NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of TechnipFMC plc and its consolidated subsidiaries (“TechnipFMC”, the “Company,” “we,” “us,” or “our”) 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. These unaudited condensed consolidated financial statements should be read together with our audited consolidated financial statements contained in our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2019.
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 consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, as well as adjustments to our financial position pursuant to a business combination, necessary for a fair statement 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, 2020.
Reclassifications – Certain prior-year amounts have been reclassified to conform to the current year’s presentation.
NOTE 2. PLANNED SEPARATION TRANSACTION
On August 26, 2019, we announced that our Board of Directors had unanimously approved a plan to separate our Onshore/Offshore segment and Loading Systems and process automation businesses into an independent, publicly traded company (“Technip Energies”). In connection with the planned transaction, we renamed our Onshore/Offshore segment to Technip Energies in the first quarter of 2020. Due to the COVID-19 pandemic, the significant decline in commodity prices, and the heightened volatility in global equity markets, on March 15, 2020, we announced the postponement of the completion of the transaction until the markets sufficiently recover. The transaction will be subject to general market conditions, regulatory approvals, consultation of employee representatives, where applicable, and final approval from our Board of Directors. We incurred $27.1 million of separation costs associated with the planned transaction during the first quarter of 2020. We did not record any separation costs during the three months ended June 30, 2020.
NOTE 3. BUSINESS COMBINATION TRANSACTIONS
On December 30, 2019, we completed the acquisition of the remaining 50% interest in Technip Odebrecht PLSV CV (“TOP CV”). TOP CV was formed as a joint venture between Technip SA and Ocyan SA to provide pipeline installation ships to Petroleo Brasileiro SA (“Petrobras”) for their work in oil and gas fields offshore Brazil with results reported in our Subsea segment using the equity method of accounting. Subsequent to this transaction the investment became a fully consolidated entity. In connection with the acquisition, we acquired $391.0 million in assets, including two vessels valued at $335.2 million. In addition, we assumed $239.9 million of liabilities, including a $203.1 million term loan.
There were no significant acquisitions or other type of business combinations during the three and six months ended June 30, 2020 and 2019.
NOTE 4. NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standards under GAAP
Effective January 1, 2020, we adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This update modifies the disclosure requirement on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. The adoption of this update concerns presentation and disclosure only as it relates to our consolidated financial statements. See Note 21 for our fair value measurements disclosure.
Effective January 1, 2020, we adopted ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” This update requires that the implementation costs incurred in a cloud computing arrangement that is a service contract are deferred if they would be capitalized based on the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this update did not have a material impact on our consolidated financial statements.
Effective January 1, 2020, we adopted ASU No. 2018-18, “Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606.” This update clarifies the interaction between the guidance for certain collaborative arrangements and the Revenue Recognition financial accounting and reporting standard. An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of Topic 606. The adoption of this update concerns presentation and disclosure only with no material impact to our consolidated financial statements.
Effective January 1, 2020, we adopted ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The update clarifies and improves areas of guidance related to the recently issued standards including (1) ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities”, (2) ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”, and (3) ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The adoption of this update concerns presentation and disclosure only with no material impact to our consolidated financial statements.
Adoption of ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Effective January 1, 2020, we adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The guidance applies to (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.
In June 2016, the FASB issued an update of the ASU to provide a practical expedient for transition and targeted improvements.
We adopted Topic 326 using a modified retrospective transition method through a cumulative-effect adjustment to beginning retained earnings in the period of adoption. The effect of adopting Topic 326 was an increase in accumulated deficit of $7.8 million, which includes a $2.1 million increase in noncurrent deferred tax assets, with a corresponding decrease in trade receivables, loans, and debt notes receivable.
Financial assets at amortized cost include trade receivables, loans issued to third or related parties, and held to maturity debt securities. These financial assets were presented under other current assets or other assets, as applicable. Contract assets are subject to the credit losses standard per revenue recognition standard.
Trade receivables and contract assets constitute a homogeneous portfolio, and therefore, to measure the expected credit losses, trade receivables and contract assets have been grouped together. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. We have therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.
The following table summarizes the balances of financial assets and non-financial assets at amortized cost as of January 1, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
As reported at December 31, 2019
|
|
Impact of ASC 326
|
|
Balance at January 1, 2020
|
Trade receivables, net
|
$
|
2,287.1
|
|
|
$
|
(3.8)
|
|
|
$
|
2,283.3
|
|
Loans receivable, net
|
138.5
|
|
|
(1.5)
|
|
|
137.0
|
|
Security deposits and other, net
|
36.6
|
|
|
(1.0)
|
|
|
35.6
|
|
Held-to-maturity
|
|
|
|
|
|
Debt securities at amortized cost
|
71.9
|
|
|
(1.1)
|
|
|
70.8
|
|
Total financial assets
|
$
|
2,534.1
|
|
|
$
|
(7.4)
|
|
|
$
|
2,526.7
|
|
|
|
|
|
|
|
Non-financial assets
|
|
|
|
|
|
Contract assets, net
|
$
|
1,520.0
|
|
|
$
|
(2.5)
|
|
|
$
|
1,517.5
|
|
We manage our receivables portfolios using published default risk as a key credit quality indicator for our loans and receivables. Our loans receivable and security deposits were related to sales of long-lived assets or businesses, loans to related parties for capital expenditure purposes, or security deposits for lease arrangements.
We manage our held-to-maturity debt securities using published credit ratings as a key credit quality indicator as our held-to-maturity debt securities consist of government bonds.
The table below summarizes the amortized cost basis of financial assets by years of origination and credit quality. The key credit quality indicator is updated as of June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Year of origination
|
|
Balance at June 30, 2020
|
Loans receivables, security deposits and other
|
|
|
|
Moody’s rating Ba2
|
2019
|
|
$
|
151.8
|
|
|
|
|
|
Debt securities at amortized cost
|
|
|
|
Moody’s rating B3
|
2019
|
|
70.9
|
|
Total financial assets
|
|
|
$
|
222.7
|
|
Credit Losses
For contract assets, trade receivables, loans receivable, and security deposits and other, we have elected to calculate an expected credit loss based on loss rates from historical data. We develop loss-rate statistics on the basis of the amount written off over the life of the financial assets and contract assets and adjust these historical credit loss trends for forward-looking factors specific to the debtors and the economic environment to determine lifetime expected losses.
For held-to-maturity debt securities at amortized cost, we evaluate whether the debt securities are considered to have low credit risk at the reporting date using available, reasonable, and supportable information.
The table below shows the roll-forward of allowance for credit losses for the six months ended June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
|
|
|
|
|
|
(In millions)
|
Trade receivables
|
|
Contract assets
|
|
Loans receivable
|
|
Security deposit and other
|
|
Held-to-maturity debt securities
|
Beginning balance in allowance for credit losses
|
$
|
99.2
|
|
|
$
|
5.0
|
|
|
$
|
9.5
|
|
|
$
|
1.6
|
|
|
$
|
1.1
|
|
Current period provision for expected credit losses
|
34.5
|
|
|
0.4
|
|
|
0.1
|
|
|
0.4
|
|
|
—
|
|
Write-offs charged against the allowance
|
(1.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recoveries
|
(2.9)
|
|
|
(2.5)
|
|
|
(0.6)
|
|
|
(1.0)
|
|
|
—
|
|
Ending balance in the allowance for credit losses
|
$
|
129.1
|
|
|
$
|
2.9
|
|
|
$
|
9.0
|
|
|
$
|
1.0
|
|
|
$
|
1.1
|
|
Other than certain trade receivables due in one year or less, we do not have any financial assets that are past due or are on non-accrual status.
Recently Issued Accounting Standards under GAAP
In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This update amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The amendments in this ASU are effective for us January 1, 2021, and early adoption is permitted. The amendments in this update are required to be adopted retrospectively. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes to Topic 740—Simplifying the Accounting for Income Taxes”. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This update also improves and simplifies areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update is effective for us January 1, 2021, and early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, "Investments—Equity Securities (Topic 321)", “Investments—Equity Method and Joint Ventures (Topic 323)”, and “Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, and made targeted improvements to address certain aspects of accounting for financial instruments. This update clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU also clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider whether underlying securities would be accounted for under the equity method or fair value option upon settlement or exercise. The amendment is effective from January 1, 2021, and early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)”. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact of this ASU on our consolidated financial statements.
NOTE 5. REVENUE
The majority of our revenue is from long-term contracts associated with designing and manufacturing products and systems and providing services to customers involved in exploration and production of crude oil and natural gas.
Disaggregation of Revenue
Revenues are disaggregated by geographic location and contract types.
The following tables present products and services revenue by geography for each reportable segment for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
(In millions)
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
Europe, Russia, Central Asia
|
$
|
426.5
|
|
|
$
|
645.8
|
|
|
$
|
48.3
|
|
|
$
|
459.6
|
|
|
$
|
651.2
|
|
|
$
|
60.0
|
|
Americas
|
507.9
|
|
|
298.8
|
|
|
81.1
|
|
|
341.8
|
|
|
196.9
|
|
|
199.9
|
|
Asia Pacific
|
185.5
|
|
|
264.8
|
|
|
28.0
|
|
|
177.7
|
|
|
275.5
|
|
|
44.1
|
|
Africa
|
168.2
|
|
|
202.1
|
|
|
14.7
|
|
|
373.8
|
|
|
111.1
|
|
|
14.9
|
|
Middle East
|
80.1
|
|
|
126.8
|
|
|
55.0
|
|
|
135.6
|
|
|
270.3
|
|
|
69.2
|
|
Total products and services revenue
|
$
|
1,368.2
|
|
|
$
|
1,538.3
|
|
|
$
|
227.1
|
|
|
$
|
1,488.5
|
|
|
$
|
1,505.0
|
|
|
$
|
388.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
(In millions)
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
Europe, Russia, Central Asia
|
$
|
849.6
|
|
|
$
|
1,253.1
|
|
|
$
|
98.6
|
|
|
$
|
859.2
|
|
|
$
|
1,292.8
|
|
|
$
|
115.8
|
|
Americas
|
944.4
|
|
|
595.5
|
|
|
230.4
|
|
|
718.9
|
|
|
357.3
|
|
|
393.1
|
|
Asia Pacific
|
323.1
|
|
|
548.6
|
|
|
62.3
|
|
|
277.4
|
|
|
577.4
|
|
|
89.1
|
|
Africa
|
382.8
|
|
|
411.9
|
|
|
28.3
|
|
|
519.6
|
|
|
171.5
|
|
|
26.2
|
|
Middle East
|
101.9
|
|
|
276.9
|
|
|
105.5
|
|
|
270.8
|
|
|
441.1
|
|
|
121.8
|
|
Total products and services revenue
|
$
|
2,601.8
|
|
|
$
|
3,086.0
|
|
|
$
|
525.1
|
|
|
$
|
2,645.9
|
|
|
$
|
2,840.1
|
|
|
$
|
746.0
|
|
The following tables represent revenue by contract type for each reportable segment for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
(In millions)
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
Services
|
$
|
764.2
|
|
|
$
|
1,520.6
|
|
|
$
|
30.4
|
|
|
$
|
970.2
|
|
|
$
|
1,505.0
|
|
|
$
|
73.6
|
|
Products
|
604.0
|
|
|
17.7
|
|
|
196.7
|
|
|
518.3
|
|
|
—
|
|
|
314.5
|
|
Total products and services revenue
|
1,368.2
|
|
|
1,538.3
|
|
|
227.1
|
|
|
1,488.5
|
|
|
1,505.0
|
|
|
388.1
|
|
Lease
|
10.3
|
|
|
—
|
|
|
14.6
|
|
|
20.2
|
|
|
—
|
|
|
32.4
|
|
Total revenue
|
$
|
1,378.5
|
|
|
$
|
1,538.3
|
|
|
$
|
241.7
|
|
|
$
|
1,508.7
|
|
|
$
|
1,505.0
|
|
|
$
|
420.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
(In millions)
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
|
Subsea
|
|
Technip Energies
|
|
Surface Technologies
|
Services
|
$
|
1,481.7
|
|
|
$
|
3,054.7
|
|
|
$
|
86.5
|
|
|
$
|
1,615.8
|
|
|
$
|
2,840.1
|
|
|
$
|
144.0
|
|
Products
|
1,120.1
|
|
|
31.3
|
|
|
438.6
|
|
|
1,030.1
|
|
|
—
|
|
|
602.0
|
|
Total products and services revenue
|
2,601.8
|
|
|
3,086.0
|
|
|
525.1
|
|
|
2,645.9
|
|
|
2,840.1
|
|
|
746.0
|
|
Lease
|
29.8
|
|
|
—
|
|
|
46.1
|
|
|
48.1
|
|
|
—
|
|
|
67.1
|
|
Total revenue
|
$
|
2,631.6
|
|
|
$
|
3,086.0
|
|
|
$
|
571.2
|
|
|
$
|
2,694.0
|
|
|
$
|
2,840.1
|
|
|
$
|
813.1
|
|
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) on the consolidated balance sheets.
Contract Assets - Contract Assets include unbilled amounts typically resulting from sales under long-term contracts when revenue is recognized over time and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs and estimated earnings in excess of billings on uncompleted contracts are generally classified as current.
Contract Liabilities - We sometimes receive advances or deposits from our customers, before revenue is recognized, resulting in contract liabilities.
The following table provides information about net contract liabilities as of June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
|
$ change
|
|
% change
|
Contract assets
|
$
|
1,414.4
|
|
|
$
|
1,520.0
|
|
|
$
|
(105.6)
|
|
|
(6.9)
|
|
Contract (liabilities)
|
(4,685.4)
|
|
|
(4,585.1)
|
|
|
(100.3)
|
|
|
(2.2)
|
|
Net contract liabilities
|
$
|
(3,271.0)
|
|
|
$
|
(3,065.1)
|
|
|
$
|
(205.9)
|
|
|
(6.7)
|
|
The decrease in our contract assets from December 31, 2019 to June 30, 2020 was primarily due to the timing of milestones.
The increase in our contract liabilities was primarily due to additional cash received, excluding amounts recognized as revenue during the period.
In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. Revenue recognized for the three months ended June 30, 2020 and 2019 that was included in the contract liabilities balance at December 31, 2019 and 2018 was $457.3 million and $1,147.1 million, respectively, and $874.4 million and $2,014.3 million for the six months ended June 30, 2020 and 2019, respectively.
In addition, net revenue recognized for the three months ended June 30, 2020 and 2019 from our performance obligations satisfied in previous periods had favorable impacts of $101.6 million and $325.7 million, respectively, and $158.9 million and $493.4 million for the six months ended June 30, 2020 and 2019, respectively. This primarily relates to the changes in the estimate of the stage of completion that impacted revenue.
Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations
Remaining unsatisfied performance obligations (“RUPO” or “order backlog”) represent the transaction price for products and services for which we have a material right but work has not been performed. The transaction price of the order backlog includes the base transaction price, variable consideration and changes in transaction price. The order backlog table does not include contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The transaction price of order backlog related to unfilled, confirmed customer orders is estimated at each reporting date. As of June 30, 2020, the aggregate amount of the transaction price allocated to order backlog was $20,603.8 million. We expect to recognize revenue on approximately 27.8% of the order backlog through 2020 and 72.2% thereafter.
The following table details the order backlog for each business segment as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2020
|
|
2021
|
|
Thereafter
|
Subsea
|
$
|
2,211.7
|
|
|
$
|
2,912.0
|
|
|
$
|
1,961.6
|
|
Technip Energies
|
3,291.8
|
|
|
5,541.9
|
|
|
4,298.9
|
|
Surface Technologies
|
220.2
|
|
|
161.0
|
|
|
4.7
|
|
Total order backlog
|
$
|
5,723.7
|
|
|
$
|
8,614.9
|
|
|
$
|
6,265.2
|
|
NOTE 6. BUSINESS SEGMENTS
Management’s determination of our reporting segments was made on the basis of our strategic priorities within each segment and the differences in the products and services we provide, which corresponds to the manner in which our Chairman and Chief Executive Officer, as our chief operating decision maker, reviews and evaluates operating performance to make decisions about resources to be allocated to the segment.
We report the results of operations in the following segments:
•Subsea - designs and manufactures products and systems, performs engineering, procurement and project management, and provides services used by oil and gas companies involved in offshore exploration and production of crude oil and natural gas.
•Technip Energies - offers extensive experience, knowledge and unique project management capabilities in Onshore and Offshore hydrocarbon infrastructure businesses; it also combines its leading engineering and construction capabilities with its technological know-how, products and services to develop new solutions that will support the world’s energy transition.
•Surface Technologies - designs and manufactures products and systems and provides services used by oil and gas companies involved in land and shallow water exploration and production of crude oil and natural gas; designs, manufactures, and supplies technologically advanced high-pressure valves and fittings for oilfield service companies; and also provides flowback and well testing services.
Beginning in the first quarter of 2020, in anticipation of our separation transaction, we renamed our Onshore/Offshore segment to Technip Energies, which includes our Loading Systems business that was previously reported in the Surface Technologies segment and our process automation business, Cybernetix, that was previously reported in the Subsea segment. Prior year information has not been restated due to these businesses not being material.
Segment operating profit (loss) is defined as total segment revenue less segment operating expenses. Income (loss) from equity method investments is included in computing segment operating profit. The following items have been excluded in computing segment operating profit (loss): corporate staff expense, foreign exchange gains (losses), net interest income (expense) associated with corporate debt facilities, income taxes, and other revenue and other expense, net.
Segment revenue and segment operating profit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Segment revenue
|
|
|
|
|
|
|
|
Subsea
|
$
|
1,378.5
|
|
|
$
|
1,508.7
|
|
|
$
|
2,631.6
|
|
|
$
|
2,694.0
|
|
Technip Energies
|
1,538.3
|
|
|
1,505.0
|
|
|
3,086.0
|
|
|
2,840.1
|
|
Surface Technologies
|
241.7
|
|
|
420.5
|
|
|
571.2
|
|
|
813.1
|
|
Total revenue
|
$
|
3,158.5
|
|
|
$
|
3,434.2
|
|
|
$
|
6,288.8
|
|
|
$
|
6,347.2
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss)
|
|
|
|
|
|
|
|
Subsea
|
$
|
(75.6)
|
|
|
$
|
94.6
|
|
|
$
|
(2,826.3)
|
|
|
$
|
144.5
|
|
Technip Energies
|
231.3
|
|
|
274.0
|
|
|
382.5
|
|
|
429.7
|
|
Surface Technologies
|
(13.4)
|
|
|
25.5
|
|
|
(437.4)
|
|
|
36.0
|
|
Total segment operating profit (loss)
|
$
|
142.3
|
|
|
$
|
394.1
|
|
|
$
|
(2,881.2)
|
|
|
$
|
610.2
|
|
|
|
|
|
|
|
|
|
Corporate items
|
|
|
|
|
|
|
|
Impairment, restructuring and other expenses
|
(1.9)
|
|
|
(1.4)
|
|
|
(5.5)
|
|
|
(10.3)
|
|
Separation costs
|
—
|
|
|
—
|
|
|
(27.1)
|
|
|
—
|
|
Merger transaction costs
|
—
|
|
|
(12.9)
|
|
|
—
|
|
|
(25.0)
|
|
Legal expenses
|
—
|
|
|
(55.2)
|
|
|
—
|
|
|
(55.2)
|
|
Other corporate expenses(a)
|
(27.2)
|
|
|
(51.4)
|
|
|
(65.4)
|
|
|
(112.4)
|
|
Corporate expense
|
(29.1)
|
|
|
(120.9)
|
|
|
(98.0)
|
|
|
(202.9)
|
|
Net interest expense
|
(74.4)
|
|
|
(140.6)
|
|
|
(146.7)
|
|
|
(228.8)
|
|
Foreign exchange losses
|
(5.8)
|
|
|
(18.0)
|
|
|
(49.1)
|
|
|
(29.6)
|
|
Total corporate items
|
(109.3)
|
|
|
(279.5)
|
|
|
(293.8)
|
|
|
(461.3)
|
|
Income (loss) before income taxes(b)
|
$
|
33.0
|
|
|
$
|
114.6
|
|
|
$
|
(3,175.0)
|
|
|
$
|
148.9
|
|
(a)Other corporate expenses primarily include corporate staff expenses, stock-based compensation expenses, and other employee benefits.
(b)Includes amounts attributable to non-controlling interests.
Segment assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31, 2019
|
Segment assets
|
|
|
|
Subsea
|
$
|
7,314.9
|
|
|
$
|
10,824.2
|
|
Technip Energies
|
4,725.1
|
|
|
4,448.8
|
|
Surface Technologies
|
1,522.4
|
|
|
2,246.4
|
|
|
|
|
|
Total segment assets
|
13,562.4
|
|
|
17,519.4
|
|
Corporate (a)
|
6,032.0
|
|
|
5,999.4
|
|
Total assets
|
$
|
19,594.4
|
|
|
$
|
23,518.8
|
|
(a)Corporate includes cash, deferred income tax balances, property, plant and equipment not associated with a specific segment, pension assets and the fair value of derivative financial instruments.
NOTE 7. EARNINGS (LOSS) 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)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss) attributable to TechnipFMC plc
|
$
|
11.7
|
|
|
$
|
97.0
|
|
|
$
|
(3,244.4)
|
|
|
$
|
117.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
448.3
|
|
|
447.5
|
|
|
447.9
|
|
|
447.7
|
|
Dilutive effect of restricted stock units
|
0.3
|
|
|
1.6
|
|
|
—
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
Dilutive effect of performance shares
|
0.9
|
|
|
2.1
|
|
|
—
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
Total shares and dilutive securities
|
449.5
|
|
|
451.2
|
|
|
447.9
|
|
|
451.9
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to TechnipFMC plc
|
$
|
0.03
|
|
|
$
|
0.22
|
|
|
$
|
(7.24)
|
|
|
$
|
0.26
|
|
Diluted earnings (loss) per share attributable to TechnipFMC plc
|
$
|
0.03
|
|
|
$
|
0.21
|
|
|
$
|
(7.24)
|
|
|
$
|
0.26
|
|
For the six months ended June 30, 2020, we incurred a net loss; therefore, the impact of any incremental shares from our share-based compensation awards would be anti-dilutive. For the six months ended June 30, 2020, 3.4 million shares were anti-dilutive due to net loss position.
Weighted average shares of the following share-based compensation awards were excluded from the calculation of diluted weighted average number of shares where the assumed proceeds exceed the average market price from the calculation of diluted weighted average number of shares, because their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(millions of shares)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Share option awards
|
4.7
|
|
|
4.9
|
|
|
4.7
|
|
|
4.6
|
|
Restricted share units
|
6.3
|
|
|
—
|
|
|
1.8
|
|
|
0.1
|
|
Performance shares
|
4.8
|
|
|
0.1
|
|
|
2.1
|
|
|
0.1
|
|
Total
|
15.8
|
|
|
5.0
|
|
|
8.6
|
|
|
4.8
|
|
NOTE 8. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
Raw materials
|
$
|
286.1
|
|
|
$
|
347.5
|
|
Work in process
|
254.5
|
|
|
290.2
|
|
Finished goods
|
829.6
|
|
|
778.3
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
$
|
1,370.2
|
|
|
$
|
1,416.0
|
|
NOTE 9. OTHER CURRENT ASSETS & OTHER CURRENT LIABILITIES
Other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
Value-added tax receivables
|
$
|
407.4
|
|
|
$
|
395.2
|
|
Sundry receivables
|
162.7
|
|
|
69.6
|
|
Prepaid expenses
|
127.0
|
|
|
66.8
|
|
Other taxes receivables
|
79.0
|
|
|
100.7
|
|
Held-to-maturity investments
|
49.7
|
|
|
49.7
|
|
Current financial assets at amortized cost
|
39.0
|
|
|
42.0
|
|
Asset held for sale
|
1.9
|
|
|
25.8
|
|
Other
|
71.3
|
|
|
113.9
|
|
Total other current assets
|
$
|
938.0
|
|
|
$
|
863.7
|
|
Other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
Warranty accruals and project contingencies (Note 10)
|
$
|
233.0
|
|
|
$
|
310.1
|
|
Value added tax and other taxes payable
|
196.4
|
|
|
240.4
|
|
Legal provisions
|
168.9
|
|
|
183.6
|
|
Social security liability
|
123.5
|
|
|
116.5
|
|
Provisions
|
98.8
|
|
|
86.6
|
|
Redeemable financial liability
|
71.8
|
|
|
129.1
|
|
Compensation accrual
|
38.8
|
|
|
89.6
|
|
Current portion of accrued pension and other post-retirement benefits
|
17.3
|
|
|
14.9
|
|
Liabilities held for sale
|
—
|
|
|
9.3
|
|
Other accrued liabilities
|
288.2
|
|
|
314.4
|
|
Total other current liabilities
|
$
|
1,236.7
|
|
|
$
|
1,494.5
|
|
NOTE 10. WARRANTY OBLIGATIONS
Warranty obligations are included within “Other current liabilities” in our consolidated balance sheets as of June 30, 2020 and December 31, 2019. A reconciliation of warranty obligations for the three and six months ended June 30, 2020 and 2019 is as following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance at beginning of period
|
$
|
148.6
|
|
|
$
|
181.5
|
|
|
$
|
193.5
|
|
|
$
|
234.4
|
|
Warranty expenses
|
35.8
|
|
|
30.2
|
|
|
46.4
|
|
|
37.4
|
|
Adjustment to existing accruals
|
(4.5)
|
|
|
11.2
|
|
|
(56.9)
|
|
|
(44.9)
|
|
Claims paid
|
(7.3)
|
|
|
(16.9)
|
|
|
(10.4)
|
|
|
(20.9)
|
|
Balance at end of period
|
$
|
172.6
|
|
|
$
|
206.0
|
|
|
$
|
172.6
|
|
|
$
|
206.0
|
|
NOTE 11. EQUITY METHOD INVESTMENTS
Our income from equity affiliates included in each of our reporting segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Subsea
|
$
|
15.7
|
|
|
$
|
11.3
|
|
|
$
|
36.8
|
|
|
$
|
26.2
|
|
Technip Energies
|
(2.7)
|
|
|
2.9
|
|
|
5.0
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
Income from equity affiliates
|
$
|
13.0
|
|
|
$
|
14.2
|
|
|
$
|
41.8
|
|
|
$
|
28.1
|
|
NOTE 12. RELATED PARTY TRANSACTIONS
Receivables, payables, revenues, and expenses, which are included in our consolidated financial statements for all transactions with related parties, defined as entities related to our directors and main shareholders as well as the partners of our consolidated joint ventures, were as follows.
Trade receivables consisted of receivables due from the following related parties:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31, 2019
|
TP JGC Coral France SNC
|
$
|
35.9
|
|
|
$
|
40.1
|
|
TTSJV W.L.L.
|
16.8
|
|
|
22.4
|
|
Novarctic SNC
|
5.4
|
|
|
—
|
|
Others
|
19.1
|
|
|
14.3
|
|
Total trade receivables
|
$
|
77.2
|
|
|
$
|
76.8
|
|
TP JGC Coral France SNC, TTSJV W.L.L. and Novarctic SNC are equity method affiliates.
Trade payables consisted of payables due to the following related parties:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31, 2019
|
Chiyoda
|
$
|
16.6
|
|
|
$
|
24.8
|
|
JGC Corporation
|
4.2
|
|
|
15.1
|
|
IFP Energies nouvelles
|
2.2
|
|
|
2.4
|
|
Dofcon Navegacao
|
1.5
|
|
|
2.1
|
|
|
|
|
|
Others
|
2.8
|
|
|
6.7
|
|
Total trade payables
|
$
|
27.3
|
|
|
$
|
51.1
|
|
Chiyoda and JGC Corporation are joint venture partners on our Yamal project. A member of our Board of Directors served as an executive officer of IFP Energies nouvelles until June 2020. Dofcon Navegacao is an equity method affiliate.
Additionally, we have a note receivables balance of $52.8 million and $65.2 million at June 30, 2020 and December 31, 2019, respectively. The note receivables balance includes $50.1 million and $62.5 million with Dofcon Brasil AS as of June 30, 2020 and December 31, 2019, respectively. Dofcon Brasil AS is a variable interest entity (“VIE”) and accounted for as an equity method affiliate. These are included in other assets in our consolidated balance sheets.
Revenue consisted of amounts from the following related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
TTSJV W.L.L.
|
$
|
13.0
|
|
|
$
|
22.7
|
|
|
$
|
28.6
|
|
|
$
|
75.5
|
|
TP JGC Coral France SNC
|
6.6
|
|
|
51.0
|
|
|
19.2
|
|
|
77.7
|
|
Techdof Brasil AS
|
2.4
|
|
|
—
|
|
|
4.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dofcon Navegacao
|
—
|
|
|
1.6
|
|
|
0.6
|
|
|
5.7
|
|
Anadarko Petroleum Company
|
—
|
|
|
12.1
|
|
|
—
|
|
|
40.8
|
|
TOP CV
|
—
|
|
|
2.7
|
|
|
—
|
|
|
4.0
|
|
Others
|
7.5
|
|
|
12.4
|
|
|
13.6
|
|
|
22.5
|
|
Total revenue
|
$
|
29.5
|
|
|
$
|
102.5
|
|
|
$
|
66.4
|
|
|
$
|
226.2
|
|
A member of our Board of Directors (the “Director”) served on the Board of Directors of Anadarko Petroleum Company (“Anadarko”) until August 2019. In August 2019, Anadarko was acquired by Occidental Petroleum Corporation (“Occidental”). As a result, the Director no longer serves as a member of the Board of Directors of Anadarko. The Director is not an officer or director of Occidental.
Techdof Brasil AS is a wholly owned subsidiary of Dofcon Brasil AS, our equity method affiliate.
TOP CV was previously an equity method affiliate that became a fully consolidated subsidiary on December 30, 2019. See Note 3 for further details.
Expenses consisted of amount to the following related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Dofcon Navegacao
|
$
|
3.8
|
|
|
$
|
—
|
|
|
$
|
11.8
|
|
|
$
|
0.4
|
|
Arkema S.A.
|
2.4
|
|
|
9.8
|
|
|
2.8
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Magma Global Limited
|
0.9
|
|
|
1.3
|
|
|
1.6
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
IFP Energies nouvelles
|
0.7
|
|
|
—
|
|
|
1.8
|
|
|
1.0
|
|
Serimax Holdings SAS
|
0.3
|
|
|
0.2
|
|
|
0.5
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
JGC Corporation
|
0.2
|
|
|
4.6
|
|
|
0.4
|
|
|
18.9
|
|
Chiyoda
|
—
|
|
|
3.4
|
|
|
—
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
0.9
|
|
|
5.8
|
|
|
10.8
|
|
|
9.2
|
|
Total expenses
|
$
|
9.2
|
|
|
$
|
25.1
|
|
|
$
|
29.7
|
|
|
$
|
77.8
|
|
Magma Global Limited and Serimax Holdings SAS are equity method affiliates. A member of our Board of Directors serves on the Board of Directors for Arkema S.A.
NOTE 13. GOODWILL AND INTANGIBLE ASSETS
During the first quarter of 2020, triggering events were identified which led to performing interim goodwill impairment testing in our Subsea and Surface Technologies reporting units as of March 31, 2020. These events included the COVID-19 pandemic breakout, commodity price declines, and a significant decrease in our market capitalization as well as those of our peers and customers.
The fair value for our reporting units was valued using a market approach. An appropriate control premium was considered for each of the reporting units and applied to the output of the market approach.
The impairment assessment resulted in a conclusion that goodwill in the Subsea and Surface Technologies segments was impaired by $2,747.5 million and $335.9 million, respectively. The impairment assessment also concluded the fair value of the Technip Energies reporting unit was in excess of its carrying amount.
The carrying amount of goodwill by business segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Subsea
|
|
Technip Energies
|
|
Surface
|
|
Total
|
December 31, 2019
|
$
|
2,814.1
|
|
|
$
|
2,423.6
|
|
|
$
|
360.6
|
|
|
$
|
5,598.3
|
|
Transfers (a)
|
(21.2)
|
|
|
46.1
|
|
|
(24.9)
|
|
|
—
|
|
Impairments
|
(2,747.5)
|
|
|
—
|
|
|
(335.9)
|
|
|
(3,083.4)
|
|
|
|
|
|
|
|
|
|
Translation
|
(45.4)
|
|
|
1.0
|
|
|
0.2
|
|
|
(44.2)
|
|
June 30, 2020
|
$
|
—
|
|
|
$
|
2,470.7
|
|
|
$
|
—
|
|
|
$
|
2,470.7
|
|
(a) Beginning in the first quarter of 2020, Technip Energies includes our Loading Systems business that was previously reported in the Surface Technologies segment and our process automation business, Cybernetix, that was previously reported in the Subsea segment. See Note 6 for further details.
NOTE 14. DEBT
Overview
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
1,851.1
|
|
|
$
|
1,967.0
|
|
Synthetic bonds due 2021
|
496.7
|
|
|
492.9
|
|
3.45% Senior Notes due 2022
|
500.0
|
|
|
500.0
|
|
5.00% 2010 Private placement notes due 2020
|
223.9
|
|
|
224.6
|
|
3.40% 2012 Private placement notes due 2022
|
167.9
|
|
|
168.5
|
|
3.15% 2013 Private placement notes due 2023
|
145.5
|
|
|
146.0
|
|
3.15% 2013 Private placement notes due 2023
|
139.9
|
|
|
140.4
|
|
4.50% 2020 Private placement notes due 2025
|
167.9
|
|
|
—
|
|
4.00% 2012 Private placement notes due 2027
|
84.0
|
|
|
84.2
|
|
4.00% 2012 Private placement notes due 2032
|
111.8
|
|
|
112.3
|
|
3.75% 2013 Private placement notes due 2033
|
111.8
|
|
|
112.3
|
|
Bank borrowings
|
477.1
|
|
|
513.3
|
|
Other
|
41.2
|
|
|
23.0
|
|
Unamortized issuing fees
|
(11.8)
|
|
|
(9.1)
|
|
Total debt
|
4,507.0
|
|
|
4,475.4
|
|
Less: current borrowings (a)
|
524.1
|
|
|
495.4
|
|
Long-term debt
|
$
|
3,982.9
|
|
|
$
|
3,980.0
|
|
|
|
|
|
(a) As of June 30, 2020 and December 31, 2019, current borrowings consisted primarily of bank borrowings and notes with current maturities of 12 months.
Significant Funding and Liquidity Activities
During the six months ended June 30, 2020, we completed the following transactions in order to enhance our total liquidity position:
•Issued €150 million aggregate principal amount of new 4.500% notes due June 30, 2025. On July 31, 2020, we entered into a subscription agreement with respect to the issuance and sale of an additional €50 million aggregate principal amount of the Euro Denominated Notes, which is expected to close on August 4, 2020 and is subject to the satisfaction of customary conditions precedent. In the event of the spin-off of our Technip Energies business segment followed, within three months of the effective date of the spin-off, by a downgrade by a nationally recognized rating agency of the corporate rating of TechnipFMC from an investment grade to a non-investment grade rating or a withdrawal of any such rating, the interest rate applicable to the Euro Denominated Notes will be increased to 5.75%;
•Entered into a new, six-month €500 million senior unsecured revolving credit facility agreement, which may be extended for two additional three-month periods (the “Euro Facility”); and
•Entered into the Bank of England’s COVID Corporate Financing Facility program (the “CCFF Program”), which allows us to issue up to £600 million of unsecured commercial paper notes.
Credit Facilities and Debt
Revolving credit facility - On January 17, 2017, we acceded to a new $2.5 billion senior unsecured revolving credit facility agreement (“Facility Agreement”) between FMC Technologies, Inc., Technip Eurocash SNC, and TechnipFMC plc (the “Borrowers”) with JPMorgan Chase Bank, National Association (“JPMorgan”), as agent and an arranger, SG Americas Securities LLC as an arranger, and the lenders party thereto.
The Facility Agreement provides for the establishment of a multicurrency, revolving credit facility, which includes a $1.5 billion letter of credit subfacility. Subject to certain conditions, the Borrowers may request the aggregate commitments under the facility agreement be increased by an additional $500.0 million. On November 26, 2018, we entered into an agreement which extends the expiration date to January 2023.
Borrowings under the Facility Agreement bear interest at the following rates, plus an applicable margin, depending on currency:
•U.S. dollar-denominated loans bear interest, at the Borrowers’ option, at a base rate or an adjusted rate linked to the London interbank offered rate (“Adjusted LIBOR”);
•sterling-denominated loans bear interest at Adjusted LIBOR; and
•euro-denominated loans bear interest at the Euro interbank offered rate (“EURIBOR”).
Depending on our credit rating, the applicable margin for revolving loans varies (i) in the case of Adjusted LIBOR and EURIBOR loans, from 0.820% to 1.300% and (ii) in the case of base rate loans, from 0.000% to 0.300%. The “base rate” is the highest of (a) the prime rate announced by JPMorgan, (b) the greater of the Federal Funds Rate and the Overnight Bank Funding Rate plus 0.50% or (c) one-month Adjusted LIBOR plus 1.00%. As of June 30, 2020, there were no outstanding borrowings under our revolving credit facility.
Euro Facility – On May 19, 2020, we entered into the Euro Facility with HSBC France, as agent, and the lenders party thereto, which provides for the establishment of a six-month revolving credit facility denominated in Euros with total commitments of €500 million, which may be extended by us for two additional three-month periods. Borrowings under the Euro Facility bear interest at the Euro interbank offered rate for a period equal in length to the interest period of a given loan (which may be three or six months), plus an applicable margin. As of June 30, 2020, there were no outstanding borrowings under Euro Facility.
On June 12, 2020, we entered into Amendment No. 1 to the Facility Agreement and into an Amendment and Restatement Agreement to our Euro Facility. The amendments, which are effective through the respective expirations of the Facility Agreement and Euro Facility, permit us to include the gross book value of $3.2 billion of goodwill (fully impaired in the quarter ended March 31, 2020) in the calculation of consolidated net worth, which is used in the calculation of our quarterly compliance with the total capitalization ratio under the Facility Agreement and Euro Facility.
The Facility Agreement and Euro Facility contain usual and customary covenants, representations and warranties and events of default for credit facilities of this type, including financial covenants requiring that our total capitalization ratio not exceed 60% at the end of any financial quarter. The Facility Agreement and Euro Facility also contain covenants restricting our ability and our subsidiaries’ ability to incur additional liens and indebtedness, enter into asset sales, or make certain investments.
As of June 30, 2020, we were in compliance with all restrictive covenants under our credit facilities.
CCFF Program - On May 19, 2020, we entered into a dealer agreement (the “Dealer Agreement”) with Bank of America Merrill Lynch International DAC (the “Dealer”) and an Issuing and Paying Agency Agreement (the “Agency Agreement”, and together with the Dealer Agreement, the “Agreements”) with Bank of America, National Association, London Branch, relating to the European commercial paper program established under the CCFF Program as a source of additional liquidity.
The Agreements provide the terms under which we may issue, and the Dealer will arrange for, the sale of short-term, unsecured commercial paper notes (the “Notes”) to reduce existing debt or decrease overall borrowing costs. The Notes contain customary representations, warranties, covenants, defaults, and indemnification provisions, and will be sold at such discounts from their face amounts as shall be agreed between us and the Dealer. The Notes will be fully payable at maturity, and the maturities of the Notes will vary but may not exceed 364 days. The principal amount of outstanding Notes may not exceed £600 million. The Agency Agreement provides for the terms of issuance and payment of the Notes. As of June 30, 2020, our commercial paper borrowings under the CCFF Program had a weighted average interest rate of 0.43%. As of June 30, 2020, we had $392.7 million of Notes outstanding and recorded as long-term borrowings under the CCFF Program because we had the ability and intent to refinance the obligation due March 2021. Subsequent to June 30, 2020, we issued an additional $348.6 million of Notes.
Bilateral credit facility - We have access to a €100.0 million bilateral credit facility expiring in May 2021.
The bilateral credit facility contains usual and customary covenants, representations and warranties and events of default for credit facilities of this type.
As of June 30, 2020, there were no outstanding borrowings under our bilateral credit facility.
Commercial paper - Under our commercial paper program, we have the ability to access $1.5 billion and €1.0 billion of short-term financing through our commercial paper dealers, subject to the limit of unused capacity of our revolving facility agreement. 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 debt in the consolidated balance sheets as of June 30, 2020 and December 31, 2019. Commercial paper borrowings are issued at market interest rates. As of June 30, 2020, our commercial paper borrowings had a weighted average interest rate of 2.05% on the U.S. dollar denominated borrowings and 0.06% on the Euro denominated borrowings. As of June 30, 2020, we had $1,459.5 million of outstanding commercial paper borrowings under this program.
Synthetic bonds - As we have both the ability and intent to refinance this obligation on a long-term basis, our synthetic bonds due January 2021 are classified as long-term debt in the consolidated balance sheets as of June 30, 2020.
Bank borrowings - In December 2016, we entered into a £160.0 million term loan agreement to finance the Deep Explorer, a diving support vessel (“DSV”), maturing December 2028. Under the loan agreement, interest accrues at an annual rate of 2.813%. This loan agreement contains usual and customary covenants and events of default for loans of this type.
On December 30, 2019, we completed the acquisition of the remaining 50% interest in TOP CV. In connection with the acquisition, we assumed liabilities that included a $203.1 million term loan, of which $174.0 million is outstanding and due September 30, 2020. The debt is fully collateralized against our two vessels, Coral do Atlantico and Deep Star.
In January 2019, we executed a sale-leaseback transaction to finance the purchase of a deepwater DSV, Deep Discoverer (the “Vessel”) for the full transaction price of $116.8 million. The sale-leaseback agreement was entered into with a French joint-stock company owned by Credit Industrial et Commercial which was formed for the sole purpose to purchase and act as the lessor of the Vessel. It is a VIE, which is fully consolidated in our condensed consolidated financial statements. The transaction was funded through debt of $96.2 million which is primarily long-term, expiring on January 8, 2031.
Foreign committed credit - We have committed credit lines at many of our international subsidiaries for immaterial amounts. We utilize these facilities for asset financing and to provide a more efficient daily source of liquidity. The effective interest rates depend upon the local national market.
NOTE 15. STOCKHOLDERS’ EQUITY
Cash dividends paid during the six months ended June 30, 2020 and 2019 were $59.2 million and $116.6 million, respectively. We made a dividend payment of $0.13 per share in April 2020, which fulfills our annual dividend under our revised dividend policy announced on April 21, 2020.
As an English public limited company, we are required under U.K. law to have available “distributable reserves” to conduct share repurchases or pay dividends to shareholders. Distributable reserves are a statutory requirement and are not linked to a GAAP reported amount (e.g., retained earnings). The declaration and payment of dividends require the authorization of our Board of Directors, provided that such dividends on issued share capital may be paid only out of our “distributable reserves” in our statutory balance sheet. Therefore, we are not permitted to pay dividends out of share capital, which includes share premium. On November 27, 2019, we redeemed 50,000 redeemable shares of £1 each and cancelled one deferred ordinary share of £1 in the capital of the Company.
In April 2017, the Board of Directors authorized the repurchase of $500.0 million in ordinary shares under our share repurchase program. We implemented our share repurchase plan in September 2017. The Board of Directors authorized an extension of this program, adding $300.0 million in December 2018 for a total of $800.0 million in ordinary shares. There were no ordinary shares repurchased during the six months ended June 30, 2020 under our authorized share repurchase program. The $500.0 million part of the program was completed on December 20, 2018. We intend to cancel repurchased shares and not hold them in treasury. Canceled treasury shares are accounted for using the constructive retirement method.
Accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Foreign Currency
Translation
|
|
|
|
Hedging
|
|
Defined Pension
and Other
Post-Retirement
Benefits
|
|
Accumulated Other
Comprehensive
Loss attributable to
TechnipFMC plc
|
|
Accumulated Other
Comprehensive
Loss attributable
to non-controlling interest
|
December 31, 2019
|
$
|
(1,230.1)
|
|
|
|
|
$
|
(5.8)
|
|
|
$
|
(171.6)
|
|
|
$
|
(1,407.5)
|
|
|
$
|
(4.7)
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
(196.3)
|
|
|
|
|
(52.9)
|
|
|
2.2
|
|
|
(247.0)
|
|
|
(7.9)
|
|
Reclassification adjustment for net losses included in net income (loss), net of tax
|
—
|
|
|
|
|
3.8
|
|
|
4.9
|
|
|
8.7
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
(196.3)
|
|
|
|
|
(49.1)
|
|
|
7.1
|
|
|
(238.3)
|
|
|
(7.9)
|
|
June 30, 2020
|
$
|
(1,426.4)
|
|
|
|
|
$
|
(54.9)
|
|
|
$
|
(164.5)
|
|
|
$
|
(1,645.8)
|
|
|
$
|
(12.6)
|
|
Reclassifications out of accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Details about Accumulated Other Comprehensive Income (loss) Components
|
Amount Reclassified out of Accumulated Other
Comprehensive Loss
|
|
|
|
|
|
|
|
Affected Line Item in the Condensed Consolidated Statements of Income
|
Gains (losses) on hedging instruments
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
(11.3)
|
|
|
$
|
(13.2)
|
|
|
$
|
(22.4)
|
|
|
$
|
(12.5)
|
|
|
Revenue
|
|
10.2
|
|
|
2.3
|
|
|
20.0
|
|
|
4.9
|
|
|
Cost of sales
|
|
(0.4)
|
|
|
—
|
|
|
(0.4)
|
|
|
0.1
|
|
|
Selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
(2.2)
|
|
|
1.0
|
|
|
(1.2)
|
|
|
(1.4)
|
|
|
Other income (expense), net
|
|
(3.7)
|
|
|
(9.9)
|
|
|
(4.0)
|
|
|
(8.9)
|
|
|
Loss before income taxes
|
|
—
|
|
|
(3.2)
|
|
|
(0.2)
|
|
|
(2.5)
|
|
|
Provision for income taxes (Note 19)
|
|
$
|
(3.7)
|
|
|
$
|
(6.7)
|
|
|
$
|
(3.8)
|
|
|
$
|
(6.4)
|
|
|
Net loss
|
Pension and other post-retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit (cost)
|
(0.2)
|
|
|
(1.5)
|
|
|
(0.5)
|
|
|
(1.9)
|
|
|
(a)
|
Amortization of net actuarial loss
|
(3.1)
|
|
|
—
|
|
|
(5.9)
|
|
|
—
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
(3.3)
|
|
|
(1.5)
|
|
|
(6.4)
|
|
|
(1.9)
|
|
|
Loss before income taxes
|
|
(0.9)
|
|
|
(0.4)
|
|
|
(1.5)
|
|
|
(0.5)
|
|
|
Provision for income taxes (Note 19)
|
|
$
|
(2.4)
|
|
|
$
|
(1.1)
|
|
|
$
|
(4.9)
|
|
|
$
|
(1.4)
|
|
|
Net loss
|
(a)These accumulated other comprehensive income components are included in the computation of net periodic pension cost
.
NOTE 16. SHARE-BASED COMPENSATION
Under the Amended and Restated TechnipFMC plc Incentive Award Plan (the “Plan”), we may grant certain incentives and awards to our officers, employees, non-employee directors, and consultants of the Company and its subsidiaries. Awards may include share options, share appreciation rights, performance stock units, restricted stock units, restricted shares or other awards authorized under the Plan. Under the Plan, 24.1 million ordinary shares were authorized for awards.
We recognize compensation expense and the corresponding tax benefits for awards under the Plan. Share-based compensation expense for non-vested share options and time-based and performance-based restricted stock units was $16.8 million and $21.1 million for the three months ended June 30, 2020 and 2019, respectively, and $38.4 million and $41.5 million for the six months ended June 30, 2020 and 2019, respectively.
NOTE 17. IMPAIRMENT, RESTRUCTURING AND OTHER EXPENSES
Impairment, restructuring and other expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Subsea
|
$
|
95.8
|
|
|
$
|
4.5
|
|
|
$
|
2,869.4
|
|
|
$
|
6.8
|
|
Technip Energies
|
35.9
|
|
|
2.1
|
|
|
42.7
|
|
|
5.9
|
|
Surface Technologies
|
6.7
|
|
|
1.2
|
|
|
431.1
|
|
|
2.7
|
|
Corporate and other
|
1.9
|
|
|
1.4
|
|
|
5.5
|
|
|
10.3
|
|
Total impairment, restructuring and other expenses
|
$
|
140.3
|
|
|
$
|
9.2
|
|
|
$
|
3,348.7
|
|
|
$
|
25.7
|
|
Goodwill and Long-Lived Assets Impairments
During the first half of 2020, triggering events were identified which led to impairments of certain long-lived assets, including goodwill.
During the three and six months ended June 30, 2020, impairment charges of $33.7 million and $3,221.7 million were recorded, respectively. These charges included goodwill impairment charges of $2,747.5 million and $335.9 million in our Subsea and Surface Technologies segments, respectively, recorded during the six months ended June 30, 2020. See Note 13 for further details.
For other long-lived assets, a conclusion was made that the market uncertainty was a triggering event for certain asset groups that serve short-cycle businesses in our Subsea and Surface Technologies segments. Assessing these asset groups for recoverability required the use of unobservable inputs that involves significant judgment. Such judgments include expected future asset utilization while taking into account reduced future capital spending by certain customers in response to market conditions. As a result of this assessment, during the three and six months ended June 30, 2020, impairment charges for Subsea of $32.5 million and $61.5 million, respectively, consisting mostly of installation and service equipment, and $1.2 million and $76.8 million, respectively, for Surface Technologies, consisting mainly of North America-based fracturing and wellhead assets, were recorded.
Restructuring and Other Expenses
In addition, during the three and six months ended June 30, 2020, we recorded restructuring and other charges of $106.6 million and $127.0 million, respectively. Restructuring and other charges primarily consisted of severance and other employee related costs and COVID-19 related expenses across all segments. Restructuring and other expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
(In millions)
|
Restructuring and other charges
|
|
COVID-19 expenses
|
|
Restructuring and other charges
|
|
COVID-19 expenses
|
Subsea
|
$
|
35.9
|
|
|
$
|
27.4
|
|
|
$
|
29.0
|
|
|
$
|
31.4
|
|
Technip Energies
|
11.1
|
|
|
24.8
|
|
|
14.0
|
|
|
28.7
|
|
Surface Technologies
|
1.3
|
|
|
4.2
|
|
|
13.1
|
|
|
5.3
|
|
Corporate and other
|
1.9
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
Total
|
$
|
50.2
|
|
|
$
|
56.4
|
|
|
$
|
61.6
|
|
|
$
|
65.4
|
|
COVID-19 related expenses represent unplanned, one-off, incremental and non-recoverable costs incurred solely as a result of COVID-19 pandemic situation, which would not have been incurred otherwise. COVID-19 related expenses primarily included (a) employee payroll and travel, operational disruptions associated with quarantining, personnel travel restrictions to job sites, and shutdown of manufacturing plants and sites; (b) supply chain and related expediting costs of accelerated shipments for previously ordered and undelivered products; (c) costs associated with implementing additional information technology to support remote working environments; and (d) facilities-related expenses to ensure safe working environments.
Prolonged uncertainty in energy markets could lead to further future reductions in capital spending from our customer base. In turn, this may lead to changes in our strategy. We will continue to take actions designed to mitigate the adverse effects of the rapidly changing market environment and expect to continue to adjust our cost structure to market conditions. If market conditions continue to deteriorate, we may record additional restructuring charges and additional impairments of our long-lived assets and equity method investments.
NOTE 18. COMMITMENTS AND CONTINGENT LIABILITIES
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 expire within five years. Management does not expect any of these financial instruments to result in losses that, if incurred, would have a material adverse effect in our consolidated financial position, results of operations, or cash flows.
Guarantees consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2020
|
|
December 31,
2019
|
Financial guarantees (a)
|
$
|
944.4
|
|
|
$
|
945.5
|
|
Performance guarantees (b)
|
4,988.4
|
|
|
4,916.0
|
|
Maximum potential undiscounted payments
|
$
|
5,932.8
|
|
|
$
|
5,861.5
|
|
(a)Financial guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on changes in an underlying agreement that is related to an asset, a liability or an equity security of the guaranteed party. These tend to be drawn down only if there is a failure to fulfill our financial obligations.
(b)Performance guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on another entity's failure to perform under a nonfinancial obligating agreement. Events that trigger payment are performance-related, such as failure to ship a product or provide a service.
We believe the ultimate resolution of our known contingencies will not materially adversely affect our consolidated financial position, results of operations, or cash flows.
Contingent liabilities associated with legal and tax matters - We are involved in various pending or potential legal and tax actions or disputes in the ordinary course of our business. These actions and disputes can involve our agents, suppliers, clients, and venture partners, and can include claims related to payment of fees, service quality, and ownership arrangements, including certain put or call options. We are unable to predict the ultimate outcome of these actions because of their inherent uncertainty. However, we believe that the most probable, ultimate resolution of these matters will not have a material adverse effect in our consolidated financial position, results of operations or cash flows.
On March 28, 2016, FMC Technologies received an inquiry from the U.S. Department of Justice (“DOJ”) related to the DOJ's investigation of whether certain services Unaoil S.A.M. provided to its clients, including FMC Technologies, violated the U.S. Foreign Corrupt Practices Act (“FCPA”). On March 29, 2016, Technip S.A. also received an inquiry from the DOJ related to Unaoil. We cooperated with the DOJ's investigations and, with regard to FMC Technologies, a related investigation by the SEC.
In late 2016, Technip S.A. was contacted by the DOJ regarding its investigation of offshore platform projects awarded between 2003 and 2007, performed in Brazil by a joint venture company in which Technip S.A. was a minority participant, and we have also raised with DOJ certain other projects performed by Technip S.A. subsidiaries in Brazil between 2002 and 2013. The DOJ has also inquired about projects in Ghana and Equatorial Guinea that were awarded to Technip S.A. subsidiaries in 2008 and 2009, respectively. We cooperated with the DOJ in its investigation into potential violations of the FCPA in connection with these projects. We contacted and cooperated with the Brazilian authorities (Federal Prosecution Service (“MPF”), the Comptroller General of Brazil (“CGU”) and the Attorney General of Brazil (“AGU”)) with their investigation concerning the projects in Brazil and have also contacted and are cooperating with French authorities (the Parquet National Financier (“PNF”)) with their investigation about these existing matters.
On June 25, 2019, we announced a global resolution to pay a total of $301.3 million to the DOJ, the SEC, the MPF, and the CGU/AGU to resolve these anti-corruption investigations. We will not be required to have a monitor and will, instead, provide reports on our anti-corruption program to the Brazilian and U.S. authorities for two and three years, respectively.
As part of this resolution, we entered into a three-year Deferred Prosecution Agreement (“DPA”) with the DOJ related to charges of conspiracy to violate the FCPA related to conduct in Brazil and with Unaoil. In addition, Technip USA, Inc., a U.S. subsidiary, pled guilty to one count of conspiracy to violate the FCPA related to conduct in Brazil. We will also provide the DOJ reports on our anti-corruption program during the term of the DPA.
In Brazil, our subsidiaries Technip Brasil - Engenharia, Instalações E Apoio Marítimo Ltda. and Flexibrás Tubos Flexíveis Ltda. entered into leniency agreements with both the MPF and the CGU/AGU. We have committed, as part of those agreements, to make certain enhancements to their compliance programs in Brazil during a two-year self-reporting period, which aligns with our commitment to cooperation and transparency with the compliance community in Brazil and globally.
In September 2019, the SEC approved our previously disclosed agreement in principle with the SEC Staff and issued an Administrative Order, pursuant to which we paid the SEC $5.1 million, which was included in the global resolution of $301.3 million.
To date, the investigation by PNF related to historical projects in Equatorial Guinea and Ghana has not reached resolution. We remain committed to finding a resolution with the PNF and will maintain a $70.0 million provision related to this investigation. As we continue to progress our discussions with PNF towards resolution, the amount of a settlement could exceed this provision.
There is no certainty that a settlement with PNF will be reached or that the settlement will not exceed current accruals. The PNF has a broad range of potential sanctions under anticorruption laws and regulations that it may seek to impose in appropriate circumstances including, but not limited to, fines, penalties, and modifications to business practices and compliance programs. Any of these measures, if applicable to us, as well as potential customer reaction to such measures, could have a material adverse impact on our business, results of operations, and financial condition. If we cannot reach a resolution with the PNF, we could be subject to criminal proceedings in France, the outcome of which cannot be predicted.
Contingent liabilities associated with liquidated damages - Some of our contracts contain provisions that require us to pay liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a conforming claim under these provisions. These contracts define the conditions under which our customers may make claims against us for liquidated damages. Based upon the evaluation of our performance and other commercial and legal analysis, management believes we have appropriately recognized probable liquidated damages at June 30, 2020 and December 31, 2019, and that the ultimate resolution of such matters will not materially affect our consolidated financial position, results of operations, or cash flows.
NOTE 19. INCOME TAXES
Our provision for income taxes for the three months ended June 30, 2020 and 2019 reflected effective tax rates of 53.6% and 0.8%, respectively. The year-over-year increase in the effective tax rate was primarily due to the impact of losses in jurisdictions with a full valuation allowance, offset in part by a favorable change in forecasted earnings mix. The increase also relates to one-time benefits, which were recorded in 2019, for the finalization of previously estimated tax liabilities based on the filing of tax returns.
Our provision for income taxes for the six months ended June 30, 2020 and 2019 reflected effective tax rates of (1.7)% and 10.3%, respectively. The year-over-year increase in the effective tax rate was primarily due to the impact of nondeductible goodwill impairments, offset in part by a favorable change in forecasted earnings mix.
Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to higher tax rates than in the United Kingdom.
NOTE 20. 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 is 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, 2020, we held the following material net positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional Amount
Bought (Sold)
|
|
|
(In millions)
|
|
|
USD Equivalent
|
Euro
|
1,915.9
|
|
|
2,144.9
|
|
Brazilian real
|
7,480.0
|
|
|
1,365.9
|
|
British pound
|
644.3
|
|
|
790.8
|
|
Norwegian krone
|
1,796.3
|
|
|
184.3
|
|
Malaysian ringgit
|
485.6
|
|
|
113.3
|
|
Singapore dollar
|
106.7
|
|
|
76.3
|
|
Indian rupee
|
2,072.5
|
|
|
27.4
|
|
Japanese yen
|
2,157.7
|
|
|
20.0
|
|
Colombian peso
|
51,238.2
|
|
|
13.6
|
|
Hong Kong dollar
|
(94.5)
|
|
|
(12.2)
|
|
Mexican peso
|
(460.7)
|
|
|
(19.9)
|
|
Australian dollar
|
(29.7)
|
|
|
(20.3)
|
|
Canadian dollar
|
(89.8)
|
|
|
(65.6)
|
|
U.S. dollar
|
(2,337.4)
|
|
|
(2,337.4)
|
|
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, 2020, our portfolio of these instruments included the following material net positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional Amount
Bought (Sold)
|
|
|
(In millions)
|
|
|
USD Equivalent
|
Brazilian real
|
76.5
|
|
|
14.0
|
|
Euro
|
(6.4)
|
|
|
(7.2)
|
|
Norwegian krone
|
(103.0)
|
|
|
(10.6)
|
|
U.S. dollar
|
1.7
|
|
|
1.7
|
|
Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. See Note 21 for further details. 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, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(In millions)
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Current - Derivative financial instruments
|
$
|
184.9
|
|
|
$
|
298.3
|
|
|
$
|
94.3
|
|
|
$
|
125.0
|
|
|
|
|
|
Long-term - Derivative financial instruments
|
77.1
|
|
|
67.0
|
|
|
34.8
|
|
|
48.0
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
262.0
|
|
|
365.3
|
|
|
129.1
|
|
|
173.0
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Current - Derivative financial instruments
|
17.0
|
|
|
10.2
|
|
|
7.6
|
|
|
16.3
|
|
|
|
|
|
Long-term - Derivative financial instruments
|
—
|
|
|
0.1
|
|
|
0.4
|
|
|
0.4
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
17.0
|
|
|
10.3
|
|
|
8.0
|
|
|
16.7
|
|
|
|
|
|
Long-term - Derivative financial instruments - Synthetic Bonds - Call Option Premium
|
0.1
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
|
|
|
Long-term - Derivative financial instruments - Synthetic Bonds - Embedded Derivatives
|
—
|
|
|
0.1
|
|
|
—
|
|
|
4.3
|
|
|
|
|
|
Total derivatives
|
$
|
279.1
|
|
|
$
|
375.7
|
|
|
$
|
141.4
|
|
|
$
|
194.0
|
|
|
|
|
|
Cash flow hedges of forecasted transactions qualifying for hedge accounting, net of tax, resulted in accumulated other comprehensive losses of $55.8 million and $5.8 million at June 30, 2020 and December 31, 2019, respectively. We expect to transfer an approximate $33.6 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 second half of 2023.
The following table presents the gains (losses) recognized in other comprehensive income related to derivative instruments designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign exchange contracts
|
$
|
41.7
|
|
|
$
|
(13.6)
|
|
|
$
|
(70.3)
|
|
|
$
|
3.0
|
|
The following represents the effect of cash flow hedge accounting on the consolidated statements of income for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives
|
Revenue
|
|
Cost of sales
|
|
Selling,
general
and
administrative
expense
|
|
Other income (expense), net
|
|
Revenue
|
|
Cost of sales
|
|
Selling,
general
and
administrative
expense
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow hedge gain (loss) recognized in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated OCI to income
|
$
|
(11.3)
|
|
|
$
|
10.2
|
|
|
$
|
(0.4)
|
|
|
$
|
(2.2)
|
|
|
$
|
(13.2)
|
|
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
Amounts excluded from effectiveness testing
|
0.2
|
|
|
(0.5)
|
|
|
(0.1)
|
|
|
19.8
|
|
|
(0.8)
|
|
|
1.9
|
|
|
—
|
|
|
(12.5)
|
|
Total cash flow hedge gain (loss) recognized in income
|
(11.1)
|
|
|
9.7
|
|
|
(0.5)
|
|
|
17.6
|
|
|
(14.0)
|
|
|
4.2
|
|
|
—
|
|
|
(11.5)
|
|
Total hedge gain (loss) recognized in income
|
$
|
(11.1)
|
|
|
$
|
9.7
|
|
|
$
|
(0.5)
|
|
|
$
|
17.6
|
|
|
$
|
(14.0)
|
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
(11.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income on derivatives not designated as hedging instruments
|
(0.5)
|
|
|
0.2
|
|
|
—
|
|
|
(13.4)
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
—
|
|
|
8.3
|
|
Total
|
$
|
(11.6)
|
|
|
$
|
9.9
|
|
|
$
|
(0.5)
|
|
|
$
|
4.2
|
|
|
$
|
(14.1)
|
|
|
$
|
4.1
|
|
|
$
|
—
|
|
|
$
|
(3.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives
|
Revenue
|
|
Cost of sales
|
|
Selling,
general
and
administrative
expense
|
|
Other income (expense), net
|
|
Revenue
|
|
Cost of sales
|
|
Selling,
general
and
administrative
expense
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow hedge gain (loss) recognized in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated OCI to income
|
$
|
(22.4)
|
|
|
$
|
20.0
|
|
|
$
|
(0.4)
|
|
|
$
|
(1.2)
|
|
|
$
|
(12.5)
|
|
|
$
|
4.9
|
|
|
$
|
0.1
|
|
|
$
|
(1.4)
|
|
Amounts excluded from effectiveness testing
|
1.4
|
|
|
(2.7)
|
|
|
(0.1)
|
|
|
8.2
|
|
|
(1.1)
|
|
|
(2.2)
|
|
|
—
|
|
|
(22.1)
|
|
Total cash flow hedge gain (loss) recognized in income
|
(21.0)
|
|
|
17.3
|
|
|
(0.5)
|
|
|
7.0
|
|
|
(13.6)
|
|
|
2.7
|
|
|
0.1
|
|
|
(23.5)
|
|
Total hedge gain (loss) recognized in income
|
$
|
(21.0)
|
|
|
$
|
17.3
|
|
|
$
|
(0.5)
|
|
|
$
|
7.0
|
|
|
$
|
(13.6)
|
|
|
$
|
2.7
|
|
|
$
|
0.1
|
|
|
$
|
(23.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income on derivatives not designated as hedging instruments
|
(0.6)
|
|
|
0.8
|
|
|
—
|
|
|
(22.1)
|
|
|
(1.1)
|
|
|
(0.1)
|
|
|
—
|
|
|
5.0
|
|
Total
|
$
|
(21.6)
|
|
|
$
|
18.1
|
|
|
$
|
(0.5)
|
|
|
$
|
(15.1)
|
|
|
$
|
(14.7)
|
|
|
$
|
2.6
|
|
|
$
|
0.1
|
|
|
$
|
(18.5)
|
|
Balance Sheet Offsetting - We execute derivative contracts 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, 2020 and December 31, 2019, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
(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
|
$
|
279.1
|
|
|
$
|
(187.9)
|
|
|
$
|
91.2
|
|
|
$
|
141.4
|
|
|
$
|
(112.5)
|
|
|
$
|
28.9
|
|
Derivative liabilities
|
$
|
375.7
|
|
|
$
|
(187.9)
|
|
|
$
|
187.8
|
|
|
$
|
194.0
|
|
|
$
|
(112.5)
|
|
|
$
|
81.5
|
|
NOTE 21. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(In millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities(a)
|
$
|
37.6
|
|
|
$
|
37.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54.8
|
|
|
$
|
54.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market fund
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
Stable value fund(b)
|
1.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity debt securities
|
72.0
|
|
|
—
|
|
|
72.0
|
|
|
—
|
|
|
71.9
|
|
|
—
|
|
|
71.9
|
|
|
—
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synthetic bonds - call option premium
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
Foreign exchange contracts
|
279.0
|
|
|
—
|
|
|
279.0
|
|
|
—
|
|
|
137.1
|
|
|
—
|
|
|
137.1
|
|
|
—
|
|
Assets held for sale
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
25.8
|
|
|
—
|
|
|
—
|
|
|
25.8
|
|
Total assets
|
$
|
393.9
|
|
|
$
|
37.6
|
|
|
$
|
352.9
|
|
|
$
|
1.9
|
|
|
$
|
297.5
|
|
|
$
|
54.8
|
|
|
$
|
214.8
|
|
|
$
|
25.8
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable financial liability
|
$
|
219.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219.8
|
|
|
$
|
268.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
268.8
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synthetic bonds - embedded derivatives
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
Foreign exchange contracts
|
375.6
|
|
|
—
|
|
|
375.6
|
|
|
—
|
|
|
189.7
|
|
|
—
|
|
|
189.7
|
|
|
—
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
9.3
|
|
Total liabilities
|
$
|
595.5
|
|
|
$
|
—
|
|
|
$
|
375.7
|
|
|
$
|
219.8
|
|
|
$
|
472.1
|
|
|
$
|
—
|
|
|
$
|
194.0
|
|
|
$
|
278.1
|
|
(a)Includes fixed income and other investments measured at fair value.
(b)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.
Equity securities and Available-for-sale securities - The fair value measurement of our traded securities and Available-for-sale securities is based on quoted prices that we have the ability to access in public markets.
Stable value fund and Money market fund - 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 our investment advisor at quarter-end.
Held-to-maturity debt securities - Held-to-maturity debt securities consist of government bonds. These investments are stated at amortized cost, which approximates fair value.
Assets and liabilities held for sale - The fair value of our assets and liabilities held for sale was determined using a market approach that took into consideration the expected sales price.
Mandatorily redeemable financial liability - In the fourth quarter of 2016, we obtained voting control interests in legal Technip Energies contract entities which own and account for the design, engineering and construction of the Yamal LNG plant. As part of this transaction, we recognized the fair value of the mandatorily redeemable financial liability using a discounted cash flow model. The key assumptions used in applying the income approach are the selected discount rates and the expected dividends to be distributed in the future to the non-controlling interest holders. Expected dividends to be distributed are based on the non-controlling interests’ share of the expected profitability of the underlying contract, a 20.6% discount rate and the overall timing of completion of the project.
A mandatorily redeemable financial liability of $219.8 million was recognized as of June 30, 2020 to account for the fair value of the non-controlling interests. See Note 9 for further details.
A decrease of one percentage point in the discount rate would have increased the liability by $2.2 million as of June 30, 2020. The fair value measurement is based upon significant unobservable inputs not observable in the market and is consequently classified as a Level 3 fair value measurement.
Change in the fair value of our Level 3 mandatorily redeemable financial liability is recorded as interest expense on the consolidated statements of income and is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
(In millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance at beginning of period
|
$
|
300.1
|
|
|
$
|
318.3
|
|
|
$
|
268.8
|
|
|
$
|
408.5
|
|
Less: Expenses recognized in net interest expense
|
(50.8)
|
|
|
(140.2)
|
|
|
(86.3)
|
|
|
(224.9)
|
|
Less: Settlements
|
131.1
|
|
|
45.7
|
|
|
135.3
|
|
|
220.6
|
|
Balance at end of period
|
$
|
219.8
|
|
|
$
|
412.8
|
|
|
$
|
219.8
|
|
|
$
|
412.8
|
|
Redeemable non-controlling interest - In the first quarter of 2018, we acquired a 51% share in Island Offshore Subsea AS that was subsequently renamed to TIOS AS. The non-controlling interest is recorded as mezzanine equity at fair value. The fair value measurement is based upon significant unobservable inputs not observable in the market and is consequently classified as a Level 3 fair value measurement. As of June 30, 2020 and December 31, 2019, the fair value of our redeemable non-controlling interest was $41.1 million.
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. See Note 20 for further details.
Nonrecurring Fair Value Measurements
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, when the recoverable amount of the assets has been determined to be less than the book value of the assets. During 2019, we recorded certain long-lived asset impairments primarily related to vessels and machinery and equipment in our Subsea segment. Due to the intent to sell our G1201 vessel and subsequently signed Memorandum of Agreement (MOA) with a third party, we reviewed the carrying value of its sister vessel, the G1200, as of September 30, 2019. As a result of this assessment, an impairment charge was recorded on the two vessels to bring their carrying value to a combined fair value of $104.0 million as of September 30, 2019. The fair value measurements of these vessels were based on the transaction price in the MOA, which is a Level 2 observable input as per the fair value hierarchy. For the remaining long-lived assets which we impaired in 2019, we measured their fair value 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 of 10.8%. As of December 31, 2019, these impaired assets were recorded at their fair value of $238.5 million.
During the first half of 2020 we recorded impairments primarily to installation and service equipment assets in our Subsea segment and North America-based fracturing and wellhead assets in our Surface Technologies segment. As of June 30, 2020, these impaired assets were recorded at their fair value of $314.3 million. We measured their fair value 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 of 10.8%.
Other fair value disclosures
Fair value of debt - The respective carrying value and fair value of our Synthetic bonds and our Senior Notes and private placement notes on a combined basis as of June 30, 2020 was $2,149.4 million and $2,206.5 million, respectively. The respective carrying value and fair value of our Synthetic bonds and our Senior Notes and private placement notes on a combined basis as of December 31, 2019 were $1,981.2 million and $2,078.2 million, respectively.
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 bank borrowings, credit facilities, 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.