10-Q 1 technipfmc20170630-10q.htm FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2017 Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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 001-37983
TechnipFMC plc
(Exact name of registrant as specified in its charter) 

England and Wales
98-1283037
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
One St. Paul’s Churchyard
London, United Kingdom
 EC4M 8AP
(Address of principal executive offices)
(Zip Code)
+44 203-429-3950
(Registrant’s telephone number, including area code) 
________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
x

Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o No  x 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at August 1, 2017
Ordinary shares, $1.00 par value per share
 
467,221,709
 



TABLE OF CONTENTS
 
Page
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Other Matters
Recently Issued Accounting Standards
 

2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities 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 risks and uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those contemplated in the forward-looking statements include those set forth in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as the following:
the completion of the material weakness remediation process could identify additional issues relating to disclosure controls and procedures or internal control over financial reporting;
the Company may need to devote additional time, effort and expense to address other matters relating to the restatement, including potential governmental investigations or shareholder lawsuits and possible fines, penalties or settlements resulting therefrom;
unanticipated changes relating to competitive factors in our industry;
demand for our products and services, which is affected by changes in the price of, and demand for, crude oil and natural gas in domestic and international markets;
our ability to develop and implement new technologies and services, as well as our ability to protect and maintain critical intellectual property assets;
potential liabilities arising out of the installation or use of our products;
cost overruns related to our fixed price contracts or asset construction projects that may affect revenues;
disruptions in the timely delivery of our backlog and its effect on our future sales, profitability, and our relationships with our customers;
risks related to reliance on subcontractors, suppliers and joint venture partners in the performance of our contracts;
ability to hire and retain key personnel;
piracy risks for our maritime employees and assets;
the cumulative loss of major contracts or alliances;
U.S. and international laws and regulations, including environmental regulations, that may increase our costs, limit the demand for our products and services or restrict our operations;
disruptions in the political, regulatory, economic and social conditions of the countries in which we conduct business;
risks associated with The Depository Trust Company and Euroclear for clearance services for shares traded on the NYSE and Euronext Paris, respectively;
results of the United Kingdom’s referendum on withdrawal from the European Union;
risks associated with being an English public limited company, including the need for court approval of “distributable profits” and stockholder approval of certain capital structure decisions;
ability to pay dividends or repurchase shares in accordance with our announced capital allocation plan;
compliance with covenants under our debt instruments and conditions in the credit markets;
downgrade in the ratings of our debt could restrict our ability to access the debt capital markets;
the outcome of uninsured claims and litigation against us;
the risks of currency exchange rate fluctuations associated with our international operations;
risks that the legacy businesses of FMC Technologies, Inc. and Technip S.A. will not be integrated successfully or that the combined company will not realize estimated cost savings, value of certain tax assets, synergies and growth or that such benefits may take longer to realize than expected;
unanticipated merger-related costs;
failure of our information technology infrastructure or any significant breach of security;
risks associated with tax liabilities, or changes in U.S. federal or international tax laws or interpretations to which they are subject; and
such other risk factors set forth in our filings with the United States Securities and Exchange Commission and in our filings with the Autorité des marchés financiers or the U.K. Financial Conduct Authority.

3


We 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.

4


PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Service revenue
$
3,134.3

 
$
2,351.4

 
$
5,926.1

 
$
4,729.6

Product revenue
654.8

 
19.1

 
1,217.3

 
46.6

Lease and other revenue
55.9

 

 
89.6

 

Total revenue
3,845.0

 
2,370.5

 
7,233.0

 
4,776.2

Costs and expenses:
 
 
 
 
 
 
 
Cost of service revenue
2,509.5

 
1,916.1

 
4,887.1

 
3,900.0

Cost of product revenue
614.8

 
10.9

 
1,192.5

 
32.7

Cost of lease and other revenue
37.7

 

 
62.7

 

Selling, general and administrative expense
268.0

 
143.4

 
522.1

 
291.0

Research and development expense
49.1

 
25.5

 
92.5

 
45.8

Impairment, restructuring and other expense (Note 5)
(12.3
)
 
63.8

 
(2.6
)
 
99.5

Merger transaction and integration costs (Note 2)
23.3

 
16.7

 
78.0

 
16.7

Total costs and expenses
3,490.1

 
2,176.4

 
6,832.3

 
4,385.7

Other income (expense), net
(50.3
)
 
(57.1
)
 
13.2

 
(99.2
)
Income (loss) from equity affiliates (Note 8)
12.7

 
(20.1
)
 
22.1

 
5.4

Income before net interest expense and income taxes
317.3

 
116.9

 
436.0

 
296.7

Net interest expense
(72.1
)
 
(7.7
)
 
(154.2
)
 
(21.0
)
Income before income taxes
245.2

 
109.2

 
281.8

 
275.7

Provision for income taxes (Note 14)
86.2

 
5.4

 
138.0

 
51.3

Net income
159.0

 
103.8

 
143.8

 
224.4

Net loss attributable to noncontrolling interests
5.9

 
0.2

 
2.4

 
0.3

Net income attributable to TechnipFMC plc
$
164.9

 
$
104.0

 
$
146.2

 
$
224.7

 
 
 
 
 
 
 
 
Earnings per share attributable to TechnipFMC plc (Note 4):
 
 
 
 
 
 
 
Basic
$
0.35

 
$
0.87

 
$
0.31

 
$
1.89

Diluted
$
0.35

 
$
0.83

 
$
0.31

 
$
1.81

Weighted average shares outstanding (Note 4):
 
 
 
 
 
 
 
Basic
466.7

 
119.5

 
466.7

 
118.9

Diluted
468.4

 
125.2

 
468.2

 
124.5

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

5


TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions) 
2017
 
2016
 
2017
 
2016
Net income
$
159.0

 
$
103.8

 
$
143.8

 
$
224.4

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
(41.5
)
 
16.7

 
(34.9
)
 
(24.9
)
Net unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
(0.8
)
 
2.6

 

 
5.0

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

 

 

 

Net unrealized gains (losses) on available-for-sale securities (2)
(0.8
)
 
2.6

 

 
5.0

Net gains (losses) on hedging instruments:
 
 
 
 
 
 
 
Net gains arising during the period
17.6

 
75.0

 
42.3

 
42.6

Reclassification adjustment for net losses included in net income
20.3

 
19.8

 
54.7

 
62.6

Net gains on hedging instruments (3)
37.9

 
94.8

 
97.0

 
105.2

Pension and other post-retirement benefits:
 
 
 
 
 
 
 
Net losses arising during the period
(1.2
)
 
(16.2
)
 
(1.2
)
 
(16.2
)
Reclassification adjustment for amortization of prior service cost included in net income
0.1

 
0.2

 
0.2

 
0.2

Reclassification adjustment for amortization of net actuarial loss included in net income
0.5

 
0.3

 
0.9

 
0.4

Net pension and other post-retirement costs (4)
(0.6
)
 
(15.7
)
 
(0.1
)
 
(15.6
)
Other comprehensive income (loss), net of tax
(5.0
)
 
98.4

 
62.0

 
69.7

Comprehensive income
154.0

 
202.2

 
205.8

 
294.1

Comprehensive loss attributable to noncontrolling interest
5.9

 
0.1

 
2.2

 
1.0

Comprehensive income attributable to TechnipFMC plc
$
159.9

 
$
202.3

 
$
208.0

 
$
295.1

_______________________  
(1) 
Net of income tax (expense) benefit of $(3.2) and nil for the three months ended June 30, 2017 and 2016, respectively, and $(3.9) and nil for the six months ended June 30, 2017 and 2016, respectively.
(2)
Net of income tax (expense) benefit of nil and nil for the three months ended June 30, 2017 and 2016, respectively, and nil and nil for the six months ended June 30, 2017 and 2016, respectively.
(3) 
Net of income tax (expense) benefit of $(18.7) and $(13.3) for the three months ended June 30, 2017 and 2016, respectively, and $(37.3) and $(20.9) for the six months ended June 30, 2017 and 2016, respectively.
(4) 
Net of income tax (expense) benefit of $0.2 and $4.4 for the three months ended June 30, 2017 and 2016, respectively, and $0.4 and $4.5 for the six months ended June 30, 2017 and 2016, respectively.
The accompanying notes are an integral part of the condensed consolidated financial statements.

6


TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
June 30, 2017
 
December 31, 2016
(In millions, except par value data) 
 
 
 
Assets
 
 
 
Cash and cash equivalents
$
7,179.1

 
$
6,269.3

Trade receivables, net of allowances of $103.2 in 2017 and $85.6 in 2016
2,159.3

 
2,024.5

Costs and estimated earnings in excess of billings on uncompleted contracts
1,168.3

 
485.8

Inventories, net (Note 6)
899.1

 
334.7

Derivative financial instruments (Note 17)
80.8

 
47.2

Income taxes receivable
363.6

 
265.0

Advances paid to suppliers
1,077.6

 
711.5

Other current assets (Note 7)
1,002.9

 
799.2

Total current assets
13,930.7

 
10,937.2

Investments in equity affiliates
214.3

 
177.8

Property, plant and equipment, net of accumulated depreciation of $1,852.4 in 2017 and $1,691.8 in 2016
3,867.0

 
2,620.1

Goodwill
9,072.3

 
3,718.3

Intangible assets, net of accumulated amortization of $380.2 in 2017 and $245.9 in 2016
1,444.4

 
173.7

Deferred income taxes
511.5

 
621.6

Derivative financial instruments (Note 17)
80.1

 
190.8

Other assets
404.2

 
250.2

Total assets
$
29,524.5

 
$
18,689.7

Liabilities and equity
 
 
 
Short-term debt and current portion of long-term debt (Note 10)
$
471.2

 
$
683.6

Accounts payable, trade
4,092.3

 
3,837.7

Advance payments
129.6

 
411.1

Billings in excess of costs and estimated earnings on uncompleted contracts
3,751.9

 
3,323.0

Accrued payroll
379.7

 
307.7

Derivative financial instruments (Note 17)
131.9

 
183.0

Income taxes payable
281.5

 
317.5

Other current liabilities (Note 9)
2,260.3

 
1,825.3

Total current liabilities
11,498.4

 
10,888.9

Long-term debt, less current portion (Note 10)
3,301.3

 
1,869.3

Accrued pension and other post-retirement benefits, less current portion
347.5

 
160.8

Derivative financial instruments (Note 17)
75.6

 
227.7

Deferred income taxes
344.9

 
130.5

Other liabilities (Note 11)
407.5

 
300.6

Commitments and contingent liabilities (Note 12)

 

Stockholders’ equity (Note 13):
 
 
 
Ordinary shares, $1.00 par value and €0.7625 in 2017 and 2016, respectively; 525.0 shares and 119.2 shares authorized in 2017 and 2016, respectively; 347.4 shares and 3.3 shares issued in 2017 and 2016, respectively; no shares and 3.2 shares canceled in 2017 and 2016, respectively; 467.2 and 118.9 shares outstanding in 2017 and 2016, respectively
467.2

 
114.7

Ordinary shares held in employee benefit trust, at cost; 0.1 shares in 2017
(5.3
)
 

Treasury stock, at cost; no shares and 0.3 shares in 2017 and 2016, respectively

 
(44.5
)
Capital in excess of par value of ordinary shares
10,522.4

 
2,694.7

Retained earnings
3,562.3

 
3,416.1

Accumulated other comprehensive loss
(995.4
)
 
(1,057.4
)
Total TechnipFMC plc stockholders’ equity
13,551.2

 
5,123.6

Noncontrolling interests
(1.9
)
 
(11.7
)
Total equity
13,549.3

 
5,111.9

Total liabilities and equity
$
29,524.5

 
$
18,689.7

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

7


TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions) 
Six Months Ended
June 30,
2017
 
2016
Cash provided (required) by operating activities:
 
 
 
Net income
$
143.8

 
$
224.4

Adjustments to reconcile net income to cash provided (required) by operating activities:
 
 
 
Depreciation
183.3

 
137.7

Amortization
127.4

 
10.0

Employee benefit plan and stock-based compensation costs
16.2

 
9.2

Unrealized loss on derivative instruments and foreign exchange
(36.1
)
 
63.3

Deferred income tax provision (benefit)
(49.7
)
 
(106.7
)
Impairments (Note 5)
0.8

 

Other
(11.4
)
 
70.3

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Trade receivables, net and costs in excess of billings
715.1

 
(398.9
)
Inventories, net
190.2

 
38.9

Accounts payable, trade
(245.3
)
 
64.2

Advance payments and billings in excess of costs
(376.2
)
 
194.7

Income taxes payable (receivable), net
(82.4
)
 
104.6

Other assets and liabilities, net
(281.4
)
 
14.5

Cash provided by operating activities
294.3

 
426.2

Cash provided (required) by investing activities:
 
 
 
Capital expenditures
(107.5
)
 
(68.9
)
Cash acquired in merger of FMC Technologies, Inc. and Technip S.A. (Note 2)
1,479.2

 

Cash divested from deconsolidation

 
(89.8
)
Proceeds from sale of assets
3.3

 
10.5

Other
11.8

 

Cash provided (required) by investing activities
1,386.8

 
(148.2
)
Cash provided (required) by financing activities:
 
 
 
Net increase (decrease) in short-term debt
(16.7
)
 
2.5

Net increase (decrease) in commercial paper
(98.2
)
 

Proceeds from issuance of long-term debt
5.6

 
448.7

Repayments of long-term debt
(554.6
)
 
(742.7
)
Dividends paid

 
(112.3
)
Payments related to taxes withheld on stock-based compensation
(46.6
)
 

Other
(74.7
)
 
0.8

Cash required by financing activities
(785.2
)
 
(403.0
)
Effect of changes in foreign exchange rates on cash and cash equivalents
13.9

 
79.4

Increase (decrease) in cash and cash equivalents
909.8

 
(45.6
)
Cash and cash equivalents, beginning of period
6,269.3

 
3,178.0

Cash and cash equivalents, end of period
$
7,179.1

 
$
3,132.4

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

8



TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(In millions)
Ordinary Shares
 
Ordinary Shares Held in
Treasury and
Employee
Benefit
Trust
 
Capital in
Excess of Par
Value of
Ordinary Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Non-
controlling
Interest
 
Total
Stockholders’
Equity
Balance as of December 31, 2016
$
114.7

 
$
(44.5
)
 
$
2,694.7

 
$
3,416.1

 
$
(1,057.4
)
 
$
(11.7
)
 
$
5,111.9

Net income (loss)

 

 

 
146.2

 

 
(2.4
)
 
143.8

Other comprehensive income

 

 

 

 
62.0

 

 
62.0

Issuance of ordinary shares due to the merger of FMC Technologies and Technip
351.9

 
(6.6
)
 
7,825.4

 

 

 

 
8,170.7

Cancellation of treasury stock (Note 13)

 
44.5

 
(23.3
)
 

 

 

 
21.2

Net sales of ordinary shares for employee benefit trust

 
1.3

 

 

 

 

 
1.3

Issuance of ordinary shares
0.6

 

 

 

 

 

 
0.6

Stock-based compensation (Note 16)

 

 
24.7

 

 

 

 
24.7

Other


 

 
0.9

 

 

 
12.2

 
13.1

Balance as of June 30, 2017
$
467.2

 
$
(5.3
)
 
$
10,522.4

 
$
3,562.3

 
$
(995.4
)
 
$
(1.9
)
 
$
13,549.3

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


9


TECHNIPFMC PLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of TechnipFMC plc and its consolidated subsidiaries (“TechnipFMC”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission (“SEC”) pertaining to interim financial information. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted.
Our accounting policies are in accordance with GAAP. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from our estimates.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments as well as adjustments to our financial position pursuant to a business combination, necessary for a fair statement of our financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these financial statements may not be representative of the results that may be expected for the year ending December 31, 2017.
In this Quarterly Report on Form 10-Q, we are reporting the results of our operations for the three months and six months ended June 30, 2017, which consist of the combined results of operations of Technip S.A. (“Technip”) and FMC Technologies, Inc. (“FMC Technologies”). Due to the merger of FMC Technologies and Technip, FMC Technologies’ results of operations have been included in our financial statements for periods subsequent to the consummation of the merger on January 16, 2017.
Since TechnipFMC is the successor company to Technip, we are presenting the results of Technip’s operations for the three months and six months ended June 30, 2016 and as of December 31, 2016. Refer to Note 2 for further information related to the merger of FMC Technologies and Technip.
Principles of consolidation—The consolidated financial statements include the accounts of TechnipFMC and its majority-owned subsidiaries and affiliates. Intercompany accounts and transactions are eliminated in consolidation.
Use of estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Such estimates include, but are not limited to, estimates of total contract profit or loss on long-term construction-type contracts; estimated realizable value on excess and obsolete inventory; estimates related to pension accounting; estimates related to fair value for purposes of assessing goodwill, long-lived assets and intangible assets for impairment; estimates related to income taxes; and estimates related to contingencies, including liquidated damages.
Investments in the common stock of unconsolidated affiliates—The equity method of accounting is used to account for investments in unconsolidated affiliates where we have the ability to exert significant influence over the affiliate’s operating and financial policies. The cost method of accounting is used where significant influence over the affiliate is not present.
Investments in unconsolidated affiliates are assessed for impairment whenever events or changes in facts and circumstances indicate the carrying value of the investments may not be fully recoverable. When such a condition is subjectively determined to be other than temporary, the carrying value of the investment is written down to fair value. Management’s assessment as to whether any decline in value is other than temporary is based on our ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity method investees to be strategic, long-term investments and completes its assessments for impairment with a long-term viewpoint.
Investments in which ownership is less than 20% or that do not represent significant investments are reported in other assets on the consolidated balance sheets. Where no active market exists and where no other valuation method can be used, these financial assets are maintained at historical cost, less any accumulated impairment losses.
Business combinations—Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. Determining the fair value of assets and liabilities involves significant judgment regarding methods and assumptions used to calculate estimated fair values. The purchase price is allocated to the assets, assumed liabilities and identifiable intangible assets

10


based on their estimated fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Transaction related costs are expensed as incurred. 
Revenue recognition—Revenue is generally recognized once the following four criteria are met: i) persuasive evidence of an arrangement exists, ii) delivery of the equipment has occurred (which is upon shipment or when customer-specific acceptance requirements are met) or services have been rendered, iii) the price of the equipment or service is fixed and determinable, and iv) collectability is reasonably assured. We record our sales net of any value added, sales or use tax.
For certain construction-type manufacturing and assembly projects that involve significant design and engineering efforts to satisfy detailed customer specifications, revenue is recognized using the percentage of completion method of accounting. Under the percentage of completion method, revenue is recognized as work progresses on each contract. We apply the ratio of costs incurred to date to total estimated contract costs at completion or on physical progress defined for the main deliverables under the contracts. If it is not possible to form a reliable estimate of progress toward completion, no revenue or costs are recognized until the project is complete or substantially complete. Any expected losses on construction-type contracts in progress are charged to earnings, in total, in the period the losses are identified.
Modifications to construction-type contracts, referred to as “change orders,” effectively change the provisions of the original contract, and may, for example, alter the specifications or design, method or manner of performance, equipment, materials, sites and/or period for completion of the work. If a change order represents a firm price commitment from a customer, we account for the revised estimate as if it had been included in the original estimate, effectively recognizing the pro rata impact of the new estimate on our calculation of progress toward completion in the period in which the firm commitment is received. If a change order is unpriced: (1) we include the costs of contract performance in our calculation of progress toward completion in the period in which the costs are incurred or become probable; and (2) when it is determined that the revenue is probable of recovery, we include the change order revenue, limited to the costs incurred to date related to the change order, in our calculation of progress toward completion. Unpriced change orders included in revenue were immaterial to our consolidated revenue for all periods presented. Margin is not recorded on unpriced change orders unless realization is assured beyond a reasonable doubt. The assessment of realization may be based upon our previous experience with the customer or based upon our receipt of a firm price commitment from the customer.
Progress billings are generally issued upon completion of certain phases of the work as stipulated in the contract. Revenue in excess of progress billings are reported in costs and estimated earnings in excess of billings on uncompleted contracts in our condensed consolidated balance sheets. Progress billings and cash collections in excess of revenue recognized on a contract are classified as billings in excess of costs and estimated earnings on uncompleted contracts and advance payments, respectively, in our condensed consolidated balance sheets. Revenue generated from the installation portion of construction-type contracts is included in service and product revenue in our condensed consolidated statements of income.
Cash equivalents—Cash equivalents are highly-liquid, short-term instruments with original maturities of generally three months or less from their date of purchase.
Trade receivables, net of allowances—An allowance for doubtful accounts is provided on receivables equal to the estimated uncollectible amounts. This estimate is based on historical collection experience and a specific review of each customer’s receivables balance.
Inventories—Inventories are stated at the lower of cost or net realizable value. Inventory costs include those costs directly attributable to products, including all manufacturing overhead, but excluding costs to distribute. The first-in, first-out (“FIFO”) or weighted average methods are used to determine the cost for most other inventories. Cost for a significant portion of the U.S. domiciled inventories is determined on the last-in, first-out (“LIFO”) method. Write-down on inventories are recorded when the net realizable value of inventories is lower than their net book value.
Impairment of property, plant and equipment—Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the long-lived asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the impairment loss is measured as the amount by which the carrying value of the long-lived asset exceeds its fair value.
Long-lived assets classified as held for sale are reported at the lower of carrying value or fair value less cost to sell.
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

11


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 impairment test is performed. The first step compares the fair value of the reporting unit (measured as the present value of expected future cash flows) to its carrying amount. If the fair value of the reporting unit is less than its carrying amount, a second step is performed. In this step, the fair value of the reporting unit is allocated to its assets and liabilities to determine the implied fair value of goodwill, which is used to measure the impairment loss.
Debt instruments—Debt instruments include convertible and synthetic bonds, senior and private placement notes and other borrowings. Issuance fees and redemption premium on all debt instruments are included in the cost of debt in the condensed consolidated balance sheets, as an adjustment to the nominal amount of the debt.
Fair value measurements—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The fair value framework requires the categorization of assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities, with the exception of certain assets and liabilities measured using the net asset value practical expedient, which are not required to be leveled. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than quoted prices included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
Income taxes—Current income taxes are provided on income reported for financial statement purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred tax assets and liabilities are measured using enacted tax rates for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established whenever management believes that it is more likely than not that deferred tax assets may not be realizable.

Income taxes are not provided on our equity in undistributed earnings of foreign subsidiaries or affiliates to the extent we have determined that the earnings are indefinitely reinvested. Income taxes are provided on such earnings in the period in which we can no longer support that such earnings are indefinitely reinvested.
Tax benefits related to uncertain tax positions are recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.
We classify interest expense and penalties recognized on underpayments of income taxes as income tax expense.
Stock-based employee compensation—The measurement of stock-based compensation expense on restricted stock awards is based on the market price at the grant date and the number of shares awarded. We used the Cox Ross Rubinstein binomial model to measure the fair value of stock options granted prior to December 31, 2016 and Black-Scholes options pricing model to measure the fair value of stock options granted since January 1, 2017. The stock-based compensation expense for each award is recognized ratably over the applicable service period, after taking into account estimated forfeitures, or the period beginning at the start of the service period and ending when an employee becomes eligible for retirement.
Ordinary shares held in employee benefit trust—Our ordinary shares are purchased by the plan administrator of the FMC Technologies, Inc. Non-Qualified Savings and Investment Plan and placed in a trust that we own. Purchased shares are recorded at cost and classified as a reduction of stockholders’ equity on the condensed consolidated balance sheets.
Treasury shares—Treasury shares are recorded as a reduction to stockholders’ equity using the cost method. Any gain or loss related to the sale of treasury shares is included in stockholders’ equity.
Earnings per ordinary share (“EPS”)—Basic EPS is computed using the weighted-average number of ordinary shares outstanding during the year. We use the treasury stock method to compute diluted EPS which gives effect to the potential dilution of earnings that could have occurred if additional shares were issued for awards granted under our incentive compensation and stock plan. The treasury stock method assumes proceeds that would be obtained upon exercise of awards

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granted under our incentive compensation and stock plan are used to purchase outstanding ordinary shares at the average market price during the period.
Convertible bonds that could be converted into or be exchangeable for new or existing shares would additionally result in a dilution of earnings per share. The ordinary shares assumed to be converted as of the issuance date are included to compute diluted EPS under the if-converted method. Additionally, the net profit of the period is adjusted as if converted for the after-tax interest expense related to these dilutive shares.
Foreign currency—Financial statements of operations for which the U.S. dollar is not the functional currency, and are located in non-highly inflationary countries, are translated into U.S. dollars prior to consolidation. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date, while income statement accounts are translated at the average exchange rate for each period. For these operations, translation gains and losses are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity until the foreign entity is sold or liquidated. For operations in highly inflationary countries and where the local currency is not the functional currency, inventories, property, plant and equipment, and other non-current assets are converted to U.S. dollars at historical exchange rates, and all gains or losses from conversion are included in net income. Foreign currency effects on cash, cash equivalents and debt in hyperinflationary economies are included in interest income or expense.
For certain committed and anticipated future cash flows and recognized assets and liabilities which are denominated in a foreign currency, we may choose to manage our risk against changes in the exchange rates, when compared against the functional currency, through the economic netting of exposures instead of derivative instruments. Cash outflows or liabilities in a foreign currency are matched against cash inflows or assets in the same currency, such that movements in exchanges rates will result in offsetting gains or losses. Due to the inherent unpredictability of the timing of cash flows, gains and losses in the current period may be economically offset by gains and losses in a future period.  All gains and losses are recorded in our consolidated statements of income in the period in which they are incurred. Gains and losses from the remeasurement of assets and liabilities are recognized in other income (expense), net.
Derivative instruments—Derivatives are recognized on the condensed consolidated balance sheets at fair value, with classification as current or non-current based upon the maturity of the derivative instrument. Changes in the fair value of derivative instruments are recorded in current earnings or deferred in accumulated other comprehensive income (loss), depending on the type of hedging transaction and whether a derivative is designated as, and is effective as, a hedge. Each instrument is accounted for individually and assets and liabilities are not offset.
Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting changes in anticipated cash flows of the hedged item or transaction. Changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) until the underlying transactions are recognized in earnings. At such time, related deferred hedging gains or losses are recorded in earnings on the same line as the hedged item. Effectiveness is assessed at the inception of the hedge and on a quarterly basis. Effectiveness of forward contract cash flow hedges are assessed based solely on changes in fair value attributable to the change in the spot rate. The change in the fair value of the contract related to the change in forward rates is excluded from the assessment of hedge effectiveness. Changes in this excluded component of the derivative instrument, along with any ineffectiveness identified, are recorded in earnings as incurred. We document our risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge.
We also use forward contracts to hedge foreign currency assets and liabilities, for which we do not apply hedge accounting. The changes in fair value of these contracts are recognized in other income (expense), net on our condensed consolidated statements of income, as they occur and offset gains or losses on the remeasurement of the related asset or liability.
NOTE 2. MERGER OF FMC TECHNOLOGIES AND TECHNIP
Description of the merger of FMC Technologies and Technip
On June 14, 2016, FMC Technologies and Technip entered into a definitive business combination agreement providing for the business combination among FMC Technologies, FMC Technologies SIS Limited, a private limited company incorporated under the laws of England and Wales and a wholly-owned subsidiary of FMC Technologies, and Technip. On August 4, 2016, the legal name of FMC Technologies SIS Limited was changed to TechnipFMC Limited, and on January 11, 2017, was subsequently re-registered as TechnipFMC plc, a public limited company incorporated under the laws of England and Wales.
On January 16, 2017, the business combination was completed. Pursuant to the terms of the definitive business combination agreement, Technip merged with and into TechnipFMC, with TechnipFMC continuing as the surviving company (the “Technip Merger”), and each ordinary share of Technip (the “Technip Shares”), other than Technip Shares owned by Technip or its

13


wholly-owned subsidiaries, were exchanged for 2.0 ordinary shares of TechnipFMC, subject to the terms of the definitive business combination agreement. Immediately following the Technip Merger, a wholly-owned indirect subsidiary of TechnipFMC (“Merger Sub”) merged with and into FMC Technologies, with FMC Technologies continuing as the surviving company and as a wholly-owned indirect subsidiary of TechnipFMC (the “FMCTI Merger”), and each share of common stock of FMC Technologies (the “FMCTI Shares”), other than FMCTI Shares owned by FMC Technologies, TechnipFMC, Merger Sub or their wholly-owned subsidiaries, were exchanged for 1.0 ordinary share of TechnipFMC, subject to the terms of the definitive business combination agreement.
Under the acquisition method of accounting, Technip was identified as the accounting acquirer and acquired a 100% interest in FMC Technologies.
The merger of FMC Technologies and Technip (the “Merger”) has created a larger and more diversified company that is better equipped to respond to economic and industry developments and better positioned to develop and build on its offerings in the subsea, surface, and onshore/offshore markets as compared to the former companies on a standalone basis. More importantly, the Merger will bring about the ability of the combined company to (i) standardize its product and service offerings to customers, (ii) reduce costs to customers, and (iii) provide integrated product offerings to the oil and gas industry with the aim to innovate the markets in which the combined company operates.
We incurred merger transaction and integration costs of $23.3 million and $78.0 million in the three and six months ended June 30, 2017, respectively, and $16.7 million in the three and six months ended June 30, 2016.
Description of FMC Technologies as Accounting Acquiree
FMC Technologies is a global provider of technology solutions for the energy industry. FMC Technologies designs, manufactures and services 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. Subsea systems produced by FMC Technologies are used in the offshore production of crude oil and natural gas and are placed on the seafloor to control the flow of crude oil and natural gas from the reservoir to a host processing facility. Additionally, FMC Technologies provides a full range of drilling, completion and production wellhead systems for both standard and custom-engineered applications. Surface wellhead production systems, or trees, are used to control and regulate the flow of crude oil and natural gas from the well and are used in both onshore and offshore applications.
Consideration Transferred
The acquisition-date fair value of the consideration transferred consisted of the following:
(In millions, except per share data)
 
 
Total FMC Technologies, Inc. shares subject to exchange as of January 16, 2017
 
228.9

FMC Technologies, Inc. exchange ratio (1)
 
0.5

Shares of TechnipFMC issued
 
114.4

Value per share of Technip as of January 16, 2017 (2)
 
$
71.4

Total purchase consideration
 
$
8,170.7

_______________________
(1)
As the calculation is deemed to reflect a share capital increase of the accounting acquirer, the FMC Technologies exchange ratio (1 share of TechnipFMC for 1 share of FMC Technologies as provided in the business combination agreement) is adjusted by dividing the FMC Technologies exchange ratio by the Technip exchange ratio (2 shares of TechnipFMC for 1 share of Technip as provided in the business combination agreement), i.e.,  1 ⁄ 2 = 0.5 in order to reflect the number of shares of Technip that FMC Technologies stockholders would have received if Technip was to have issued its own shares.
(2) 
Closing price of Technip’s ordinary shares on Euronext Paris on January 16, 2017 in Euro converted at the Euro to U.S. dollar exchange rate of $1.0594 on January 16, 2017.

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Assets Acquired and Liabilities Assumed
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date. The purchase price allocation is subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but at that time was unknown to us may become known during the remainder of the measurement period. The final purchase price allocation will be based on final appraisals and other analysis of fair values of acquired assets and liabilities.
(In millions)
 
 
Assets:
 
 
Cash
 
$
1,479.2

Accounts receivable
 
1,247.4

Inventory
 
764.8

Income taxes receivable
 
139.2

Other current assets
 
282.2

Property, plant and equipment
 
1,286.3

Intangible assets
 
1,390.3

Deferred income taxes
 
67.0

Other long-term assets
 
167.3

Total identifiable assets acquired
 
6,823.7

Liabilities:
 
 
Short-term and current portion of long-term debt
 
319.5

Accounts payable, trade
 
386.0

Advance payments
 
467.0

Income taxes payable
 
92.1

Other current liabilities
 
523.8

Long-term debt, less current portion
 
1,444.2

Accrued pension and other post-retirement benefits, less current portion
 
195.5

Deferred income taxes
 
418.5

Other long-term liabilities
 
137.5

Total liabilities assumed
 
3,984.1

Net identifiable assets acquired
 
2,839.6

Goodwill
 
5,331.1

Net assets acquired
 
$
8,170.7

Segment Allocation of Goodwill
Goodwill is preliminary due to the draft status of the purchase valuation. The allocation to the reporting segments based on the draft valuation is as follows:
(In millions)
Allocated Goodwill
Subsea
$
2,596.9

Onshore/Offshore
1,689.4

Surface Technologies
1,044.8

Total
$
5,331.1

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company, which are further described above. Goodwill recognized as a result of the acquisition is not deductible for tax purposes.


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Acquired Identifiable Intangible Assets
The identifiable intangible assets acquired include the following:
(In millions, except estimated useful lives)
Fair Value
 
Estimated
Useful Lives
Acquired technology
$
240.0

 
10
Backlog
175.0

 
2
Customer relationships
285.0

 
10
Tradenames
635.0

 
20
Software
55.3

 
Various
Total identifiable intangible assets acquired
$
1,390.3

 
 
FMC Technologies’ results of operations have been included in our financial statements for periods subsequent to the consummation of the Merger on January 16, 2017. FMC Technologies contributed revenues and a net loss of $1,603.8 million and $125.6 million, respectively, for the period from January 17, 2017 through June 30, 2017.
Pro Forma Impact of the Merger (unaudited)
The following unaudited supplemental pro forma results present consolidated information as if the Merger had been completed as of January 1, 2016. The pro forma results do not include any potential synergies, cost savings or other expected benefits of the Merger. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the Merger had been consummated as of January 1, 2016, nor are they indicative of future results. For comparative purposes, the weighted average shares outstanding used for the diluted earnings per share calculation for the three and six months ended June 30, 2017 was also used to calculate the diluted earnings per share for the three and six months ended June 30, 2016.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions, except per share data)
2017
Pro Forma
 
2016
Pro Forma
 
2017
Pro Forma
 
2016
Pro Forma
Revenue
$
3,845.0

 
$
3,521.2

 
$
7,345.9

 
$
7,132.4

Net income attributable to TechnipFMC adjusted for dilutive effects
$
164.9

 
$
82.8

 
$
61.4

 
$
128.8

Diluted earnings per share
0.35

 
0.17

 
0.13

 
0.27

NOTE 3. NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
Effective January 1, 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Among other amendments, this update requires that excess tax benefits or deficiencies be recognized as income tax expense or benefit in the income statement and eliminates the requirement to reclassify excess tax benefits and deficiencies from operating activities to financing activities in the statement of cash flows. This updated guidance also gives an entity the election to either (i) estimate the forfeiture rate of employee stock-based awards or (ii) account for forfeitures as they occur. We elected to retrospectively classify excess tax benefits and deficiencies as operating activity and these amounts, which were immaterial for all periods presented, are reflected in the income taxes payable, net line item in the accompanying condensed consolidated statement of cash flows. In addition, we elected to continue to estimate forfeitures on the grant date to account for the estimated number of awards for which the requisite service period will not be rendered. The adoption of this update did not have a material impact on our consolidated financial statements.
Effective January 1, 2017, we adopted ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This update requires in scope inventory to be measured at the lower of cost or net realizable value rather than at the lower of cost or market under existing guidance. We adopted the updated guidance prospectively. The adoption of this update did not have a material impact on our consolidated financial statements.
Effective January 1, 2017, we adopted ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.” This update states that substantial doubt exists if it is probable that an entity will be unable to meet its current and future obligations. Disclosures are required if conditions give rise to substantial doubt. However, management will

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need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. We adopted this guidance prospectively. The adoption of this update concerns disclosure only as it relates to our consolidated financial statements.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will supersede most existing GAAP related to revenue recognition and will supersede some cost guidance in existing GAAP related to construction-type and production-type contract accounting. Additionally, the ASU will significantly increase disclosures related to revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU No. 2014-09 by one year, and as a result, is now effective for us on January 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which clarifies the implementation guidance on principal versus agent considerations. Early application is permitted to the original effective date of January 1, 2017. Entities are permitted to apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The impacts that adoption of the ASU is expected to have on our consolidated financial statements and related disclosures are being evaluated. Additionally, we have not determined the effect of the ASU on our internal control over financial reporting or other changes in business practices and processes and have not yet determined which transition method we will utilize upon adoption on the effective date.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This update addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other amendments, this update requires equity investments not accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This updated guidance also simplifies the impairment assessment of equity investments without readily determinable fair values and eliminates the requirement to disclose significant assumptions and methods used to estimate the fair value of financial instruments measured at amortized cost. The updated guidance further requires the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this ASU are effective for us on January 1, 2018. All amendments are required to be adopted on a modified retrospective basis, with two exceptions. The amendments related to equity investments without readily determinable fair values and the requirement to use an exit price notion are required to be adopted prospectively. Early adoption is not permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. Early application is permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The guidance will become effective for us on January 1, 2019. The impacts that adoption of the ASU is expected to have on our consolidated financial statements and related disclosures are being evaluated. Additionally, we have not determined the effect of the ASU on our internal control over financial reporting or other changes in business practices and processes.

In June 2016, the FASB issued ASU 2016-13, “Financial InstrumentsCredit Losses.” This update introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The updated guidance applies to (i) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (ii) loan commitments and other off-balance sheet credit exposures, (iii) debt securities and other financial assets measured at fair value through other comprehensive income, and (iv) beneficial interests in securitized financial assets. The amendments in this ASU are effective for us on January 1, 2020 and are required to be adopted on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This update amends the existing guidance for the statement of cash flows and provides guidance on eight classification issues related

17


to the statement of cash flows. The amendments in this ASU are effective for us on January 1, 2018 and are required to be adopted retrospectively. For issues that are impracticable to adopt retrospectively, the amendments may be adopted prospectively as of the earliest date practicable. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated statements of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” This update requires that income tax consequences are recognized on an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU are effective for us on January 1, 2018 and are required to be adopted on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business.” This update clarifies the definition of a business and provides a screen to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, such set of assets is not a business. The amendments in this ASU are effective for us on January 1, 2018 and are required to be adopted prospectively. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” This update eliminates Step 2 from the goodwill impairment test. An annual or interim goodwill test should be performed by comparing the fair value of a reporting unit with its carrying amount. Income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should also be considered when measuring any applicable goodwill impairment loss. This updated guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative assessment, to perform Step 2 of the goodwill impairment test. Any goodwill amount allocated to a reporting unit with a zero or negative carrying amount net of assets is required to be disclosed. The amendments in this ASU are effective for us January 1, 2020 and are required to be adopted prospectively. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This update defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sale of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The amendments in this ASU are effective for us January 1, 2018 and are required to be adopted with either a full retrospective approach or a modified retrospective approach. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This update requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount of net benefit cost that is included in the income statement or capitalized in assets, by line item. The updated guidance requires employers to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets) separately and exclude them from the subtotal of operating income. The updated guidance also allows only the service cost component to be eligible for capitalization when applicable. The amendments in this ASU are effective for us on January 1, 2018. Early adoption is permitted. The guidance requires adoption on a retrospective basis for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement and on a prospective basis for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting.” This update provides clarity on when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The amendments in this ASU are effective for us January 1, 2018 and are required to be adopted prospectively. We are currently evaluating the impact of this ASU on our consolidated financial statements.

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NOTE 4. EARNINGS PER SHARE
A reconciliation of the number of shares used for the basic and diluted earnings per share calculation was as follows: 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Net income attributable to TechnipFMC plc
$
164.9

 
$
104.0

 
$
146.2

 
$
224.7

After-tax interest expense related to dilutive shares

 
0.3

 

 
0.7

Net income attributable to TechnipFMC plc adjusted for dilutive effects
164.9

 
104.3

 
146.2

 
225.4

Weighted average number of shares outstanding
466.7

 
119.5

 
466.7

 
118.9

Dilutive effect of restricted stock units
0.2

 

 
0.1

 

Dilutive effect of stock options
0.1

 

 
0.2

 

Dilutive effect of performance shares
1.4

 
0.5

 
1.2

 
0.4

Dilutive effect of convertible bonds

 
5.2

 

 
5.2

Total shares and dilutive securities
468.4

 
125.2

 
468.2

 
124.5

 
 
 
 
 
 
 
 
Basic earnings per share attributable to TechnipFMC plc
$
0.35

 
$
0.87

 
$
0.31

 
$
1.89

Diluted earnings per share attributable to TechnipFMC plc
$
0.35

 
$
0.83

 
$
0.31

 
$
1.81

NOTE 5. IMPAIRMENT, RESTRUCTURING AND OTHER EXPENSE
Impairment, restructuring and other expense was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Subsea
$
6.0

 
$
20.0

 
$
12.7

 
$
20.3

Onshore/Offshore
(27.7
)
 
29.2

 
(28.0
)
 
64.6

Surface Technologies
2.8

 

 
4.2

 

Corporate and other
6.6

 
14.6

 
8.5

 
14.6

Total impairment, restructuring and other expense
$
(12.3
)
 
$
63.8


$
(2.6
)
 
$
99.5

Asset impairments—We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition over the asset’s remaining useful life. Our review of recoverability of the carrying value of our assets considers several assumptions including the intended use and service potential of the asset.
Restructuring and other—As a result of the decline in crude oil prices and its effect on the demand for products and services in the oilfield services industry worldwide, we initiated a company-wide reduction in workforce and facility consolidation intended to reduce costs and better align our workforce with current and anticipated activity levels, which resulted in the continued recognition of severance costs relating to termination benefits and other restructuring charges. In the three months ended June 30, 2017, we recognized a gain in our Onshore/Offshore segment as the result of the favorable outcome of restructuring negotiations for which we previously accrued a reserve. In the three months ended June 30, 2016, as part of our restructuring plan, we divested and deconsolidated our wholly owned subsidiaries Technip Germany Holding GmBH and Technip Germany GmBH.



19


NOTE 6. INVENTORIES
Inventories consisted of the following:
(In millions)
June 30,
2017
 
December 31,
2016
Raw materials
$
272.7

 
$
272.9

Work in process
160.5

 
36.1

Finished goods
536.2

 
64.6

 
969.4

 
373.6

Valuation adjustments
(70.3
)
 
(38.9
)
Inventories, net
$
899.1

 
$
334.7

NOTE 7. OTHER CURRENT ASSETS

Other current assets consisted of the following:
(In millions)
June 30,
2017
 
December 31, 2016
Value added tax receivables
$
345.9

 
$
319.4

Other tax receivables
180.4

 
124.9

Prepaid expenses
159.1

 
106.4

Other
317.5

 
248.5

Other current assets
$
1,002.9

 
$
799.2

NOTE 8. EQUITY METHOD INVESTMENTS

Our income (loss) from equity affiliates included in each of our reporting segments was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Subsea
$
12.3

 
$
(11.9
)
 
$
21.7

 
$
(10.0
)
Onshore/Offshore
0.4

 
(8.2
)
 
0.4

 
15.4

Surface Technologies

 

 

 

Income (loss) from equity affiliates
$
12.7

 
$
(20.1
)
 
$
22.1

 
$
5.4

NOTE 9. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:
(In millions)
June 30,
2017
 
December 31, 2016
Accruals on completed contracts
$
305.4

 
$
271.9

Deferred income on contracts
372.8

 
407.6

Contingencies related to contracts
415.2

 
370.1

Other taxes payable
283.3

 
143.5

Social security liability
113.9

 
66.3

Redeemable financial liability
59.8

 
33.7

Other
709.9

 
532.2

Total other current liabilities
$
2,260.3

 
$
1,825.3


20


NOTE 10. DEBT
Long-term debt consisted of the following: 
(In millions)
June 30,
2017
 
December 31,
2016
Revolving credit facility
$

 
$

Bilateral credit facilities

 

Commercial paper
1,074.9

 
210.8

Synthetic bonds due 2021
459.3

 
428.0

Convertible bonds due 2017

 
524.5

2.00% Senior Notes due 2017
300.0

 

3.45% Senior Notes due 2022
500.0

 

5.00% Notes due 2020
222.5

 
209.7

3.40% Notes due 2022
167.5

 
158.0

3.15% Notes due 2023
144.3

 
136.1

3.15% Notes due 2023
139.4

 
131.4

4.00% Notes due 2027
83.7

 
79.0

4.00% Notes due 2032
107.3

 
101.2

3.75% Notes due 2033
108.0

 
101.8

Bank borrowings
432.3

 
452.1

Other
33.3

 
20.3

Total long-term debt
3,772.5

 
2,552.9

Less: current portion
(471.2
)
 
(683.6
)
Long-term debt, less current portion
$
3,301.3

 
$
1,869.3

Revolving credit facilityOn January 17, 2017, we acceded to a new $2.5 billion senior unsecured revolving credit facility agreement (“facility agreement”) between FMC Technologies, Inc. and Technip Eurocash SNC (the “Borrowers”) with JPMorgan Chase Bank, National Association, as agent and an arranger, SG Americas Securities LLC as an arranger, and the lenders party thereto.
The facility agreement provides for the establishment of a multicurrency, revolving credit facility, which includes a $1.5 billion letter of credit subfacility. Subject to certain conditions, the Borrowers may request the aggregate commitments under the facility agreement be increased by an additional $500.0 million. The facility expires in January 2022.
Borrowings under the facility agreement bear interest at the following rates, plus an applicable margin, depending on currency:
U.S. dollar-denominated loans bear interest, at the Borrowers’ option, at a base rate or an adjusted rate linked to the London interbank offered rate (“Adjusted LIBOR”);
sterling-denominated loans bear interest at Adjusted LIBOR; and
euro-denominated loans bear interest at the Euro interbank offered rate (“EURIBOR”).
Depending on the credit rating of TechnipFMC, the applicable margin for revolving loans varies (i) in the case of Adjusted LIBOR and EURIBOR loans, from 0.820% to 1.300% and (ii) in the case of base rate loans, from 0.000% to 0.300%. The “base rate” is the highest of (a) the prime rate announced by JPMorgan, (b) the greater of the Federal Funds Rate and the Overnight Bank Funding Rate plus 0.5% or (c) one-month Adjusted LIBOR plus 1.0%.
The facility agreement contains usual and customary covenants, representations and warranties and events of default for credit facilities of this type, including financial covenants.
Bilateral credit facilitiesWe have access to four bilateral credit facilities in the aggregate of €340.0 million. The bilateral credit facilities consist of:
two credit facilities of €80.0 million each expiring in May 2019;

21


a credit facility of €80.0 million expiring in June 2019; and
a credit facility of €100.0 million expiring in May 2021.
Each bilateral credit facility contains usual and customary covenants, representations and warranties and events of default for credit facilities of this type.
Commercial paper—Under our commercial paper program, we have the ability to access $1.0 billion and €1.0 billion of short-term financing through our commercial paper dealers, subject to the limit of unused capacity of our facility agreement. As we have both the ability and intent to refinance these obligations on a long-term basis, our commercial paper borrowings were classified as long-term in the condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016. Commercial paper borrowings are issued at market interest rates. As of June 30, 2017, our commercial paper borrowings had a weighted average interest rate of 1.52% on the U.S. dollar denominated borrowings and (0.28)% on the Euro denominated borrowings.
Synthetic bonds—On January 25, 2016, we issued €375.0 million principal amount of 0.875% convertible bonds with a maturity date of January 25, 2021 and a redemption at par of the bonds which have not been converted. On March 3, 2016, we issued additional convertible bonds for a principal amount of €75.0 million issued on the same terms, fully fungible with and assimilated to the bonds issued on January 25, 2016. The issuance of these non-dilutive cash-settled convertible bonds (“Synthetic Bonds”), which are linked to our ordinary shares were backed simultaneously by the purchase of cash-settled equity call options in order to hedge our economic exposure to the potential exercise of the conversion rights embedded in the Synthetic Bonds. As the Synthetic Bonds will only be cash settled, they will not result in the issuance of new ordinary shares or the delivery of existing ordinary shares upon conversion. Interest on the Synthetic Bonds is payable semi-annually in arrears on January 25 and July 25 of each year, beginning July 26, 2016. Net proceeds from the Synthetic Bonds were used for general corporate purposes and to finance the purchase of the call options. The Synthetic Bonds are our unsecured obligations. The Synthetic Bonds will rank equally in right of payment with all of our existing and future unsubordinated debt.
The Synthetic Bonds issued on January 25, 2016 were issued at par. The Synthetic Bonds issued on March 3, 2016 were issued at a premium of 112.43802% resulting from an adjustment over the 3-day trading period following the issuance resulting in a share reference price of €48.8355.
A 40.0% conversion premium was applied to the share reference price of €40.7940. The share reference price was computed using the average of the daily volume weighted average price of our ordinary shares on the Euronext Paris market over the 10 consecutive trading days from January 21 to February 3, 2016. The initial conversion price of the bonds was then fixed at €57.1116.
The Synthetic Bonds each have a nominal value of €100.0 thousand with a conversion ratio of 3,464.6193 and a conversion price of €28.8632. Any bondholder may, at its sole option, request the conversion in cash of all or part of the bonds it owns, beginning November 15, 2020 to the 38th business day before the maturity date.
Convertible bonds—On December 15, 2011, we issued 5,178,455 bonds convertible (the “2011-2017 Convertible Bonds”) into and/or exchangeable for new or existing shares (“OCEANE”) for approximately €497.6 million with a maturity date of January 1, 2017. Net proceeds from the issuance were used to partially restore our cash balance position following the acquisition of Global Industries, Ltd. in December 2011 for a cash consideration of $936.4 million.
At maturity, all outstanding amounts under the 2011-2017 Convertible Bonds were repaid.
Senior NotesOn February 28, 2017, we commenced offers to exchange any and all outstanding notes issued by FMC Technologies for up to $800.0 million aggregate principal amount of new notes issued by TechnipFMC and cash. In conjunction with the offers to exchange, FMC Technologies solicited consents to adopt certain proposed amendments to each of the indentures governing the previously issued notes to eliminate certain covenants, restrictive provisions and events of defaults from such indentures.
On March 29, 2017, we settled the offers to exchange and consent solicitations (the “Exchange Offers”) for (i) any and all 2.00% senior notes due October 1, 2017 (the “2017 FMC Notes”) issued by FMC Technologies for up to an aggregate principal amount of $300.0 million of new 2.00% senior notes due October 1, 2017 (the “2017 Senior Notes’) issued by TechnipFMC and cash, and (ii) any and all 3.45% senior notes due October 1, 2022 (the “2022 FMC Notes”) issued by FMC Technologies for up to an aggregate principal amount of $500.0 million in new 3.45% senior notes due October 1, 2022 (the “2022 Senior Notes”) issued by TechnipFMC with registration rights and cash. Pursuant to the Exchange Offers, we issued approximately $215.4 million in aggregate principal amount of 2017 Senior Notes and $459.8 million in aggregate principal amount of 2022

22


Senior Notes (collectively the “Senior Notes”). Interest on the 2017 Senior Notes is payable on October 1, 2017. Interest on the 2022 Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2017.
The terms of the Senior Notes are governed by the indenture, dated as of March 29, 2017 between TechnipFMC and U.S. Bank National Association, as trustee (the “Trustee”), as amended and supplemented by the First Supplemental Indenture between TechnipFMC and the Trustee (the “First Supplemental Indenture”) relating to the issuance of the 2017 Notes and the Second Supplemental Indenture between TechnipFMC and the Trustee (the “Second Supplemental Indenture”) relating to the issuance of the 2022 Notes.
At any time prior to their maturity in the case of the 2017 Notes, and at any time prior to July 1, 2022, in the case of the 2022 Notes, we may redeem some or all of the Senior Notes at the redemption prices specified in the First Supplemental Indenture and Second Supplemental Indenture, respectively. At any time on or after July 1, 2022, we may redeem the 2022 Notes at the redemption price equal to 100% of the principal amount of the 2022 Notes redeemed. The Senior Notes are our senior unsecured obligations. The Senior Notes will rank equally in right of payment with all of our existing and future unsubordinated debt, and will rank senior in right of payment to all of our future subordinated debt.
Private Placement NotesOn July 27, 2010, we completed the private placement of €200.0 million aggregate principal amount of 5.0% notes due July 2020 (the “2020 Notes”). Interest on the 2020 Notes is payable annually in arrears on July 27 of each year, beginning July 27, 2011. Net proceeds of the 2020 Notes were used to partially finance the 2004-2011 bond issue, which was repaid at its maturity date on May 26, 2011. The 2020 Notes contain contains usual and customary covenants and events of default for notes of this type. In the event of a change of control resulting in a downgrade in the rating of the notes below BBB-, the 2020 Notes may be redeemed early by any bondholder, at its sole discretion. The 2020 Notes are our unsecured obligations. The 2020 Notes will rank equally in right of payment with all of our existing and future unsubordinated debt.
In June 2012, we completed the private placement of €325.0 million aggregate principal amount of notes. The notes were issued in three tranches with €150.0 million bearing interest at 3.40% and due June 2022 (the “Tranche A 2022 Notes”), €75.0 million bearing interest of 4.0% and due June 2027 (the “Tranche B 2027 Notes”) and €100.0 million bearing interest of 4.0% and due June 2032 (the “Tranche C 2032 Notes” and, collectively with the “Tranche A 2022 Notes and the “Tranche B 2027 Notes”, the “2012 Private Placement Notes”). Interest on the Tranche A 2022 Notes and the Tranche C 2032 Notes is payable annually in arrears on June 14 of each year beginning June 14, 2013. Interest on the Tranche B 2027 Notes is payable annually in arrears on June 15 of each year, beginning June 15, 2013. Net proceeds of the 2012 Private Placement Notes were used for general corporate purposes. The 2012 Private Placement Notes contain usual and customary covenants and events of default for notes of this type. In the event of a change of control resulting in a downgrade in the rating of the notes below BBB-, the 2012 Private Placement Notes may be redeemed early by any bondholder, at its sole discretion. The 2012 Private Placement Notes are our unsecured obligations. The 2012 Private Placement Notes will rank equally in right of payment with all of our existing and future unsubordinated debt.
In October 2013, we completed the private placement of €355.0 million aggregate principal amount of senior notes. The notes were issued in three tranches with €100.0 million bearing interest at 3.75% and due October 2033 (the “Tranche A 2033 Notes”), €130.0 million bearing interest of 3.15% and due October 2023 (the “Tranche B 2023 Notes) and €125.0 million bearing interest of 3.15% and due October 2023 (the “Tranche C 2023 Notes” and, collectively with the “Tranche A 2033 Notes and the “Tranche B 2023 Notes”, the “2013 Private Placement Notes”). Interest on the Tranche A 2033 Notes is payable annually in arrears on October 7 each year, beginning October 7, 2014. Interest on the Tranche B 2023 Notes is payable annually in arrears on October 16 of each year beginning October 16, 2014. Interest on the Tranche C 2023 Notes is payable annually in arrears on October 18 of each year, beginning October 18, 2014. Net proceeds of the 2013 Private Placement Notes were used for general corporate purposes. The 2013 Private Placement Notes contain contains usual and customary covenants and events of default for notes of this type. In the event of a change of control resulting in a downgrade in the rating of the notes below BBB-, the 2013 Private Placement Notes may be redeemed early by any bondholder, at its sole discretion. The 2013 Private Placement Notes are our unsecured obligations. The 2013 Private Placement Notes will rank equally in right of payment with all of our existing and future unsubordinated debt.
Term loan—In December 2016, we entered into a £160.0 million term loan agreement to finance the Deep Explorer, a diving support vessel (“DSV”), maturing December 2028. Under the loan agreement, interest accrues at an annual rate of 2.813%. This loan agreement contains usual and customary covenants and events of default for loans of this type.
Foreign committed credit—We have committed credit lines at many of our international subsidiaries for immaterial amounts. We utilize these facilities for asset financing and to provide a more efficient daily source of liquidity. The effective interest rates depend upon the local national market.

23


NOTE 11. OTHER LIABILITIES
During the three months ended December 31, 2016, we obtained voting control interests in legal onshore/offshore contract entities which own and account for the design, engineering and construction of the Yamal LNG plant. Prior to the amendments of the contractual terms that provided us with voting interest control, we accounted for these entities under the equity method of accounting based on our previously held interests in each of these entities. Since nearly all substantive processes to perform and execute the obligations of the underlying contract are conducted by TechnipFMC and the noncontrolling interest holders, we accounted for these entities as an asset acquisition upon our obtaining control and recognized a net gain of $7.7 million during 2016. As of December 31, 2016, total assets, liabilities and equity related to these entities were consolidated onto our balance sheet and our results of operations for the three and six months ended June 30, 2017 reflect the consolidated results of operations related to these entities.
In addition to the recognition of an intangible asset related to the acquired asset in the underlying entities, a mandatorily redeemable financial liability of $174.8 million was recognized as of December 31, 2016 to account for the fair value of the non-controlling interests, for which $33.7 million was recorded as other current liabilities. Refer to Note 9 for further information regarding our other current liabilities. Changes in the fair value of the financial liability are recorded as interest expense on the condensed consolidated statements of income. Refer to Note 18 for further information regarding the fair value measurement assumptions of the mandatorily redeemable financial liability and related changes in its fair value.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
Contingent liabilities associated with guarantees—In the ordinary course of business, we enter into standby letters of credit, performance bonds, surety bonds and other guarantees with financial institutions for the benefit of our customers, vendors and other parties. The majority of these financial instruments expire within five years. Management does not expect any of these financial instruments to result in losses that, if incurred, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Guarantees consisted of the following:
(In millions)
June 30, 2017
Financial guarantees (1)
$
816.8

Performance guarantees (2)
3,882.6

Maximum potential undiscounted payments
$
4,699.4

_______________________  
(1) 
Financial guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on changes in an underlying agreement that is related to an asset, a liability, or an equity security of the guaranteed party. These tend to be drawn down only if there is a failure to fulfill our financial obligations.
(2) 
Performance guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on another entity's failure to perform under a nonfinancial obligating agreement. Events that trigger payment are performance related, such as failure to ship a product or provide a service.
Contingent liabilities associated with legal matters—On March 29, 2016, Dong Energy (“Dong”) terminated, on the grounds of an alleged material breach, a contract signed on February 27, 2012 with a consortium of Technip France and Daewoo Shipping & Marine Engineering Co., Ltd. This contract covered engineering, procurement, fabrication, hook-up and commissioning assistance for a fixed wellhead and process platform and associated facilities for the Hejre field offshore Denmark. Dong announced that it will not complete and does not intend to take possession of the platform. On May 4, 2017, the parties announced they had entered into a settlement agreement regarding the dispute, including the arbitral claims, related to the Hejre contract, and TechnipFMC will have no further responsibilities or liabilities with regard to the platform.
We are involved in various pending or potential legal actions or disputes in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions because of their inherent uncertainty. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.


24


NOTE 13. STOCKHOLDERS’ EQUITY
There were no cash dividends declared during the six months ended June 30, 2017 and 2016.
Dividends paid during the six months ended June 30, 2016 for dividends declared for the year ended December 31, 2015 were 236.6 million. The dividends were paid partially in cash and shares. Dividends paid in cash and shares was €100.8 million and €135.8 million, respectively.
As an English public limited company, we are required under U.K. law to have available “distributable reserves” to conduct share repurchases or pay dividends to shareholders. Distributable reserves are a statutory requirement and are not linked to a U.S. GAAP reported amount (e.g. retained earnings). As of June 30, 2017 we had distributable reserves in excess of $10.1 billion.
The following is a summary of our capital stock activity for the six months ended June 30, 2017 and 2016:
(Number of shares in millions)
Ordinary Shares Issued
 
Ordinary Shares
Held in 
Employee
Benefit Trust
 
Treasury Stock
Balance as of December 31, 2015
119.0

 

 
0.8

Stock awards
0.1

 

 
(0.3
)
Dividends paid
3.2

 

 

Balance as of June 30, 2016
122.3

 

 
0.5

 
 
 
 
 
 
Balance as of December 31, 2016
119.2

 

 
0.3

Net capital increases due to the merger of FMC Technologies and Technip
347.4

 

 

Stock awards
0.6

 

 

Treasury stock cancellation due to the merger of FMC Technologies and Technip

 

 
(0.3
)
Net stock purchased for (sold from) employee benefit trust

 
0.1

 

Balance as of June 30, 2017
467.2

 
0.1

 

Accumulated other comprehensive loss consisted of the following: 
(In millions)
Foreign Currency
Translation
 
Available-For-Sale Securities
 
Hedging Instruments
 
Defined Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
December 31, 2016
$
(849.8
)
 
$

 
$
(126.9
)
 
$
(80.7
)
 
$
(1,057.4
)
Other comprehensive income (loss) before reclassifications, net of tax
(34.9
)
 

 
42.3

 
(1.2
)
 
6.2

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

 

 
54.7

 
1.1

 
55.8

Other comprehensive income (loss), net of tax
(34.9
)
 

 
97.0

 
(0.1
)
 
62.0

June 30, 2017
$
(884.7
)
 
$

 
$
(29.9
)
 
$
(80.8
)
 
$
(995.4
)

25


Reclassifications out of accumulated other comprehensive loss consisted of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
(In millions)
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified out of Accumulated Other
Comprehensive Loss
 
Affected Line Item in the Condensed Consolidated Statements of Income
Gains (losses) on available-for-sale securities
 
$

 
$

 
$

 
$

 
Other expense, net
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) on hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts:
 
$
(10.7
)
 
$

 
$
(25.4
)
 
$

 
Revenue
 
 
1.6

 

 
1.5

 

 
Cost of sales
 
 
0.2

 

 
0.2

 

 
Selling, general and administrative expense
 
 

 

 
(0.1
)
 

 
Research and development expense
 
 
(21.8
)
 
(26.3
)
 
(50.2
)
 
(89.8
)
 
Other (expense), net
 
 
(30.7
)
 
(26.3
)
 
(74.0
)
 
(89.8
)
 
Income before income taxes
 
 
(10.4
)
 
(6.5
)
 
(19.3
)
 
(27.2
)
 
Provision (benefit) for income taxes
 
 
$
(20.3
)
 
$
(19.8
)
 
$
(54.7
)
 
$
(62.6
)
 
Net income
Defined pension and other post-retirement benefits
 
 
 
 
 
 
 
 
 
 
Amortization of actuarial gain (loss)
 
$
(0.7
)
 
$
(0.4
)
 
$
(1.2
)
 
$
(0.5
)
 
(a) 
Amortization of prior service credit (cost)
 
(0.1
)
 
(0.3
)
 
(0.3
)
 
(0.4
)
 
(a) 
 
 
(0.8
)
 
(0.7
)
 
(1.5
)
 
(0.9
)
 
Income before income taxes
 
 
(0.2
)
 
(0.2
)
 
(0.4
)
 
(0.3
)
 
Provision (benefit) for income taxes
 
 
$
(0.6
)
 
$
(0.5
)
 
$
(1.1
)
 
$
(0.6
)
 
Net income
_______________________
(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 15 for additional details).


26


NOTE 14. INCOME TAXES
As a result of the Merger described in Note 2, TechnipFMC plc is a public limited company incorporated under the laws of England and Wales. Therefore, our earnings are subject to the United Kingdom statutory rate of 19.3% beginning on the effective date of the Merger. Previously these earnings were subject to the French statutory rate of 34.4%. Our consolidated effective income tax rate information has been presented accordingly. The Merger transaction was generally a non-taxable event for the significant jurisdictions in which we operate.
Our income tax provision (benefit) for the three months ended June 30, 2017 and 2016, reflected effective tax rates of 35.1% and 4.9%, respectively. Our income tax provision (benefit) for the six months ended June 30, 2017 and 2016, reflected effective tax rates of 48.9% and 18.6%, respectively. The year-over-year increases in the effective tax rate were primarily due to a change in the forecasted country mix of earnings and valuation allowances due to additional losses generated for which no tax benefit is expected to be realized. In addition, individual tax items, combined with lower profitability in the current period, had a greater impact on the effective rate in the three and six months ended June 30, 2017 as compared to the same periods in 2016.
The effective income tax rate was different from the statutory income tax rate due to the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Statutory income tax rate
19.3
 %
 
34.4
 %
 
19.3
 %
 
34.4
 %
Net difference resulting from:
 
 
 
 
 
 
 
Foreign earnings subject to different tax rates
7.4
 %
 
(41.2
)%
 
8.3
 %
 
(23.4
)%
Branch profits tax
(4.7
)%
 
 %
 
(3.0
)%
 
 %
Deemed dividends
1.2
 %
 
 %
 
2.3
 %
 
 %
State, local and provincial tax
4.7
 %
 
9.2
 %
 
7.1
 %
 
5.2
 %
Return to provision
(1.5
)%
 
2.4
 %
 
 %
 
(2.0
)%
Valuation allowance
9.2
 %
 
6.1
 %
 
14.7
 %
 
9.6
 %
Other
(0.5
)%
 
(6.0
)%
 
0.2
 %
 
(5.2
)%
Effective tax rate
35.1
 %
 
4.9
 %
 
48.9
 %
 
18.6
 %
NOTE 15. PENSION AND OTHER POST-RETIREMENT BENEFITS
The components of net periodic benefit cost were as follows:
 
Pension Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
(In millions)
U.S.
 
Int’l
 
U.S.
 
Int’l
 
U.S.
 
Int’l
 
U.S.
 
Int’l
Service cost
$
2.7

 
$
5.3

 
$

 
$
3.1

 
$
4.9

 
$
9.9

 
$

 
$
5.9

Interest cost
6.9

 
5.2

 

 
2.9

 
12.7

 
9.5

 

 
5.5

Expected return on plan assets
(12.6
)
 
(9.3
)
 

 
(2.2
)
 
(23.2
)
 
(17.0
)
 

 
(4.2
)
Amortization of prior service cost (credit)

 
0.1

 

 
0.3

 

 
0.3

 

 
0.4

Amortization of actuarial loss (gain), net

 
0.7

 

 
0.4

 

 
1.2

 

 
0.5

Curtailment cost

 

 

 
0.1

 

 

 

 
0.1

Net periodic benefit cost
$
(3.0
)
 
$
2.0

 
$

 
$
4.6

 
$
(5.6
)
 
$
3.9

 
$

 
$
8.2



 
Other Post-retirement Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Interest cost
$
0.1

 
$

 
$
0.1

 
$

Net periodic benefit cost
$
0.1

 
$

 
$
0.1

 
$


27



During the six months ended June 30, 2017, we contributed $0.9 million to our U.S. pension benefit plans and $18.3 million to our international pension benefit plans.
NOTE 16. STOCK-BASED COMPENSATION
On January 11, 2017, we adopted the TechnipFMC plc Incentive Award Plan (the “Plan”). The Plan provides certain incentives and awards to officers, employees, non-employee directors and consultants of TechnipFMC and its subsidiaries. The Plan allows our Board of Directors to make various types of awards to non-employee directors and the Compensation Committee (the “Committee”) of the Board of Directors to make various types of awards to other eligible individuals. Awards may include stock options, stock appreciation rights, performance units, restricted stock units, restricted stock or other awards authorized under the Plan. All awards are subject to the Plan’s provisions, including all stock-based grants previously issued by FMC Technologies and Technip prior to consummation of the Merger. Under the Plan, 24.1 million ordinary shares were authorized for awards.
We recognize compensation expense and the corresponding tax benefits for awards under the Plan. Stock-based compensation expense for nonvested stock units was $13.3 million and $3.4 million for the three months ended June 30, 2017 and 2016, respectively, and $24.7 million and $9.4 million for the six months ended June 30, 2017 and 2016, respectively.
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS
For purposes of mitigating the effect of changes in exchange rates, we hold derivative financial instruments to hedge the risks of certain identifiable and anticipated transactions and recorded assets and liabilities in our consolidated balance sheets. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. Our policy is to hold derivatives only for the purpose of hedging risks associated with anticipated foreign currency purchases and sales created in the normal course of business and not for trading purposes where the objective is solely to generate profit.
Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, any change in the fair value of those instruments are reflected in earnings in the period such change occurs.
We hold the following types of derivative instruments:
Foreign exchange rate forward contracts—The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies and recorded assets and liabilities in our consolidated balance sheets. At June 30, 2017, we held the following material net positions:
 
Net Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Australian dollar
182.4

 
138.2

Brazilian real
829.5

 
250.5

British pound
243.6

 
309.9

Canadian dollar
(181.3
)
 
(139.5
)
Euro
997.1

 
1,115.7

Malaysian ringgit
118.4

 
27.6

Nigerian naira
(5,566.3
)
 
(16.7
)
Norwegian krone
(420.6
)
 
(50.4
)
Russian ruble
1,152.7

 
19.5

Singapore dollar
93.1

 
67.7

U.S. dollar
(1,736.7
)
 
(1,736.7
)

28


Foreign exchange rate instruments embedded in purchase and sale contracts—The purpose of these instruments is to match offsetting currency payments and receipts for particular projects, or comply with government restrictions on the currency used to purchase goods in certain countries. At June 30, 2017, our portfolio of these instruments included the following material net positions:
 
Net Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Brazilian real
(47.3
)
 
(14.3
)
Euro
(25.5
)
 
(29.1
)
Norwegian krone
(172.2
)
 
(20.5
)
U.S. dollar
60.0

 
60.0

Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. Refer to Note 18 to these consolidated financial statements for further disclosures related to the fair value measurement process. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts are settled.
The following table presents the location and fair value amounts of derivative instruments reported in the consolidated balance sheets.
 
June 30, 2017
 
December 31, 2016
(In millions)
Assets
 
Liabilities
 
Assets
 
Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
$
74.0

 
$
113.0

 
$
47.2

 
$
183.0

Long-term – Derivative financial instruments
18.8

 
10.2

 
10.7

 
47.6

Total derivatives designated as hedging instruments
92.8

 
123.2

 
57.9

 
230.6

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
6.8

 
18.9

 

 

Long-term – Derivative financial instruments
0.4

 
4.5

 

 

Total derivatives not designated as hedging instruments
7.2

 
23.4

 

 

Long-term – Derivative financial instruments
– Synthetic Bonds – Call Option Premium
60.9

 

 
180.1

 

Long-term – Derivative financial instruments
– Synthetic Bonds – Embedded Derivatives

 
60.9

 

 
180.1

Total derivatives
$
160.9

 
$
207.5

 
$
238.0

 
$
410.7

We recognized a gain of $18.9 million and a loss of $10.5 million for the three months ended June 30, 2017 and 2016, respectively, and a gain of $16.1 million and $0.2 million for the six months ended June 30, 2017 and 2016, respectively, due to hedge ineffectiveness as it was probable that the original forecasted transaction would not occur. Cash flow derivative hedges of forecasted transactions, net of tax, which qualify for hedge accounting, resulted in an accumulated other comprehensive loss of $29.9 million and $126.9 million at June 30, 2017, and December 31, 2016, respectively. We expect to transfer an approximate $26.2 million loss from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the first half of 2020.

29


The following table presents the location of gains (losses) on the consolidated statements of income related to derivative instruments designated as fair value hedges.
Location of Fair Value Hedge Gain (Loss) Recognized in Income
Gain (Loss) Recognized in
Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Other income (expense), net
$
28.8

 
$
27.6

 
$
49.7

 
$
11.5

The following tables present the location of gains (losses) on the consolidated statements of other comprehensive income and/or the consolidated statements of income related to derivative instruments designated as cash flow hedges.
 
Gain (Loss) Recognized in
OCI (Effective Portion)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Foreign exchange contracts
$
25.9

 
$
81.8

 
$
60.3

 
$
36.3

Location of Cash Flow Hedge Gain (Loss) Reclassified from 
Accumulated OCI into Income
Gain (Loss) Reclassified from Accumulated
OCI into Income (Effective Portion)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
(10.7
)
 
$

 
$
(25.4
)
 
$

Cost of sales
1.6

 

 
1.5

 

Selling, general and administrative expense
0.2

 

 
0.2

 

Research and development expense

 

 
(0.1
)