10-K 1 fmc-20131231x10k.htm FORM 10-K FMC-2013.12.31-10K


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-K
 
 
 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Registrant’s telephone number, including area code: 281/591-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  ý    NO  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  ¨    NO  ý
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  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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  ý    NO  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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  ý    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES  ¨    NO  ý
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, determined by multiplying the outstanding shares on June 30, 2013, by the closing price on such day of $55.68 as reported on the New York Stock Exchange, was $7,853,278,583.*
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of February 19, 2014 was 236,011,911.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
FORM 10-K REFERENCE
Portions of Proxy Statement for the 2014 Annual Meeting of Stockholders
Part III
*
Excludes 96,113,955 shares of the registrant’s Common Stock held by directors, officers and holders of more than 5% of the registrant’s Common Stock as of June 30, 2013. Exclusion of shares held by any person should not be construed to indicate that such person or entity possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person or entity is controlled by or under common control with the registrant.
 




TABLE OF CONTENTS
 
 
Page
PART I
 
 
 
 
 
PART II
 
 
 
 
 
PART III
 
 
 
 
 
PART IV
 
 
 

2



Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K 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 (many 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. These factors include those described in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K and factors that are unknown or unpredictable. 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
 
ITEM 1. BUSINESS

OVERVIEW

FMC Technologies, Inc. is a global provider of technology solutions for the energy industry. FMC Technologies, Inc. was incorporated in November 2000 under Delaware law and was a wholly-owned subsidiary of FMC Corporation until our initial public offering in June 2001. Our principal executive offices are located at 5875 North Sam Houston Parkway West, Houston, Texas 77086. As used in this report, except where otherwise stated or indicated by the context, all references to the “Company,” “FMC Technologies,” “we,” “us,” and “our” are to FMC Technologies, Inc. and its consolidated subsidiaries.

We design, manufacture and service technologically sophisticated systems and products, including subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions and marine loading systems for the energy industry. We report our results of operations in the following reporting segments: Subsea Technologies, Surface Technologies and Energy Infrastructure. Financial information about our business segments is incorporated herein by reference from Note 19 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

During 2012 we acquired the remaining 55% of Schilling Robotics, LLC (“Schilling Robotics”), 100% of Pure Energy Services Ltd. (“Pure Energy”) and 100% of Control Systems International, Inc. (“CSI”). Schilling Robotics is a supplier of advanced robotic intervention products, including a line of remotely operating vehicle systems (“ROV”), manipulator systems and subsea control systems and is included in our Subsea Technologies segment. The acquisition of the remaining 55% of Schilling Robotics is allowing us to grow in the expanding subsea environment, where demand for ROVs and the need for maintenance activities of subsea equipment is expected to increase. Additionally, we acquired Pure Energy, a provider of fracturing flowback services and wireline services. The acquisition of Pure Energy is complementing the existing products and services of our Surface Technologies segment and is creating client value by providing an integrated well site solution. Finally, we acquired CSI, a provider of automation, control and information technology to the oil and gas industry. Included in our Energy Infrastructure segment, CSI is enhancing our automation and controls technologies and is benefiting production and processing businesses such as measurement solutions through comprehensive fuel terminal and pipeline automation systems. Additional financial information about our 2012 business combinations is incorporated herein by reference from Note 4 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
During 2013 and in conjunction with management’s efforts to accelerate the development and commercialization of subsea boosting technology for subsea markets, our direct drive systems technology development, previously reported in our Energy Infrastructure segment, is now reported in our Subsea Technologies segment. All prior-year information has been adjusted to reflect the current presentation.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports are available free of charge through our website at www.fmctechnologies.com, under “Investors—Financial Information—SEC Filings” as soon as reasonably practicable after we file the reports with the Securities and Exchange Commission (the “SEC”). Alternatively, our reports may be accessed through the website maintained by the SEC at www.sec.gov.

Throughout this Annual Report on Form 10-K, we incorporate by reference certain information from our Proxy Statement for the 2014 Annual Meeting of Stockholders. We intend to provide stockholders with an annual report containing financial information that has been examined and reported upon, with an opinion expressed thereon by our independent registered public accounting firm. On or about April 2, 2014, we expect our Proxy Statement for the 2014 Annual Meeting of Stockholders will be available on our website under “Investors—Financial Information—SEC Filings.” Similarly, on the same date, we expect our 2013 Annual Report to Stockholders will be available on our website under “Investors—Financial Information—Annual Reports.”

4



BUSINESS SEGMENTS

Subsea Technologies

Subsea Technologies designs and manufactures products and systems and provides services used by oil and gas companies involved in deepwater exploration and production of crude oil and natural gas. The core competencies of this segment are our
technology and engineering expertise. Our production systems control the flow of crude oil and natural gas from producing wells. We specialize in offshore production systems and have manufacturing facilities near the world’s principal offshore oil and gas producing basins. We market our products primarily through our own technical sales organization.

Principal Products and Services

Subsea Systems. Our systems are used in the offshore production of crude oil and natural gas. Subsea systems are placed on the seafloor and are used to control the flow of crude oil and natural gas from the reservoir to a host processing facility, such as a floating production facility, a fixed platform or an onshore facility.

The design and manufacture of our subsea systems requires a high degree of technical expertise and innovation. Some of our systems are designed to withstand exposure to the extreme hydrostatic pressure that deepwater environments present, as well as internal pressures of up to 15,000 pounds per square inch (“psi”) and temperatures in excess of 350º F. The development of our integrated subsea production systems includes initial engineering design studies and field development planning to consider all relevant aspects and project requirements including optimization of drilling programs and subsea architecture. Our subsea production systems and products include drilling systems, subsea trees, chokes and flow modules, manifold pipeline systems, control and data acquisition systems, well access systems and other electric technology. Additionally, as part of our technologies to enhance field economics by maximizing recovery, our subsea processing systems can enable cost-effective, platform-less solutions where the field is tied directly back to an existing offshore facility or directly to shore. Subsea processing system solutions include subsea boosting, subsea gas compression and subsea separation which are designed to accelerate production, increase recovery or extend field life. In order to provide these products, systems and services, we utilize engineering, project management, procurement, manufacturing, assembly and testing capabilities.

We also provide well access and flow management services and other customer support services that offer a broad range of products and services including installation and workover tools, service technicians for installation assistance and field support for commissioning, intervention, and maintenance of our subsea systems throughout the life of the field. This scope of activity also includes providing tools and technical support such as our riserless light well intervention system for certain well workover and intervention tasks. In 2012, FMC Technologies formed a joint venture with Edison Chouest Offshore LLC to provide integrated vessel-based subsea services for offshore oil and gas fields around the world. This joint venture is expected to provide cost-effective solutions to enhance our customer’s ability to initiate, maintain and increase production from subsea field developments through efficient operations, innovative technologies and a broad inventory of vessels and tools.
Subsea systems represented approximately 63%, 62% and 64% of our consolidated revenue in 2013, 2012 and 2011, respectively.

Schilling Robotics. We design and manufacture ROVs and remote manipulator arms and provide support services for subsea control systems for subsea exploration and production. Our product offering includes electric and hydraulic work-class ROVs, tether-management systems, launch and recovery systems, remote manipulator arms and modular control systems for wide-ranging subsea applications. We also provide services such as engineering services, operations and maintenance training, simulation and mission planning, and ROV mobilization support and service.

Multi Phase Meters. We design and manufacture multiphase and wetgas meters with applications that include production and surface well testing, reservoir monitoring, remote operation, measurement of fluid rates for production and revenue sharing between partners, process monitoring and control, and artificial lift optimization. This technology delivers highly accurate, self-calibrating meters with low maintenance features to meet our customers’ increasing requirements for subsea and topside applications. The Multi Phase Meters product line augments our portfolio of technologies for increasing oil and gas recovery, early water detection and reservoir optimization.

5



Capital Intensity

Many of the systems and products we supply for subsea applications are highly engineered to meet the unique demands of our customers and are typically ordered one to two years prior to installation. We often receive advance and progress payments from our customers in order to fund initial development and our working capital requirements. However, our working capital balances can vary significantly depending on the payment terms and execution timing on key contracts.

Dependence on Key Customers

Generally, our customers in this segment are major integrated oil companies, national oil companies and independent exploration and production companies.

We have actively pursued alliances with oil and gas companies that are engaged in the subsea development of crude oil and natural gas to promote our integrated systems for subsea production. Development of subsea fields, particularly in deepwater environments, involves substantial capital investments by our customers. Our customers have sought the security of alliances with us to ensure timely and cost-effective delivery of subsea and other energy-related systems that provide integrated solutions to their needs. Our alliances establish important ongoing relationships with our customers. While our alliances do not contractually commit our customers to purchase our systems and services, they have historically led to, and we expect that they will continue to result in, such purchases. Examples of customers we have entered alliances with include Statoil, Shell, BP and Anadarko.

The loss of one or more of our significant oil and gas company customers could have a material adverse effect on our Subsea Technologies business segment. In 2013, we generated approximately 12% of our consolidated revenue from Statoil.

Competition

Subsea Technologies competes with other companies that supply subsea systems and with smaller companies that are focused on a specific application, technology or geographical niche in which we operate. Companies including OneSubsea, GE Oil & Gas, Aker Solutions and Dril-Quip compete with us in the marketplace across our various Subsea Technologies product lines.

Competitive factors in our industry include reliability, cost-effective technology, execution and delivery. Our competitive strengths include our intellectual capital, our execution of our projects, reliability of our products, experience base and breadth of technologies embedded in our products and services that enable us to design unique solutions for our customers’ project requirements while incorporating standardized components to contain costs. We maintain a presence in all of the world’s major producing basins. Our strong customer relationships, experience and technology help us maintain a leadership position in subsea systems.

Seasonality

In the North Sea, winter weather generally subdues drilling activity and demand for subsea services as certain activities cannot be performed. As a result, the level of offshore activity in our subsea services is negatively influenced and tends to decrease in the first quarter of the year.

6



Surface Technologies

Surface Technologies designs and manufactures products and systems and provides services used by oil and gas companies involved in land and offshore exploration and production of crude oil and natural gas. We also design, manufacture and supply technologically advanced high pressure valves, pumps and fittings used in stimulation activities for oilfield service companies and provide fracturing flowback and wireline services for exploration companies in the oil and gas industry.

Principal Products and Services

Surface Wellhead. We provide a full range of drilling, completion and production systems for both standard service and custom-engineered, critical-service applications. Surface production systems, or trees, are used to control and regulate the flow of crude oil and natural gas from the well. Our surface products and systems are used worldwide on both onshore and offshore applications and can be used in difficult climates, including arctic cold or desert high temperatures. Our product technologies include conventional wellheads, unihead drill-thru wellheads designed for faster surface installations, drilling time optimization (“DTO”) timesaving conventional wellheads designed to reduce overall rig time and other technologies including sealing technology, thermal equipment, and valves and actuators. We support our customers through comprehensive surface wellhead system service packages that provide strategic solutions to ensure optimal equipment performance and reliability and include all phases of the asset’s life cycle, from the early planning stages through testing and installation, commissioning and operations, replacement and upgrades, interventions, decommissioning/abandonment, and maintenance, storage and preservations. In addition, our integrated shale services include hydraulic fracturing manifolds and trees and flow back equipment for timely and cost-effective well completion.

Surface wellhead represented approximately 14%, 13% and 14% of our consolidated revenue in 2013, 2012 and 2011, respectively.

Fluid Control. We design and manufacture flowline products, under the Weco®/Chiksan® trademarks, articulating frac arm manifold trailers, well service pumps, compact valves and reciprocating pumps used in well completion and stimulation activities by major oilfield service companies, such as Schlumberger Limited, Baker Hughes Incorporated, Halliburton Company and Weatherford International Ltd. Our flowline products are used in equipment that pumps corrosive and/or erosive fluid into a well during the well construction, hydraulic fracturing or other stimulation processes. Our well service pump product line includes Triplex and Quintuplex pumps utilized in a variety of applications including fracturing, acidizing and matrix stimulation and are capable of delivering flow rates up to 50 barrels per minute at pressures up to 20,000 psi. The performance of this business typically rises and falls with variations in the active rig count throughout the world and pressure pumping activity in the Americas.

Fluid control represented approximately 8%, 12% and 12% of our consolidated revenue in 2013, 2012 and 2011, respectively.

Completion Services. We provide fracturing flowback services, cased hole electric wireline and slickline services, specialty logging services, pressure transient analysis, and well optimization and swabbing services for exploration companies in the oil and gas industry. Acquired in October 2012 and formerly known as Pure Energy Services Ltd., our completion services business provides fracturing flowback and wireline services. Fracturing flowback services provide our customers the well services necessary for the recovery of solids, fracturing fluids and hydrocarbons from oil and natural gas wells after the stimulation of the well and can involve high pressure or multi-well pad operations.

Capital Intensity

Surface Technologies manufactures most of its products, resulting in a reliance on manufacturing locations throughout the world. We also maintain a large amount of rental equipment related to pressure pumping operations.
Dependence on Key Customers

No single Surface Technologies customer accounted for 10% or more of our 2013, 2012 or 2011 consolidated revenue.

7



Competition

Surface Technologies currently is a market leader for its primary products and services. Some of the competitive factors include technological innovation, reliability and product quality. Surface Technologies competes with other companies that supply surface production equipment and pressure pumping products. Some of our major competitors include Cameron International Corporation, Weir Oil & Gas, GE Oil & Gas and Gardner Denver, Inc.

Seasonality

In western Canada, the level of activity in the oilfield services industry is influenced by seasonal weather patterns. During the spring months, wet weather and the spring thaw make the ground unstable and less capable of supporting heavy equipment and machinery. As a result, municipalities and provincial transportation departments enforce road bans that restrict the movement of heavy equipment, which reduces activity levels. There is greater demand for oilfield services provided by our completion services business in the winter season when freezing permits the movement and operation of heavy equipment. Activities tend to increase in the fall and peak in the winter months of November through March.


8



Energy Infrastructure

Principal Products and Services

Measurement Solutions. We design and manufacture measurement systems for use in custody transfer of crude oil, natural gas and refined products. Our measurement systems provide solutions in energy-related applications such as crude oil and natural gas production and transportation, refined product transportation, petroleum refining, and petroleum marketing and distribution. We combine advanced measurement technology with state-of-the-art electronics and supervisory control systems to provide the measurement of both liquids and gases for purposes of verifying ownership and determining revenue and tax obligations.

We also provide design, engineering, project management, training, commissioning and aftermarket services in connection with the applications of blending and transfer technology solutions and process automation systems for manufacturers in the lubricant, petroleum, fuel blending, and additive and chemical industries.

Loading Systems. We provide land- and marine-based fluid loading and transfer systems to the oil and gas, petrochemical and chemical industries. Our systems are capable of loading and offloading marine vessels transporting a wide range of fluids including crude oil, liquefied natural gas (“LNG”) and refined products. While these systems are typically constructed on a fixed jetty platform, we also have developed advanced loading systems that can be mounted on a vessel or structure to facilitate ship-to-ship and tandem loading and offloading operations in open seas or exposed locations.

Material Handling Solutions. We provide material handling solutions, including bulk conveying systems, primarily to the power generation and mining industries. We provide innovative solutions for conveying, feeding, screening and orienting bulk product for customers in diverse industries. We offer system design, equipment supply, installation, commissioning and aftermarket support which enable us to provide performance optimization solutions for existing systems or newly customized turnkey plants.

Separation Systems. We design and manufacture systems that separate production flows from wells into oil, gas, sand and water. Our separation technology improves upon conventional separation technologies by moving the flow in a spiral, spinning motion. This causes the elements of the flow stream to separate more efficiently than conventional separation technologies. These systems are currently capable of subsea and topside applications. For subsea separation, performing a part of the required separation process at the seabed enables our customers to have more effective production and reduces the need for topside processing capacity. We are able to apply subsea separation technologies for both greenfield development and retrofit solutions for fields currently in production in order to reduce costs for topside facilities and increase production and recovery of fields.

Automation and Control. We provide automation, control and information technology for the oil and gas and other industries. Acquired in April 2012 and formerly known as Control Systems International, Inc., our automation and control business is a supplier of innovative control and automation system solutions through two primary products: (i) UCOS® and (ii) FUEL-FACS+®. UCOS® is a comprehensive software solution that combines distributed control system and supervisory control and data acquisition system retrofits using software solutions and compression control algorithms which allows customers to control and manage the engineering, design and monitoring of their systems of operations. Additionally, FUEL-FACS+® is a terminal automation and information management system that allows customers to monitor and control terminal liquid flows and inventory.

Dependence on Key Customers

No single Energy Infrastructure customer accounted for 10% or more of our 2013, 2012 or 2011 consolidated revenue.

9



OTHER BUSINESS INFORMATION RELEVANT TO OUR BUSINESS SEGMENTS

Product Development

We continue to invest in product development to advance technologies necessary to support the current and future technical challenges of our customers. New products and services are developed in order to ensure our ability to tender in upcoming projects and to develop our growth platforms. We also strive to increase standardization within our product lines in order to reduce delivery times, improve product integrity and control costs. To satisfy all these aims, we are focused on leveraging capabilities and advanced technologies across all of our businesses.

In our Subsea Technologies segment, we seek to invest in new technology that will enable the development of challenging fields. We continue to expand the portfolio of solutions in order to deliver a complete production system for high pressure, high temperature (“HPHT”) applications. During 2013, we began delivering Enhanced Vertical Deepwater Trees (“EVDTs”) that can perform at pressures as high as 15,000 psi and temperatures of 350º F. Key development work continued in the areas of valves, seals and materials to engineer a portfolio of solutions for performance in 20,000 psi and 400º F environments.

In addition to the development of new technology, we also seek to develop solutions that will help operators maximize recovery from existing subsea fields. We continue to develop motor and drive solutions for pumps in order to expand our subsea product portfolio and to meet a broader set of market needs. Along with our development partner, Sulzer Pumps Ltd, we advanced development of multiphase pump systems that will be capable of higher pressures, temperatures, and gas fractions. Utilizing our permanent magnet motor technology, our solutions offer higher speeds, power and efficiency than conventional induction motors. Also supporting these efforts was the development of sensing and monitoring technologies to enable condition and performance monitoring of subsea processing systems. This instrumentation will help operators better understand how subsea systems perform.

Demanding field installations and well intervention operations are increasing the demand and use of ROVs. In our Schilling Robotics business, progress was made in the development of our third generation ultra-heavy duty, work-class ROV. This recent evolution will feature a new hydraulic system, tool dynamic positioning system and high definition Ethernet video system enhancing vehicle operation for ROV pilots.

We are also expanding our subsea services portfolio enabling us to provide more services that maximize production and recovery over the life of the field. We continued construction of a fourth riserless light well intervention (“RLWI”) system. RLWI is a cost-effective intervention solution designed to perform various types of jobs in offshore wells that will improve and optimize recovery using smaller, purpose-built intervention vessels rather than rigs.

In our Surface Technologies segment, development work focused on enhancing our capabilities to provide products and services to support shale operations. Our fluid control business completed development of its new fluid end for well service pumps. Fluid ends are high-wear products containing replaceable valve, piston and liner components that enable pumping. The new fluid end offers better fatigue life by improving internal and external geometry to lower stress. The design allows quick and easy maintenance of well service pumps used in pressure pumping applications. Additional investments in Surface Technologies were directed toward the development of condition and performance monitoring capabilities for surface trees as well as the enhancement of our capabilities to support shallow water production such as our JXT (Jack-Up X-mass Tree) product line, our tree systems for shallow water, jack-up applications. These standard products provide production options that enable operators to minimize time to first oil and reduce capital investments.

In our Energy Infrastructure segment, our separation systems business completed the development of several technologies to improve separation performance, including development work on separation technology to support fracturing operations. These innovative technologies are expected to minimize the footprint of equipment at the frac site and reduce water costs. Our measurement solutions business completed development work on new hardware and software platforms for measurement devices. The new platform will be used across several product lines including ultrasonic meters and electronic truck registers and offers improved usability and diagnostic capabilities.

10



Order Backlog

Information regarding order backlog is incorporated herein by reference from the section entitled “Inbound Orders and Order Backlog” in Part II, Item 7 of this Annual Report on Form 10-K.

Sources and Availability of Raw Materials

Our business segments purchase carbon steel, stainless steel, aluminum and steel castings and forgings both domestically and internationally. We typically do not use single source suppliers for the majority of our raw material purchases; however, certain geographic areas of our businesses or a project or group of projects may heavily depend on certain suppliers for raw materials or supply of semi-finished goods. We believe the available supplies of raw materials are adequate to meet our needs.

Research and Development

We are engaged in research and development (“R&D”) activities largely directed toward the improvement of existing products and services, the design of specialized products to meet customer needs and the development of new products, processes and services. A large part of our product development spending has focused on the improved design and standardization of our Subsea Technologies product lines to meet our customer needs. Financial information about Company-sponsored R&D activities is incorporated herein by reference from Note 19 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Patents, Trademarks and Other Intellectual Property

We own a number of U.S. and foreign patents, trademarks and licenses that are cumulatively important to our businesses. As part of our ongoing research and development, we seek patents when appropriate for new products and product improvements. We have approximately 1,100 issued patents and pending patent applications worldwide. Further, we license intellectual property rights to or from third parties. We also own numerous U.S. and foreign trademarks and trade names and have approximately 225 registrations and pending applications in the United States and abroad.

We protect and promote our intellectual property portfolio and take those actions we deem appropriate to enforce and defend our intellectual property rights. We do not believe, however, that the loss of any one patent, trademark or license, or group of related patents, trademarks or licenses would have a material adverse effect on our overall business.

Employees

As of December 31, 2013, we had approximately 19,300 full-time employees, consisting of approximately 6,450 in the United States and 12,850 in non-U.S. locations. Less than 2% of our U.S. employees are represented by labor unions.

International Operations in Countries Subject to U.S. Restrictions

In 2009, like many other companies, we adopted a policy directing our non-U.S. subsidiaries to effectuate an orderly withdrawal from doing business with the various countries subject to U.S. restrictions. This policy prohibited entering into new commitments involving these countries, but did not require the non-U.S. subsidiaries to cease performance of existing commitments, provided such commitments could be performed in compliance with all applicable laws and regulations. As a result of this policy decision, non-U.S. subsidiary sales to these countries accounted for less than 0.002% of our consolidated revenue in 2013. As such, we consider these sales immaterial. We had no sales in Iran or Syria during 2013. While some residual service-related sales may occur after 2013, we expect these to be insignificant since all remaining outstanding commitments have been substantially completed.

Segment and Geographic Financial Information

The majority of our consolidated revenue and segment operating profits are generated in markets outside of the United States. Each of our segments’ revenue is dependent upon worldwide oil and gas exploration and production activity. Financial information about our segments and geographic areas is incorporated herein by reference from Note 19 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

11



EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3) to Form 10-K, the information regarding our executive officers called for by Item 401(b) of Regulation S-K is hereby included in Part I, Item 1 “Business” of this Annual Report on Form 10-K.

As of February 21, 2014, the executive officers of FMC Technologies, together with the offices currently held by them, their business experience and their ages, are as follows:
Name
 
Age    
 
Current Position and Business Experience
John T. Gremp
 
62
 
Chairman, President and Chief Executive Officer (2013)
Chairman and Chief Executive Officer (2012)
Chairman, President and Chief Executive Officer (2011)
President and Chief Operating Officer (2010)
Executive Vice President—Energy Systems (2007)
Maryann T. Seaman
 
51
 
Senior Vice President and Chief Financial Officer (2011)
Vice President—Treasurer and Deputy Chief Financial Officer (2010)
Vice President—Administration (2007)
Bradley D. Beitler
 
60
 
Vice President—Technology (2009)
Director of Technology (2006)
Sanjay Bhatia
 
44
 
Vice President—Corporate Development (2012)
Director of Business Development (2007)
Jeffrey W. Carr
 
57
 
Senior Vice President, General Counsel and Secretary (2010)
Vice President, General Counsel and Secretary (2001)
Tore Halvorsen
 
59
 
Senior Vice President—Subsea Technologies (2011)
Senior Vice President—Global Subsea Production Systems (2007)
Jay A. Nutt
 
50
 
Vice President and Controller (2009)
Controller (2008)
Johan Pfeiffer
 
49
 
Vice President—Surface Technologies (2011)
Vice President—Global Surface Wellhead (2010)
General Manager for Subsea activities in Europe, Africa, and the Commonwealth of Independent States (CIS) (2007)
Douglas J. Pferdehirt
 
50
 
Executive Vice President and Chief Operating Officer (2012)
Executive Vice President—Corporate Development & Communication for Schlumberger Limited (2011)
President Reservoir Production Group for Schlumberger Limited (2006)
Mark J. Scott
 
60
 
Vice President—Administration (2010)
Senior Vice President of Human Resources for Dresser, Inc. (2004)
No family relationships exist among any of the above-listed officers, and there are no arrangements or understandings between any of the above-listed officers and any other person pursuant to which they serve as an officer. During the past five years, none of the above-listed officers was involved in any legal proceedings as defined in Item 401(f) of Regulation S-K. All officers are elected by the Board of Directors to hold office until their successors are elected and qualified.

12



ITEM 1A. RISK FACTORS

Important risk factors that could impact our ability to achieve our anticipated operating results and growth plan goals are presented below. The following risk factors should be read in conjunction with discussions of our business and the factors affecting our business located elsewhere in this Annual Report on Form 10-K and in our other filings with the SEC.

Demand for our systems and services depends on oil and gas industry activity and expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas.

We are substantially dependent on conditions in the oil and gas industry, including the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies. Any substantial or extended decline in these expenditures may result in the reduced pace of discovery and development of new reserves of oil and gas and the reduced exploitation of existing wells, which could adversely affect demand for our systems and services and, in certain instances, result in the cancellation, modification or rescheduling of existing orders. These factors could have an adverse effect on our revenue and profitability. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which, historically, have been volatile.

Factors affecting the prices of oil and natural gas include, but are not limited to, the following:
demand for hydrocarbons, which is affected by worldwide population growth, economic growth rates and general economic and business conditions;
costs of exploring for, producing and delivering oil and natural gas;
political and economic uncertainty and sociopolitical unrest;
available excess production capacity within the Organization of Petroleum Exporting Countries (“OPEC”) and the level of oil production by non-OPEC countries;
oil refining capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
technological advances affecting energy consumption;
potential acceleration of the development of alternative fuels;
access to capital and credit markets, which may affect our customers’ activity levels and spending for our products and services; and
natural disasters.

The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for oilfield services and downward pressure on the prices we charge. A significant downturn in the oil and gas industry could result in a reduction in demand for oilfield services and could adversely affect our financial condition, results of operations or cash flows.

The industries in which we operate or have operated expose us to potential liabilities arising out of the installation or use of our systems that could adversely affect our financial condition.

We are subject to equipment defects, malfunctions and failures, equipment misuse and natural disasters, the occurrence of which may result in uncontrollable flows of gas or well fluids, fires and explosions. Although we have obtained insurance against many of these risks, our insurance may not be adequate to cover our liabilities. Further, the insurance may not generally be available in the future or, if available, premiums may not be commercially justifiable. If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations, financial condition or cash flows could be materially adversely affected.

13



Our operations require us to comply with numerous U.S. and international regulations, violations of which could have a material adverse effect on our financial condition, results of operations or cash flows.

We are exposed to a variety of federal, state, local and international laws and regulations relating to matters such as environmental, health and safety, labor and employment, import/export control, currency exchange, bribery and corruption and taxation. These laws and regulations are complex, frequently change and have tended to become more stringent over time. In the event the scope of these laws and regulations expand in the future, the incremental cost of compliance could adversely impact our financial condition, results of operations or cash flows.
Our operations outside of the United States require us to comply with numerous anti-bribery and anti-corruption regulations under the laws of the United States and various other countries. The U.S. Foreign Corrupt Practices Act (“FCPA”), the United Kingdom (“U.K.”) Bribery Act and the China Anti-Unfair Competition Law, among others, apply to us and our operations. We have internal control policies and procedures and have implemented training and compliance programs for our employees and agents with respect to these regulations. However, our policies, procedures and programs may not always protect us from reckless or criminal acts committed by our employees or agents, and severe criminal or civil sanctions may be imposed as a result of violations of these laws. We are also subject to the risks that our employees, joint venture partners and agents outside of the United States may fail to comply with applicable laws.
Moreover, we import raw materials, semi-finished goods, as well as finished products into many countries for use in such countries or for manufacturing and/or finishing for re-export and import into another country for use or further integration into equipment or systems. Most movement of raw materials, semi-finished or finished products involves imports and exports. As a result, compliance with multiple trade sanctions, embargoes and import/export laws and regulations, as well as the recently enacted conflict minerals reporting requirements, pose a constant challenge and risk to us since our business is conducted on a worldwide basis through various subsidiaries. Our failure to comply with these laws and regulations could materially affect our reputation, financial condition and results of operations.

Compliance with environmental laws and regulations may adversely affect our business and operating results.
Environmental laws and regulations affect the equipment, systems and services we design, market and sell, as well as the facilities where we manufacture our equipment and systems. We are required to invest financial and managerial resources to comply with environmental laws and regulations and believe that we will continue to be required to do so in the future. These regulations, as well as the adoption of other laws and regulations affecting exploration and development of drilling for crude oil and natural gas, could adversely affect our business and operating results by increasing our costs, limiting the demand for our systems and services or restricting our operations.
International, national and state governments and agencies are currently evaluating and promulgating legislation and regulations that are focused on restricting emissions commonly referred to as greenhouse gas (“GHG”) emissions. For instance, the U.S. Environmental Protection Agency (“EPA”) has made findings that GHG emissions endanger public health and the environment and, based on these findings, has adopted regulations that restrict GHG emissions under existing provisions of the U.S. Clean Air Act, including one that requires a reduction of GHG emissions from motor vehicles and another that requires certain construction and operating permit reviews for GHG emissions from certain large stationary sources. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from certain sources, including onshore and offshore oil and natural gas production facilities and onshore oil and natural gas processing, transmission, storage and distribution facilities. In addition, the European Emissions Trading Scheme is a program through which many of the European Union member states are implementing cap and trade controls covering numerous power stations and industrial facilities. These developments may curtail production and demand for oil and gas in areas of the world where our customers operate and could adversely affect future demand for our products and services.

14



Moreover, environmental concerns have been raised regarding the potential impact of hydraulic fracturing or “fracking” on underground water supplies. We provide equipment and services to companies employing this enhanced recovery technique. There have been several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completion or production activities. The EPA issued rules on April 17, 2012, which become effective in January 2015, designed to limit the release of volatile organic compounds, or pollutants, from natural gas wells that are hydraulically fractured. Certain governmental reviews are either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. Hydraulic fracturing restrictions also have been or are being considered for adoption in other countries. Should additional governmental regulations ultimately be imposed that further restrict or curtail hydraulic fracturing activities, the demand for our equipment and services could be impacted, which, in turn, could adversely affect our financial condition, results of operations or cash flows.

Disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we conduct business could adversely affect our business or results of operations.

We operate manufacturing facilities in 16 countries outside of the United States and approximately 73% of our 2013 revenue was generated internationally. Instability and unforeseen changes in the international markets in which we conduct business, including economically and politically volatile areas such as North Africa, West Africa, the Middle East and the Commonwealth of Independent States (“CIS”), could have an adverse effect on the demand for our systems and services, our financial condition or our results of operations. These factors include, but are not limited to, the following:
nationalization and expropriation;
potentially burdensome taxation;
inflationary and recessionary markets, including capital and equity markets;
civil unrest, labor issues, political instability, terrorist attacks, cyber-terrorism, military activity and wars;
supply disruptions in key oil producing countries;
ability of OPEC to set and maintain production levels and pricing;
trade restrictions, trade protection measures or price controls;
foreign ownership restrictions;
import or export licensing requirements;
restrictions on operations, trade practices, trade partners and investment decisions resulting from domestic and foreign laws and regulations;
changes in, and the administration of, laws and regulations;
inability to repatriate income or capital;
reductions in the availability of qualified personnel;
foreign currency fluctuations or currency restrictions; and
fluctuations in the interest rate component of forward foreign currency rates.

Because a significant portion of our revenue is denominated in foreign currencies, changes in exchange rates will produce fluctuations in our revenue, costs and earnings and may also affect the book value of our assets located outside of the United States and the amount of our stockholders’ equity. Although it is our policy to seek to minimize our currency exposure by engaging in hedging transactions where appropriate, our efforts may not be successful. To the extent we sell our products and services in foreign markets, currency fluctuations may result in our products and services becoming too expensive for foreign customers. As a result, fluctuations in foreign currency exchange rates may affect our financial results.

15



We may lose money on fixed-price contracts.

As is customary for the types of businesses in which we operate, we often agree to provide products and services under fixed-price contracts. Under these contracts, we are typically responsible for cost overruns. Our actual costs and any gross profit realized on these fixed-price contracts may vary from the estimated amounts on which these contracts were originally based. There is inherent risk in the estimation process, including significant unforeseen technical and logistical challenges or longer than expected lead times. A fixed-price contract may prohibit our ability to mitigate the impact of unanticipated increases in raw material prices through increased pricing. Depending on the size of a project, variations from estimated contract performance could have a significant impact on our financial condition, results of operations or cash flows.

Disruptions in the timely delivery of our backlog could affect our future sales, profitability, and our relationships with our customers.

Many of the contracts we enter into with our customers require long manufacturing lead times due to complex technical and logistical requirements. These contracts may contain penalty clauses relating to on-time delivery, and a failure by us to deliver in accordance with customer expectations could subject us to contractual penalties, reduce our margins on these contracts or result in damage to existing customer relationships. The ability to meet customer delivery schedules for this backlog is dependent on a number of factors, including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, subcontractor performance, project engineering expertise, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. Failure to deliver backlog in accordance with expectations could negatively impact our financial performance.

Due to the types of contracts we enter into, the cumulative loss of several major contracts or alliances may have an adverse effect on our results of operations.

We often enter into large, long-term contracts that, collectively, represent a significant portion of our revenue. For example, we have an alliance of this type with Statoil from which we generated approximately 12% of our consolidated revenue in 2013. These agreements, if terminated or breached, may have a larger impact on our operating results or our financial condition than shorter-term contracts due to the value at risk. If we were to lose several key alliances or agreements over a relatively short period of time we could experience a significant adverse impact on our financial condition, results of operations or cash flows.

Increased costs of raw materials and other components may result in increased operating expenses and adversely affect our results of operations or cash flows.

Our results of operations may be adversely affected by our inability to manage the rising costs and availability of raw materials and components used in our wide variety of products and systems. Unexpected changes in the size and timing of regional and/or product markets, particularly for short lead-time products, could affect our results of operations or cash flows.

Moreover, in August 2012, the SEC issued its final rule to implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding mandatory disclosure and reporting requirements by public companies of their use of “conflict minerals” (tantalum, tin, tungsten and gold) originating in the Democratic Republic of Congo and adjoining countries. We are required to conduct specified due diligence activities for the 2013 calendar year and provide our first report in May 2014. The new rule could affect sourcing at competitive prices and availability in sufficient quantities of certain of the conflict minerals used in the manufacture of our products or in the provision of our services. The number of suppliers who provide conflict-free minerals may be limited, which could have a material adverse effect on our ability to purchase these products in the future. The costs of compliance, including those related to supply chain research, the limited number of suppliers and possible changes in the sourcing of these minerals, could have a material adverse effect on our results of operations or cash flows.

16



Our businesses are dependent on the continuing services of certain of our key managers and employees.

We depend on our senior executive officers and other key personnel. The loss of any of these officers or key management could adversely impact our business if we are unable to implement key strategies or transactions in their absence. In addition, competition for qualified employees among companies, like ours, that rely heavily on engineering and technology is intense. The loss of qualified employees or an inability to attract, retain and motivate additional highly-skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully and develop marketable products and services.

A failure of our information technology infrastructure could adversely impact our business and results of operations.

The efficient operation of our business is dependent on our information technology (“IT”) systems. Accordingly, we rely upon the capacity, reliability and security of our IT hardware and software infrastructure and our ability to expand and update this infrastructure in response to our changing needs. Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, incursions by intruders or hackers, failures in hardware or software, power fluctuations, cyber terrorists and other similar disruptions. The failure of our IT systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, inappropriate disclosure of confidential information, increased overhead costs and loss of important information, which could have a material adverse effect on our business and results of operations. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Our success depends on our ability to implement new technologies and services.

Our success depends on the ongoing development and implementation of new product designs and improvements and on our ability to protect and maintain critical intellectual property assets related to these developments. If we are not able to obtain patent or other protection of our technology, we may not be able to continue to develop systems, services and technologies to meet evolving industry requirements, and if so, at prices acceptable to our customers.

Some of our competitors are large national and multinational companies that may be able to devote greater financial, technical, manufacturing and marketing resources to the research and development of new systems, services and technologies than we are able to do. If we are unable to compete effectively given these risks, our business, results of operations and financial condition could be adversely affected.

Uninsured claims and litigation against us, including intellectual property litigation, could adversely impact our financial condition, results of operations or cash flows.

We could be impacted by the outcome of pending litigation, as well as unexpected litigation or proceedings. We have insurance coverage against operating hazards, including product liability claims and personal injury claims related to our products, to the extent deemed prudent by our management and to the extent insurance is available. However, no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending and future claims and litigation. Our financial condition, results of operations or cash flows could be adversely affected by unexpected claims not covered by insurance.
In addition, the tools, techniques, methodologies, programs and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs and may distract management from running our core business. Royalty payments under licenses from third parties, if available, would increase our costs. If a license were not available, we might not be able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations or cash flows. Additionally, developing non-infringing technologies would increase our costs.

17



A downgrade in the rating of our debt could restrict our ability to access the capital markets.

Changes in the ratings assigned to our debt may impact our access to the debt capital markets. If ratings for our debt fall below investment grade, our access to the debt capital markets could become restricted. Moreover, our revolving credit agreement includes an increase in interest rates if the ratings for our debt are downgraded, which could have an adverse effect on our results of operations. An increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

18



ITEM 2. PROPERTIES

We lease our corporate headquarters in Houston, Texas. We own or lease numerous properties throughout the world and consider our production facilities to be our principal properties. We operate 30 production facilities in 17 countries.

We believe our properties and facilities are suitable for their present and intended purposes and are operating at a level consistent with the requirements of the industry in which we operate. We also believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon expiration of our current lease terms.

The following table shows our significant production properties by reporting segment at December 31, 2013:
Subsea Technologies
 
Surface Technologies
 
Energy Infrastructure
United States:
 
 
 
 
* Houston, Texas
 
   Stephenville, Texas
 
   Tupelo, Mississippi
   Davis, California
 
   Oklahoma City, Oklahoma
 
   Erie, Pennsylvania
   Shingle Springs, California
 
 
 
   Corpus Christi, Texas
   Fullerton, California
 
 
 
   Lenexa, Kansas
 
 
 
 
 
International:
 
 
 
 
   Kongsberg, Norway
 
+ Sens, France
 
   Ellerbek, Germany
* Rio de Janeiro, Brazil
 
   Collechio, Italy
 
   Changshu, China
* Nusajaya, Malaysia
 
   Maracaibo, Venezuela
 
   Arnhem, The Netherlands
* Singapore
 
   Edmonton, Canada
 
 
* Bergen, Norway
 
   Jakarta, Indonesia
 
 
* Dunfermline, Scotland
 
 
 
 
   Macaé, Brazil
 
 
 
 
   Takoradi, Ghana
 
 
 
 
* Stavanger, Norway
 
 
 
 
   Luanda, Angola
 
 
 
 
* Aberdeen, Scotland
 
 
 
 
   Port Harcourt, Nigeria
 
 
 
 
*These facilities are production properties in Subsea Technologies and Surface Technologies.
+This facility is a production property in Surface Technologies and Energy Infrastructure.
ITEM 3. LEGAL PROCEEDINGS

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.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

19



PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “FTI.”
 
2013
 
2012
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
Common stock price:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
$
59.34

 
$
58.35

 
$
58.73

 
$
54.39

 
$
46.93

 
$
49.96

 
$
50.54

 
$
54.36

Low
$
47.78

 
$
52.38

 
$
48.50

 
$
42.97

 
$
39.70

 
$
39.64

 
$
37.68

 
$
48.26

Closing stock price at December 31, 2013
 
$
52.21

Closing stock price at February 19, 2014
 
$
50.52

Number of common stockholders of record at February 19, 2014
 
3,044


We have not declared or paid cash dividends in 2013 or 2012, and we do not currently have a plan to pay cash dividends in the future.

On February 25, 2011, our Board of Directors approved a two-for-one stock split of our outstanding shares of common stock. The stock split was completed in the form of a stock dividend that was issued on March 31, 2011, to stockholders of record at the close of business on March 14, 2011. All common share and per share information in our consolidated financial statements have been retroactively revised to reflect the stock split.

As of December 31, 2013, our securities authorized for issuance under equity compensation plans were as follows:
 
Number of Securities 
to be Issued 
Upon Exercise of Outstanding Options,
Warrants and Rights
 
Weighted Average 
Exercise Price of 
Outstanding Options,
Warrants and Rights
 
Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
 
Equity compensation plans approved by security holders
33,786

(1)
$
5.99

 
24,066,444

(2)
Equity compensation plans not approved by security holders

 

 

 
Total
33,786

(1)
$
5.99

 
24,066,444

(2)
 
______________________________
(1) 
The table includes the number of shares that may be issued upon the exercise of outstanding options to purchase shares of our common stock under the Amended and Restated FMC Technologies, Inc. Incentive Compensation and Stock Plan (the “Plan”). The table does not include shares of restricted stock that have been awarded under the Plan but which have not yet vested.
(2) 
The table includes shares of our common stock available for future issuance under the Plan, excluding the shares quantified in the first column. This number includes 3,290,852 shares available for issuance for nonvested stock awards that vest after December 31, 2013.

We had no unregistered sales of equity securities during the year ended December 31, 2013.

20



The following table summarizes repurchases of our common stock during the three months ended December 31, 2013.

Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Purchased (a)
 
Average Price 
Paid per Share
 
Total Number of
Shares Purchased 
as Part of Publicly
Announced Plans 
or Programs
 
Maximum
Number of Shares 
That May Yet
Be Purchased
Under the Plans
or Programs (b)
October 1, 2013 – October 31, 2013
153,260

 
$
55.47

 
134,300

 
13,637,095

November 1, 2013 – November 30, 2013
164,790

 
$
49.63

 
153,300

 
13,483,795

December 1, 2013 – December 31, 2013
596,191

 
$
50.79

 
596,191

 
12,887,604

Total
914,241

 
$
51.37

 
883,791

 
12,887,604

______________________________
(a) 
Represents 883,791 shares of common stock repurchased and held in treasury and 30,450 shares of common stock purchased and held in an employee benefit trust established for the FMC Technologies, Inc. Non-Qualified Savings and Investment Plan. In addition to these shares purchased on the open market, we sold 14,220 shares of registered common stock held in this trust, as directed by the beneficiaries, during the three months ended December 31, 2013.
(b) 
In 2005, we announced a repurchase plan approved by our Board of Directors authorizing the repurchase of up to two million shares of our issued and outstanding common stock through open market purchases. The Board of Directors authorized extensions of this program, adding five million shares in February 2006 and eight million shares in February 2007 for a total of 15 million shares of common stock authorized for repurchase. As a result of the two-for-one stock splits (i) on August 31, 2007, the authorization was increased to 30 million shares; and (ii) on March 31, 2011, the authorization was increased to 60 million shares. In December 2011, the Board of Directors authorized an extension of our repurchase program, adding 15 million shares, for a total of 75 million shares. In addition to the 75 million shares, in July 2008, the Board of Directors authorized the repurchase of $95.0 million of our outstanding common stock, and as of September 2008, there was no remaining amount available for purchase under the $95.0 million authorization.

21



ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected financial data of the Company for each of the five years in the period ended December 31, 2013. This information should be read in conjunction with Part II, Item 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and the audited consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.
(In millions, except per share data)
Years Ended December 31
2013
 
2012
 
2011
 
2010
 
2009
Statement of income data:
 
 
 
 
 
 
 
 
 
Total revenue
$
7,126.2

 
$
6,151.4

 
$
5,099.0

 
$
4,125.6

 
$
4,405.4

Total costs and expenses
$
6,378.6

 
$
5,546.6

 
$
4,536.6

 
$
3,574.0

 
$
3,875.3

Income from continuing operations
$
506.6

 
$
434.8

 
$
403.5

 
$
378.3

 
$
362.8

Net income attributable to FMC Technologies, Inc.
$
501.4

 
$
430.0

 
$
399.8

 
$
375.5

 
$
361.8

 
 
 
 
 
 
 
 
 
 
Earnings per share from continuing operations attributable to FMC Technologies, Inc.:
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
2.10

 
$
1.79

 
$
1.66

 
$
1.55

 
$
1.46

Diluted earnings per share
$
2.10

 
$
1.78

 
$
1.64

 
$
1.53

 
$
1.44

 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$

 
$

 
$

 
$

 
$

(In millions)
As of December 31
2013
 
2012
 
2011
 
2010
 
2009
Balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
$
6,605.6

 
$
5,902.9

 
$
4,271.0

 
$
3,644.2

 
$
3,556.4

Net (debt) cash (1)
$
(973.2
)
 
$
(1,298.7
)
 
$
(279.6
)
 
$
(47.8
)
 
$
40.6

Long-term debt, less current portion
$
1,329.8

 
$
1,580.4

 
$
36.0

 
$
351.1

 
$
391.6

Total FMC Technologies, Inc. stockholders’ equity
$
2,317.2

 
$
1,836.9

 
$
1,424.6

 
$
1,311.7

 
$
1,102.8

(In millions)
Years Ended December 31
2013
 
2012
 
2011
 
2010
 
2009
Other financial information:
 
 
 
 
 
 
 
 
 
Capital expenditures
$
314.1

 
$
405.6

 
$
274.0

 
$
112.5

 
$
110.0

Cash flows provided by operating activities of continuing operations
$
795.4

 
$
138.4

 
$
164.8

 
$
194.8

 
$
596.6

Segment operating capital employed (2)
$
3,610.8

 
$
3,572.6

 
$
2,204.2

 
$
1,722.8

 
$
1,369.6

Order backlog (3)
$
6,998.2

 
$
5,377.8

 
$
4,876.4

 
$
4,171.5

 
$
2,545.4

______________________________
(1) 
Net (debt) cash consists of cash and cash equivalents less short-term debt, long-term debt and the current portion of long-term debt. Net (debt) cash is a non-GAAP measure that management uses to evaluate our capital structure and financial leverage. See “Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K for additional discussion of net (debt) cash.
(2) 
We view segment operating capital employed, which consists of assets, net of liabilities, as the primary measure of segment capital. Segment operating capital employed excludes corporate debt facilities and certain investments, pension liabilities, deferred and currently payable income taxes and last-in, first-out (“LIFO”) inventory adjustments. See additional financial information about segment operating capital employed in Note 19 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
(3) 
Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.

22



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

We design, manufacture and service technologically sophisticated systems and products for customers in the energy industry. We have manufacturing operations worldwide, strategically located to facilitate delivery of our products, systems and services to our customers. We report the results of operations in the following segments: Subsea Technologies, Surface Technologies and Energy Infrastructure. Management’s determination of the Company’s reporting segments was made on the basis of our strategic priorities and corresponds to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to the segment.

A description of our products and services, as well as annual financial data, for each segment can be found in Part I, Item 1, “Business” and Note 19 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. The discussions below include the results of each of our segments for the years ended December 31, 2013, 2012 and 2011.

We focus on economic and industry-specific drivers and key risk factors affecting our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources. The following discussion provides examples of economic and industry factors and key risks that we consider relevant to our business segments.

The results of our businesses are primarily driven by changes in production spending by oil and gas companies, which largely depend upon current and anticipated future crude oil and natural gas demand, production volumes, and consequently, commodity prices. Our Subsea Technologies business is primarily affected by trends in deepwater oil and natural gas production. Our Surface Technologies business is primarily affected by trends in land-based and shallow water oil and natural gas production, including trends in shale production. We use crude oil and natural gas prices as an indicator of demand. Additionally, we use rig count as an indicator of demand which consequently influences the level of worldwide production activity and spending decisions.

We also focus on key risk factors when determining our overall strategy and making decisions for capital allocation. These factors include risks associated with the global economic outlook, product obsolescence and the competitive environment. We address these risks in our business strategies, which incorporate continuing development of leading edge technologies and cultivating strong customer relationships.

We have developed close working relationships with our customers. Our Subsea Technologies business results reflect our ability to build long-term alliances with oil and natural gas companies that are actively engaged in offshore deepwater development and to provide solutions for their needs in a timely and cost-effective manner. We believe that by working closely with our customers, we enhance our competitive advantage, strengthen our market positions and improve our operating results. Examining our share of subsea tree awards during the year is one of the ways we evaluate our market position.

As we evaluate our operating results, we consider business segment performance indicators like segment revenue, operating profit and capital employed, in addition to the level of inbound orders and order backlog. A significant proportion of our revenue is recognized under the percentage of completion method of accounting. Cash receipts from such arrangements typically occur at milestones achieved under stated contract terms. Consequently, the timing of revenue recognition is not always correlated with the timing of customer payments. We may structure our contracts to receive advance payments that we typically use to fund engineering efforts and inventory purchases. Working capital (excluding cash) and net (debt) cash are therefore key performance indicators of cash flows.

In each of our segments, we serve customers from around the world. During 2013, approximately 73% of our total sales were recognized outside of the United States. We evaluate international markets and pursue opportunities that fit our technological capabilities and strategies. For example, we have targeted opportunities in West Africa, Brazil, the North Sea and the Asia-Pacific region because of the expected offshore drilling potential in those regions.

23



Business Outlook
Overall, management is optimistic about business activity in 2014 as global economic growth continues to recover. 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 2014. As a result, we expect crude oil prices to remain at a level that supports strong production activity, especially in subsea markets.
Orders were strong in every quarter in 2013 as operators continued to award subsea projects in all basins throughout the world. Our strong subsea project backlog as of December 31, 2013, combined with increasing demand for subsea services related to production activity, supports our expectations of higher subsea revenue and margin expansion in 2014. However, due to the lower backlog conversion rate associated with multi-year delivery schedule awards, we expect modest subsea revenue growth in 2014 when compared to the growth we have experienced over the last few years. Subsea awards over the last couple of years have filled industry backlogs, and we believe the pricing environment should remain positive in 2014 as oil and gas companies remain committed to developing their deepwater portfolios because of the long-term returns these portfolios generate.
In addition, we continue to focus on subsea processing and subsea services as key growth platforms so that we can expand our role as life-of-field partners with our customers by lowering their costs and improving their recovery. In subsea services and in conjunction with our joint venture with Edison Chouest Offshore LLC, we expect to bring our fourth riserless light well intervention system into the market in the end of 2014. Also, our service facility expansions in Norway and Brazil are expected to allow us to meet the growing customer demand for equipment refurbishment. Overall, we expect market demand to remain strong for our subsea technologies systems and service offerings worldwide despite expectations that total industry tree orders will be lower as Petrobras will not repeat its awards related to its multi-year pre-salt requirements. We continue to seek ways to leverage our capacity investments, our talent, and our overall cost structure to drive improvement in our execution and our financial results.
Regarding our surface technologies portfolio, the slowdown in North American surface activity in the latter half of 2012, resulting from oversupply of equipment and lower natural gas prices, led to curtailed fracturing capacity expansion. This slowdown in North American surface activity continued in 2013. As a result, the slowdown had a negative impact on profits in our fluid control business and fracturing rental assets in our surface wellhead business in 2013 compared to the prior year. We believe the international markets for our surface technologies businesses are expected to remain strong in 2014, while the flat activity in North American markets experienced in 2013 is expected to continue in 2014. Shale markets remains part of our long-term strategy, and we continue to invest in our surface technologies businesses to capitalize on these growth opportunities while taking steps to better integrate our product and service offerings with our customers’ needs.

24



CONSOLIDATED RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
 
Year Ended December 31,
 
Change
(In millions, except percentages)
2013
 
2012
 
2011
 
2013 vs. 2012
 
2012 vs. 2011
Revenue
$
7,126.2

 
$
6,151.4

 
$
5,099.0

 
$
974.8

 
16%
 
$
1,052.4

 
21%
Costs and expenses:
 
 
 
 
 
 
 
 

 
 
 
 
Cost of sales
5,571.4

 
4,832.9

 
3,966.2

 
738.5

 
15
 
866.7

 
22
Selling, general and administrative expense
694.8

 
596.9

 
479.9

 
97.9

 
16
 
117.0

 
24
Research and development expense
112.4

 
116.8

 
90.5

 
(4.4
)
 
(4)
 
26.3

 
29
Total costs and expenses
6,378.6

 
5,546.6

 
4,536.6

 
832.0

 
15
 
1,010.0

 
22
Other income (expense), net
5.3

 
23.0

 
(1.4
)
 
(17.7
)
 
(77)
 
24.4

 
1,743
Net interest expense
(33.7
)
 
(26.6
)
 
(8.2
)
 
(7.1
)
 
(27)
 
(18.4
)
 
(224)
Income before income taxes
719.2

 
601.2

 
552.8

 
118.0

 
20
 
48.4

 
9
Provision for income taxes
212.6

 
166.4

 
149.3

 
46.2

 
28
 
17.1

 
11
Net income
506.6

 
434.8

 
403.5

 
71.8

 
17
 
31.3

 
8
Less: net income attributable to noncontrolling interests
(5.2
)
 
(4.8
)
 
(3.7
)
 
(0.4
)
 
(8)
 
(1.1
)
 
(30)
Net income attributable to FMC Technologies, Inc.
$
501.4

 
$
430.0

 
$
399.8

 
$
71.4

 
17%
 
$
30.2

 
8%

2013 Compared With 2012

Revenue increased by $974.8 million in 2013 compared to the prior year and reflected revenue growth in all reporting segments. Revenue in 2013 included a $136.8 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, total revenue increased by $1,111.6 million year-over-year. Subsea systems and services had another strong year of order activity in 2013. The impact of the higher backlog coming into 2013, combined with robust market activity, led to increased Subsea Technologies sales year-over-year. Additionally, revenue increased year-over-year as a result of our acquisition of the remaining 55% of Schilling Robotics during the second quarter of 2012. Surface Technologies posted higher revenue in 2013 as a result of our acquisition of our completion service business in the fourth quarter of 2012 and higher conventional wellhead system sales in our surface wellhead business in the Middle East and Europe regions.
Gross profit (revenue less cost of sales) increased as a percentage of sales to 21.8% in 2013 from 21.4% in the prior year. The increase in gross profit as a percentage of sales was primarily due to increased utilization and efficiency of engineering resources in our Western Region subsea business, improved performance in our subsea services business, additional subsea contract value in 2013 related to an Angolan withholding tax adjustment, a larger remeasurement of the Multi Phase Meters contingent earn-out consideration in 2012, increased sales volumes and profitability in our Schilling Robotics business, and foreign exchange gains recognized in 2013, partially offset by charges taken on the ExxonMobil Hibernia Southern Extension project in our subsea business and 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.

Selling, general and administrative (“SG&A”) expense increased by $97.9 million year-over-year, driven by higher bid and proposal expenses, increased sales commissions and additional staffing to support subsea service operations in our subsea systems business, the full year impact of SG&A expense as the result of our acquisition of our completion services business in the fourth quarter of 2012, and increased sales commissions in our surface wellhead business.

25



Other income (expense), net, reflected a $20.0 million gain related to the fair valuation of our previously held equity interest in Schilling Robotics during 2012 and $1.7 million and $1.4 million of gains related to the remeasurement of foreign currency exposures in 2013 and 2012, respectively. Further discussion of our derivative instruments is incorporated herein by reference from Note 14 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our provision for income taxes reflected an effective tax rate of 29.8% in 2013. Excluding a charge related to withholding taxes in Angola, our effective tax rate was 26.7% in 2013. In 2012, our effective tax rate was 28.0%. The decrease in our effective tax rate from 2012 to the adjusted rate in 2013 was primarily due to a more favorable 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 which are set to expire after 2018 and 2015, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate primarily related to differing foreign and state tax rates.

2012 Compared With 2011

Revenue increased by $1,052.4 million in 2012 compared to the prior year and reflected revenue growth in all reporting segments. Revenue in 2012 included a $188.4 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, total revenue increased by $1,240.8 million year-over-year. Subsea systems and services had another strong year of order activity during 2012. The impact of the higher backlog coming into 2012, combined with robust market activity, led to increased Subsea Technologies sales year-over-year. Additionally, revenue increased year-over-year as a result of our acquisition of the remaining 55% of Schilling Robotics during the second quarter of 2012. Surface Technologies posted higher revenue during 2012 from higher backlog entering the year, which resulted from increased demand for Weco®/Chiksan® equipment and well service pumps due to the ongoing strength of the North American oil and gas shale markets in 2011.
Gross profit (revenue less cost of sales) decreased as a percentage of sales to 21.4% in 2012 from 22.2% in the prior year. The decline in gross profit as a percentage of sales was primarily due to the $42.0 million remeasurement of the Multi Phase Meters contingent earn-out consideration in 2012, higher staffing and increased depreciation expense as a result of our expansion of our fluid control business, and certain foreign exchange losses, partially offset by charges taken in 2011 from higher project completion and post-completion costs.

SG&A expense increased by $117.0 million year-over-year, driven by higher bid and proposal expenses, increased sales commissions and additional staffing to support operations.

R&D expense increased by $26.3 million year-over-year as we continued to advance new technologies in Subsea Technologies, including subsea processing capabilities, and related to the development of our permanent magnet motor technologies.

Other income (expense), net, reflected a $20.0 million gain related to the fair valuation of our previously held equity interest in Schilling Robotics during 2012 and $1.4 million and $1.9 million of gains related to the remeasurement of foreign currency exposures in 2012 and 2011, respectively. Further discussion of our derivative instruments is incorporated herein by reference from Note 14 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our provision for income taxes reflected an effective tax rate of 28.0% in 2012. In 2011, our effective tax rate was 27.2%. Excluding a benefit related to recognizing a retroactive holiday in Singapore in the first quarter of 2011, our effective tax rate was 28.5%. The decrease from this adjusted rate to the effective tax rate in 2012 was primarily due to changes in our international structure during 2012, partially offset by the tax impact of the remeasurement of the Multi Phase Meters contingent earn-out consideration and a less favorable 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 which are set to expire after 2018 and 2015, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate related primarily to differing foreign and state tax rates.

26



Operating Results of Business Segments

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 debt and investments, income taxes and other revenue and other (expense), net.

The following table summarizes our operating results for the years ended December 31, 2013, 2012 and 2011:
 
Year Ended December 31,
 
Favorable/(Unfavorable)
(In millions, except percentages)
2013
 
2012
 
2011
 
2013 vs. 2012
 
2012 vs. 2011
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
Subsea Technologies
$
4,726.9

 
$
4,006.8

 
$
3,289.5

 
$
720.1

 
18%
 
$
717.3

 
22%
Surface Technologies
1,806.8

 
1,598.1

 
1,310.8

 
208.7

 
13
 
287.3

 
22
Energy Infrastructure
617.2

 
574.1

 
499.0

 
43.1

 
8
 
75.1

 
15
Other revenue and intercompany eliminations
(24.7
)
 
(27.6
)
 
(0.3
)
 
2.9

 
*
 
(27.3
)
 
*
Total revenue
$
7,126.2

 
$
6,151.4

 
$
5,099.0

 
$
974.8

 
16%
 
$
1,052.4

 
21%
Net income
 
 
 
 
 
 
 
 

 
 
 

Segment operating profit:
 
 
 
 
 
 
 
 

 
 
 

Subsea Technologies
$
548.2

 
$
432.2

 
$
306.0

 
$
116.0

 
27%
 
$
126.2

 
41%
Surface Technologies
257.2

 
284.3

 
250.1

 
(27.1
)
 
(10)
 
34.2

 
14
Energy Infrastructure
74.3

 
68.2

 
63.2

 
6.1

 
9
 
5.0

 
8
Intercompany eliminations
(0.1
)
 

 

 
(0.1
)
 
*
 

 
*
Total segment operating profit
879.6

 
784.7

 
619.3

 
94.9

 
12
 
165.4

 
27
Corporate items:
 
 
 
 
 
 
 
 

 
 
 

Corporate expense
(46.3
)
 
(41.8
)
 
(39.4
)
 
(4.5
)
 
(11)
 
(2.4
)
 
(6)
Other revenue and other (expense), net
(85.6
)
 
(119.9
)
 
(22.6
)
 
34.3

 
29
 
(97.3
)
 
(431)
Net interest expense
(33.7
)
 
(26.6
)
 
(8.2
)
 
(7.1
)
 
(27)
 
(18.4
)
 
(224)
Total corporate items
(165.6
)
 
(188.3
)
 
(70.2
)
 
22.7

 
12
 
(118.1
)
 
(168)
Income before income taxes
714.0

 
596.4

 
549.1

 
117.6

 
20
 
47.3

 
9
Provision for income taxes
212.6

 
166.4

 
149.3

 
(46.2
)
 
(28)
 
(17.1
)
 
(11)
Net income attributable to FMC Technologies, Inc.
$
501.4

 
$
430.0

 
$
399.8

 
$
71.4

 
17%
 
$
30.2

 
8%
* Not meaningful

We report our results of operations in U.S. dollars; however, our earnings are generated in various currencies worldwide. For example, we generate a significant amount of revenue, and incur a significant amount of costs, in Norwegian krone, Brazilian real, Singapore dollar, Malaysian ringgit, British pound, Angolan new kwanza and the euro. The earnings of subsidiaries functioning in their local currencies are translated into U.S. dollars based upon the average exchange rate during the period, in order to provide worldwide consolidated results. While the U.S. dollar results reported reflect the actual economics of the period reported upon, the variances from prior periods include the impact of translating earnings at different rates.

27



Subsea Technologies

2013 Compared With 2012

Subsea Technologies’ revenue increased $720.1 million in 2013 compared to the prior year. Revenue for 2013 included a $129.1 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, Subsea Technologies’ revenue increased by $849.2 million during 2013 compared to the prior year. With continued high crude oil prices, oil and gas exploration and production activity increased in 2013 when compared to the prior year, as evidenced by increased spending by oil and gas companies. This led to a stronger market for subsea products and services. We entered the year with a strong backlog and continued to have solid order activity during 2013 from high demand for subsea systems. The year-over-year increase in revenue was attributable to the conversion of backlog, combined with strong order activity in 2013. The revenue increase in 2013 was also due in part to our acquisition of the remaining 55% of Schilling Robotics in the second quarter of 2012.

Subsea Technologies’ operating profit totaled $548.2 million, or 11.6% of revenue, in 2013, compared to the prior-year’s operating profit as a percentage of revenue of 10.8%. The margin improvement was primarily driven by the following:
Subsea Systems - 0.9 percentage point increase due to increased utilization and efficiency of engineering resources in our Western Region business, improved results in our subsea service business, additional contract value in 2013 related to an Angolan withholding tax adjustment, lower overall research and development expenses and liquidated damage charges recognized in 2012 in Brazil, partially offset by charges taken on the ExxonMobil Hibernia Southern Extension project; and
Schilling Robotics - 0.1 percentage point decrease due to the gain on our previously held equity interest in Schilling Robotics recognized in 2012.

Foreign currency translation unfavorably impacted operating profit in 2013 by $14.6 million compared to the prior year.

2012 Compared With 2011

Subsea Technologies’ revenue increased $717.3 million in 2012 compared to the prior year. Revenue for 2012 included a $159.9 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, total revenue increased by $877.2 million during 2012 compared to the prior year. With continued high crude oil prices, oil and gas exploration and production activity increased in 2012 when compared to the prior year, as evidenced by increased spending by oil and gas companies. This led to a stronger market for subsea products and services. We entered the year with a strong backlog and continued to have solid order activity during 2012 from high demand for subsea systems. The year-over-year increase in revenue was attributable to the conversion of backlog, combined with strong order activity in 2012. The revenue increase in 2012 was also due in part to our acquisition of the remaining 55% of Schilling Robotics in the second quarter of 2012.

Subsea Technologies’ operating profit totaled $432.2 million, or 10.8% of revenue, in 2012, compared to the prior-year’s operating profit as a percentage of revenue of 9.3%. The margin improvement was primarily driven by the following:
Subsea Systems - 1.1 percentage point increase due to the conversion of lower margin backlog and higher project-related and post-completion costs in 2011;
Schilling Robotics - 0.2 percentage point increase due to the acquisition of the remaining 55% of Schilling Robotics in the second quarter of 2012; and
Multi Phase Meters - 0.3 percentage point increase due to higher margins realized in 2012 from increased recognition and acceptance of our meters in the market.

Foreign currency translation unfavorably impacted operating profit in 2012 by $23.5 million compared to the prior year.

28



Surface Technologies

2013 Compared With 2012

Surface Technologies’ revenue increased $208.7 million in 2013 compared to the prior year. The revenue increase was driven by the acquisition of our completion service business in the fourth quarter of 2012 and our surface wellhead business in the Middle East 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. Foreign currency translation unfavorably impacted revenue by $11.9 million in 2013 compared to the prior year.

Surface Technologies’ operating profit totaled $257.2 million, or 14.2% of revenue, in 2013, compared to the prior-year’s operating profit as a percentage of revenue of 17.8%. The margin decline was primarily driven by the following:
Fluid Control - 2.2 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;
Completion Services - 1.8 percentage point decrease due to the inclusion of our completion service business and lower activity in the Canadian market which impacted results; and
Surface Wellhead - 0.5 percentage point increase due to strong sales of conventional wellhead systems in the Middle East and Europe.

2012 Compared With 2011

Surface Technologies’ revenue increased $287.3 million in 2012 compared to the prior year. The revenue increase was driven by strong demand for Weco®/Chiksan® equipment coupled with an increased demand for well service pumps in our fluid control business due to the strength in North American oil and gas shale activity in the first half of 2012. Surface wellhead also experienced revenue growth year-over-year primarily due to conventional wellhead system sales and increased services related to hydraulic fracturing activity in North America and strong market growth in the Middle East. In addition, revenue increased year-over-year due to the acquisition of our completion services business in the fourth quarter of 2012.

Surface Technologies’ operating profit totaled $284.3 million, or 17.8% of revenue, in 2012, compared to the prior-year’s operating profit as a percentage of revenue of 19.1%. The margin decline was primarily driven by the following:
Fluid Control - 1.0 percentage point decrease due to higher staffing and increased depreciation expense as a result of business expansion;
Completion Services - 0.5 percentage point decrease due to the inclusion of our completion service business and lower activity in the Canadian market which impacted results; and
Surface Wellhead - 0.3 percentage point increase due to strong sales of conventional wellhead systems in the Middle East, partially offset by higher warranty costs in Europe.

29



Energy Infrastructure

2013 Compared With 2012

Energy Infrastructure’s revenue increased $43.1 million in 2013 compared to the prior year. The increase in revenue was led by our measurement solutions business due to the strength of North American oil and gas custody and control activity and progress on a loading systems project with Technip for Shell’s Prelude development. Foreign currency translation favorably impacted revenue by $4.2 million in 2013 compared to the prior year.

Energy Infrastructure’s operating profit totaled $74.3 million, or 12.0% of revenue, in 2013, compared to the prior-year’s operating profit as a percentage of revenue of 11.9%. The margin improvement was primarily driven by the following:
Separation Systems - 0.6 percentage point increase due to higher sales volumes and cost reduction efforts in SG&A; and
Measurement Solutions - 0.7 percentage point decrease due to higher overhead costs related to growth initiatives.

2012 Compared With 2011

Energy Infrastructure’s revenue increased $75.1 million in 2012 compared to the prior year. The increase in revenue was led by our measurement solutions business due to the strength of North American oil and gas custody and control activity, the acquisition of our automation and control business in the second quarter of 2012, and increased sales volumes in our material handling business. Foreign currency translation unfavorably impacted revenue by $15.8 million in 2012 compared to the prior year.

Energy Infrastructure’s operating profit totaled $68.2 million, or 11.9% of revenue, in 2012, compared to the prior-year’s operating profit as a percentage of revenue of 12.7%. The margin decline was primarily driven by the following:
Separation Systems - 0.7 percentage point decrease due to higher margin projects in 2011;
Loading Systems - 0.7 percentage point decrease due to inventory write-offs recorded in 2012; and
Material Handling - 0.7 percentage point increase due to improved margins realized from project completions.

30



Corporate Items

2013 Compared With 2012

Our corporate items reduced earnings by $165.6 million in 2013, compared to $188.3 million in 2012. The year-over-year decrease primarily reflected the following:
favorable variance in foreign currency of $21.5 million;
favorable variance related to the remeasurement of the Multi Phase Meters contingent earn-out consideration of $13.2 million;
unfavorable variance related to stock-based compensation expense, primarily from the accelerated vesting of awards for retirement eligible grantees, of $13.6 million; and an
unfavorable variance related to higher interest expense of $7.1 million.

2012 Compared With 2011

Our corporate items reduced earnings by $188.3 million in 2012, compared to $70.2 million in 2011. The year-over-year increase primarily reflected the following:
unfavorable variance in foreign currency of $29.4 million;
unfavorable variance related to the remeasurement of the Multi Phase Meters contingent earn-out consideration of $42.0 million;
unfavorable variance associated with higher pension expense of $17.4 million, including $8.6 million related to the curtailment of our Norwegian defined benefit plan; and an
unfavorable variance related to higher interest expense of $18.4 million.

31



Inbound Orders and Order Backlog

Inbound orders represent the estimated sales value of confirmed customer orders received during the reporting period.
 
Inbound Orders
Year Ended December 31,
(In millions)
2013
 
2012
Subsea Technologies
$
6,510.3

 
$
4,567.2

Surface Technologies
2,049.1

 
1,519.5

Energy Infrastructure
605.7

 
648.1

Intercompany eliminations and other
(44.4
)
 
(12.9
)
Total inbound orders
$
9,120.7

 
$
6,721.9


Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date. Translation negatively affected backlog by $374.1 million and $69.1 million for the years ended December 31, 2013 and 2012, respectively.
 
Order Backlog
December 31,
(In millions)
2013
 
2012
Subsea Technologies
$
5,988.8

 
$
4,580.3

Surface Technologies
742.4

 
500.8

Energy Infrastructure
288.4

 
297.7

Intercompany eliminations
(21.4
)
 
(1.0
)
Total order backlog
$
6,998.2

 
$
5,377.8


Order backlog for Subsea Technologies at December 31, 2013, increased by $1,408.5 million compared to December 31, 2012, reflecting strong inbound of subsea projects in 2013. Subsea Technologies backlog of $6.0 billion at December 31, 2013, was composed of various subsea projects, including BP’s Mad Dog Phase 2; Chevron’s Wheatstone; CNR International’s Baobab Field Phase 3; ExxonMobil’s Hibernia Southern Extension and Julia; Petrobras’ tree frame agreement, Congro & Corvina, and pre-salt tree and manifold awards; Shell’s Prelude, BC-10 Phase 3 and Stones; Statoil’s Statfjord Workover System, Gullfaks South, Tyrihans, Smorbukk South Extension, Oseberg Delta, Gullfaks Rimfaksdalen and Snorre B Platform Workover System; Total’s Egina; and Tullow Ghana’s TEN. We expect to convert approximately 45% to 55% of December 31, 2013 backlog into revenue during 2014.

Order backlog for Surface Technologies at December 31, 2013, increased by $241.6 million compared to December 31, 2012. The increase was due to strong inbound orders in our Middle East and Europe surface wellhead businesses.

Order backlog for Energy Infrastructure at December 31, 2013, decreased by $9.3 million compared to December 31, 2012. The decrease in backlog was primarily due to our loading systems and automation and control businesses, partially offset by an increase in backlog in our measurement solutions and separation systems businesses.

32



Liquidity and Capital Resources

Substantially all of our cash balances are held outside the United States and are generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the United States could be repatriated to the United States, but under current law, any such repatriation would be subject to U.S. federal income tax, as adjusted for applicable foreign tax credits. We have provided for U.S. federal income taxes on undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested.

We expect to meet the continuing funding requirements of our U.S. operations with cash generated by such U.S. operations, cash from earnings generated by non-U.S. operations that are not indefinitely reinvested and our existing credit facility. If cash held by non-U.S. operations is required for funding operations in the United States, and if U.S. tax has not previously been provided on the earnings of such operations, we would make a provision for additional U.S. tax in connection with repatriating this cash, which may be material to our cash flows and results of operations.

Net debt, or net cash, is a non-GAAP measure reflecting cash and cash equivalents, net of debt. Management uses this non-GAAP measure to evaluate our capital structure and financial leverage. We believe net debt, or net cash, is a meaningful measure that will assist investors in understanding our results and recognizing underlying trends. Net (debt) cash should not be considered as an alternative to, or more meaningful than, cash and cash equivalents as determined in accordance with GAAP or as an indicator of our operating performance or liquidity.

The following is a reconciliation of our cash and cash equivalents to net (debt) cash for the periods presented.
(In millions)
December 31,
2013
 
December 31,
2012
Cash and cash equivalents
$
399.1

 
$
342.1

Short-term debt and current portion of long-term debt
(42.5
)
 
(60.4
)
Long-term debt, less current portion
(1,329.8
)
 
(1,580.4
)
Net debt
$
(973.2
)
 
$
(1,298.7
)

The change in our net debt position was primarily due to cash generated from operating activities from higher income and significant improvements in our working capital position, partially offset by payments for capital expenditures and a reduction in our commercial paper position.

Cash flows for each of the years in the three-year period ended December 31, 2013, were as follows:
 
Year Ended December 31,
(In millions)
2013
 
2012
 
2011
Cash provided by operating activities
$
795.4

 
$
138.4

 
$
164.8

Cash required by investing activities
(311.6
)
 
(1,019.9
)
 
(273.7
)
Cash provided (required) by financing activities
(422.3
)
 
881.4

 
141.0

Effect of exchange rate changes on cash and cash equivalents
(4.5
)
 
(1.8
)
 
(3.6
)
Increase (decrease) in cash and cash equivalents
$
57.0

 
$
(1.9
)
 
$
28.5


Operating Cash Flows

During 2013, we generated $795.4 million in cash flows from operating activities, which represented a $657.0 million increase compared to the prior year. Our cash flows from operating activities in 2012 were $26.4 million lower than 2011. The year-over-year increase in 2013 was due to a betterment in our working capital position driven by our portfolio of projects and higher income during the year. The improvement in our working capital position was primarily the result of significant advance payments and progress billings on projects in 2013 compared to the prior year. The year-over-year decrease in 2012 was due to an increase in our working capital driven by our portfolio of projects, partially offset by higher income during the year. Our working capital balances can vary significantly depending on the payment terms and timing on key contracts.

33



Investing Cash Flows

Our cash requirements for investing activities in 2013 were $311.6 million, primarily reflecting cash required by our capital expenditure program of $314.1 million during 2013 related to continued investments in capacity expansion and service asset investments primarily in our Subsea Technologies segment.

Our cash requirements for investing activities in 2012 were $1,019.9 million, primarily reflecting cash required by our acquisitions of the remaining 55% of Schilling Robotics, 100% of Pure Energy and 100% of CSI which amounted to $615.5 million, net of cash acquired. Additionally, our capital expenditure program required cash of $405.6 million during 2012 related to continued investments in capacity expansion, tooling, rental tools and equipment upgrades.

Financing Cash Flows

Cash required by financing activities was $422.3 million in 2013. The decrease in cash provided from financing activities from the prior year was driven by the public offering of $800.0 million aggregate principal amount of our senior notes to fund capital expenditures, acquisitions and working capital needs in 2012 and a net decrease in our commercial paper position in 2013 compared to a net increase in commercial paper in 2012.

Cash provided by financing activities was $881.4 million in 2012. The increase in cash from financing activities from the prior year was driven by the public offering of $800.0 million aggregate principal amount of our senior notes and the issuance of commercial paper to fund capital expenditures, acquisitions and working capital needs, partially offset by $91.1 million in common stock repurchases under our share repurchase authorization program and the repayment of indebtedness under our revolving credit facility.

Debt and Liquidity

Total borrowings at December 31, 2013 and 2012, comprised the following: 
 
December 31,
(In millions)
2013
 
2012
Revolving credit facility
$

 
$
100.0

Commercial paper
501.4

 
669.8

2.00% Notes due 2017
299.5

 
299.3

3.45% Notes due 2022
499.6

 
499.6

Term loan
25.9

 
26.8

Uncommitted credit facilities
31.9

 
22.1

Property financing
13.9

 
16.7

Total borrowings
$
1,372.2

 
$
1,634.3

Credit Facility - On March 26, 2012, we entered into a new $1.5 billion revolving credit agreement (“credit agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent. The credit agreement is a five-year, revolving credit facility expiring in March 2017. Subject to certain conditions, at our request and with the approval of the Administrative Agent, the aggregate commitments under the credit agreement may be increased by an additional $500.0 million.
Borrowings under the credit agreement bear interest at a base rate or the London interbank offered rate (“LIBOR”), at our option, plus an applicable margin. Depending on our total leverage ratio, the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 1.125% to 1.750% and (ii) in the case of base rate loans, from 0.125% to 0.750%. The base rate is the highest of (1) the prime rate announced by JPMorgan Chase Bank, N.A., (2) the Federal Funds Rate plus 0.5% or (3) one-month LIBOR plus 1.0%.
In connection with the new credit agreement, we terminated and repaid all outstanding amounts under our previously existing $600.0 million five-year revolving credit agreement and our $350.0 million three-year revolving credit agreement.

34



The following is a summary of our credit facility at December 31, 2013:
(In millions)
Description
Amount
 
Debt
Outstanding
 
Commercial
Paper
Outstanding 
(a)
 
Letters
of Credit
 
Unused
Capacity
 
Maturity
Five-year revolving credit facility
$
1,500.0

 
$

 
$
501.4

 
$
6.0

 
$
992.6

 
March 2017
______________________________
(a) 
Under our commercial paper program, we have the ability to access up to $1.0 billion of financing through our commercial paper dealers. Our available capacity under our revolving credit facility is reduced by any outstanding commercial paper.

Committed credit available under our revolving credit facility provides the ability to issue our commercial paper obligations on a long-term basis. We had $501.4 million of commercial paper issued under our facility at December 31, 2013. As we had 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 accompanying consolidated balance sheet at December 31, 2013.

Among other restrictions, the terms of the credit agreement include negative covenants related to liens and a financial covenant related to the debt-to-earnings ratio. As of December 31, 2013, we were in compliance with all restrictive covenants under our revolving credit facility.

Senior Notes - On September 21, 2012, we completed the public offering of $300.0 million aggregate principal amount of 2.00% senior notes due October 2017 and $500.0 million aggregate principal amount of 3.45% senior notes due October 2022 (collectively, the “Senior Notes”). Interest on the Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2013. Net proceeds from the offering of $793.8 million were used for the repayment of outstanding commercial paper and indebtedness under our revolving credit facility. Additional information about the Senior Notes is incorporated herein by reference from Note 9 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Outlook for 2014

Historically, we have generated our capital resources primarily through operations and, when needed, through our credit facility. The volatility in credit, equity and commodity markets creates some uncertainty for our businesses. However, management believes, based on our current financial condition, existing backlog levels and current expectations for future market conditions, that we will continue to meet our short- and long-term liquidity needs with a combination of cash on hand, cash generated from operations and access to capital markets. We expect to continue to reach payment milestones on many of our projects which will continue to improve our cash flow position. In 2014, we expect an estimated cash outlay from operations of $70.1 million related to the final payment of the Multi Phase Meters earn-out consideration obligation.

We project spending approximately $400.0 million in 2014 for capital expenditures, largely towards our subsea expansion and related growth of our subsea service offerings. We expect to make contributions of approximately $9.0 million and $21.0 million to our U.S. Non-Qualified Defined Benefit Pension Plan and international pension plans, respectively during 2014. Actual contribution amounts are dependent upon plan investment returns, changes in pension obligations, regulatory environments and other economic factors. We update our pension estimates annually or more frequently upon the occurrence of significant events. Further, we expect to continue our stock repurchases authorized by our Board of Directors, with the timing and amounts of these repurchases dependent upon market conditions and liquidity.

We have $992.6 million in capacity available under our revolving credit facility that we expect to utilize if working capital needs temporarily increase in response to market demand. We continue to evaluate acquisitions, divestitures and joint ventures that meet our strategic priorities. Our intent is to maintain a level of financing sufficient to meet these objectives.

35



Contractual Obligations

The following is a summary of our contractual obligations at December 31, 2013:
 
Payments Due by Period
(In millions)
Contractual obligations
Total
payments
 
Less than
1 year
 
1-3
years
 
3 -5
years
 
After 5
years
Long-term debt (a)
$
1,340.3

 
$
10.5

 
$
29.1

 
$
801.1

 
$
499.6

Short-term debt
32.0

 
32.0

 

 

 

Interest on long-term debt (a)
179.3

 
23.3

 
46.5

 
40.5

 
69.0

Operating leases
599.0

 
113.4

 
177.8

 
121.5

 
186.3

Purchase obligations (b)
1,732.4

 
1,604.5

 
127.4

 
0.3

 
0.2

Multi Phase Meters earn-out consideration obligation
70.1

 
70.1

 

 

 

Pension and other post-retirement benefits (c)
21.0

 
21.0

 

 

 

Unrecognized tax benefits (d)
41.6

 
41.6

 

 

 

Total contractual obligations
$
4,015.7

 
$
1,916.4

 
$
380.8

 
$
963.4

 
$
755.1

______________________________
(a) 
Our available long-term debt is dependent upon our compliance with covenants, including negative covenants related to liens, and a financial covenant related to the debt-to-earnings ratio. Any violation of covenants or other events of default, which are not waived or cured, or changes in our credit rating could have a material impact on our ability to maintain our committed financing arrangements.
Only interest on our Senior Notes is included in the table. During 2013, we paid $27.1 million for interest charges, net of interest capitalized.
(b) 
In the normal course of business, we enter into agreements with our suppliers to purchase raw materials or services. These agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier. As substantially all of these commitments are associated with purchases made to fulfill our customers’ orders, the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income.
(c) 
We expect to contribute approximately $21.0 million and $9.0 million to our international pension plans, representing primarily the U.K. and Norway qualified pension plans, and our U.S. Non-Qualified Defined Benefit Pension Plan, respectively, in 2014. Required contributions for future years depend on factors that cannot be determined at this time.
(d) 
It is reasonably possible that $41.6 million of liabilities for unrecognized tax benefits will be settled during 2014, and this amount is reflected in income taxes payable in our consolidated balance sheet as of December 31, 2013. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with remaining liabilities for unrecognized tax benefits, we are unable to make a reasonable estimate of the period in which such liabilities might be paid. Although unrecognized tax benefits are not contractual obligations, they are presented in this table because they represent demands on our liquidity.

36



Other Off-Balance Sheet Arrangements

The following is a summary of other off-balance sheet arrangements at December 31, 2013:
 
Amount of Commitment Expiration per Period
(In millions)
Other off-balance sheet arrangements
Total
amount
 
Less than
1 year
 
1-3
years
 
3-5
years
 
After 5
years
Letters of credit and bank guarantees
$
819.0

 
$
342.4

 
$
224.7

 
$
142.6

 
$
109.3

Surety bonds
27.8

 
0.6

 

 

 
27.2

Total other off-balance sheet arrangements
$
846.8

 
$
343.0

 
$
224.7

 
$
142.6

 
$
136.5


As collateral for our performance on certain sales contracts or as part of our agreements with insurance companies, we are liable under letters of credit, surety bonds and other bank guarantees. In order to obtain these financial instruments, we pay fees to various financial institutions in amounts competitively determined in the marketplace. Our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments. These off-balance sheet financial instruments may be renewed, revised or released based on changes in the underlying commitment. Historically, our commercial commitments have not been drawn upon to a material extent; consequently, management believes it is not likely there will be claims against these commitments that will have a negative impact on our key financial ratios or our ability to obtain financing.

37



Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods presented. Management has reviewed these critical accounting estimates with the Audit Committee of our Board of Directors. We believe the following critical accounting estimates used in preparing our financial statements address all important accounting areas where the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change. See Note 1 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of our significant accounting policies.
Percentage of Completion Method of Accounting
We recognize revenue on construction-type manufacturing projects using the percentage of completion method, where revenue is recognized as work progresses on each contract. There are several acceptable methods under U.S. generally accepted accounting principles of measuring progress toward completion. Most frequently, we use the ratio of costs incurred to date to total estimated contract costs at completion to measure progress toward completion.
We execute contracts with our customers that clearly describe the equipment, systems and/or services that we will provide and the amount of consideration we will receive. After analyzing the drawings and specifications of the contract requirements, our project engineers estimate total contract costs based on their experience with similar projects and then adjust these estimates for specific risks associated with each project, such as technical risks associated with a new design. Costs associated with specific risks are estimated by assessing the probability that conditions will arise that will affect our total cost to complete the project. After work on a project begins, assumptions that form the basis for our calculation of total project cost are examined on a regular basis and our estimates are updated to reflect the most current information and management’s best judgment.
Revenue recognized using the percentage of completion method was approximately 55%, 51% and 54% for the years ended December 31, 2013, 2012 and 2011, respectively. A significant portion of our total revenue recognized under the percentage of completion method relates to our Subsea Technologies segment, primarily for subsea exploration and production equipment projects that involve the design, engineering, manufacturing and assembly of complex, customer-specific systems. The systems are not entirely built from standard bills of material and typically require extended periods of time to design and construct.
Total estimated contract cost affects both the revenue recognized in a period as well as the reported profit or loss on a project. The determination of profit or loss on a contract requires consideration of contract revenue, change orders and claims, less costs incurred to date and estimated costs to complete. Anticipated losses on contracts are recognized in full in the period in which they are identified. Profits are recognized based on the estimated project profit multiplied by the percentage complete.
The total estimated contract cost in percentage of completion accounting is a critical accounting estimate because it can materially affect revenue and profit and requires us to make judgments about matters that are uncertain. There are many factors, including, but not limited to, the ability to properly execute the engineering and designing phases consistent with our customers’ expectations, the availability and costs of labor and resources, productivity and weather, that can affect the accuracy of our cost estimates, and ultimately, our future profitability. In the past, we have realized both lower and higher than expected margins and have incurred losses as a result of unforeseen changes in our project costs; however, historically, our estimates have been reasonably dependable regarding the recognition of revenue and profit on percentage of completion contracts. Total adjustments (representing the difference between estimated and actual results) for all contracts resulted in net increases to operating profit of 0.1% and 0.7% as a percentage of total beginning contract value for the years ended December 31, 2013 and 2012, respectively.
The amount of revenue recognized using the percentage of completion method is sensitive to changes in our estimates of total contract costs. For each contract in progress at December 31, 2013, a 1% increase or decrease in the estimated margin earned on each contract would have increased or decreased total revenue and pre-tax income by $37.0 million for the year ended December 31, 2013.

38



Inventory Valuation
Inventory is recorded at the lower of cost or net realizable value. In order to determine net realizable value, we evaluate each component of inventory on a regular basis to determine whether it is excess or obsolete. We record the decline in the carrying value of estimated excess or obsolete inventory as a reduction of inventory and as an expense included in cost of sales in the period in which it is identified. Our estimate of excess and obsolete inventory is a critical accounting estimate because it is highly susceptible to change from period to period. In addition, the estimate requires management to make judgments about the future demand for inventory.
In order to quantify excess or obsolete inventory, we begin by preparing a candidate listing of the components of inventory that have a quantity on hand in excess of usage within the most recent two-year period. The list is reviewed with sales, engineering, production and materials management personnel to determine whether the list of potential excess or obsolete inventory items is accurate. As part of this evaluation, management considers whether there has been a change in the market for finished goods, whether there will be future demand for on-hand inventory items and whether there are components of inventory that incorporate obsolete technology. Finally, an assessment is made of our historical usage of inventory previously written off as excess or obsolete, and a further adjustment to the estimate is made based on this historical experience. As a result, our estimate of excess or obsolete inventory is sensitive to changes in assumptions about future usage of inventory. See Note 5 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to inventory valuation adjustments.
Impairment of Long-Lived and Intangible Assets
Long-lived assets, including property, plant and equipment, identifiable intangible assets being amortized and capitalized software costs are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. Because there usually is a lack of quoted market prices for long-lived assets, fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants, or based on a multiple of operating cash flow validated with historical market transactions of similar assets where possible.
Impairment of Goodwill
Goodwill is not subject to amortization but is tested for impairment on an annual basis, or more frequently if impairment indicators arise. We have established October 31 as the date of our annual test for impairment of goodwill. Reporting units with goodwill are tested for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, or based on management’s judgment, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a two-step quantitative impairment test is performed.
When using the two-step quantitative impairment test, determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates believed to be consistent with those used by principal market participants and future economic and market conditions. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and do not reflect unanticipated events and circumstances that may occur.
A lower fair-value estimate in the future for any of our reporting units could result in goodwill impairments. Factors that could trigger a lower fair-value estimate include sustained price declines, cost increases, regulatory or political environment changes, and other changes in market conditions, such as decreased prices in market-based transactions for similar assets. We have not recognized any goodwill impairment for the years ended December 31, 2013 or 2012, as the fair values of our reporting units with goodwill balances exceeded their carrying amounts. In addition, there were no negative conditions, or triggering events, that occurred in 2013 or 2012 requiring us to perform additional impairment reviews.

39



Accounting for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for uncertain tax positions reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining our consolidated income tax expense.
In determining our current income tax provision, we assess temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. When we maintain deferred tax assets, we must assess the likelihood that these assets will be recovered through adjustments to future taxable income. To the extent we believe recovery is not likely, we establish a valuation allowance. We record an allowance reducing the asset to a value we believe will be recoverable based on our expectation of future taxable income. We believe the accounting estimate related to the valuation allowance is a critical accounting estimate because it is highly susceptible to change from period to period. It requires management to make assumptions about our future income over the lives of the deferred tax assets, and the impact of increasing or decreasing the valuation allowance is potentially material to our results of operations.
Forecasting future income requires us to use a significant amount of judgment. In estimating future income, we use our internal operating budgets and long-range planning projections. We develop our budgets and long-range projections based on recent results, trends, economic and industry forecasts influencing our segments’ performance, our backlog, planned timing of new product launches and customer sales commitments. Significant changes in the expected realizability of a deferred tax asset would require that we adjust the valuation allowance applied against the gross value of our total deferred tax assets, resulting in a change to net income.
As of December 31, 2013, we believe that it is not more likely than not that we will generate future taxable income in certain foreign jurisdictions in which we have cumulative net operating losses and, therefore, we have provided a valuation allowance against the related deferred tax assets. As of December 31, 2013, we believe that it is more likely than not that we will have future taxable income in the United States to utilize our domestic deferred tax assets. Therefore, we have not provided a valuation allowance against any domestic deferred tax assets.
The need for a valuation allowance is sensitive to changes in our estimate of future taxable income. If our estimate of future taxable income was 25% lower than the estimate used, we would still generate sufficient taxable income to utilize such domestic deferred tax assets.
The calculation of our income tax expense involves dealing with uncertainties in the application of complex tax laws and regulations in numerous jurisdictions in which we operate. We recognize tax benefits related to uncertain tax positions when, in our judgment, it is more likely than not that such positions will be sustained on examination, including resolutions of any related appeals or litigation, based on the technical merits. We adjust our liabilities for uncertain tax positions when our judgment changes as a result of new information previously unavailable. Due to the complexity of some of these uncertainties, their ultimate resolution may result in payments that are materially different from our current estimates. Any such differences will be reflected as adjustments to income tax expense in the periods in which they are determined.

40



Accounting for Pensions
Our pension and other post-retirement (health care and life insurance) obligations are described in Note 11 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. In order to measure the expense and obligations associated with our pension benefits, management must make a variety of estimates, including discount rates used to value certain liabilities, expected return on plan assets set aside to fund these costs, rate of compensation increase, employee turnover rates, retirement rates, mortality rates and other factors. We update these estimates on an annual basis or more frequently upon the occurrence of significant events. These accounting estimates bear the risk of change due to the uncertainty associated with each estimate, as well as the fact that these estimates are difficult to measure. Different estimates used by management could result in our recognizing different amounts of expense over different periods of time.
Due to the specialized and statistical nature of these calculations which attempt to anticipate future events, we engage third-party specialists to assist management in evaluating our assumptions as well as appropriately measuring the costs and obligations associated with these pension benefits. The discount rate and expected return on plan assets are primarily based on investment yields available and the historical performance of our plan assets. These elements are critical accounting estimates because they are subject to management’s judgment and can materially affect net income.
The discount rate used affects the interest cost component of net periodic pension cost. The discount rate is based on rates at which the pension benefit obligation could be effectively settled on a present value basis. Discount rates are derived by identifying a theoretical settlement portfolio of long-term, high quality (“AA” rated) corporate bonds at our determination date that is sufficient to provide for the projected pension benefit payments. A single discount rate is determined that results in a discounted value of the pension benefit payments that equate to the market value of the selected bonds. The resulting discount rate is reflective of both the current interest rate environment and the pension’s distinct liability characteristics. Significant changes in the discount rate, such as those caused by changes in the yield curve, the mix of bonds available in the market, the duration of selected bonds and the timing of expected benefit payments, may result in volatility in our pension expense and pension liabilities. The weighted average discount rate used to compute net periodic benefit cost decreased to 3.90% in 2013 from 4.60% in 2012 for U.S. plans and 4.46% in 2013 from 4.54% in 2012 for international plans.

Our pension expense is sensitive to changes in our estimate of the discount rate. Holding other assumptions constant, a 50 basis point reduction in the discount rate would increase annual pension expense by approximately $8.1 million before taxes. Holding other assumptions constant, a 50 basis point increase in the discount rate would decrease annual pension expense by approximately $7.3 million before taxes.
Net periodic pension cost includes an underlying expected long-term rate of return on plan assets. Our estimate of the expected rate of return on plan assets is primarily based on the historical performance of plan assets, current market conditions, our asset allocation and long-term growth expectations. We assumed a weighted average expected rate of return for our pension plans of 9.00% in 2013 and 2012 for our U.S. plans and 7.44% in 2013 and 7.62% in 2012 for our international plans. The expected return on plan assets is recognized as part of the net periodic pension cost. The difference between the expected return and the actual return on plan assets is amortized over the expected remaining service life of employees, resulting in a lag time between the market’s performance and its impact on plan results.
Our pension expense is sensitive to changes in our estimate of the expected rate of return on plan assets. Holding other assumptions constant, a 50 basis points increase or decrease in the expected rate of return on plan assets would decrease or increase annual pension expense by approximately $3.9 million before taxes, respectively.
The actuarial assumptions and estimates made by management in determining our pension benefit obligations may differ materially from actual results as a result of changing market and economic conditions and changes in plan participants assumptions. While we believe the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect our financial position or results of operations.

41



Determination of Fair Value in Business Combinations
Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets acquired and liabilities assumed at their respective fair values. The determination of fair value requires the use of significant estimates and assumptions, and in making these determinations, management uses all available information. We have up to one year after the acquisition closing date to finalize these fair value determinations. For tangible and identifiable intangible assets acquired in a business combination, the determination of fair value utilizes several valuation methodologies including discounted cash flows which has assumptions with respect to the timing and amount of future revenue and expenses associated with an asset. The assumptions made in performing these valuations include, but are not limited to, discount rates, future revenues and operating costs, projections of capital costs, and other assumptions believed to be consistent with those used by principal market participants. Due to the specialized nature of these calculations, we engage third-party specialists to assist management in evaluating our assumptions as well as appropriately measuring the fair value of assets acquired and liabilities assumed. Any significant change in key assumptions may cause the acquisition accounting to be revised. Business combinations are described in Note 4 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recently Issued Accounting Standards

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This update requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the amended guidance, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the unrecognized tax benefits. The updated guidance will be applied prospectively, effective January 1, 2014. We believe the adoption of this guidance concerns disclosure only and will not have an impact on our consolidated financial position or results of operations.
Management believes that other recently issued accounting standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.


42



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including fluctuations in foreign currency exchange rates and interest rates. In order to manage and mitigate our exposure to these risks, we may use derivative financial instruments in accordance with established policies and procedures. We do not use derivative financial instruments where the objective is to generate profits solely from trading activities. At December 31, 2013 and 2012, our derivative holdings consisted of foreign currency forward contracts and foreign currency instruments embedded in purchase and sale contracts.
These forward-looking disclosures only address potential impacts from market risks as they affect our financial instruments and do not include other potential effects that could impact our business as a result of changes in foreign currency exchange rates, interest rates, commodity prices or equity prices.
Foreign Currency Exchange Rate Risk
We conduct operations around the world in a number of different currencies. Most of our significant foreign subsidiaries have designated the local currency as their functional currency. Our earnings are therefore subject to change due to fluctuations in foreign currency exchange rates when the earnings in foreign currencies are translated into U.S. dollars. We do not hedge this translation impact on earnings. A 10% increase or decrease in the average exchange rates of all foreign currencies at December 31, 2013, would have changed our revenue and income before income taxes attributable to FMC Technologies, Inc. by approximately 5% and 2%, respectively.
When transactions are denominated in currencies other than our subsidiaries’ respective functional currencies, we manage these exposures through the use of derivative instruments to mitigate our risk. We use foreign currency forward contracts to hedge the foreign currency fluctuation associated with firmly committed and forecasted foreign currency denominated payments and receipts. The derivative instruments associated with these anticipated transactions are designated and qualify as cash flow hedges, and as such the gains and losses associated with these instruments are recorded in other comprehensive income until such time that the underlying transactions are recognized. When an anticipated transaction in a currency other than the functional currency of an entity is recognized as an asset or liability on the balance sheet, we also hedge the foreign currency fluctuation with derivative instruments after netting our exposures worldwide. These derivative instruments do not qualify as cash flow hedges.
Occasionally, we enter into contracts or other arrangements that are subject to foreign exchange fluctuations that qualify as embedded derivative instruments. In those situations, we enter into derivative foreign exchange contracts that hedge the price fluctuations due to movements in the foreign exchange rates. These hedges are not treated as cash flow hedges.
We have prepared a sensitivity analysis of our foreign currency forward contracts hedging anticipated transactions that are accounted for as cash flow hedges. This analysis assumes that each foreign currency rate would change 10% against a stronger and then weaker U.S. dollar. A 10% increase in the value of the U.S. dollar would result in an additional loss of $118.8 million in the net fair value of cash flow hedges reflected in our consolidated balance sheet at December 31, 2013. Unless these contracts are deemed to be ineffective, changes in the derivative fair value will not have an immediate impact on our results of operations since the gains and losses associated with these instruments are recorded in other comprehensive income. When the anticipated transactions occur, these changes in value of derivatives instrument positions will be offset against changes in the value of the underlying transaction.
Interest Rate Risk
At December 31, 2013, we had unhedged variable rate debt of $501.4 million with a weighted average interest rate of 0.33%. Using sensitivity analysis to measure the impact of a 10% adverse movement in the interest rate, or three basis points, would result in an increase to interest expense of $0.2 million.
We assess effectiveness of forward foreign currency contracts designated as cash flow hedges based on changes in fair value attributable to changes in spot rates. We exclude the impact attributable to changes in the difference between the spot rate and the forward rate for the assessment of hedge effectiveness and recognize the change in fair value of this component immediately in earnings. Considering that the difference between the spot rate and the forward rate is proportional to the differences in the interest rates of the countries of the currencies being traded, we have exposure to relative changes in interest rates between countries in our results of operations. To the extent any one interest rate increases by 10% across all tenors and other countries’ interest rates remain fixed, and assuming no change in discount rates, we would expect to recognize a decrease of $2.1 million in earnings in the period of change. Based on our portfolio as of December 31, 2013, we have material positions with exposure to the interest rates in the United States, Brazil, the United Kingdom, Singapore, the European Community and Norway.

43



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even internal control systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.
Under the supervision and with the participation of management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective in providing this reasonable assurance as of December 31, 2013.
KPMG LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the three-year period ended December 31, 2013, and has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2013, which is included herein.
/s/    JOHN T. GREMP
 
/s/    MARYANN T. SEAMAN
John T. Gremp
 
Maryann T. Seaman
Chairman, President and Chief Executive Officer
 
Senior Vice President and Chief Financial Officer

February 21, 2014

44



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of FMC Technologies, Inc.:
We have audited FMC Technologies, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). FMC Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the FMC Technologies, Inc.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, FMC Technologies, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FMC Technologies, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2013, and our report dated February 21, 2014 expressed an unqualified opinion on those consolidated financial statements.
/s/    KPMG LLP
Houston, Texas
February 21, 2014

45



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of FMC Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of FMC Technologies, Inc. and subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2013. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/    KPMG LLP
Houston, Texas
February 21, 2014

46



FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
Twelve Months Ended December 31,
(In millions, except per share data)
2013
 
2012
 
2011
Revenue:
 
 
 
 
 
Product revenue
$
5,724.7

 
$
5,198.2

 
$
4,347.8

Service and other revenue
1,401.5

 
953.2

 
751.2

Total revenue
7,126.2

 
6,151.4

 
5,099.0

Costs and expenses:
 
 
 
 
 
Cost of product revenue
4,562.4

 
4,155.7

 
3,473.4

Cost of service and other revenue
1,009.0

 
677.2

 
492.8

Selling, general and administrative expense
694.8

 
596.9

 
479.9

Research and development expense
112.4

 
116.8

 
90.5

Total costs and expenses
6,378.6

 
5,546.6

 
4,536.6

Other income (expense), net
5.3

 
23.0

 
(1.4
)
Income before interest income, interest expense and income taxes
752.9

 
627.8

 
561.0

Interest income
0.7

 
(0.4
)
 
2.8

Interest expense
(34.4
)
 
(26.2
)
 
(11.0
)
Income before income taxes
719.2

 
601.2

 
552.8

Provision for income taxes
212.6

 
166.4

 
149.3

Net income
506.6

 
434.8

 
403.5

Net income attributable to noncontrolling interests
(5.2
)
 
(4.8
)
 
(3.7
)
Net income attributable to FMC Technologies, Inc.
$
501.4

 
$
430.0

 
$
399.8

Earnings per share attributable to FMC Technologies, Inc. (Note 3):
 
 
 
 
 
Basic
$
2.10

 
$
1.79

 
$
1.66

Diluted
$
2.10

 
$
1.78

 
$
1.64

Weighted average shares outstanding (Note 3):
 
 
 
 
 
Basic
238.3

 
239.7

 
241.2

Diluted
239.1

 
240.9

 
243.2

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

47



FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Twelve Months Ended December 31,
 (In millions)
2013
 
2012
 
2011
Net income
$
506.6

 
$
434.8

 
$
403.5

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Foreign currency translation adjustments (1)
(99.7
)
 
(1.8
)
 
(51.1
)
Net gains (losses) on hedging instruments:
 
 
 
 
 
Net gains (losses) arising during the period
27.1

 
29.0

 
(3.0
)
Reclassification adjustment for net gains included in net income
(5.2
)
 
(2.3
)
 
(19.8
)
Net gains (losses) on hedging instruments (2)
21.9

 
26.7

 
(22.8
)
Pension and other post-retirement benefits:
 
 
 
 
 
Net actuarial gain (loss) arising during the period
112.5

 
(5.1
)
 
(132.1
)
Prior service cost arising during the period
(0.4
)
 

 
(0.6
)
Reclassification adjustment for settlement losses included in net income
3.2

 
9.6

 
5.6

Reclassification adjustment for amortization of prior service credit included in net income
(0.3
)
 
(0.7
)
 
(0.8
)
Reclassification adjustment for amortization of net actuarial loss included in net income
18.2

 
19.3

 
10.5

Reclassification adjustment for amortization of transition asset included in net income
(0.1
)
 
(0.2
)
 
(0.4
)
Net pension and other post-retirement benefits (3)
133.1

 
22.9

 
(117.8
)
Other comprehensive income (loss), net of tax
55.3

 
47.8

 
(191.7
)
Comprehensive income
561.9

 
482.6

 
211.8

Comprehensive income attributable to noncontrolling interest
(5.2
)
 
(4.8
)
 
(3.7
)
Comprehensive income attributable to FMC Technologies, Inc.
$
556.7

 
$
477.8

 
$
208.1

______________________  
(1) 
Net of income tax (expense) benefit of $(1.6), $(2.2) and $5.1 for the years ended December 31, 2013, 2012 and 2011, respectively.
(2) 
Net of income tax (expense) benefit of $1.0, $(12.3) and $12.9 for the years ended December 31, 2013, 2012 and 2011, respectively.
(3) 
Net of income tax (expense) benefit of $(81.8), $(6.5) and $58.0 for the years ended December 31, 2013, 2012 and 2011, respectively.

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

48



FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
December 31,
(In millions, except par value data)
2013
 
2012
Assets
 
 
 
Cash and cash equivalents
$
399.1

 
$
342.1

Trade receivables, net of allowances of $7.4 in 2013 and $6.1 in 2012 (Note 21)
2,067.2

 
1,765.5

Inventories, net (Note 5)
980.4

 
965.1

Derivative financial instruments (Note 14)
165.9

 
73.4

Prepaid expenses
41.5

 
31.7

Deferred income taxes (Note 10)
59.1

 
55.9

Income taxes receivable
14.6

 
17.6

Other current assets
295.2

 
237.0

Total current assets
4,023.0

 
3,488.3

Investments
44.3

 
37.4

Property, plant and equipment, net (Note 6)
1,349.1

 
1,243.5

Goodwill (Note 7)
580.7

 
597.7

Intangible assets, net (Note 7)
315.3

 
347.4

Deferred income taxes (Note 10)
36.9

 
60.0

Derivative financial instruments (Note 14)
68.5

 
9.2

Other assets
187.8

 
119.4

Total assets
$
6,605.6

 
$
5,902.9

Liabilities and equity
 
 
 
Short-term debt and current portion of long-term debt (Note 9)
$
42.5

 
$
60.4

Accounts payable, trade
750.7

 
664.2

Advance payments and progress billings
803.2

 
501.6

Accrued payroll
222.0

 
202.0

Derivative financial instruments (Note 14)
171.3

 
50.4

Income taxes payable
138.1

 
40.2

Current portion of accrued pension and other post-retirement benefits (Note 11)
11.0

 
20.9

Deferred income taxes (Note 10)
66.4

 
67.5

Other current liabilities
409.5

 
363.2

Total current liabilities
2,614.7

 
1,970.4

Long-term debt, less current portion (Note 9)
1,329.8

 
1,580.4

Accrued pension and other post-retirement benefits, less current portion (Note 11)
84.0

 
266.5

Derivative financial instruments (Note 14)
47.1

 
11.1

Deferred income taxes (Note 10)
90.3

 
57.9

Other liabilities
103.4

 
163.4

Commitments and contingent liabilities (Note 18)

 

Stockholders’ equity (Note 13):
 
 
 
Preferred stock, $0.01 par value, 12.0 shares authorized; 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; and 235.8 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
(7.7
)
 
(7.8
)
Common stock held in treasury, at cost, 50.3 and 49.0 shares in 2013 and 2012, respectively
(1,196.6
)
 
(1,102.6
)
Capital in excess of par value of common stock
714.7

 
697.2

Retained earnings
3,146.1

 
2,644.7

Accumulated other comprehensive loss
(340.7
)
 
(396.0
)
Total FMC Technologies, Inc. stockholders’ equity
2,317.2

 
1,836.9

Noncontrolling interests
19.1

 
16.3

Total equity
2,336.3

 
1,853.2

Total liabilities and equity
$
6,605.6

 
$
5,902.9

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

49



FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
(In millions)
2013
 
2012
 
2011
Cash provided (required) by operating activities:
 
 
 
 
 
Net income
$
506.6

 
$
434.8

 
$
403.5

Adjustments to reconcile income to cash provided (required) by operating activities:
 
 
 
 
 
Depreciation
156.0

 
113.1

 
86.1

Amortization
53.8

 
33.1

 
21.7

Multi Phase Meters contingent earn-out consideration obligation
28.8

 
42.0

 

Employee benefit plan and stock-based compensation costs
93.5

 
110.4

 
77.8

Deferred income tax benefit
(20.4
)
 
(9.8
)
 
(15.1
)
Unrealized loss (gain) on derivative instruments
(5.7
)
 
13.5

 
(14.2
)
Other
1.6

 
(6.2
)
 
(6.4
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
Trade receivables, net
(391.0
)
 
(337.3
)
 
(286.7
)
Inventories, net
(28.9
)
 
(206.6
)
 
(162.6
)
Accounts payable, trade
103.8

 
83.0

 
214.7

Advance payments and progress billings
329.0

 
25.9

 
(95.9
)
Income taxes
77.6

 
(71.4
)
 
70.5

Payment of Multi Phase Meters earn-out consideration
(32.2
)
 

 

Accrued pension and other post-retirement benefits, net
(60.1
)
 
(63.1
)
 
(112.9
)
Other assets and liabilities, net
(17.0
)
 
(23.0
)
 
(15.7
)
Cash provided by operating activities
795.4

 
138.4

 
164.8

Cash provided (required) by investing activities:
 
 
 
 
 
Capital expenditures
(314.1
)
 
(405.6
)
 
(274.0
)
Acquisitions, net of cash and cash equivalents acquired

 
(615.5
)
 

Proceeds from disposal of assets
7.4

 
3.2

 
2.2

Other
(4.9
)
 
(2.0
)
 
(1.9
)
Cash required by investing activities
(311.6
)
 
(1,019.9
)
 
(273.7
)
Cash provided (required) by financing activities:
 
 
 
 
 
Net increase in short-term debt
8.5

 
13.4

 
0.5

Net increase (decrease) in commercial paper
(168.4
)
 
189.7

 
269.1

Proceeds from issuance of long-term debt
26.2

 
1,068.9

 

Repayments of long-term debt
(136.0
)
 
(288.8
)
 
(5.6
)
Purchase of treasury stock
(116.3
)
 
(91.1
)
 
(114.0
)
Payment of Multi Phase Meters earn-out consideration
(25.1
)
 

 

Payments related to taxes withheld on stock-based compensation
(17.5
)
 
(34.8
)
 
(15.5
)
Excess tax benefits
8.0

 
27.1

 
8.7

Other
(1.7
)
 
(3.0
)
 
(2.2
)
Cash provided (required) by financing activities
(422.3
)
 
881.4

 
141.0

Effect of exchange rate changes on cash and cash equivalents
(4.5
)
 
(1.8
)
 
(3.6
)
Increase (decrease) in cash and cash equivalents
57.0

 
(1.9
)
 
28.5

Cash and cash equivalents, beginning of year
342.1

 
344.0

 
315.5

Cash and cash equivalents, end of year
$
399.1

 
$
342.1

 
$
344.0

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

50



FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
(In millions)
Common
Stock
 
Common
Stock Held in
Treasury and
Employee
Benefit
Trust
 
Capital in
Excess of Par
Value of
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Non-
controlling
Interest
 
Total
Stockholders’
Equity
Balance at December 31, 2010
$
1.4

 
$
(951.2
)
 
$
698.7

 
$
1,814.9

 
$
(252.1
)
 
$
10.6

 
$
1,322.3

Net income

 

 

 
399.8

 

 
3.7