to nondeductible reorganization costs associated with the pending merger with Technip and an unfavorable change in valuation allowances related to net operating losses, partially offset by a favorable change in the forecasted country mix of earnings.
Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to lower tax rates than in the United States. In certain jurisdictions, primarily Singapore and Malaysia, our tax rate is significantly less than the relevant statutory rate due to tax holidays.
NOTE 14. PENSION AND OTHER POST-RETIREMENT BENEFITS
The components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(In millions)
|
U.S.
|
|
Int’l
|
|
U.S.
|
|
Int’l
|
|
U.S.
|
|
Int’l
|
|
U.S.
|
|
Int’l
|
Service cost
|
$
|
3.2
|
|
|
$
|
3.1
|
|
|
$
|
3.6
|
|
|
$
|
4.1
|
|
|
$
|
6.4
|
|
|
$
|
6.1
|
|
|
$
|
7.3
|
|
|
$
|
8.2
|
|
Interest cost
|
7.1
|
|
|
3.6
|
|
|
6.6
|
|
|
3.7
|
|
|
14.2
|
|
|
7.1
|
|
|
13.2
|
|
|
7.4
|
|
Expected return on plan assets
|
(11.2
|
)
|
|
(6.5
|
)
|
|
(11.0
|
)
|
|
(7.0
|
)
|
|
(22.4
|
)
|
|
(12.9
|
)
|
|
(22.0
|
)
|
|
(13.9
|
)
|
Amortization of prior service cost (credit)
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
Amortization of actuarial loss (gain), net
|
3.9
|
|
|
2.5
|
|
|
4.9
|
|
|
3.2
|
|
|
7.8
|
|
|
5.0
|
|
|
9.8
|
|
|
6.4
|
|
Net periodic benefit cost
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
$
|
4.1
|
|
|
$
|
4.0
|
|
|
$
|
6.0
|
|
|
$
|
5.7
|
|
|
$
|
8.3
|
|
|
$
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-retirement Benefits
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest cost
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
Net periodic benefit cost
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
During the
six
months ended
June 30, 2016,
we contributed
$1.8 million
to our domestic pension benefit plans and
$9.8 million
to our international pension benefit plans.
NOTE 15. STOCK-BASED COMPENSATION
Under the Amended and Restated FMC Technologies, Inc. Incentive Compensation and Stock Plan (the “Plan”), we have primarily granted awards in the form of nonvested stock units (also known as restricted stock units in the plan document). We recognize compensation expense and the corresponding tax benefits for awards under the Plan. Stock-based compensation expense for nonvested stock units was
$12.7 million
and
$11.8 million
for the
three
months ended
June 30, 2016
and
2015,
respectively, and
$31.0 million
and
$31.6 million
for the
six
months ended
June 30, 2016
and
2015
, respectively.
During the
six
months ended
June 30, 2016,
we granted the following restricted stock units to employees:
|
|
|
|
|
|
|
|
(Number of restricted stock shares in thousands)
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value (per share)
|
Time-based
|
989
|
|
|
|
Performance-based
|
387
|
|
*
|
|
Market-based
|
193
|
|
*
|
|
Total granted
|
1,569
|
|
|
$
|
23.69
|
|
_______________________
|
|
|
*
|
Assumes grant date expected payout
|
For current-year performance-based awards, actual payouts may vary from
zero
to
774 thousand
shares, contingent upon our performance relative to a peer group of companies with respect to earnings growth and return on investment for the year ending
December 31, 2016
. Compensation cost is measured based on the current expected outcome of the performance conditions and may be adjusted until the performance period ends.
The following table summarizes the potential payouts for market-based awards for the
six
months ended
June 30, 2016
:
|
|
|
|
|
|
|
(Number of market-based awards in thousands)
|
Minimum
|
|
Maximum
|
2014 Market-based awards
|
—
|
|
|
86
|
|
2015 Market-based awards
|
—
|
|
|
123
|
|
2016 Market-based awards
|
—
|
|
|
387
|
|
Our 2014, 2015 and 2016 market-based awards actual payouts are contingent upon our performance relative to the same peer group of companies with respect to total shareholder return (“TSR”) for the
three
year periods ending December 31, 2016, 2017 and 2018, respectively. The payout for the TSR metric is determined based on our performance relative to the peer group. A payout is possible regardless of whether our TSR for the three year period is positive or negative. However, if our TSR for the three year period is not positive, the payout with respect to TSR is limited to the target previously established by the Compensation Committee of the Board of Directors regardless of our relative ranking to the peer group. Compensation cost for these awards is calculated using the grant date fair market value, as estimated using a Monte Carlo simulation, and is not subject to change based on future events.
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS
For purposes of mitigating the effect of changes in exchange rates, we hold derivative financial instruments to hedge the risks of certain identifiable and anticipated transactions and recorded assets and liabilities in our consolidated balance sheets. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. Our policy is to hold derivatives only for the purpose of hedging risks associated with anticipated foreign currency purchases and sales created in the normal course of business and not for trading purposes where the objective is solely to generate profit.
Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, any change in the fair value of those instruments are reflected in earnings in the period such change occurs.
We hold the following types of derivative instruments:
Foreign exchange rate forward contracts
—The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies and recorded assets and liabilities in our consolidated balance sheets. At
June 30, 2016,
we held the following material net positions:
|
|
|
|
|
|
|
|
Net Notional Amount
Bought (Sold)
|
(In millions)
|
|
|
USD Equivalent
|
Australian dollar
|
52.1
|
|
|
38.8
|
|
Brazilian real
|
500.6
|
|
|
156.0
|
|
British pound
|
120.2
|
|
|
161.8
|
|
Canadian dollar
|
(192.8
|
)
|
|
(148.9
|
)
|
Euro
|
98.8
|
|
|
109.8
|
|
Malaysian ringgit
|
69.3
|
|
|
17.2
|
|
Norwegian krone
|
1,429.1
|
|
|
170.5
|
|
Singapore dollar
|
119.7
|
|
|
88.9
|
|
U.S. dollar
|
(694.4
|
)
|
|
(694.4
|
)
|
Foreign exchange rate instruments embedded in purchase and sale contracts
—The purpose of these instruments is to match offsetting currency payments and receipts for particular projects, or comply with government restrictions on the currency used to purchase goods in certain countries. At
June 30, 2016,
our portfolio of these instruments included the following material net positions:
|
|
|
|
|
|
|
|
Net Notional Amount
Bought (Sold)
|
(In millions)
|
|
|
USD Equivalent
|
Brazilian real
|
(42.1
|
)
|
|
(13.1
|
)
|
Euro
|
(28.9
|
)
|
|
(32.1
|
)
|
Norwegian krone
|
(272.1
|
)
|
|
(32.5
|
)
|
U.S. dollar
|
79.1
|
|
|
79.1
|
|
Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. Refer to Note 17 to these consolidated financial statements for further disclosures related to the fair value measurement process. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts are settled.
The following table presents the location and fair value amounts of derivative instruments reported in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
(In millions)
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Current – Derivative financial instruments
|
$
|
116.0
|
|
|
$
|
189.0
|
|
|
$
|
307.6
|
|
|
$
|
488.2
|
|
Long-term – Derivative financial instruments
|
0.5
|
|
|
1.6
|
|
|
0.1
|
|
|
0.5
|
|
Total derivatives designated as hedging instruments
|
116.5
|
|
|
190.6
|
|
|
307.7
|
|
|
488.7
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Current – Derivative financial instruments
|
35.8
|
|
|
27.5
|
|
|
26.3
|
|
|
28.7
|
|
Long-term – Derivative financial instruments
|
2.1
|
|
|
5.4
|
|
|
—
|
|
|
—
|
|
Total derivatives not designated as hedging instruments
|
37.9
|
|
|
32.9
|
|
|
26.3
|
|
|
28.7
|
|
Total derivatives
|
$
|
154.4
|
|
|
$
|
223.5
|
|
|
$
|
334.0
|
|
|
$
|
517.4
|
|
We recognized a gain of
$0.1 million
and a loss of
$3.7 million
on cash flow hedges for the
three
months ended
June 30, 2016
and
2015,
respectively, and losses of
$0.8 million
and
$4.6 million
for the
six
months ended
June 30, 2016
and
2015,
respectively, due to hedge ineffectiveness as it was probable that the original forecasted transaction would not occur. Cash flow hedges of forecasted transactions, net of tax, resulted in an accumulated other comprehensive loss of
$43.6 million
and
$87.1 million
at
June 30, 2016,
and
December 31, 2015
respectively. We expect to transfer an approximate
$23.3 million
loss from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the first half of
2019
.
The following tables present the location of gains (losses) on the consolidated statements of income related to derivative instruments designated as cash flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in
OCI (Effective Portion)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign exchange contracts
|
$
|
(11.3
|
)
|
|
$
|
30.3
|
|
|
18.1
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Reclassified from
Accumulated OCI into Income
|
Gain (Loss) Reclassified from Accumulated
OCI into Income (Effective Portion)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Revenue
|
$
|
(13.7
|
)
|
|
$
|
(35.3
|
)
|
|
$
|
(51.6
|
)
|
|
$
|
(61.7
|
)
|
Cost of sales
|
6.3
|
|
|
7.5
|
|
|
15.2
|
|
|
19.0
|
|
Selling, general and administrative expense
|
0.1
|
|
|
(0.4
|
)
|
|
(0.1
|
)
|
|
(0.9
|
)
|
Research and development expense
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Net interest expense
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
(7.3
|
)
|
|
$
|
(27.3
|
)
|
|
$
|
(36.5
|
)
|
|
$
|
(43.7
|
)
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss) Recognized in Income (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Revenue
|
$
|
3.4
|
|
|
$
|
6.4
|
|
|
$
|
7.0
|
|
|
$
|
6.9
|
|
Cost of sales
|
(4.7
|
)
|
|
(4.5
|
)
|
|
(9.8
|
)
|
|
(10.3
|
)
|
Selling, general and administrative expense
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Net interest expense
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Total
|
$
|
(1.3
|
)
|
|
$
|
1.8
|
|
|
$
|
(2.7
|
)
|
|
$
|
(3.5
|
)
|
The following table presents the location of gains (losses) on the consolidated statements of income related to derivative instruments not designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss) Recognized in Income on Derivatives
(Instruments Not Designated as Hedging Instruments)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Revenue
|
$
|
(0.9
|
)
|
|
$
|
(3.8
|
)
|
|
$
|
(2.8
|
)
|
|
$
|
(5.3
|
)
|
Cost of sales
|
—
|
|
|
1.4
|
|
|
1.3
|
|
|
1.5
|
|
Other income (expense), net
(1)
|
10.4
|
|
|
(6.9
|
)
|
|
4.4
|
|
|
21.0
|
|
Total
|
$
|
9.5
|
|
|
$
|
(9.3
|
)
|
|
$
|
2.9
|
|
|
$
|
17.2
|
|
_______________________
|
|
(1)
|
Other income (expense), net excludes asset and liability remeasurement gains and losses.
|
Balance Sheet Offsetting
—We execute derivative contracts only with counterparties that consent to a master netting agreement which permits net settlement of the gross derivative assets against gross derivative liabilities. Each instrument is accounted for individually and assets and liabilities are not offset. As of
June 30, 2016,
and
December 31, 2015
we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
(In millions)
|
Gross Amount Recognized
|
|
Gross Amounts Not Offset Permitted Under Master Netting Agreements
|
|
Net Amount
|
|
Gross Amount Recognized
|
|
Gross Amounts Not Offset Permitted Under Master Netting Agreements
|
|
Net Amount
|
Derivative assets
|
$
|
154.4
|
|
|
$
|
(140.2
|
)
|
|
$
|
14.2
|
|
|
$
|
334.0
|
|
|
$
|
(316.8
|
)
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
(In millions)
|
Gross Amount Recognized
|
|
Gross Amounts Not Offset Permitted Under Master Netting Agreements
|
|
Net Amount
|
|
Gross Amount Recognized
|
|
Gross Amounts Not Offset Permitted Under Master Netting Agreements
|
|
Net Amount
|
Derivative liabilities
|
$
|
223.5
|
|
|
$
|
(140.2
|
)
|
|
$
|
83.3
|
|
|
$
|
517.4
|
|
|
$
|
(316.8
|
)
|
|
$
|
200.6
|
|
NOTE 17. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
(In millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
17.4
|
|
|
$
|
17.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18.4
|
|
|
$
|
18.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed income
|
4.7
|
|
|
4.7
|
|
|
—
|
|
|
—
|
|
|
4.9
|
|
|
4.9
|
|
|
—
|
|
|
—
|
|
Money market fund
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
2.9
|
|
|
—
|
|
|
2.9
|
|
|
—
|
|
Other investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
Stable value fund
(1)
|
1.2
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
154.4
|
|
|
—
|
|
|
154.4
|
|
|
—
|
|
|
334.0
|
|
|
—
|
|
|
334.0
|
|
|
—
|
|
Total assets
|
$
|
179.4
|
|
|
$
|
22.1
|
|
|
$
|
156.1
|
|
|
$
|
—
|
|
|
$
|
362.4
|
|
|
$
|
24.3
|
|
|
$
|
336.9
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
223.5
|
|
|
$
|
—
|
|
|
$
|
223.5
|
|
|
$
|
—
|
|
|
$
|
517.4
|
|
|
$
|
—
|
|
|
$
|
517.4
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
223.5
|
|
|
$
|
—
|
|
|
$
|
223.5
|
|
|
$
|
—
|
|
|
$
|
517.4
|
|
|
$
|
—
|
|
|
$
|
517.4
|
|
|
$
|
—
|
|
_______________________
|
|
(1)
|
Certain investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
|
Investments—
The fair value measurement of our equity securities, fixed income and other investment assets is based on quoted prices that we have the ability to access in public markets. Our stable value fund and money market fund are valued at the net asset value of the shares held at the end of the quarter, which is based on the fair value of the underlying investments using information reported by the investment advisor at quarter-end.
Derivative financial instruments—
We use the income approach as the valuation technique to measure the fair value of foreign currency derivative instruments on a recurring basis. This approach calculates the present value of the future cash flow by measuring the change from the derivative contract rate and the published market indicative currency rate, multiplied by the contract notional values. Credit risk is then incorporated by reducing the derivative’s fair value in asset positions by the result of multiplying the present value of the portfolio by the counterparty’s published credit spread. Portfolios in a liability position are adjusted by the same calculation; however, a spread representing our credit spread is used. Our credit spread, and the credit spread of other counterparties not publicly available are approximated by using the spread of similar companies in the same industry, of similar size and with the same credit rating.
At the present time,
we have no credit-risk-related contingent features in our agreements with the financial institutions that would require us to post collateral for derivative positions in a liability position.
Refer to Note 16 for additional disclosure related to derivative financial instruments.
Assets measured at fair value on a non-recurring basis were as follows:
Fair value of long-lived non-financial assets—
Long-lived, non-financial assets are measured at fair value on a non-recurring basis for the purposes of calculating impairment. The fair value of our wireline long-lived, non-financial assets measured on a non-recurring basis were determined by Level 1 observable inputs related to its held for sale classification during the first quarter of 2016. The fair value measurements of our flowback long-lived, non-financial assets measured on a non-recurring basis were determined by estimating the amount and timing of net future cash flows, which are Level 3 unobservable inputs, and discounting them using a risk-adjusted rate of interest. Significant increases or decreases in actual cash flows may result in valuation changes. During the six months ended
June 30, 2016
, asset impairment charges recorded primarily related to our surface integrated services business. Refer to Note 5 for additional disclosure related to these asset impairments.
Other fair value disclosures:
Fair value of debt
—The fair value, based on Level 1 quoted market rates, of our
2.00%
Notes due 2017 and
3.45%
Notes due 2022 (collectively, “Senior Notes”) was approximately
$780.9 million
at
June 30, 2016
and approximately
$761.9 million
at
December 31, 2015
, as compared to the
$800.0 million
face value of the debt, net of issue discounts and issuance costs, recorded in the condensed consolidated balance sheets.
Other fair value disclosures—
The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, short-term debt, commercial paper, debt associated with our term loan, as well as amounts included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair value.
Credit risk—
By their nature, financial instruments involve risk, including credit risk, for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses on trade receivables are established based on collectability assessments. We mitigate credit risk on derivative contracts by executing contracts only with counterparties that consent to a master netting agreement which permits the net settlement of gross derivative assets against gross derivative liabilities.
NOTE 18. BUSINESS SEGMENTS
Beginning in the first quarter of 2016, the Invalco product line, formally reported in the results of Surface Technologies, is now reported in Energy Infrastructure. In addition, beginning in the first quarter of 2016, the UCOS
®
product group, formally reported in the results of Energy Infrastructure, is now reported in Subsea Technologies. Prior year information has not been restated due to the immateriality of these businesses.
The results of our equity method joint ventures, FTO Services and Forsys Subsea, are included in the results of operations and capital employed of the Subsea Technologies segment. Refer to Note 8 for additional information.
Segment revenue and segment operating profit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment revenue
|
|
|
|
|
|
|
|
Subsea Technologies
|
$
|
854.2
|
|
|
$
|
1,239.4
|
|
|
$
|
1,718.2
|
|
|
$
|
2,396.6
|
|
Surface Technologies
|
218.7
|
|
|
363.3
|
|
|
484.2
|
|
|
809.6
|
|
Energy Infrastructure
|
85.1
|
|
|
101.4
|
|
|
169.2
|
|
|
202.3
|
|
Other revenue
(1)
and intercompany eliminations
|
(7.7
|
)
|
|
(8.9
|
)
|
|
(12.6
|
)
|
|
(18.1
|
)
|
Total revenue
|
$
|
1,150.3
|
|
|
$
|
1,695.2
|
|
|
$
|
2,359.0
|
|
|
$
|
3,390.4
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
Segment operating profit (loss)
:
|
|
|
|
|
|
|
|
Subsea Technologies
|
$
|
97.2
|
|
|
$
|
183.5
|
|
|
$
|
206.7
|
|
|
$
|
352.2
|
|
Surface Technologies
|
(21.7
|
)
|
|
27.5
|
|
|
(50.3
|
)
|
|
90.4
|
|
Energy Infrastructure
|
7.8
|
|
|
5.3
|
|
|
4.5
|
|
|
8.2
|
|
Intercompany eliminations
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
Total segment operating profit
|
83.5
|
|
|
216.3
|
|
|
161.1
|
|
|
450.8
|
|
Corporate items:
|
|
|
|
|
|
|
|
Corporate expense
(2)
|
(13.1
|
)
|
|
(14.0
|
)
|
|
(27.4
|
)
|
|
(30.3
|
)
|
Other revenue
(1)
and other expense, net
(3)
|
(53.2
|
)
|
|
(29.5
|
)
|
|
(83.2
|
)
|
|
(55.9
|
)
|
Net interest expense
|
(7.6
|
)
|
|
(9.0
|
)
|
|
(15.1
|
)
|
|
(16.3
|
)
|
Total corporate items
|
(73.9
|
)
|
|
(52.5
|
)
|
|
(125.7
|
)
|
|
(102.5
|
)
|
Income before income taxes attributable to FMC Technologies, Inc.
(4)
|
$
|
9.6
|
|
|
$
|
163.8
|
|
|
$
|
35.4
|
|
|
$
|
348.3
|
|
_______________________
|
|
(1)
|
Other revenue comprises certain unrealized gains and losses on derivative instruments related to unexecuted sales contracts.
|
|
|
(2)
|
Corporate expense primarily includes corporate staff expenses.
|
|
|
(3)
|
Other expense, net, generally includes stock-based compensation, other employee benefits, LIFO adjustments, certain foreign exchange gains and losses, and the impact of unusual or strategic transactions not representative of segment operations.
|
|
|
(4)
|
Excludes amounts attributable to noncontrolling interests.
|
Segment operating capital employed and assets were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2016
|
|
December 31, 2015
|
Segment operating capital employed
(1)
:
|
|
|
As Adjusted
|
Subsea Technologies
|
$
|
2,092.3
|
|
|
$
|
2,025.7
|
|
Surface Technologies
|
837.5
|
|
|
911.9
|
|
Energy Infrastructure
|
268.7
|
|
|
281.5
|
|
Total segment operating capital employed
|
3,198.5
|
|
|
3,219.1
|
|
Segment liabilities included in total segment operating capital employed
(2)
|
1,572.2
|
|
|
1,806.1
|
|
Corporate
(3)
|
1,390.1
|
|
|
1,394.2
|
|
Total assets
|
$
|
6,160.8
|
|
|
$
|
6,419.4
|
|
Segment assets:
|
|
|
|
Subsea Technologies
|
$
|
3,381.9
|
|
|
$
|
3,512.3
|
|
Surface Technologies
|
1,047.3
|
|
|
1,131.9
|
|
Energy Infrastructure
|
380.7
|
|
|
396.7
|
|
Intercompany eliminations
|
(39.2
|
)
|
|
(15.7
|
)
|
Total segment assets
|
4,770.7
|
|
|
5,025.2
|
|
Corporate
(3)
|
1,390.1
|
|
|
1,394.2
|
|
Total assets
|
$
|
6,160.8
|
|
|
$
|
6,419.4
|
|
_______________________
|
|
(1)
|
FMC Technologies’ management views segment operating capital employed, which consists of assets, net of its liabilities, as the primary measure of segment capital. Segment operating capital employed excludes debt, pension liabilities, income taxes, and LIFO and valuation adjustments.
|
|
|
(2)
|
Segment liabilities included in total segment operating capital employed consist of trade and other accounts payable, advance payments and progress billings, accrued payroll and other liabilities.
|
|
|
(3)
|
Corporate includes cash, LIFO adjustments, deferred income tax balances, property, plant and equipment not associated with a specific segment, pension assets and the fair value of derivative financial instruments.
|