10-Q 1 fmc20130630-10q.htm FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2013 FMC.2013.06.30-10Q
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
______________________________________________________________________
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2013
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                    to            
Commission File Number 001-16489 
________________________________________________________
FMC Technologies, Inc.
(Exact name of registrant as specified in its charter) 
________________________________________________________
Delaware
36-4412642
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
5875 N. Sam Houston Parkway W., Houston, Texas
77086
(Address of principal executive offices)
(Zip Code)
(281) 591-4000
(Registrant’s telephone number, including area code) 
________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o No  x 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
  
Outstanding at July 23, 2013
Common Stock, par value $0.01 per share
  
236,910,137
 



TABLE OF CONTENTS
 

2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.
All of our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those contemplated in the forward-looking statements, include those set forth in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as well as the following:
Demand for our systems and services, which is affected by changes in the price of, and demand for, crude oil and natural gas in domestic and international markets;
Potential liabilities arising out of the installation or use of our systems;
U.S. and international laws and regulations, including environmental regulations, that may increase our costs, limit the demand for our products and services or restrict our operations;
Disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we conduct business;
Fluctuations in currency markets worldwide;
Cost overruns that may affect profit realized on our fixed price contracts;
Disruptions in the timely delivery of our backlog and its effect on our future sales, profitability and our relationships with our customers;
The cumulative loss of major contracts or alliances;
Deterioration in future expected profitability or cash flows and its effect on our goodwill;
Rising costs and availability of raw materials;
Our dependence on the continuing services of key managers and employees and our ability to attract, retain and motivate additional highly-skilled employees for the operation and expansion of our business;
A failure of our information technology infrastructure or any significant breach of security;
Our ability to develop and implement new technologies and services, as well as our ability to protect and maintain critical intellectual property assets;
The outcome of uninsured claims and litigation against us; and
Downgrade in the ratings of our debt could restrict our ability to access the debt capital markets.
We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required by law.

3


PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
Product revenue
$
1,366.2

 
$
1,274.6

 
$
2,699.5

 
$
2,465.7

Service and other revenue
341.7

 
220.3

 
654.4

 
425.8

Total revenue
1,707.9

 
1,494.9

 
3,353.9

 
2,891.5

Costs and expenses:
 
 
 
 
 
 
 
Cost of product revenue
1,094.8

 
1,024.9

 
2,174.2

 
1,987.7

Cost of service and other revenue
255.3

 
155.4

 
483.1

 
296.3

Selling, general and administrative expense
172.1

 
140.2

 
342.9

 
276.4

Research and development expense
29.2

 
26.3

 
57.7

 
53.1

Total costs and expenses
1,551.4

 
1,346.8

 
3,057.9

 
2,613.5

Other income, net
0.2

 
16.1

 
1.2

 
20.1

Income before net interest expense and income taxes
156.7

 
164.2

 
297.2

 
298.1

Net interest expense
(8.8
)
 
(6.4
)
 
(16.9
)
 
(9.9
)
Income before income taxes
147.9

 
157.8

 
280.3

 
288.2

Provision for income taxes
41.4

 
44.6

 
70.2

 
75.3

Net income
106.5

 
113.2

 
210.1

 
212.9

Net income attributable to noncontrolling interests
(1.3
)
 
(1.3
)
 
(2.5
)
 
(2.2
)
Net income attributable to FMC Technologies, Inc.
$
105.2

 
$
111.9

 
$
207.6

 
$
210.7

Earnings per share attributable to FMC Technologies, Inc. (Note 3):
 
 
 
 
 
 
 
Basic
$
0.44

 
$
0.47

 
$
0.87

 
$
0.88

Diluted
$
0.44

 
$
0.46

 
$
0.87

 
$
0.87

Weighted average shares outstanding (Note 3):
 
 
 
 
 
 
 
Basic
238.3

 
240.2

 
238.4

 
240.2

Diluted
239.3

 
241.5

 
239.3

 
241.4

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


4


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In millions) 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
106.5

 
$
113.2

 
$
210.1

 
$
212.9

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
(49.9
)
 
(57.3
)
 
(79.0
)
 
(33.7
)
Net gains (losses) on hedging instruments:
 
 
 
 
 
 
 
Net gains (losses) arising during the period
14.9

 
(8.8
)
 
(6.2
)
 
4.6

Reclassification adjustment for net losses (gains) included in net income
2.1

 
2.1

 
(1.1
)
 
1.0

Net gains (losses) on hedging instruments (2)
17.0

 
(6.7
)
 
(7.3
)
 
5.6

Pension and other post-retirement benefits:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of prior service credit included in net income
(0.1
)
 
(0.2
)
 
(0.2
)
 
(0.4
)
Reclassification adjustment for amortization of net actuarial loss included in net income
5.0

 
5.4

 
10.2

 
10.2

Net pension and other post-retirement benefits (3)
4.9

 
5.2

 
10.0

 
9.8

Other comprehensive loss, net of tax
(28.0
)
 
(58.8
)
 
(76.3
)
 
(18.3
)
Comprehensive income
78.5

 
54.4

 
133.8

 
194.6

Comprehensive income attributable to noncontrolling interest
(1.3
)
 
(1.3
)
 
(2.5
)
 
(2.2
)
Comprehensive income attributable to FMC Technologies, Inc.
$
77.2

 
$
53.1

 
$
131.3

 
$
192.4

_______________________  
(1) 
Net of income tax (expense) benefit of $(0.5) and $1.3 for the three months ended June 30, 2013 and 2012, respectively, and $2.0 and $0.9 for the six months ended June 30, 2013 and 2012, respectively.
(2) 
Net of income tax (expense) benefit of $8.4 and $2.6 for the three months ended June 30, 2013 and 2012, respectively, and $14.0 and $(4.2) for the six months ended June 30, 2013 and 2012, respectively.
(3) 
Net of income tax (expense) benefit of $(2.7) and $(2.8) for the three months ended June 30, 2013 and 2012, respectively, and $(5.4) and $(5.2) for the six months ended June 30, 2013 and 2012, respectively.
The accompanying notes are an integral part of the condensed consolidated financial statements.


5


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(In millions, except par value data) 
 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
267.6

 
$
342.1

Trade receivables, net of allowances of $5.1 in 2013 and $6.1 in 2012
1,760.5

 
1,765.5

Inventories, net (Note 4)
1,032.0

 
965.1

Derivative financial instruments (Note 11)
168.9

 
73.4

Prepaid expenses
55.8

 
31.7

Deferred income taxes
45.5

 
55.9

Income taxes receivable
65.9

 
17.6

Other current assets
270.1

 
237.0

Total current assets
3,666.3

 
3,488.3

Investments
39.3

 
37.4

Property, plant and equipment, net of accumulated depreciation of $695.4 in 2013 and $643.7 in 2012
1,277.3

 
1,243.5

Goodwill
585.1

 
597.7

Intangible assets, net of accumulated amortization of $84.0 in 2013 and $71.1 in 2012
329.2

 
347.4

Deferred income taxes
64.8

 
60.0

Derivative financial instruments (Note 11)
25.5

 
9.2

Other assets
129.0

 
119.4

Total assets
$
6,116.5

 
$
5,902.9

Liabilities and equity
 
 
 
Short-term debt and current portion of long-term debt
$
34.9

 
$
60.4

Accounts payable, trade
646.2

 
664.2

Advance payments and progress billings
687.8

 
501.6

Accrued payroll
191.8

 
202.0

Derivative financial instruments (Note 11)
174.9

 
50.4

Income taxes payable
17.3

 
40.2

Current portion of accrued pension and other post-retirement benefits
12.5

 
20.9

Deferred income taxes
99.5

 
67.5

Other current liabilities
332.4

 
363.2

Total current liabilities
2,197.3

 
1,970.4

Long-term debt, less current portion (Note 5)
1,498.4

 
1,580.4

Accrued pension and other post-retirement benefits, less current portion
254.4

 
266.5

Derivative financial instruments (Note 11)
39.2

 
11.1

Deferred income taxes
55.6

 
57.9

Other liabilities
115.9

 
163.4

Commitments and contingent liabilities (Note 13)

 

Stockholders’ equity (Note 10):
 
 
 
Preferred stock, $0.01 par value, 12.0 shares authorized in 2013 and 2012; no shares issued in 2013 or 2012

 

Common stock, $0.01 par value, 600.0 shares authorized in 2013 and 2012; 286.3 shares issued in 2013 and 2012; 237.0 and 237.1 shares outstanding in 2013 and 2012, respectively
1.4

 
1.4

Common stock held in employee benefit trust, at cost; 0.2 shares in 2013 and 2012
(6.8
)
 
(7.8
)
Common stock held in treasury, at cost; 49.1 and 49.0 shares in 2013 and 2012, respectively
(1,132.1
)
 
(1,102.6
)
Capital in excess of par value of common stock
696.8

 
697.2

Retained earnings
2,852.3

 
2,644.7

Accumulated other comprehensive loss
(472.3
)
 
(396.0
)
Total FMC Technologies, Inc. stockholders’ equity
1,939.3

 
1,836.9

Noncontrolling interests
16.4

 
16.3

Total equity
1,955.7

 
1,853.2

Total liabilities and equity
$
6,116.5

 
$
5,902.9

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

6


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions) 
 
Six Months Ended
June 30,
2013
 
2012
Cash provided (required) by operating activities:
 
 
 
Net income
$
210.1

 
$
212.9

Adjustments to reconcile net income to cash provided (required) by operating activities:
 
 
 
Depreciation
76.7

 
51.8

Amortization
24.4

 
13.7

Employee benefit plan and stock-based compensation costs
48.9

 
46.6

Deferred income tax provision
58.4

 
31.5

Unrealized loss on derivative instruments
2.3

 
14.5

Other
13.4

 
(4.4
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Trade receivables, net
(68.7
)
 
(221.9
)
Inventories, net
(90.1
)
 
(127.7
)
Accounts payable, trade
0.4

 
(5.4
)
Advance payments and progress billings
206.5

 
(19.0
)
Income taxes
(77.2
)
 
(36.5
)
Payment of Multi Phase Meters earn-out consideration
(32.2
)
 

Accrued pension and other post-retirement benefits, net
(30.0
)
 
(30.2
)
Other assets and liabilities, net
(71.3
)
 
(35.4
)
Cash provided (required) by operating activities
271.6

 
(109.5
)
Cash provided (required) by investing activities:
 
 
 
Capital expenditures
(156.7
)
 
(191.1
)
Acquisitions, net of cash and cash equivalents acquired

 
(328.6
)
Other
2.7

 
1.4

Cash required by investing activities
(154.0
)
 
(518.3
)
Cash provided (required) by financing activities:
 
 
 
Net increase (decrease) in short-term debt
(24.1
)
 
68.9

Net increase (decrease) in commercial paper
(19.1
)
 
252.1

Proceeds from the issuance of long-term debt
0.5

 
275.0

Repayments of long-term debt
(62.8
)
 
(0.2
)
Purchase of treasury stock
(49.0
)
 
(21.0
)
Payment of Multi Phase Meters earn-out consideration
(25.1
)
 

Payments related to taxes withheld on stock-based compensation
(16.1
)
 
(34.1
)
Excess tax benefits
7.4

 
21.9

Other
(0.9
)
 
(3.3
)
Cash provided (required) by financing activities
(189.2
)
 
559.3

Effect of exchange rate changes on cash and cash equivalents
(2.9
)
 
(0.2
)
Decrease in cash and cash equivalents
(74.5
)
 
(68.7
)
Cash and cash equivalents, beginning of period
342.1

 
344.0

Cash and cash equivalents, end of period
$
267.6

 
$
275.3

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

7


FMC Technologies, Inc. and Consolidated Subsidiaries
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 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, 2012.
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 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 statements may not be representative of the results that may be expected for the year ending December 31, 2013.
Note 2: Recently Adopted Accounting Standards
Effective January 1, 2013, we adopted Accounting Standards Update (“ASU”) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” issued by the Financial Accounting Standards Board (“FASB”). These updates require management to disclose both gross information and net information of recognized derivative instruments, repurchase agreements and securities borrowing and lending transactions offset in the consolidated balance sheet or subject to an agreement similar to an enforceable master netting arrangement. The updated guidance is to be applied retrospectively, effective January 1, 2013. The adoption of these updates concern disclosure only and did not have any financial impact on our condensed consolidated financial statements.
Effective January 1, 2013, we adopted ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” issued by the FASB. This update requires management to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, we are required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The updated guidance is to be applied prospectively, effective January 1, 2013. The adoption of this update concerns disclosure only and did not have any financial impact on our condensed consolidated financial statements.
Note 3: 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)
2013
 
2012
 
2013
 
2012
Net income attributable to FMC Technologies, Inc.
$
105.2

 
$
111.9

 
$
207.6

 
$
210.7

Weighted average number of shares outstanding
238.3

 
240.2

 
238.4

 
240.2

Dilutive effect of restricted stock units and stock options
1.0

 
1.3

 
0.9

 
1.2

Total shares and dilutive securities
239.3

 
241.5

 
239.3

 
241.4

Basic earnings per share attributable to FMC Technologies, Inc.
$
0.44

 
$
0.47

 
$
0.87

 
$
0.88

Diluted earnings per share attributable to FMC Technologies, Inc.
$
0.44

 
$
0.46

 
$
0.87

 
$
0.87


8


Note 4: Inventories
Inventories consisted of the following: 
(In millions)
June 30,
2013
 
December 31,
2012
Raw materials
$
187.5

 
$
188.4

Work in process
171.6

 
146.4

Finished goods
842.1

 
788.8

 
1,201.2

 
1,123.6

LIFO and valuation adjustments
(169.2
)
 
(158.5
)
Inventories, net
$
1,032.0

 
$
965.1

Note 5: Debt
Long-term debt consisted of the following: 
(In millions)
June 30,
2013
 
December 31,
2012
Revolving credit facility
$

 
$
100.0

Commercial paper (1)
688.9

 
669.8

2.00% Notes due 2017
299.4

 
299.3

3.45% Notes due 2022
499.6

 
499.6

Term loan

 
26.8

Property financing
15.3

 
16.7

Total long-term debt
1,503.2

 
1,612.2

Less: current portion
(4.8
)
 
(31.8
)
Long-term debt, less current portion
$
1,498.4

 
$
1,580.4

 _______________________  
(1)
At June 30, 2013, 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 sheet at June 30, 2013. As of June 30, 2013, our commercial paper borrowings had a weighted average interest rate of 0.36%.
Note 6: Income Taxes
Our income tax provisions for the three months ended June 30, 2013 and 2012, reflected effective tax rates of 28.2% and 28.5%, respectively. The decrease in the effective tax rate year-over-year was primarily due to lower charges related to unrecognized tax benefits. This reduction in the effective tax rate was partially offset by an unfavorable change in the forecasted country mix of earnings.
Our income tax provisions for the six months ended June 30, 2013 and 2012, reflected effective tax rates of 25.3% and 26.3%, respectively. The decrease in the effective tax rate year-over-year was primarily due to the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, and which retroactively reinstated and extended certain provisions of U.S. tax law. This reduction in the effective tax rate was partially offset by an unfavorable 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.

9


Note 7: Warranty Obligations
Warranty cost and accrual information was as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
13.5

 
$
20.1

 
$
15.4

 
$
25.7

Expense for new warranties
8.5

 
7.8

 
13.9

 
15.6

Adjustments to existing accruals
1.9

 
7.5

 
0.6

 
5.9

Claims paid
(8.0
)
 
(11.6
)
 
(14.0
)
 
(23.4
)
Balance at end of period
$
15.9

 
$
23.8

 
$
15.9

 
$
23.8

Note 8: 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,
 
2013
 
2012
 
2013
 
2012
(In millions)
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
Service cost
$
4.0

 
$
3.6

 
$
3.6

 
$
9.2

 
$
8.3

 
$
7.4

 
$
7.3

 
$
18.6

Interest cost
6.4

 
4.0

 
6.9

 
5.3

 
12.9

 
8.1

 
13.4

 
10.7

Expected return on plan assets
(9.8
)
 
(5.8
)
 
(10.0
)
 
(6.5
)
 
(20.8
)
 
(11.8
)
 
(19.9
)
 
(13.1
)
Amortization of transition asset

 

 

 

 

 

 

 
(0.1
)
Amortization of actuarial loss (gain), net
6.7

 
1.3

 
6.4

 
2.0

 
13.4

 
2.6

 
11.8

 
4.0

Net periodic benefit cost
$
7.3

 
$
3.1

 
$
6.9

 
$
10.0

 
$
13.8

 
$
6.3

 
$
12.6

 
$
20.1


 
Other Post-retirement Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Service cost
$

 
$
0.1

 
$

 
$
0.1

Interest cost

 
0.1

 
0.1

 
0.2

Expected return on plan assets

 

 

 

Amortization of prior service cost (credit)

 
(0.3
)
 
(0.2
)
 
(0.6
)
Amortization of actuarial loss (gain), net
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Net periodic benefit cost
$
(0.1
)
 
$
(0.2
)
 
$
(0.2
)
 
$
(0.4
)

During the six months ended June 30, 2013, we contributed $24.4 million to our international benefit plans.

10


Note 9: Stock-Based Compensation
Under the Amended and Restated FMC Technologies, Inc. Incentive Compensation and Stock Plan (the “Plan”), we have granted awards primarily in the form of nonvested stock units (also known as restricted stock in the plan document). We recognize compensation expense for awards under the Plan and the corresponding income tax benefits related to the expense. Stock-based compensation expense for nonvested stock awards was $13.2 million and $9.5 million for the three months ended June 30, 2013 and 2012, respectively, and $26.5 million and $16.8 million for the six months ended June 30, 2013 and 2012, respectively.
In the six months ended June 30, 2013, we granted the following restricted stock awards to employees: 
(Number of restricted stock shares in thousands)
Shares
 
Weighted-
Average Grant
Date Fair Value (per share)
Time-based
432

  
 
Performance-based
172

 
Market-based
86

 
Total granted
690

  
$
53.32

_______________________  
*
Assumes grant date expected payout
For current-year performance-based awards, actual payouts may vary from zero to 344 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, 2013. Compensation cost is measured based on the current expected outcome of the performance conditions and may be adjusted until the performance period ends.
For current-year market-based awards, actual payouts may vary from zero to 172 thousand shares, contingent upon our performance relative to the same peer group of companies with respect to total shareholder return (“TSR”) for the year ending December 31, 2013. The payout for the TSR metric is determined based on our performance relative to the peer group, however a payout is possible regardless of whether our TSR for the year is positive or negative. If our TSR for the year 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. 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 10: Stockholders’ Equity
There were no cash dividends declared during the three and six months ended June 30, 2013 and 2012.
Repurchases of shares of common stock under our share repurchase program were as follows: 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions, except share data)
2013
 
2012
 
2013
 
2012
Shares of common stock repurchased
404,096

 
511,000

 
974,096

 
521,000

Value of common stock repurchased
$
22.0

 
$
20.5

 
$
49.0

 
$
21.0

As of June 30, 2013, our Board of Directors had authorized 75.0 million shares of common stock under our share repurchase program, and approximately 14.2 million shares of common stock remained available for purchase, which may be executed from time to time in the open market. 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.
During the six months ended June 30, 2013, 0.9 million shares of common stock were issued from treasury stock in connection with our stock-based compensation plan. During the year ended December 31, 2012, 1.4 million shares of common stock were issued from treasury stock.

11


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, 2012
$
(104.6
)
 
$
10.0

 
$
(301.4
)
 
$
(396.0
)
Other comprehensive income (loss) before reclassifications, net of tax
(79.0
)
 
(6.2
)
 

 
(85.2
)
Reclassification adjustment for net (gains) losses included in net income, net of tax

 
(1.1
)
 
10.0

 
8.9

Net current-period other comprehensive income (loss), net of tax
(79.0
)
 
(7.3
)
 
10.0

 
(76.3
)
June 30, 2013
$
(183.6
)
 
$
2.7

 
$
(291.4
)
 
$
(472.3
)

Reclassifications out of accumulated other comprehensive loss consisted of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
(In millions)
 
June 30, 2013
 
 
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:
 
$
(3.8
)
 
$
(1.5
)
 
Revenue
 
 
1.5

 
3.0

 
Costs of sales
 
 

 
0.1

 
Selling, general and administrative expense
 
 
$
(2.3
)
 
$
1.6

 
Income before income taxes
 
 
0.2

 
(0.5
)
 
Income tax (expense) benefit
 
 
$
(2.1
)
 
$
1.1

 
Net income
Defined pension and other post-retirement benefits
 
 
 
 
 
 
Amortization of actuarial loss
 
$
(7.7
)
 
$
(15.7
)
 
(a)
Amortization of prior service credit
 
0.1

 
0.3

 
(a)
Amortization of transition asset
 

 

 
(a)
 
 
$
(7.6
)
 
$
(15.4
)
 
Income before income taxes
 
 
2.7

 
5.4

 
Income tax (expense) benefit
 
 
$
(4.9
)
 
$
(10.0
)
 
Net income
_______________________
(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 8 for additional details).

12


Note 11: Derivative Financial Instruments
We hold derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. 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. 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. At June 30, 2013, we held the following material positions:
 
Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Brazilian real
(79.8
)
 
(36.5
)
British pound
109.9

 
167.6

Canadian dollar
55.5

 
52.9

Chinese renminbi
140.8

 
22.9

Euro
55.1

 
72.0

Kuwaiti dinar
(7.1
)
 
(24.8
)
Malaysian ringgit
50.2

 
15.9

Norwegian krone
3,611.8

 
596.9

Russian ruble
(798.0
)
 
(24.3
)
Singapore dollar
145.0

 
114.5

Swedish krona
117.4

 
17.5

Swiss franc
20.2

 
21.5

U.S. dollar
(1,012.6
)
 
(1,012.6
)
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, 2013, our portfolio of these instruments included the following material positions:
 
Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Australian dollar
(18.5
)
 
(17.1
)
British pound
8.6

 
13.1

Euro
16.5

 
21.6

Norwegian krone
(178.0
)
 
(29.4
)
The purpose of our foreign currency hedging activities is to manage the volatility associated with anticipated foreign currency purchases and sales created in the normal course of business. We primarily utilize forward exchange contracts with maturities of less than three years.
Our policy is to hold derivatives only for the purpose of hedging risks 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.

13


The following table of all outstanding derivative instruments is based on estimated fair value amounts that have been determined using available market information and commonly accepted valuation methodologies. Refer to Note 12 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 settle or mature.
 
June 30, 2013
 
December 31, 2012
(In millions)
Assets
 
Liabilities
 
Assets
 
Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
$
140.0

 
$
148.6

 
$
29.2

 
$
23.2

Long-term – Derivative financial instruments
24.3

 
37.6

 
5.7

 
8.3

Total derivatives designated as hedging instruments
164.3

 
186.2

 
34.9

 
31.5

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
28.9

 
26.3

 
44.2

 
27.2

Long-term – Derivative financial instruments
1.2

 
1.6

 
3.5

 
2.8

Total derivatives not designated as hedging instruments
30.1

 
27.9

 
47.7

 
30.0

Total derivatives
$
194.4

 
$
214.1

 
$
82.6

 
$
61.5

We recognized losses of $0.3 million and gains of $1.2 million on cash flow hedges for the three months ended June 30, 2013 and 2012, respectively, and gains of nil and $1.4 million for the six months ended June 30, 2013 and 2012, 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 accumulated other comprehensive gains of $2.7 million and $10.0 million at June 30, 2013, and December 31, 2012, respectively. We expect to transfer an approximate $1.4 million gain 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 end of 2016.

14


The following tables present the impact of derivative instruments in cash flow hedging relationships and their location within the accompanying condensed consolidated statements of income.
 
Gain (Loss) Recognized in
OCI (Effective Portion)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Interest rate contracts
$

 
$
0.5

 
$

 
$
0.8

Foreign exchange contracts
6.3

 
(12.8
)
 
(19.7
)
 
7.7

Total
$
6.3

 
$
(12.3
)
 
$
(19.7
)
 
$
8.5

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)
2013
 
2012
 
2013
 
2012
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
(3.8
)
 
$
(1.6
)
 
$
(1.5
)
 
$
2.8

Cost of sales
1.5

 
(1.3
)
 
3.0

 
(3.9
)
Selling, general and administrative expense

 
(0.1
)
 
0.1

 
(0.1
)
Total
$
(2.3
)
 
$
(3.0
)
 
$
1.6

 
$
(1.2
)
 
 
 
 
 
 
 
 
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)
2013
 
2012
 
2013
 
2012
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
(4.4
)
 
$
4.8

 
$
0.5

 
$
7.8

Cost of sales
(1.3
)
 
(5.2
)
 
(4.2
)
 
(8.1
)
Total
$
(5.7
)
 
$
(0.4
)
 
$
(3.7
)
 
$
(0.3
)
Instruments that are not designated as hedging instruments are executed to hedge the effect of exposures in the condensed consolidated balance sheets, and occasionally, forward foreign currency contracts or currency options are executed to hedge exposures which do not meet all of the criteria to qualify for hedge accounting.
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)
2013
 
2012
 
2013
 
2012
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
0.1

 
$
0.5

 
$
1.1

 
$
1.6

Cost of sales
(0.2
)
 
0.2

 
(0.6
)
 
(0.3
)
Other income (expense), net
(7.0
)
 
(4.2
)
 
0.3

 
1.1

Total
$
(7.1
)
 
$
(3.5
)
 
$
0.8

 
$
2.4


15


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, 2013, and December 31, 2012, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:
 
June 30, 2013
 
December 31, 2012
(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
$
194.4

 
(179.7
)
 
$
14.7

 
$
82.6

 
(47.1
)
 
$
35.5

 
June 30, 2013
 
December 31, 2012
(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
$
214.1

 
(179.7
)
 
$
34.4

 
$
61.5

 
(47.1
)
 
$
14.4

Note 12: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis were as follows: 
 
June 30, 2013
 
December 31, 2012
(In millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
$
18.3

 
$
18.3

 
$

 
$

 
$
17.2

 
$
17.2

 
$

 
$

Fixed income
11.0

 
11.0

 

 

 
11.6

 
11.6

 

 

Money market fund
3.5

 

 
3.5

 

 
2.6

 

 
2.6

 

Stable value fund
1.0

 

 
1.0

 

 
1.3

 

 
1.3

 

Other
2.6

 
2.6

 

 

 
2.9

 
2.9

 

 

Derivative financial instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
194.4

 

 
194.4

 

 
82.6

 

 
82.6

 

Total assets
$
230.8

 
$
31.9

 
$
198.9

 
$

 
$
118.2

 
$
31.7

 
$
86.5

 
$

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
214.1

 

 
214.1

 

 
61.5

 

 
61.5

 

Contingent earn-out consideration
50.5

 

 

 
50.5

 
105.3

 

 

 
105.3

Total liabilities
$
264.6

 
$

 
$
214.1

 
$
50.5

 
$
166.8

 
$

 
$
61.5

 
$
105.3

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. Certain prior-year amounts have been reclassified to conform to the current year's presentation.

16


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 11 for additional disclosure related to derivative financial instruments.
Contingent earn-out consideration—We determined the fair value of the contingent earn-out consideration using a discounted cash flow model. The key assumptions used in applying the income approach are the expected profitability and debt, net of cash, of the acquired company during the earn-out period and the discount rate which approximates our debt credit rating. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the contingent earn-out consideration are recorded as cost of service or other revenue in our condensed consolidated statements of income.
Changes in the fair value of our Level 3 contingent earn-out consideration obligation were as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
99.9

 
$
60.9

 
$
105.3

 
$
57.5

Remeasurement adjustment
9.1

 
13.7

 
9.1

 
14.3

Payment
(57.3
)
 

 
(57.3
)
 

Foreign currency translation adjustment
(1.2
)
 
(2.5
)
 
(6.6
)
 
0.3

Balance at end of period
$
50.5

 
$
72.1

 
$
50.5

 
$
72.1

Fair value of debt—At June 30, 2013, 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 $784.5 million as compared to the $800.0 million face value of the debt, net of issue discounts, recorded in the consolidated balance sheet.
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, revolving credit facility 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.

17


Note 13: Commitments and Contingent Liabilities
In the ordinary course of business with customers, vendors and others, we issue standby letters of credit, performance bonds, surety bonds and other guarantees. The majority of these financial instruments represent guarantees of our future performance. Additionally, we were the named guarantor on certain letters of credit and performance bonds issued by our former subsidiary, John Bean Technologies Corporation (“JBT”). Pursuant to the terms of the Separation and Distribution Agreement, dated July 31, 2008, between FMC Technologies and JBT (the “JBT Separation and Distribution Agreement”), we are fully indemnified by JBT with respect to certain residual obligations. 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 in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions, because of the inherent uncertainty of litigation. 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.
In addition, under the Separation and Distribution Agreement, dated May 31, 2001, between FMC Corporation and FMC Technologies, FMC Corporation is required to indemnify us for certain claims made prior to our spin-off from FMC Corporation, as well as for other claims related to discontinued operations. Under the JBT Separation and Distribution Agreement, JBT is required to indemnify us for certain claims made prior to the spin-off of our Airport and FoodTech businesses, as well as for certain other claims related to JBT products or business operations. We expect that FMC Corporation will bear responsibility for a majority of these claims initiated subsequent to the spin-off, and that JBT will bear most, if not substantially all, of any responsibility for certain other claims initiated subsequent to the spin-off.
Contingent liabilities associated with liquidated damages—Some of our contracts contain penalty 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 legal analysis, management believes we have appropriately accrued for probable liquidated damages at June 30, 2013, and December 31, 2012, and that the ultimate resolution of such matters will not materially affect our consolidated financial position, results of operations or cash flows for the year ending December 31, 2013.

18


Note 14: Business Segment Information
Segment revenue and segment operating profit were as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Segment revenue
 
 
 
 
 
 
 
Subsea Technologies
$
1,123.7

 
$
945.8

 
$
2,215.9

 
$
1,840.7

Surface Technologies
440.2

 
413.8

 
861.9

 
791.6

Energy Infrastructure
158.0

 
139.4

 
293.6

 
276.4

Other revenue (1) and intercompany eliminations
(14.0
)
 
(4.1
)
 
(17.5
)
 
(17.2
)
Total revenue
$
1,707.9

 
$
1,494.9

 
$
3,353.9

 
$
2,891.5

Income before income taxes:
 
 
 
 
 
 
 
Segment operating profit:
 
 
 
 
 
 
 
Subsea Technologies
$
123.4

 
$
109.7

 
$
222.8

 
$
184.8

Surface Technologies
57.3

 
84.2

 
114.6

 
162.2

Energy Infrastructure
18.5

 
9.1

 
28.6

 
18.4

Intercompany eliminations
0.2

 

 

 

Total segment operating profit
199.4

 
203.0

 
366.0

 
365.4

Corporate items:
 
 
 
 
 
 
 
Corporate expense (2)
(12.5
)
 
(10.4
)
 
(22.8
)
 
(18.9
)
Other revenue (1) and other expense, net (3) 
(31.5
)
 
(29.7
)
 
(48.5
)
 
(50.6
)
Net interest expense
(8.8
)
 
(6.4
)
 
(16.9
)
 
(9.9
)
Total corporate items
(52.8
)
 
(46.5
)
 
(88.2
)
 
(79.4
)
Income before income taxes attributable to FMC Technologies, Inc.
$
146.6

 
$
156.5

 
$
277.8

 
$
286.0

 _______________________  
(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.

19


Segment operating capital employed and assets were as follows: 
(In millions)
June 30, 2013
 
December 31, 2012
Segment operating capital employed (1):
 
 
 
Subsea Technologies
$
1,958.1

 
$
1,919.3

Surface Technologies
1,195.3

 
1,185.3

Energy Infrastructure
485.7

 
468.0

Total segment operating capital employed
3,639.1

 
3,572.6

Segment liabilities included in total segment operating capital employed (2)
1,906.1

 
1,824.2

Corporate (3)
571.3

 
506.1

Total assets
$
6,116.5

 
$
5,902.9

Segment assets:
 
 
 
Subsea Technologies
$
3,460.7

 
$
3,318.4

Surface Technologies
1,485.7

 
1,487.9

Energy Infrastructure
627.9

 
609.9

Intercompany eliminations
(29.1
)
 
(19.4
)
Total segment assets
5,545.2

 
5,396.8

Corporate (3)
571.3

 
506.1

Total assets
$
6,116.5

 
$
5,902.9

  _______________________  
(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.

Note 15: Subsequent Events
In conjunction with management's efforts to accelerate development of pumping and boosting technology and to respond to a maturing market, effective July 1, 2013, direct drive systems will be reported as a product line in Subsea Technologies.
Subsequent to June 30, 2013, we received a notification from a customer regarding the forfeiture of certain payments related to a subsea production systems project. Under the contract, we are entitled to certain payments based on achieving agreed-upon milestone dates. Based on discussions with the customer, the forfeiture of the payments is not determinable at this time.
 

20


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Outlook
Overall, management remains optimistic about business activity for the remainder of 2013 as global economic growth is supporting signs of a moderate recovery. While expectations of future energy demand remain closely tied to economic activity in major world economies, total world consumption of crude oil and liquid fuels is expected to slightly increase in the remainder of 2013 and through the first half of 2014. As a result, we currently expect crude oil prices to remain at a level that supports exploration and production activity, especially in subsea markets.
Our strong subsea project backlog as of June 30, 2013, combined with continued demand for subsea services related to exploration and production activity, supports our expectations of improved results during the second half of 2013 as compared to the first half of 2013. Our mix of projects in subsea project backlog is expected to improve, and as a result, we continue to expect significant margin improvement in the latter half of 2013. The subsea market growth in the first half of 2013 is aligning with our expectations of market materialization for our products and services. Our signing of significant service agreements with some of our major customers and achievement of record inbound during the second quarter of 2013 in Subsea Technologies has demonstrated the growth in product and service requirements associated with subsea fields. We expect service demand to continue to grow as more equipment continues to be installed offshore. We believe the workforce we added in the past two years has prepared us for this overall subsea market growth. While some projects are being economically reassessed by our customers, we expect market demand to remain strong for our subsea technologies systems and service offerings worldwide.
Regarding our surface technologies portfolio, the slowdown in North American surface activity in the latter half of 2012, resulting from lower natural gas prices, led to curtailed fracturing capacity expansion. This curtailment continued in the first half of 2013. As a result, the slowdown had a negative impact on segment profits in the first half of 2013 compared to the prior year; however, we expect the North American shale markets to see some improvements in the latter half of the year predicated on an increase in U.S. rig count. We expect overall sales volume and margins to improve in the latter half of 2013 for Surface Technologies.

21


CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2013 AND 2012
 
 
Three Months Ended June 30,
 
Change
(In millions, except %)
2013
 
2012
 
$
 
%
Revenue
$
1,707.9

 
$
1,494.9

 
213.0

 
14.2

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
1,350.1

 
1,180.3

 
169.8

 
14.4

Selling, general and administrative expense
172.1

 
140.2

 
31.9

 
22.8

Research and development expense
29.2

 
26.3

 
2.9

 
11.0

Total costs and expenses
1,551.4

 
1,346.8

 
204.6

 
15.2

Other income, net
0.2

 
16.1

 
(15.9
)
 
*

Net interest expense
(8.8
)
 
(6.4
)
 
(2.4
)
 
(37.5
)
Income before income taxes
147.9

 
157.8

 
(9.9
)
 
(6.3
)
Provision for income taxes
41.4

 
44.6

 
(3.2
)
 
(7.2
)
Net income
106.5

 
113.2

 
(6.7
)
 
(5.9
)
Net income attributable to noncontrolling interests
(1.3
)
 
(1.3
)
 

 

Net income attributable to FMC Technologies, Inc.
$
105.2

 
$
111.9

 
(6.7
)
 
(6.0
)
_______________________
*
Not meaningful
Revenue increased by $213.0 million in the second quarter of 2013 compared to the prior-year quarter. Revenue in the second quarter of 2013 included a $15.0 million unfavorable impact of foreign currency translation. The impact of the strong backlog coming into the second quarter of 2013 led to increased Subsea Technologies revenue year-over-year. Additionally, revenue increased year-over-year as a result of the acquisition of the remaining 55% interest of Schilling Robotics in late April of 2012. Surface Technologies posted higher revenue during the second quarter of 2013 primarily from the acquisition of our completion services business during the fourth quarter of 2012 and from our surface wellhead business in the Asia Pacific and Europe regions due to conventional wellhead system sales.
Gross profit (revenue less cost of sales) decreased as a percentage of sales to 20.9% in the second quarter of 2013, from 21.0% in the prior-year quarter. The decline in gross profit was due to our Surface Technologies segment as the slowdown in the North American shale markets negatively impacted demand for well service pumps and flowline products in our fluid control business and created an unfavorable pricing environment for our fracturing rental assets in our surface wellhead business. The decline in gross profit was partially offset by improved performance and execution from the prior-year quarter in our Subsea Technologies segment and from the acquisition of the remaining 55% interest of Schilling Robotics in late April of 2012. Gross profit in the second quarter of 2013 included a $3.7 million unfavorable impact of foreign currency translation.
Selling, general and administrative expense increased $31.9 million year-over-year, driven by additional staffing to support expanding operations, including the acquisition of our completion services business, and higher project tendering costs.
Research and development expense increased $2.9 million year-over-year as we continued to advance new technologies in Subsea Technologies, including subsea processing capabilities, partially offset by decreased expenses to develop our direct drive systems technology.
Other income, net, reflected a $20.0 million gain related to the fair valuation of our previously held equity interest in Schilling Robotics during the second quarter of 2012, and gains of $0.3 million and losses of $2.3 million related to the remeasurement of foreign currency exposures in the second quarter of 2013 and 2012, respectively.
Net interest expense increased $2.4 million year-over-year due to higher average debt balances during the second quarter of 2013.

22


Our income tax provisions for the second quarter of 2013 and 2012, reflected effective tax rates of 28.2% and 28.5%, respectively. The decrease in the effective tax rate year-over-year was primarily due to lower charges related to unrecognized tax benefits. This reduction in the effective tax rate was partially offset by an unfavorable change in the forecasted 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. The cumulative balance of foreign earnings for which no provision for U.S. income taxes has been recorded was $1,320 million at June 30, 2013. We would need to accrue and pay U.S. tax on such undistributed earnings if these funds were repatriated. We have no current intention to repatriate these earnings.
OPERATING RESULTS OF BUSINESS SEGMENTS
THREE MONTHS ENDED JUNE 30, 2013 AND 2012
 
 
Three Months Ended June 30,
 
Change
(In millions, except %)
2013
 
2012
 
$
 
%
Revenue
 
 
 
 
 
 
 
Subsea Technologies
$
1,123.7

 
$
945.8

 
177.9

 
18.8

Surface Technologies
440.2

 
413.8

 
26.4

 
6.4

Energy Infrastructure
158.0

 
139.4

 
18.6

 
13.3

Other revenue and intercompany eliminations
(14.0
)
 
(4.1
)
 
(9.9
)
 
*

Total revenue
$
1,707.9

 
$
1,494.9

 
213.0

 
14.2

Net income
 
 
 
 
 
 
 
Segment operating profit:
 
 
 
 
 
 
 
Subsea Technologies
$
123.4

 
$
109.7

 
13.7

 
12.5

Surface Technologies
57.3

 
84.2

 
(26.9
)
 
(31.9
)
Energy Infrastructure
18.5

 
9.1

 
9.4

 
103.3

Intercompany eliminations
0.2

 

 
0.2

 
*

Total segment operating profit
199.4

 
203.0

 
(3.6
)
 
(1.8
)
Corporate items:
 
 
 
 
 
 
 
Corporate expense
(12.5
)
 
(10.4
)
 
(2.1
)
 
(20.2
)
Other revenue and other expense, net
(31.5
)
 
(29.7
)
 
(1.8
)
 
(6.1
)
Net interest expense
(8.8
)
 
(6.4
)
 
(2.4
)
 
(37.5
)
Total corporate items
(52.8
)
 
(46.5
)
 
(6.3
)
 
(13.5
)
Income before income taxes
146.6

 
156.5


(9.9
)
 
(6.3
)
Provision for income taxes
41.4

 
44.6

 
(3.2
)
 
(7.2
)
Net income attributable to FMC Technologies, Inc.
$
105.2

 
$
111.9

 
(6.7
)
 
(6.0
)
_______________________  
*
Not meaningful
Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been excluded in computing segment operating profit: corporate staff expense, interest income and expense associated with corporate investments and debt, income taxes and other revenue and other expense, net.

23


Subsea Technologies
Subsea Technologies revenue increased $177.9 million year-over-year. Revenue for the second quarter of 2013 included a $13.7 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, total revenue increased by $191.6 million year-over-year. Subsea Technologies revenue is primarily impacted by the level of backlog conversion. Subsea revenue increased year-over-year in all regions of our subsea systems business. We entered the second quarter with solid subsea backlog and continued to have strong subsea systems and service order activity during the second quarter of 2013, including a $1.2 billion subsea equipment order for Total’s Egina field. Additionally, revenue increased year-over-year resulting from the acquisition of the remaining 55% interest of Schilling Robotics in late April of 2012.

Subsea Technologies operating profit in the second quarter of 2013 totaled $123.4 million, or 11.0% of revenue, compared to the prior-year quarter’s operating profit as a percentage of revenue of 11.6%. Subsea Technologies operating profit in the second quarter of 2012 included the gain on our previously held equity interest in Schilling Robotics and other purchase price adjustments which had a combined net benefit of $13.2 million in the prior-year quarter. Excluding this net benefit, the year-over-year margin improvement was primarily driven by increased utilization and efficiency of engineering resources in our subsea systems business, partially offset by increased selling, general and administrative expenses due to higher costs of staffing to support expanding operations and higher bidding costs. Operating profit for the second quarter of 2013 included a $2.4 million unfavorable impact of foreign currency translation.
Surface Technologies
Surface Technologies revenue increased $26.4 million year-over-year. The increase in revenue was primarily driven by the acquisition of our completion services business in the fourth quarter of 2012 and our surface wellhead business in the Asia Pacific and Europe regions due to conventional wellhead system sales. These increases were partially offset by a decrease in revenue in our fluid control business resulting from the slowdown of the North American shale markets which have decreased demand for our well service pumps and flowline products.
Surface Technologies operating profit in the second quarter of 2013 totaled $57.3 million, or 13.0% of revenue, compared to the prior-year quarter’s operating profit as a percentage of revenue of 20.3%. The margin decline was primarily driven by the following:
4.0 percentage point decrease due to the spring break-up of the Canadian market which impacted results in our completion services business;
2.0 percentage point decrease due to the slowdown in the North American shale markets, primarily from a lack of capacity expansion, which lowered demand for our well service pumps and flowline products in our fluid control business; and a
0.7 percentage point decrease due to the slowdown in the North American shale markets which created an unfavorable pricing environment for our fracturing rental assets in our surface wellhead business.

24


Energy Infrastructure
Energy Infrastructure revenue increased $18.6 million year-over-year. The increase was driven by increased market activity in our measurement solutions business, increased sales related to work on a liquefied natural gas project in our loading systems business, and the acquisition of our automation and controls business during late April of 2012.
Energy Infrastructure operating profit in the second quarter of 2013 totaled $18.5 million, or 11.8% of revenue, compared to the prior-year quarter’s operating profit as a percentage of revenue of 6.5%. The margin improvement was primarily driven by the following:
1.8 percentage point increase due to higher margin projects and lower warranty costs in our loading systems business;
0.9 percentage point increase due to higher margin projects in our material handling business;
0.8 percentage point increase due to lower selling, general, and administrative expenses from reduced commissions in our measurement solutions business; and a
0.7 percentage point increase due to lower research and development expenses for our direct drive systems technology.
Corporate Items
Our corporate items reduced earnings $52.8 million in the second quarter of 2013, compared to $46.5 million in the second quarter of 2012. The year-over-year increase primarily reflected the following:
unfavorable variance in foreign currency of $1.1 million;
unfavorable variance related to stock-based compensation expense, primarily from the accelerated vesting of awards for retirement eligible grantees, of $3.7 million;
favorable variance of $4.5 million related to a larger remeasurement of the Multi Phase Meters contingent earn-out consideration in the second quarter of 2012;
unfavorable variance related to higher corporate staffing expenses of $2.1 million; and an
unfavorable variance related to higher net interest expense of $2.4 million due to increased debt balances during the second quarter of 2013 as compared to the second quarter of 2012 related to our Senior Notes offering.

25


CONSOLIDATED RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2013 AND 2012
 
 
Six Months Ended June 30,
 
Change
(In millions, except %)
2013
 
2012
 
$
 
%
Revenue
$
3,353.9

 
$
2,891.5

 
462.4

 
16.0

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
2,657.3

 
2,284.0

 
373.3

 
16.3

Selling, general and administrative expense
342.9

 
276.4

 
66.5

 
24.1

Research and development expense
57.7