XNYS:FTI FMC Technologies Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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, 2012
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 1-16489 
________________________________________________________
FMC Technologies, Inc.
(Exact name of registrant as specified in its charter) 
________________________________________________________
Delaware
 
36-4412642
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1803 Gears Road, Houston, Texas
 
77067
(Address of principal executive offices)
 
(Zip Code)
(281) 591-4000
(Registrant’s telephone number, including area code) 
________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in  Rule 12b-2 of the Exchange Act).   Yes  o No  x 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
  
Outstanding at July 24, 2012
Common Stock, par value $0.01 per share
  
238,384,536
 



TABLE OF CONTENTS
 

2


PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)
 
Three Months Ended
 
Six Months Ended
 
 June 30,
 
 June 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Product revenue
$
1,274.6

 
$
1,042.9

 
$
2,465.7

 
$
1,961.9

Service and other revenue
220.3

 
186.5

 
425.8

 
349.4

Total revenue
1,494.9

 
1,229.4

 
2,891.5

 
2,311.3

Costs and expenses:
 
 
 
 
 
 
 
Cost of product revenue
1,024.9

 
832.5

 
1,987.7

 
1,559.3

Cost of service and other revenue
155.4

 
121.4

 
296.3

 
237.3

Selling, general and administrative expense
140.2

 
116.5

 
276.4

 
231.7

Research and development expense
26.3

 
21.6

 
53.1

 
38.2

Total costs and expenses
1,346.8

 
1,092.0

 
2,613.5

 
2,066.5

Other income (expense), net
16.1

 
2.5

 
20.1

 
4.9

Income before net interest expense and income taxes
164.2

 
139.9

 
298.1

 
249.7

Net interest expense
(6.4
)
 
(2.1
)
 
(9.9
)
 
(3.6
)
Income before income taxes
157.8

 
137.8

 
288.2

 
246.1

Provision for income taxes
44.6

 
42.2

 
75.3

 
64.8

Net income
113.2

 
95.6

 
212.9

 
181.3

Net income attributable to noncontrolling interests
(1.3
)
 
(1.3
)
 
(2.2
)
 
(1.8
)
Net income attributable to FMC Technologies, Inc.
$
111.9

 
$
94.3

 
$
210.7

 
$
179.5

Earnings per share attributable to FMC Technologies, Inc. (Note 3):
 
 
 
 
 
 
 
Basic
$
0.47

 
$
0.39

 
$
0.88

 
$
0.74

Diluted
$
0.46

 
$
0.39

 
$
0.87

 
$
0.74

Weighted average shares outstanding (Note 3):
 
 
 
 
 
 
 
Basic
240.2

 
241.9

 
240.2

 
241.8

Diluted
241.5

 
243.8

 
241.4

 
243.8

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


3


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
 
 
Three Months Ended
 
Six Months Ended
 
 June 30,
 
 June 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
113.2

 
$
95.6

 
$
212.9

 
$
181.3

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
(57.3
)
 
20.1

 
(33.7
)
 
42.1

Net gains (losses) on hedging instruments:

 
 
 
 
 
 
Net gains (losses) arising during the period
(8.8
)
 
8.3

 
4.6

 
26.6

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

 
(5.6
)
 
1.0

 
(7.3
)
Net gains (losses) on hedging instruments (2)
(6.7
)
 
2.7

 
5.6

 
19.3

Pension and other post-retirement benefits:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of prior service cost (credit) included in net income
(0.2
)
 
(0.2
)
 
(0.4
)
 
(0.4
)
Reclassification adjustment for amortization of net actuarial loss (gain) included in net income
5.4

 
3.0

 
10.2

 
5.7

Reclassification adjustment for amortization of transition asset included in net income

 
(0.1
)
 

 
(0.2
)
Net pension and other postretirement benefits (3)
5.2

 
2.7

 
9.8

 
5.1

Other comprehensive income, net of tax
(58.8
)
 
25.5

 
(18.3
)
 
66.5

Comprehensive income
54.4

 
121.1

 
194.6

 
247.8

Comprehensive income attributable to noncontrolling interest
(1.3
)
 
(1.3
)
 
(2.2
)
 
(1.8
)
Comprehensive income attributable to FMC Technologies, Inc.
$
53.1

 
$
119.8

 
$
192.4

 
$
246.0

_______________________  
(1)
Net of income tax (expense) benefit of $1.3 and $(1.9) for the three months ended June 30, 2012 and 2011, respectively, and $0.9 and $(6.7) for the six months ended June 30, 2012 and 2011 respectively.
(2)
Net of income tax (expense) benefit of $2.6 and $(1.4) for the three months ended June 30, 2012 and 2011, respectively, and $(4.2) and $(11.0) for the six months ended June 30, 2012 and 2011, respectively.
(3)
Net of income tax (expense) benefit of $(2.8) and $(1.4) for the three months ended June 30, 2012 and 2011, respectively, and $(5.2) and $(2.7) for the six months ended June 30, 2012 and June 30, 2011, respectively.
The accompanying notes are an integral part of the condensed consolidated financial statements.


4


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(In millions, except par value data)
 
 
June 30,
2012
 
December 31, 2011
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
275.3

 
$
344.0

Trade receivables, net of allowances of $4.4 in 2012 and $7.8 in 2011
1,566.9

 
1,341.6

Inventories, net (Note 5)
881.3

 
712.2

Derivative financial instruments (Note 12)
45.0

 
69.9

Prepaid expenses
48.0

 
37.2

Deferred income taxes
62.6

 
77.8

Income taxes receivable
30.9

 
21.2

Other current assets
215.5

 
184.0

Total current assets
3,125.5

 
2,787.9

Investments
32.2

 
161.4

Property, plant and equipment, net of accumulated depreciation of $568.5 in 2012 and $528.0 in 2011
910.7

 
767.9

Goodwill
505.6

 
265.8

Intangible assets, net of accumulated amortization of $57.2 in 2012 and $52.8 in 2011
302.0

 
128.0

Deferred income taxes
58.4

 
67.1

Derivative financial instruments (Note 12)
25.0

 
44.6

Other assets
54.1

 
48.3

Total assets
$
5,013.5

 
$
4,271.0

Liabilities and equity
 
 
 
Short-term debt and current portion of long-term debt
$
102.1

 
$
587.6

Accounts payable, trade
550.2

 
546.8

Advance payments and progress billings
447.9

 
450.2

Accrued payroll
163.9

 
153.5

Derivative financial instruments (Note 12)
37.0

 
66.6

Income taxes payable
128.0

 
117.7

Deferred income taxes
74.6

 
5.1

Other current liabilities
340.4

 
305.4

Total current liabilities
1,844.1

 
2,232.9

Long-term debt, less current portion (Note 6)
1,114.1

 
36.0

Accrued pension and other postretirement benefits, less current portion
266.1

 
272.4

Derivative financial instruments (Note 12)
32.5

 
37.0

Deferred income taxes
24.7

 
111.9

Other liabilities
118.9

 
143.1

Commitments and contingent liabilities (Note 14)
 
 
 
Stockholders’ equity (Note 11):
 
 
 
Preferred stock, $0.01 par value, 12.0 shares authorized; no shares issued in 2012 or 2011

 

Common stock, $0.01 par value, 600.0 shares authorized in 2012 and 2011; 286.3 shares issued in 2012 and 2011; 238.6 and 237.8 shares outstanding in 2012 and 2011, respectively
1.4

 
1.4

Common stock held in employee benefit trust, at cost; 0.2 shares in 2012 and 2011
(7.8
)
 
(5.8
)
Common stock held in treasury, at cost; 47.5 and 48.3 shares in 2012 and 2011, respectively
(1,035.1
)
 
(1,041.9
)
Capital in excess of par value of common stock
677.6

 
700.0

Retained earnings
2,425.4

 
2,214.7

Accumulated other comprehensive loss
(462.1
)
 
(443.8
)
Total FMC Technologies, Inc. stockholders’ equity
1,599.4

 
1,424.6

Noncontrolling interests
13.7

 
13.1

Total equity
1,613.1

 
1,437.7

Total liabilities and equity
$
5,013.5

 
$
4,271.0

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

5


FMC Technologies, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 
 
Six Months Ended
 June 30,
2012
 
2011
Cash provided (required) by operating activities:
 
 
 
Net income
$
212.9

 
$
181.3

Adjustments to reconcile net income to cash provided (required) by operating activities:
 
 
 
Depreciation
51.8

 
41.0

Amortization
13.7

 
10.7

Gain (loss) on disposal of assets
0.2

 
(1.0
)
Employee benefit plan and stock-based compensation costs
46.6

 
34.4

Deferred income tax provision
31.5

 
31.3

Unrealized (gain) loss on derivative instruments
14.5

 
(4.3
)
Other
(4.6
)
 
2.5

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Trade receivables, net
(221.9
)
 
(41.6
)
Inventories, net
(127.7
)
 
(115.2
)
Accounts payable, trade
(5.4
)
 
110.7

Advance payments and progress billings
(19.0
)
 
(8.5
)
Income taxes
(36.5
)
 
(11.1
)
Accrued pension and other postretirement benefits, net
(30.2
)
 
(48.7
)
Other assets and liabilities, net
(35.4
)
 
(61.4
)
Cash provided (required) by operating activities
(109.5
)
 
120.1

Cash provided (required) by investing activities:
 
 
 
Capital expenditures
(191.1
)
 
(102.8
)
Acquisitions, net of cash and cash equivalents acquired
(328.6
)
 

Other
1.4

 
(0.1
)
Cash required by investing activities
(518.3
)
 
(102.9
)
Cash provided (required) by financing activities:
 
 
 
Net increase in short-term debt
68.9

 

Net increase in commercial paper
252.1

 
113.0

Proceeds from the issuance of long term debt
275.0

 

Repayments of long-term debt
(0.2
)
 
(5.4
)
Proceeds from exercise of stock options
0.3

 
0.6

Purchase of treasury stock
(21.0
)
 
(7.2
)
Other
(15.8
)
 
(9.1
)
Cash provided by financing activities
559.3

 
91.9

Effect of exchange rate changes on cash and cash equivalents
(0.2
)
 
3.4

Increase (decrease) in cash and cash equivalents
(68.7
)
 
112.5

Cash and cash equivalents, beginning of period
344.0

 
315.5

Cash and cash equivalents, end of period
$
275.3

 
$
428.0

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


6


FMC Technologies, Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of FMC Technologies, Inc. and its consolidated subsidiaries (“FMC”) 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 U.S. GAAP have been condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Our accounting policies are in accordance with U.S. GAAP. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from our estimates.
In the opinion of management, the statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these statements may not be representative of the results that may be expected for the year ending December 31, 2012.
On February 25, 2011, our Board of Directors approved a two-for-one stock split of our outstanding shares of common stock. The stock split was completed in the form of a stock dividend that was issued on March 31, 2011, to shareholders of record at the close of business on March 14, 2011.
Note 2: Recently Adopted Accounting Standards
Effective January 1, 2012, we adopted an amendment issued by the Financial Accounting Standards Board (“FASB”) to existing guidance on fair value measurements. This amendment clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The adoption of the update did not have a material impact on our condensed consolidated financial statements.
Effective January 1, 2012, we adopted changes issued by the FASB to disclosure requirements for comprehensive income. The changes allow management the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. We elected the two-statement approach presenting other comprehensive income in a separate statement immediately following the statement of income. The updated requirements do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The adoption of the update concerns presentation only and did not have any financial impact on our condensed consolidated financial statements.
Note 3: Earnings per Share
A reconciliation of the number of shares used for the basic and diluted earnings per share (“EPS”) calculation was as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 June 30,
 
 June 30,
(In millions, except per share data)
2012
 
2011
 
2012
 
2011
Net income attributable to FMC Technologies, Inc.
$
111.9

 
$
94.3

 
$
210.7

 
$
179.5

Weighted average number of shares outstanding
240.2

 
241.9

 
240.2

 
241.8

Dilutive effect of restricted stock units and stock options
1.3

 
1.9

 
1.2

 
2.0

Total shares and dilutive securities
241.5

 
243.8

 
241.4

 
243.8

Basic earnings per share attributable to FMC Technologies, Inc.
$
0.47

 
$
0.39

 
$
0.88

 
$
0.74

Diluted earnings per share attributable to FMC Technologies, Inc.
$
0.46

 
$
0.39

 
$
0.87

 
$
0.74



7


Note 4: Business Combinations
  
Schilling Robotics, LLC—On January 3, 2012, we exercised our option to purchase the remaining 55% of outstanding shares of Schilling Robotics LLC (“Schilling”), a Delaware limited liability company, and closed the transaction on April 25, 2012. Schilling is a supplier of advanced robotic intervention products, including a line of remotely operated vehicle systems ("ROV"), manipulator systems and subsea control systems. The acquisition of the remaining interests in Schilling will allow us to grow in the expanding subsea environment, where demand for ROVs and the need for maintenance activities of subsea equipment is expected to increase.
Prior to April 25, 2012 we owned 45.0% of Schilling. Upon the closing of this transaction, we owned 100.0% of Schilling which is included among the consolidated subsidiaries reported in the Subsea Technologies segment. The acquisition-date fair value of our previously held equity interest in Schilling was $144.9 million with the fair value primarily estimated through an income approach valuation. We recorded a gain of $20.0 million related to the fair value remeasurement of our previously held equity interest in Schilling.
The purchase price with respect to the remaining outstanding shares was determined by applying the multiple of our market capital relative to our earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 2011 (determined in accordance with the terms of the unitholders agreement), to the EBITDA generated by Schilling during the year ended December 31, 2011 (subject to certain adjustments in accordance with the terms of the unitholders agreement). The consideration for the remaining outstanding shares was paid in cash.
Control Systems International, Inc.—On April 30, 2012, we acquired Control Systems International, Inc. ("CSI") which is included among the consolidated subsidiaries reported in the Energy Infrastructure segment. Our acquisition of CSI will enhance FMC's automation and controls technologies, supporting our long-term strategy to expand our subsea production and processing systems. Additionally, we also anticipate the acquisition of CSI to benefit other business units in our portfolio of businesses, such as measurement solutions, through comprehensive fuel terminal and pipeline automation systems.
The acquisition-date fair value of the consideration transferred totaled $486.7 million which consisted of the following:
(In millions)
Schilling
  
CSI
  
Total
Cash
$
282.8

  
$
49.0

*
$
331.8

Previously held equity interest
144.9

 

 
144.9

Purchase price withheld

 
10.0

**
10.0

Total
$
427.7

 
$
59.0

 
$
486.7

_______________________  
*
Includes anticipated recovery of negative working capital.
**
Represents the portion of the purchase price withheld ("holdback") by FMC pursuant to the terms of the stock purchase agreement. The holdback amount will be held and maintained by FMC as security for the payment of any and all amounts to which CSI indemnifies us, including final working capital adjustments and other indemnifications as listed in the stock purchase agreement. FMC may deduct from the holdback any eligible amounts and pay CSI the net amount three years after the closing date.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition dates.

8


(In millions)
Schilling
  
CSI
  
Total
Assets:
 
 
 
 
 
Cash
$
3.9

 
$
0.3

 
$
4.2

Accounts receivable
22.4

 
8.2

 
30.6

Inventory
50.6

 
0.1

 
50.7

Other current assets
2.1

 
0.2

 
2.3

Property, plant and equipment
21.7

 
0.2

 
21.9

Intangible assets
145.9

 
36.2

 
182.1

Other long-term assets
0.7

 

 
0.7

Total identifiable assets acquired
247.3

 
45.2

 
292.5

Liabilities:
 
 
 
 
 
Current liabilities
(33.4
)
 
(15.8
)
 
(49.2
)
Other long-term liabilities
(1.9
)
 

 
(1.9
)
Total liabilities assumed
(35.3
)
 
(15.8
)
 
(51.1
)
Net identifiable assets acquired
212.0

 
29.4

 
241.4
Goodwill
215.7

 
29.6

 
245.3
Net assets acquired
$
427.7

 
$
59.0

 
$
486.7


The goodwill recognized is primarily attributable to expected synergies and assembled workforce acquired in Schilling and CSI. As of June 30, 2012, there were no changes in the recognized amounts of goodwill resulting from either acquisition. The majority of the combined goodwill recognized for Schilling and CSI is deductible for tax purposes.
The identifiable intangible assets acquired include the following:
 
Schilling
 
CSI
(In millions)
Fair Value
 
Wgtd. Avg. Amort. Period
 
Fair Value
 
Wgtd. Avg. Amort. Period
Technology
$
38.9

 
12
 
$
16.9

 
10
Trademarks/trade name
25.4

 
20
 
2.8

 
15
Customer relationships
42.9

 
20
 
16.5

 
15
Base technology – technical know-how
38.7

 
15
 

 

Total identifiable intangible assets acquired
$
145.9

 
 
 
$
36.2

 
 

We recognized $0.3 million of acquisition-related costs that were expensed in the six months ended June 30, 2012 related to the Schilling and CSI acquisitions. These costs were recognized as selling, general and administrative expense in the consolidated statement of income. Revenue and net income (loss) of Schilling and CSI from the acquisition dates included in our condensed consolidated statements of income were $18.6 million and $4.6 million of revenue, respectively, and $(1.5) million and $0.4 million of net income (loss), respectively.
Pro Forma Impact of Acquisitions (unaudited)
The following unaudited supplemental pro forma results present consolidated information as if the acquisitions had been completed as of January 1, 2011. The 2012 pro forma results include: (i) $2.3 million of amortization for acquired intangible assets, (ii) $5.0 million in inventory fair value step-up amortization for Schilling, and (iii) $0.3 million of acquisition-related costs. The pro forma results do not include any potential synergies, cost savings or other expected benefits of the acquisitions. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the acquisitions had been consummated as of January 1, 2011, nor are they indicative of future results.


9


 
Six Months Ended June 30,
(In millions)
2012
Pro Forma
 
2011      
Pro Forma      
Revenue
$
2,930.2

 
$
2,369.6

Net income
$
209.5

 
$
185.5


Note 5: Inventories
Inventories consisted of the following:
 
(In millions)
June 30,
2012
 
December 31,
2011
Raw materials
$
165.5

 
$
138.7

Work in process
170.3

 
126.7

Finished goods
705.0

 
594.4

Gross inventories before LIFO reserves and valuation adjustments
1,040.8

 
859.8

LIFO reserves and valuation adjustments
(159.5
)
 
(147.6
)
Inventories, net
$
881.3

 
$
712.2

Note 6: Debt
On March 26, 2012, we entered into a new $1.5 billion revolving credit agreement (“credit agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent. The credit agreement is a five-year, revolving credit facility expiring in March 2017. Subject to certain conditions, at our request and with the approval of the Administrative Agent, the aggregate commitments under the credit agreement may be increased by an additional $500 million.
Borrowings under the credit agreement bear interest at a base rate or the London interbank offered rate (“LIBOR”), at our option, plus an applicable margin. Depending on our total leverage ratio, the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 1.125% to 1.750% and (ii) in the case of base rate loans, from 0.125% to 0.750%. The base rate is the highest of (1) the prime rate announced by JPMorgan Chase Bank, N.A., (2) the Federal Funds Rate plus 0.5% or (3) one-month LIBOR plus 1.0%.
In connection with the new credit agreement, we terminated and repaid all outstanding amounts under our previously existing $600.0 million five-year revolving credit agreement and our $350.0 million three-year revolving credit agreement.
Long-term debt consisted of the following:
 
(In millions)
June 30,
2012
 
December 31,
2011
Revolving credit facilities
$
375.0

 
$
100.0

Commercial paper (1)
732.3

 
480.1

Term loan
26.7

 
29.2

Property financing
7.3

 
7.3

Total long-term debt
1,141.3

 
616.6

Less: current portion
(27.2
)
 
(580.6
)
Long-term debt, less current portion
$
1,114.1

 
$
36.0

 _______________________  
(1)
At December 31, 2011, debt outstanding from our $600.0 million five-year revolving credit facility and outstanding commercial paper were classified as short-term due to the credit facility’s maturity in December 2012. At June 30, 2012, committed credit available under our new credit agreement provided the ability to refinance our commercial paper obligations on a long-term basis. As we have both the ability and intent to refinance these obligations on a long-term basis, our commercial paper borrowings were classified as long-term in the condensed consolidated balance sheet at June 30, 2012. Our commercial paper borrowings as of June 30, 2012, had a weighted average interest rate of 0.40%.
Note 7: Income Taxes

10


Our income tax provisions for the six months ended June 30, 2012 and 2011, reflected effective tax rates of 26.3% and 26.5%, respectively. Excluding a benefit related to recognizing a retroactive tax holiday in Singapore in the first quarter of 2011, our effective rate for income taxes for the six months ended June 30, 2011 was 29.5%. The decrease from this adjusted rate to the effective tax rate for the six months ended June 30, 2012 was primarily due to changes in our international structure during 2012, partially offset by higher charges related to unrecognized tax benefits. Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to lower tax rates than in the United States. In certain jurisdictions, primarily Singapore and Malaysia, our tax rate is significantly less than the relevant statutory rate due to tax holidays.
Note 8: Warranty Obligations
Warranty cost and accrual information was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Balance at beginning of period
$
20.1

 
$
21.1

 
$
25.7

 
$
22.4

Expense for new warranties
7.8

 
13.6

 
15.6

 
17.1

Adjustments to existing accruals
7.5

 
0.7

 
5.9

 
1.4

Claims paid
(11.6
)
 
(7.1
)
 
(23.4
)
 
(12.6
)
Balance at end of period
$
23.8

 
$
28.3

 
$
23.8

 
$
28.3

Note 9: Pension and Other Postretirement Benefits
The components of net periodic benefit cost were as follows:
 
 
Pension Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
(In millions)
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
 
U.S.    
 
Int’l    
Service cost
$
3.6

 
$
9.2

 
$
2.8

 
$
7.7

 
$
7.3

 
$
18.6

 
$
6.0

 
$
14.9

Interest cost
6.9

 
5.3

 
6.6

 
5.2

 
13.4

 
10.7

 
13.1

 
10.2

Expected return on plan assets
(10.0
)
 
(6.5
)
 
(9.7
)
 
(6.3
)
 
(19.9
)
 
(13.1
)
 
(19.0
)
 
(12.4
)
Amortization of transition asset

 

 

 
(0.2
)
 

 
(0.1
)
 

 
(0.3
)
Amortization of actuarial losses, net
6.4

 
2.0

 
3.5

 
1.3

 
11.8

 
4.0

 
6.5

 
2.5

Net periodic benefit cost
$
6.9

 
$
10.0

 
$
3.2

 
$
7.7

 
$
12.6

 
$
20.1

 
$
6.6

 
$
14.9

 
 
Other Postretirement Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Service cost
$
0.1

 
$

 
$
0.1

 
$
0.1

Interest cost
0.1

 
0.1

 
0.2

 
0.2

Amortization of prior service benefit
(0.3
)
 
(0.3
)
 
(0.6
)
 
(0.6
)
Amortization of actuarial gains, net
(0.1
)
 

 
(0.1
)
 
(0.1
)
Net periodic benefit cost
$
(0.2
)
 
$
(0.2
)
 
$
(0.4
)
 
$
(0.4
)

During the first six months of 2012, we contributed $16.6 million to our domestic benefit plans and $12.5 million to our international benefit plans.

Note 10: Stock-Based Compensation
We have granted awards primarily in the form of nonvested stock units (also known as restricted stock in the plan document)

11


under our Amended and Restated Incentive Compensation and Stock Plan (the “Plan”). We recognize compensation expense for awards under the Plan and the corresponding income tax benefits related to the expense. Stock-based compensation expense for nonvested stock awards was $9.5 million and $6.7 million for the three months ended June 30, 2012 and 2011, respectively, and $16.8 million and $13.7 million for the six months ended June 30, 2012 and 2011, respectively.
In the six months ended June 30, 2012, we granted the following restricted stock awards to employees:
 
(Number of restricted stock shares in thousands)
Shares
 
Weighted-
Average Grant
Date Fair Value
Time-based
368

  
 
Performance-based
129

 
Market-based
65

 
Total Granted
562

  
$
48.67

_______________________  
*
Assumes target payout
For current-year performance-based awards, actual payouts may vary from zero to 259 thousand shares and will be dependent upon our performance relative to a peer group of companies with respect to earnings growth and return on investment for the year ending December 31, 2012. Compensation cost is measured based on the current expected outcome of the performance conditions and may be adjusted until the performance period ends.
For current-year market-based awards, actual payouts may vary from zero to 129 thousand shares, contingent upon our performance relative to the same peer group of companies with respect to total shareholder return (“TSR”). Beginning in 2012, the payout for the TSR metric will continue to be determined based on our performance relative to the peer group, but a payout is possible regardless of whether our TSR for the year is positive or negative. If our TSR for the year is not positive, the payout with respect to TSR is limited to the target previously established by the Compensation Committee of the Board of Directors. Compensation cost for these awards is calculated using the grant date fair market value, as estimated using a Monte Carlo simulation, and is not subject to change based on future events.
Note 11: Stockholders’ Equity
There were no cash dividends declared during the three and six months ended June 30, 2012 and 2011.
As of August 2007, 30 million shares were authorized by our Board of Directors to repurchase outstanding shares of common stock through open market purchases. As a result of the two-for-one stock split on March 31, 2011, the authorization was increased to 60 million shares. In December 2011, the Board of Directors authorized an extension of our repurchase program, adding 15 million shares, for a total of 75 million shares.
Repurchase of shares of common stock was as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 June 30,
 
 June 30,
(In millions, except share data)
2012
 
2011
 
2012
 
2011
Shares of common stock repurchased
511,000

 
149,046

 
521,000

 
176,046

Value of common stock repurchased
$
20.5

 
$
6.1

 
$
21.0

 
$
7.2

As of June 30, 2012, approximately 16.8 million shares remained available for purchase under the current program which may be executed from time to time in the open market. We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under our stock-based compensation plan. Treasury shares are accounted for using the cost method.
During the six months ended June 30, 2012, 1.3 million shares were issued from treasury stock in connection with our stock-based compensation plan. During the year ended December 31, 2011, 975 thousand shares were issued from treasury stock.
Accumulated other comprehensive loss consisted of the following:
 

12


(In millions)
Foreign Currency
Translation
 
Hedging
 
Defined Pension and  Other
Post-Retirement Benefits
 
Accumulated Other
Comprehensive Loss
December 31, 2010
$
(51.7
)
 
$
6.1

 
$
(206.5
)
 
$
(252.1
)
Other comprehensive income (loss)
(51.1
)
 
(22.8
)
 
(117.8
)
 
(191.7
)
December 31, 2011
(102.8
)
 
$
(16.7
)
 
$
(324.3
)
 
$
(443.8
)
Other comprehensive income (loss)
(33.7
)
 
5.6

 
9.8

 
(18.3
)
June 30, 2012
$
(136.5
)
 
$
(11.1
)
 
$
(314.5
)
 
$
(462.1
)
Note 12: Derivative Financial Instruments
We hold derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and interest rates. We hold the following types of derivative instruments:
Interest rate swap instruments—The purpose of these instruments is to hedge the uncertainty of anticipated interest expense from variable-rate debt obligations and achieve a fixed net interest rate. At June 30, 2012, we held three instruments that, in the aggregate, hedged the interest expense on $100.0 million of variable-rate debt.
Foreign exchange rate forward contracts—The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies. At June 30, 2012, we held the following material positions:
 
Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Australian dollar
10.4

 
10.7

Brazilian real
51.8

 
24.8

British pound
4.1

 
6.4

Chinese renminbi
153.0

 
24.1

Euro
57.5

 
72.8

Kuwaiti dinar
(6.3
)
 
(22.4
)
Norwegian krone
2,667.0

 
448.4

Polish zloty
40.9

 
12.2

Singapore dollar
140.3

 
110.7

U.S. dollar
(695.5
)
 
(695.5
)
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, 2012, our portfolio of these instruments included the following material positions:
 
Notional Amount
Bought (Sold)
(In millions)
 
 
USD Equivalent
Australian dollar
(37.0
)
 
(37.8
)
British pound
30.9

 
48.4

Euro
25.4

 
32.1

Norwegian krone
(577.2
)
 
(97.0
)
U.S. dollar
44.2

 
44.2

The purpose of our foreign currency hedging activities is to manage the volatility associated with anticipated foreign currency purchases and sales created in the normal course of business. We primarily utilize forward exchange contracts with maturities of less than three years.
Our policy is to hold derivatives only for the purpose of hedging risks and not for trading purposes where the objective is solely to generate profit. Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative

13


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.
The following table of all outstanding derivative instruments is based on estimated fair value amounts that have been determined using available market information and commonly accepted valuation methodologies. Refer to Note 13 for further disclosures related to the fair value measurement process. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts settle or mature.
 
June 30, 2012
 
December 31, 2011
(in millions)
Assets
 
Liabilities
 
Assets
 
Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
$
15.3

 
$
18.3

 
$
60.8

 
$
58.3

Long-term – Derivative financial instruments
20.8

 
28.7

 
26.4

 
28.7

Interest rate contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments

 
0.8

 

 
1.6

Long-term – Derivative financial instruments

 

 

 

Total derivatives designated as hedging instruments
36.1

 
47.8

 
87.2

 
88.6

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
Current – Derivative financial instruments
29.7

 
17.9

 
9.1

 
6.7

Long-term – Derivative financial instruments
4.2

 
3.8

 
18.2

 
8.3

Total derivatives not designated as hedging instruments
33.9

 
21.7

 
27.3

 
15.0

Total derivatives
$
70.0

 
$
69.5

 
$
114.5

 
$
103.6

We recognized gains of $1.2 million and $0.8 million on cash flow hedges for the three months ended June 30, 2012 and 2011, respectively, and gains of $1.4 million and $0.9 million for the six months ended June 30, 2012 and 2011, respectively, due to hedge ineffectiveness as it was probable that the original forecasted transaction would not occur. Cash flow hedges of forecasted transactions, net of tax, resulted in accumulated other comprehensive losses of $11.1 million and $16.7 million at June 30, 2012, and December 31, 2011, respectively. We expect to transfer an approximate $9.1 million gain from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the end of 2015.
The following tables present the impact of derivative instruments in cash flow hedging relationships and their location within the accompanying condensed consolidated statements of income.

14



 
Gain (Loss) Recognized in OCI (Effective Portion)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Interest rate contracts
$
0.5

 
$
(0.1
)
 
$
0.8

 
$
0.3

Foreign exchange contracts
(12.8
)
 
11.8

 
7.7

 
40.0

Total
$
(12.3
)
 
$
11.7

 
$
8.5

 
$
40.3

Location of Gain (Loss) Reclassified from Accumulated OCI into Income
Gain (Loss) Reclassified from Accumulated
OCI into Income (Effective Portion)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
(1.6
)
 
$
8.0

 
$
2.8

 
$
12.4

Cost of sales
(1.3
)
 
(0.6
)
 
(3.9
)
 
(2.7
)
Selling, general and administrative expense
(0.1
)
 
0.1

 
(0.1
)
 
0.2

Total
$
(3.0
)
 
$
7.5

 
$
(1.2
)
 
$
9.9

Location of Gain (Loss) Recognized in Income
Gain (Loss) Recognized in Income (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
4.8

 
$
6.2

 
$
7.8

 
$
8.3

Cost of sales
(5.2
)
 
(4.1
)
 
(8.1
)
 
(7.5
)
Total
$
(0.4
)
 
$
2.1

 
$
(0.3
)
 
$
0.8

Instruments that are not designated as hedging instruments are executed to hedge the effect of exposures in the condensed consolidated balance sheets, and occasionally, forward foreign currency contracts or currency options are executed to hedge exposures which do not meet all of the criteria to qualify for hedge accounting.
Location of Gain (Loss) Recognized in Income
Gain (Loss) Recognized in Income on Derivatives
(Instruments Not Designated
as Hedging Instruments)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Foreign exchange contracts:
 
 
 
 
 
 
 
Revenue
$
0.5

 
$
7.7

 
$
1.6

 
$
10.5

Cost of sales
0.2

 
(0.6
)
 
(0.3
)
 
(0.9
)
Other income (expense), net
(4.2
)
 
3.4

 
1.1

 
9.7

Total
$
(3.5
)
 
$
10.5

 
$
2.4

 
$
19.3

Note 13: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis were as follows:
 

15


 
June 30, 2012
 
December 31, 2011
(In millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
$
15.8

 
$
15.8

 
$

 
$

 
$
19.0

 
$
19.0

 
$

 
$

Fixed income
8.9

 
8.9

 

 

 
8.1

 
8.1

 

 

Stable value fund
3.3

 

 
3.3

 

 
3.3

 

 
3.3

 

Other
2.4

 
2.4

 

 

 
2.4

 
2.4

 

 

Derivative financial instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
70.0

 

 
70.0

 

 
114.5

 

 
114.5

 

Total assets
$
100.4

 
$
27.1

 
$
73.3

 
$

 
$
147.3

 
$
29.5

 
$
117.8

 
$

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
0.8

 
$

 
$
0.8

 
$

 
$
1.6

 
$

 
$
1.6

 
$

Foreign exchange contracts
68.7

 

 
68.7

 

 
102.0

 

 
102.0

 

Contingent earn-out consideration
72.1

 

 

 
72.1

 
57.5

 

 

 
57.5

Total liabilities
$
141.6

 
$

 
$
69.5

 
$
72.1

 
$
161.1

 
$

 
$
103.6

 
$
57.5

Investments—The fair value measurement of our equity securities, fixed income fund and other investment assets is based on quoted prices that we have the ability to access in public markets. Our stable value fund is valued at the net asset value of the shares held at the end of the quarter, which is based on the fair value of the underlying investments using information reported by the investment advisor at quarter-end.
Derivative financial instruments—We use the income approach as the valuation technique to measure the fair value of foreign currency derivative instruments on a recurring basis. This approach calculates the present value of the future cash flow by measuring the change from the derivative contract rate and the published market indicative currency rate, multiplied by the contract notional values. Credit risk is then incorporated by reducing the derivative’s fair value in asset positions by the result of multiplying the present value of the portfolio by the counterparty’s published credit spread. Portfolios in a liability position are adjusted by the same calculation; however, a spread representing our credit spread is used. Our credit spread, and the credit spread of other counterparties not publicly available are approximated by using the spread of similar companies in the same industry, of similar size and with the same credit rating.
At the present time, we have no credit-risk-related contingent features in our agreements with the financial institutions that would require us to post collateral for derivative positions in a liability position.
See Note 12 for additional disclosure related to derivative financial instruments.
Contingent earn-out consideration —We determined the fair value of the contingent earn-out consideration using a discounted cash flow model. The key assumptions used in applying the income approach are the expected profitability and debt, net of cash, of the acquired company during the earn-out period and the discount rate which approximates our debt credit rating. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the contingent earn-out consideration are recorded as cost of service or other revenue in our condensed consolidated statements of income.
Changes in the fair value of our Level 3 contingent earn-out consideration obligation were as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Balance at beginning of period
$
60.9

 
$
62.5

 
$
57.5

 
$
59.0

Remeasurement adjustment
13.7

 
1.1

 
14.3

 
1.5

Foreign currency translation adjustment
(2.5
)
 
1.7

 
0.3

 
4.8

Balance at end of period
$
72.1

 
$
65.3

 
$
72.1

 
$
65.3

Other fair value disclosures—The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, short-

16


term debt, commercial paper and debt associated with our term loan and revolving credit facility, as well as amounts included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair value because of their short-term maturities.
Credit risk—By their nature, financial instruments involve risk including credit risk for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses on trade receivables are established based on collectability assessments. We mitigate credit risk on derivative contracts by executing contracts only with counterparties that consent to a master netting agreement, which permits the net settlement of the gross derivative assets against the gross derivative liabilities.
Note 14: Commitments and Contingent Liabilities
In the ordinary course of business with customers, vendors and others, we issue standby letters of credit, performance bonds, surety bonds and other guarantees. The majority of these financial instruments represent guarantees of our future performance. Additionally, we were the named guarantor on certain letters of credit and performance bonds issued by our former subsidiary, John Bean Technologies Corporation (“JBT”). Pursuant to the terms of the Separation and Distribution Agreement, dated July 31, 2008, between FMC and JBT (the “JBT Separation and Distribution Agreement”), we are fully indemnified by JBT with respect to certain residual obligations. Management does not expect any of these financial instruments to result in losses that, if incurred, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Contingent liabilities associated with legal matters— We are involved in various pending or potential legal actions in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions, because of the inherent uncertainty of litigation. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
In addition, under the Separation and Distribution Agreement, dated May 31, 2001, between FMC Corporation and FMC, FMC Corporation is required to indemnify us for certain claims made prior to our spin-off from FMC Corporation, as well as for other claims related to discontinued operations. Under the JBT Separation and Distribution Agreement, JBT is required to indemnify us for certain claims made prior to the spin-off of our Airport and FoodTech businesses, as well as for certain other claims related to JBT products or business operations. We expect that FMC Corporation will bear responsibility for a majority of these claims initiated subsequent to the spin-off, and that JBT will bear most, if not substantially all, of any responsibility for certain other claims initiated subsequent to the spin-off.
Contingent liabilities associated with liquidated damages—Some of our contracts contain penalty provisions that require us to pay liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a conforming claim under these provisions. These contracts define the conditions under which our customers may make claims against us for liquidated damages. Based upon the evaluation of our performance and other legal analysis, management believes that we have appropriately accrued for probable liquidated damages at June 30, 2012, and December 31, 2011, and that the ultimate resolution of such matters will not materially affect our consolidated financial position, results of operations or cash flows.
Note 15: Business Segment Information
Segment revenue and segment operating profit were as follows:
 

17


 
Three Months Ended
 
Six Months Ended
 
 June 30,
 
 June 30,
(In millions)
2012
 
2011
 
2012
 
2011
Segment revenue
 
 
 
 
 
 
 
Subsea Technologies
$
945.8

 
$
801.0

 
$
1,840.7

 
$
1,490.5

Surface Technologies
413.8

 
310.3

 
791.6

 
601.6

Energy Infrastructure
139.4

 
120.2

 
276.4

 
223.2

Other revenue (1) and intercompany eliminations
(4.1
)
 
(2.1
)
 
(17.2
)
 
(4.0
)
Total revenue
$
1,494.9

 
$
1,229.4

 
$
2,891.5

 
$
2,311.3

Income before income taxes:
 
 
 
 
 
 
 
Segment operating profit:
 
 
 
 
 
 
 
Subsea Technologies
$
109.7

 
$
84.0

 
$
184.8

 
$
154.0

Surface Technologies
84.2

 
56.5

 
162.2

 
107.9

Energy Infrastructure
9.1

 
10.7

 
18.4

 
15.2

Total segment operating profit
203.0

 
151.2

 
365.4

 
277.1

Corporate items:
 
 
 
 
 
 
 
Corporate expense (2)
(10.4
)
 
(10.6
)
 
(18.9
)
 
(19.0
)
Other revenue (1) and other expense, net (3) 
(29.7
)
 
(2.0
)
 
(50.6
)
 
(10.2
)
Net interest expense
(6.4
)
 
(2.1
)
 
(9.9
)
 
(3.6
)
Total corporate items
(46.5
)
 
(14.7
)
 
(79.4
)
 
(32.8
)
Income before income taxes attributable to FMC Technologies, Inc.
$
156.5

 
$
136.5

 
$
286.0

 
$
244.3

 _______________________  
(1)
Other revenue comprises certain unrealized gains and losses on derivative instruments related to unexecuted sales contracts.
(2)
Corporate expense primarily includes corporate staff expenses.
(3)
Other expense, net, generally includes stock-based compensation, other employee benefits, LIFO adjustments, certain foreign exchange gains and losses and the impact of unusual or strategic transactions not representative of segment operations.
Segment operating capital employed and assets were as follows:
 
(In millions)
June 30, 2012
 
December 31, 2011
Segment operating capital employed (1):
 
 
 
Subsea Technologies
$
1,744.1

 
$
1,218.2

Surface Technologies
811.3

 
620.5

Energy Infrastructure
476.3

 
365.5

Total segment operating capital employed
3,031.7

 
2,204.2

Segment liabilities included in total segment operating capital employed (2)
1,544.8

 
1,521.1

Corporate (3)
437.0

 
545.7

Total assets
$
5,013.5

 
$
4,271.0

Segment assets:
 
 
 
Subsea Technologies
$
2,911.4

 
$
2,377.7

Surface Technologies
1,086.3

 
879.1

Energy Infrastructure
600.5

 
488.0

Intercompany eliminations
(21.7
)
 
(19.5
)
Total segment assets
4,576.5

 
3,725.3

Corporate (3)
437.0

 
545.7

Total assets
$
5,013.5

 
$
4,271.0


18


  _______________________  
(1)
FMC’s management views segment operating capital employed, which consists of assets, net of its liabilities, as the primary measure of segment capital. Segment operating capital employed excludes debt, pension liabilities, income taxes and LIFO inventory reserves.
(2)
Segment liabilities included in total segment operating capital employed consist of trade and other accounts payable, advance payments and progress billings, accrued payroll and other liabilities.
(3)
Corporate includes cash, LIFO inventory reserves, deferred income tax balances, property, plant and equipment not associated with a specific segment, pension assets and the fair value of derivative financial instruments.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.
All of our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those contemplated in the forward-looking statements, include those set forth in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as well as the following:
Demand for our systems and services, which is affected by changes in the price of, and demand for, crude oil and natural gas in domestic and international markets;
Potential liabilities arising out of the installation or use of our systems;
Continuing consolidation within our customers’ industries;
U.S. and international laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations;
Disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we conduct business;
Fluctuations in currency markets worldwide;
Cost overruns that may affect profit realized on our fixed price contracts;
The cumulative loss of major contracts or alliances;
Our dependence on the continuing services of key managers and employees and our ability to attract, retain and motivate additional highly-skilled employees for the operation and expansion of our business;
Rising costs and availability of raw materials;
A failure of our information technology infrastructure or any significant breach of security;
Our ability to develop and implement new technologies and services, as well as our ability to protect and maintain critical intellectual property assets;
The outcome of uninsured claims and litigation against us;
Disruptions in the timely delivery of our backlog and its effect on our future sales, profitability and our relationships with our customers; and
Disruptions in the financial and credit markets and its impact on our customers’ activity levels, spending for our products and services and ability to pay amounts owed us.
We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof.

19


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.

CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
Three Months Ended June 30,
 
Change
(In millions, except %)
2012
 
2011
 
$
 
%
Revenue
$
1,494.9

 
$
1,229.4

 
265.5

 
21.6
Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
1,180.3

 
953.9

 
226.4

 
23.7
Selling, general and administrative expense
140.2

 
116.5

 
23.7

 
20.3
Research and development expense
26.3

 
21.6

 
4.7

 
21.8
Total costs and expenses
1,346.8

 
1,092.0

 
254.8

 
23.3
Other income (expense), net
16.1

 
2.5

 
13.6

 
*
Net interest expense
(6.4
)
 
(2.1
)
 
(4.3
)
 
204.8
Income before income taxes
157.8

 
137.8

 
20.0

 
14.5
Provision for income taxes
44.6

 
42.2

 
2.4

 
5.7
Net income
113.2

 
95.6

 
17.6

 
18.4
Net income attributable to noncontrolling interests
(1.3
)
 
(1.3
)
 

 
Net income attributable to FMC Technologies, Inc
$
111.9

 
$
94.3

 
17.6

 
18.7
_______________________
*
Not meaningful
Revenue increased by $265.5 million in the second quarter of 2012 compared to the prior-year quarter and reflected revenue growth in all business segments. Revenue in the second quarter of 2012 included an $85.4 million unfavorable impact of foreign currency translation, compared to the prior-year quarter. Subsea systems and services had strong order activity during the second quarter of 2012. The impact of the higher backlog coming into the second quarter of 2012 led to increased Subsea Technologies sales year-over-year. Additionally, Surface Technologies posted higher revenue during the second quarter of 2012 from higher backlog entering the quarter. The higher backlog was due to increased demand for Weco®/Chiksan® equipment and well service pumps related to the ongoing strength of the North American oil and gas shale markets. Surface wellhead also posted higher revenue primarily in the North American and Asia Pacific markets.
Gross profit (revenue less cost of sales) decreased as a percentage of sales to 21.0% in the second quarter of 2012, from 22.4% in the prior-year quarter. The margin decline was predominantly due to the remeasurement of the MPM contingent earn-out consideration, conversion of lower margin subsea backlog, inefficiencies of integrating a rapidly increasing workforce and higher project execution costs, partially offset by margin improvements in Surface Technologies due to higher margin surface wellhead volumes. Gross profit for the second quarter of 2012, included a $16.9 million unfavorable impact of foreign currency translation.
Selling, general and administrative expense increased by $23.7 million year-over-year, driven by increased bid activity and additional staffing to support expanding operations.
Research and development expense increased by $4.7 million year-over-year as we continued to advance new technologies pertaining primarily to subsea processing capabilities.
Other income (expense), net, reflected $2.3 million in losses and $2.5 million in gains during the three months ended June 30, 2012 and 2011, respectively, from the remeasurement of foreign currency exposures. We also recognized a $20.0 million gain related to the fair valuation of our previously held equity interest in Schilling during the three months ended June 30, 2012.
Our income tax provisions for the second quarter of 2012 and 2011, reflected effective tax rates of 28.5% and 30.9%, respectively. The decrease in the effective tax rate year-over-year was primarily due to changes in our international structure during 2012 and a favorable change in the forecasted country mix of earnings, partially offset by higher charges related to unrecognized tax benefits. Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign

20


earnings are generally subject to lower tax rates than in the United States. In certain jurisdictions, primarily Singapore and Malaysia, our tax rate is significantly less than the relevant statutory rate due to tax holidays. The cumulative balance of foreign earnings for which no provision for U.S. income taxes has been recorded was $1,133 million at June 30, 2012. The Company would need to accrue and pay U.S. tax on such undistributed earnings if these funds were repatriated. The Company has no current intention to repatriate these earnings.
Business Outlook
Overall, management remains optimistic about business activity for the second half of 2012 and entering 2013. Although, average crude oil prices decreased in the second quarter of 2012 as compared to the first quarter of 2012, crude oil prices have somewhat recovered. Expectations of future energy demand are closely tied to economic activity in major world economies. Despite expectations of slow global economic growth, total world consumption of crude oil and liquid fuels is expected to slightly increase in 2013. As a result, we expect crude oil prices to remain at a level that supports strong exploration and production activity, especially in subsea markets, through the remainder of 2012 and entering 2013.
Our strong subsea project backlog as of June 30, 2012, combined with continued strong demand for subsea services related to exploration and production activity, supports our expectations of higher subsea revenue and increasing margins during the second half of 2012. Although our margins over the last few quarters were negatively impacted due, in part, to our rapidly increasing workforce, we believe the workforce additions are preparing us for further subsea market growth. In addition, we believe market demand will remain strong for our subsea technologies systems and service offerings worldwide. Regarding our surface technologies portfolio, North American shale activity remained strong during the first half of 2012; however, we are experiencing a slowdown in capital orders as a result of hydraulic fracturing fleets aligning with market demand. This is likely to have an impact on segment revenue and profits in the second half of 2012.

OPERATING RESULTS OF BUSINESS SEGMENTS
THREE MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
Three Months Ended June 30,
 
Change
(In millions, except %)
2012
 
2011
 
$
 
%
Revenue
 
 
 
 
 
 
 
Subsea Technologies
$
945.8

 
$
801.0

 
144.8

 
18.1
 %
Surface Technologies
413.8

 
310.3

 
103.5

 
33.4
 %
Energy Infrastructure
139.4

 
120.2

 
19.2

 
16.0
 %
Other revenue and intercompany eliminations
(4.1
)
 
(2.1
)
 
(2.0
)
 
*

Total revenue
$
1,494.9

 
$
1,229.4

 
265.5

 
21.6
 %
Segment Operating Profit
 
 
 
 
 
 
 
Subsea Technologies
$
109.7

 
$
84.0

 
25.7

 
30.6
 %
Surface Technologies
84.2

 
56.5

 
27.7

 
49.0
 %
Energy Infrastructure
9.1

 
10.7

 
(1.6
)
 
(15.0
)%
Total segment operating profit
203.0

 
151.2

 
51.8

 
34.3
 %
Corporate Items
 
 
 
 
 
 
 
Corporate expense
(10.4
)
 
(10.6
)
 
0.2

 
(1.9
)%
Other revenue and other expense, net
(29.7
)
 
(2.0
)
 
(27.7
)
 
1,385.0
 %
Net interest expense
(6.4
)
 
(2.1
)
 
(4.3