TECHNIPFMC PLC EXECUTIVE OVERVIEW
We are a global leader in energy projects, technologies, systems and services. We have manufacturing operations worldwide, strategically located to facilitate efficient delivery of these products, technologies, systems and services to our customers. We report our results of operations in two segments:Subsea and Surface Technologies. Management's determination of our reporting segments was made on the basis of our strategic priorities and corresponds to the manner in which our Chief Executive Officer reviews and evaluates operating performance to make decisions about resource allocations to each segment.
A summarized description of our products and services and annual financial data for each segment can be found in Note 7 to our consolidated financial statements.
We focus on economic and industry-specific drivers and key risk factors affecting our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources. The results of our segments are primarily driven by changes in capital spending by oil and gas companies, which largely depend upon current and anticipated future crude oil and natural gas demand, production volumes, and consequently, commodity prices. We use crude oil and natural gas prices as an indicator of demand. Additionally, we use both onshore and offshore rig count as an indicator of demand, which consequently influences the level of worldwide production activity and spending decisions. We also focus on key risk factors when determining our overall strategy and making decisions for capital allocation. These factors include risks associated with the global economic outlook, product obsolescence and the competitive environment. We address these risks in our business strategies, which incorporate continuing development of leading edge technologies and cultivating strong customer relationships.
Our
Our Surface Technologies segment is primarily affected by changes in commodity prices and trends in land-based and shallow water oil and natural gas production. We have developed close working relationships with our customers. Our results reflect our ability to build long-term alliances with oil and natural gas companies and to provide solutions for their needs in a timely and cost-effective manner. We believe that by closely working with our customers, we enhance our competitive advantage, improve our operating results and strengthen our market positions. As we evaluate our operating results, we consider business segment performance indicators like segment revenue, operating profit and capital employed, in addition to the level of inbound orders and order backlog. A significant proportion of our revenue is recognized under the percentage of completion method of accounting. Cash receipts from such arrangements typically occur at milestones achieved under stated contract terms. Consequently, the timing of revenue recognition is not always correlated with the timing of customer payments. We aim to structure our contracts to receive advance payments that we typically use to fund engineering efforts and inventory purchases. Working capital (excluding cash) and net debt are therefore key performance indicators of cash flows. In both of our segments, we serve customers from around the world. During 2021, approximately 80 percent of our total sales were recognized outside ofthe United States . We evaluate international markets and pursue opportunities that fit our technological capabilities and strategies.
The Spin-off
OnFebruary 16, 2021 , we completed the separation of the Technip Energies business segment. The transaction was structured as a Spin-off, which occurred by way of a Distribution to our shareholders of 50.1 percent of the outstanding shares in Technip Energies N.V. Each of our shareholders received one ordinary share of Technip Energies N.V. for every five ordinary shares ofTechnipFMC held at5:00 p.m. ,New York City time on the record date,February 17, 2021 . Technip Energies N.V. is now an independent public company and its shares trade under the ticker symbol "TE" on theEuronext Paris stock exchange . During 2021, we have sold approximately 75 percent of the original ownership stake in Technip Energies N.V. as a public company for proceeds of$900.9 million . As ofDecember 31, 2021 , we retained 12.2 percent ownership of Technip Energies' issued and outstanding share capital. InJanuary 2022 , we sold an additional 9.0 million Technip Energies shares for total net proceeds of €118.4 million, 41 --------------------------------------------------------------------------------
or
Beginning in the first quarter of 2021, Technip Energies' historical financial results for periods prior to the Distribution are reflected in our consolidated financial statements as discontinued operations.
BUSINESS OUTLOOK
Overall Outlook - Economic activity continues to expand, driven by strong fiscal stimulus, COVID vaccinations and the re-opening of local economies. Oil prices have been supported by the industry's more disciplined capital spend, particularly for OPEC+ countries which appear to be focused on realizing a price that supports both economic growth and continued energy investment. These conditions could also provide greater price stability over the intermediate term. Long-term demand for energy is forecasted to increase. Our conversations with clients remain constructive, and we see continued improvement in the broader market outlook as investments in new sources of oil and natural gas production increase over the intermediate-term. We are confident that we have entered a multi-year upcycle for energy demand, with continued strength in inbound orders expected for our Company through at least 2025. We believe that oil and gas will remain an important part of the energy mix for an extended period of time. We are also committed to the energy transition, where we believe that offshore will play a meaningful role in the transition to renewable energy resources and reduction of carbon emissions. We are making real progress through our three main pillars of greenhouse gas removal, offshore floating renewables and hydrogen. We have made announcements regarding several strategic agreements and partnerships, some of which have already resulted in real project opportunities. In 2021, we formed a strategic alliance withTalos Energy to develop and deliver technical and commercial solutions for Carbon Capture and Storage projects along theU.S. Gulf Coast . More recently, one of our partnerships in offshore renewables, Magnora Offshore Wind, was successful in the ScotWind Leasing Round Application, where the proposed development project will have a total capacity of approximately 500 megawatts which could power more than 600,000 homes in theUnited Kingdom . We also acquired the remaining shares of Magma Global, a leader in advanced composite technologies with applications for the transportation of green hydrogen and CO2. These strategic actions will expand our capabilities and provide us with new opportunities to address carbon emissions.Subsea - Our Subsea inbound orders in 2021 increased more than 20 percent versus the prior year, reflecting the continued offshore market recovery and expansion. Innovative approaches to subsea projects, like our iEPCI solution, have improved project economics, and many offshore discoveries can be developed economically well below today's crude oil prices. We believe deepwater development is likely to remain a significant part of many of our customers' portfolios. As the subsea industry continues to evolve, we have taken actions to further streamline our organization, achieve standardization and reduce cycle times. The rationalization of our global footprint will also further leverage the benefits of our integrated offering. We aim to continuously align our operations with activity levels, while preserving our core capacity in order to deliver current projects in backlog and fulfill future orders. We have experienced renewed operator confidence in advancing subsea activity as a result of the improved economic outlook, higher oil price and more robust project economics. The continued growth in part reflects the strong front-end activity experienced throughout 2021. With crude above$90 per barrel, the opportunity set of large subsea projects to be sanctioned over the next 24 months has expanded. For the year ahead, our early engagement and client partnerships support our view that subsea tree awards for the total industry are likely to exceed 350 - a level not seen since 2013. ForTechnipFMC , we anticipate subsea inbound order growth of up to 30 percent in 2022, with iEPCI projects, direct project awards - many of which may come from our alliance partners - andSubsea services to approach 75 percent of inbound orders.
Our growth expectations highlight the continued expansion in greenfield
opportunities. We also expect increased tie-back activity, with growth from
these smaller projects to come primarily from the
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Since 2015, offshore economics have materially improved, and subsea cycle-times
have become significantly shorter. This has resulted in new subsea investments
coming much earlier in the cycle and more in parallel with U.S. land markets. We
believe these changes are fundamental and sustainable as a result of new
business models and technology pioneered by our company.
Surface Technologies - Our performance is typically driven by variations in
global drilling activity, creating a dynamic environment. Operating results can
be further impacted by stimulation activity and the completions intensity of
shale applications in North America .
In 2021, our completions-related revenue recovered, driven by the North America
market activity increase and the successful adoption of iComplete - our fully
integrated, digitally enabled pressure control system. iComplete has already
achieved significant market penetration since its introduction in 2020, with
more than 10 different customers utilizing the new integrated system. We also
successfully introduced our E-Mission solution for onshore production
facilities. The digital offering uses proprietary process automation to provide
the industry's only real-time monitoring and control system that both reduces
methane flaring by up to 50 percent and maximizes oil production.
Drilling activity in international markets is less cyclical than North America
as most activities are driven by national oil companies which tend to maintain a
longer term view that exhibits less variability in capital spend. Additionally,
we continue to benefit from our exposure to the North Sea , Asia Pacific and the
Middle East , one of our largest market opportunities in the current decade.
Well count steadily recovered during 2021, which led to increased spending by
national oil companies, particularly in the Middle East . Our inbound orders
outside North America more than doubled when compared to 2020 and included the
segment's largest ever award, a multi-year contract from Abu Dhabi National Oil
Company to provide wellheads, trees and associated services.
International markets represented 65 percent of total segment revenue in 2021. Our unique capabilities in these markets, which demand higher specification equipment, global services and local content, provide a platform for us to extend our leadership positions.
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--------------------------------------------------------------------------------CONSOLIDATED RESULTS OF OPERATIONS
This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Year Ended December 31, Change (In millions, except percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenue$ 6,403.5 $ 6,530.6 $ 6,950.2 $ (127.1) (1.9) %$ (419.6) (6.0) % Costs and expenses Cost of sales 5,579.6 5,835.8 5,892.1 (256.2) (4.4) % (56.3) (1.0) % Selling, general and administrative expense 644.9 724.1 795.7 (79.2) (10.9) % (71.6) (9.0) % Research and development expense 78.4 75.3 149.5 3.1 4.1 % (74.2) (49.6) % Impairment, restructuring and other expense 66.7 3,402.0 2,456.7 (3,335.3) (98.0) % 945.3 38.5 % Merger transaction and integration costs - - 14.2 - - % (14.2) (100.0) % Total costs and expenses 6,369.6 10,037.2 9,308.2 (3,667.6) (36.5) % 729.0 7.8 % Other income (expense), net 46.6 25.1 (181.6) 21.5 85.7 % 206.7 113.8 % Income from equity affiliates 0.6 64.6 59.8 (64.0) (99.1) % 4.8 8.0 % Income from investment in Technip Energies 322.2 - - 322.2 - % - - % Loss on early extinguishment of debt (61.9) - - (61.9) - % - - % Net interest expense (143.3) (81.8) (91.3) (61.5) (75.2) % 9.5 10.4 % Income (loss) before income taxes 198.1 (3,498.7) (2,571.1) 3,696.8 105.7 % (927.6) (36.1) % Provision for income taxes 111.1 19.4 79.0 91.7 472.7 % (59.6) (75.4) % Income (loss) from continuing operations 87.0 (3,518.1) (2,650.1) 3,605.1 102.5 % (868.0) (32.8) % (Income) loss from continuing operations attributable to non-controlling interests 0.8 (34.5) 4.6 35.3 102.3 % (39.1) (850.0) % Income (loss) from continuing operations attributable to TechnipFMC plc 87.8 (3,552.6) (2,645.5) 3,640.4 102.5 % (907.1) (34.3) % Income (loss) from discontinued operations (72.6) 280.2 238.0 (352.8) (125.9) % 42.2 17.7 % Income from discontinued operations attributable to non-controlling interests (1.9) (15.2) (7.7) 13.3 87.5 % (7.5) (97.4) % Net income (loss) attributable to TechnipFMC plc$ 13.3 $ (3,287.6) $ (2,415.2) $ 3,300.9 100.4 %$ (872.4) (36.1) %
Results of Operations in 2021 Compared to 2020
Revenue
Revenue decreased by$127.1 million in 2021 compared to 2020.Subsea revenue decreased year-over-year, primarily driven by a lower starting backlog due to deteriorated market conditions in 2020 which negatively impacted order intake for future delivery. Surface Technologies revenue increased, primarily as a result of the increase in operator activity inMiddle East ,Latin America andNorth America . Gross Profit Gross profit (revenue less cost of sales) as a percentage of sales increased to 12.9% in 2021 compared to 10.6% in 2020.Subsea gross profit increased due to significant prior year cost reduction activities and increased services activities. Surface Technologies gross profit improved year-over-year, primarily due to higher operator activity inMiddle East ,Latin America andNorth America , favorable product mix and lower operating costs. 44 --------------------------------------------------------------------------------
Selling, General and Administrative Expense
Selling, general and administrative expense decreased by$79.2 million year-over-year, primarily as a result of decreased corporate expenses. During the first half of 2020, in response to a deteriorated market environment driven in part by the COVID-19 pandemic, we implemented a series of cost reduction initiatives that resulted in significant reduction in year-over-year selling, general and administrative expense.
Impairment, Restructuring and Other Expenses
We incurred$66.7 million of restructuring, impairment and other expenses in 2021, compared to$3,402.0 million in 2020. Impairment, restructuring and other charges incurred during 2021, included$24.2 million of impairment charges of our operating lease right-of-use assets and$24.9 million impairment of property, plant and equipment. Impairment, restructuring and other charges incurred during 2020, primarily included$3,083.4 million of goodwill impairment,$190.4 million of long-lived assets impairment,$57.8 million of COVID-19 related expenses, and$70.4 million for restructuring and severance expenses. See Note 20 to our consolidated financial statements for further details.
Other Income (Expense), Net
Other income (expense), net, primarily reflects foreign currency gains and losses, including gains and losses associated with the remeasurement of net cash positions, gains and losses on sales of property, plant and equipment and other non-operating gains and losses. The foreign currency impact was a net gain in 2021 and a net loss in 2020, which was offset by gains on sales of property, plant and equipment and other one-off, non-operating type transactions.
Income from Equity Affiliates
For the years endedDecember 31, 2021 and 2020, we recorded an income of$0.6 million and$64.6 million , respectively, from equity method affiliates. Income generated by our equity method investments during 2021 was offset by a$36.7 million impairment of our Magma Global equity method investment recorded in the third quarter of 2021. See Note 13 to our consolidated financial statements for further details.
Income from Investment in Technip Energies
For the year endedDecember 31, 2021 , we recorded$322.2 million as income as a result of our investment in Technip Energies. The amount recognized represents a fair value revaluation gain of our investment, partially offset by purchase price discounts on the sales of shares. See Note 13 to our consolidated financial statements for further details.
Loss on Early Extinguishment of Debt
We recognized$(61.9) million of loss on early extinguishment of debt during the year endedDecember 31, 2021 . The loss on early extinguishment of debt related to premium paid and write-off of bond issuance costs in connection with the repurchase of the 2021 Notes and premium paid in connection with the repayment of our 3.45% Senior Notes due 2022. See Note 17 to our consolidated financial statements for further details.
Net Interest Expense
Net interest expense increased by
Provision for Income Taxes
Our provision for income taxes for 2021 and 2020 reflected effective tax rates of 56.1% and (0.6)%, respectively. The year-over-year increase in the effective tax rate was primarily due to the increased impact of losses in jurisdictions with a full valuation allowance, a change in uncertain tax positions, a change in geographical profit mix year over year offset with the impact of nondeductible goodwill impairments. Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to higher tax rates than those of theUnited Kingdom . 45 --------------------------------------------------------------------------------
Discontinued Operations
Income (loss) from discontinued operations, net of income taxes, was$(72.6) million and$280.2 million income for the year endedDecember 31, 2021 and 2020, respectively. Income (loss) from discontinued operations included results for Technip Energies, which was spun-off onFebruary 16, 2021 . See Note 2 to our consolidated financial statements for further details.
OPERATING RESULTS OF BUSINESS SEGMENTS
Segment operating profit is defined as total segment revenue less segment operating expenses. Certain items have been excluded in computing segment operating profit and are included in corporate items. See Note 7 to our consolidated financial statements for further details.
We report our results of operations inU.S. dollars; however, our earnings are generated in various currencies worldwide. In order to provide worldwide consolidated results, the earnings of subsidiaries functioning in their local currencies are translated intoU.S. dollars based upon the average exchange rate during the period. While theU.S. dollar results reported reflect the actual economics of the period reported upon, the variances from prior periods include the impact of translating earnings at different rates.Subsea Year Ended December 31, Favorable/(Unfavorable) (In millions, except %) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenue$ 5,329.1 $ 5,471.4 $ 5,419.5 $ (142.3) (2.6) %$ 51.9 1.0 % Operating profit (loss)$ 141.4 $ (2,815.5) $ (1,442.7) $ 2,956.9 105.0 %$ (1,372.8)
(95.2) %
Operating profit (loss) as a percentage of revenue 2.7 % (51.5) % (26.6) % 54.2 pts. (24.9) pts.Subsea revenue decreased by$142.3 million , primarily due to a lower starting backlog as market conditions linked to COVID-19 pandemic negatively impacted order intake in the prior year. Despite these challenges, we continued to demonstrate strong execution of our backlog.
Refer to "Non-GAAP Measures" for more information regarding our segment
operating results.
Surface Technologies
Year Ended December 31, Favorable/(Unfavorable)
(In millions, except %) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Revenue $ 1,074.4 $ 1,059.2 $ 1,530.7 $ 15.2 1.4 % $ (471.5) (30.8) %
Operating profit (loss) $ 42.0 $ (429.3) $ (662.7) $ 471.3 109.8 % $ 233.4 35.2 %
Operating profit (loss) as a
percentage of revenue 3.9 % (40.5) % (43.3) % 44.4 pts. 2.8 pts.
Surface Technologies revenue increased by
Surface Technologies operating profit improved significantly versus the prior year, primarily due to the significant reduction in non-cash impairment charges as well as favorable product mix and benefits from prior year cost reduction initiatives.
Refer to "Non-GAAP Measures" for more information regarding our segment operating results.
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Corporate Items
Year Ended December 31, Favorable/(Unfavorable)
(In millions, except %) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Corporate expense $ (118.1) $ (131.9) $ (238.9) $ 13.8 10.5 % $ 107.0 44.8 %
Corporate expenses decreased by
Refer to "Non-GAAP Measures" for more information regarding our segment operating results.
NON-GAAP MEASURES
In addition to financial results determined in accordance withU.S. generally accepted accounting principles ("GAAP"), we provide non-GAAP financial measures (as defined in Item 10 of Regulation S-K of the Securities Exchange Act of 1934, as amended) below:
•Income (loss) from continuing operations attributable to
•Income (loss) before net interest expense and taxes, excluding charges and credits ("Adjusted operating profit") and Adjusted operating profit margin;
•Adjusted diluted earnings (loss) per share from continuing operations
attributable to
•Depreciation and amortization, excluding charges and credits ("Adjusted depreciation and amortization");
•Earnings before net interest expense, income taxes, depreciation and amortization, excluding charges and credits ("Adjusted EBITDA") and Adjusted EBITDA margin;
•Corporate expenses excluding charges and credits;
•Net (debt) cash; and
•Free cash flow (deficit) from continuing operations.
Management believes that the exclusion of charges and credits from these
financial measures enables investors and management to more effectively evaluate
our operations and consolidated results of operations period-over-period, and to
identify operating trends that could otherwise be masked or misleading to both
investors and management by the excluded items. These measures are also used by
management as performance measures in determining certain incentive
compensation. The foregoing non-GAAP financial measures should be considered in
addition to, not as a substitute for or superior to, other measures of financial
performance prepared in accordance with GAAP.
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--------------------------------------------------------------------------------The following is a reconciliation of the most comparable financial measures under GAAP to the non-GAAP financial measures.
Year Ended
December 31, 2021
Earnings before
Income before net interest
Income (loss) Loss attributable Net interest net interest expense, income
from continuing to non-controlling expense and loss expense and taxes,
operations interests from on early income taxes depreciation and
attributable to continuing Provision for extinguishment of (Operating Depreciation and amortization
TechnipFMC plc operations income taxes debt profit) amortization (EBITDA)
TechnipFMC plc, as reported $ 87.8 $ (0.8) $ 111.1 $ 205.2 $ 403.3 $ 385.4 $ 788.7
Charges and (credits):
Impairment and other charges* 85.8 - - - 85.8 - 85.8
Restructuring and other charges** 27.3 - 0.8 - 28.1 - 28.1
Income from investment in Technip
Energies (322.2) - - - (322.2) - (322.2)
Adjusted financial measures $ (121.3) $ (0.8) $ 111.9 $ 205.2 $ 195.0 $ 385.4 $ 580.4
Diluted earnings per share from
continuing operations attributable
to TechnipFMC plc, as reported $ 0.19
Adjusted diluted loss per share
from continuing operations
attributable to TechnipFMC plc $ (0.27) *Includes
** Includes inventory write off of approximately
Year Ended
December 31, 2020
Earnings before
Loss before net interest
Income attributable net interest expense, income
Loss from continuing to non-controlling expense and taxes,
operations interests from income taxes depreciation and
attributable to continuing Provision for Net interest (Operating Depreciation and amortization
TechnipFMC plc operations income taxes expense profit) amortization (EBITDA)
TechnipFMC plc, as reported $ (3,552.6) $ 34.5 $ 19.4 $ 81.8 $ (3,416.9) $ 412.1 $ (3,004.8)
Charges and (credits):
Impairment and other charges 3,260.4 - 13.4 - 3,273.8 - 3,273.8
Restructuring and other charges 65.4 - 5.0 - 70.4 - 70.4
Direct Covid-19 expenses 51.6 - 6.2 - 57.8 - 57.8
Purchase price accounting
adjustment 6.6 - 1.9 - 8.5 (8.5) -
Adjusted financial measures $ (168.6) $ 34.5 $ 45.9 $ 81.8 $ (6.4) $ 403.6 $ 397.2
Diluted loss per share from
continuing operations
attributable to TechnipFMC plc ,
as reported $ (7.92)
Adjusted diluted loss per share
from continuing operations
attributable to TechnipFMC plc $ (0.38)
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Year Ended
December 31, 2021
Surface Corporate Foreign
Subsea Technologies Expense Exchange, net Total
Revenue $ 5,329.1 $ 1,074.4 $ - $ - $ 6,403.5
Operating profit (loss), as reported
(pre-tax) $ 141.4 $ 42.0 Charges and (credits): Impairment and other charges* 80.9 1.9 3.0 - 85.8 Restructuring and other charges** 19.8 5.7 2.6 - 28.1 Income from investment in Technip Energies - - - (322.2) (322.2) Subtotal 100.7 7.6 5.6 (322.2) (208.3) Adjusted Operating profit (loss) 242.1 49.6 (112.5) 15.8 195.0 Depreciation and amortization 317.2 64.8 3.4 - 385.4 Adjusted EBITDA$ 559.3 $ 114.4 $ (109.1) $ 15.8 $ 580.4 Operating profit margin, as reported 2.7 % 3.9 % 6.3 % Adjusted operating profit margin 4.5 % 4.6 % 3.0 % Adjusted EBITDA margin 10.5 % 10.6 % 9.1 %
*Includes
** Includes inventory write off of approximately
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Year Ended
December 31, 2020
Surface Corporate Foreign
Subsea Technologies Expense Exchange, net Total
Revenue $ 5,471.4 $ 1,059.2 $ - $ - $ 6,530.6
Operating loss, as reported (pre-tax) $ (2,815.5) $ (429.3) $ (131.9) $ (40.2) $ (3,416.9)
Charges and (credits):
Impairment and other charges 2,854.5 419.3 - - 3,273.8
Restructuring and other charges 52.9 13.2 4.3 - 70.4
Direct COVID - 19 expenses 50.1 7.7 - - 57.8
Purchase price accounting adjustments 8.5 - - - 8.5
Subtotal 2,966.0 440.2 4.3 - 3,410.5
Adjusted operating profit (loss) 150.5 10.9 (127.6) (40.2) (6.4)
Adjusted depreciation and amortization 316.4 70.1 17.1 - 403.6
Adjusted EBITDA $ 466.9 $ 81.0 $ (110.5) $ (40.2) $ 397.2
Operating profit margin, as reported (51.5) % (40.5) % (52.3) %
Adjusted operating profit margin 2.8 % 1.0 % (0.1) %
Adjusted EBITDA margin 8.5 % 7.6 % 6.1 %
INBOUND ORDERS AND ORDER BACKLOG
Inbound orders - Inbound orders represent the estimated sales value of confirmed customer orders received during the reporting period.
Inbound Orders
Year Ended December 31,
(In millions) 2021 2020
Subsea $ 4,960.9 $ 4,003.0
Surface Technologies 1,793.3 1,061.2
Total inbound orders $ 6,754.2 $ 5,064.2
Order backlog - Order backlog is calculated as the estimated sales value of
unfilled, confirmed customer orders at the reporting date. Backlog reflects the
current expectations for the timing of project execution. The scheduling of some
future work included in our order backlog has been impacted by COVID-19 related
disruptions and remains subject to future adjustment. See Note 6 to our
consolidated financial statements for further details.
Order Backlog
December 31,
(In millions) 2021 2020
Subsea $ 6,533.0 $ 6,876.0
Surface Technologies 1,124.7 413.5
Total order backlog $ 7,657.7 $ 7,289.5
50--------------------------------------------------------------------------------Subsea - Order backlog forSubsea as ofDecember 31, 2021 , decreased by$0.3 billion fromDecember 31, 2020 .Subsea backlog of$6.5 billion as ofDecember 31, 2021 , was composed of various subsea projects, including Total Mozambique LNG;Eni Coral ; Petrobras Buzios, Mero I, Mero II and Marlim; ExxonMobil Payara; Petronas Limbayong; Reliance MJ-1; Equinor Breidablikk; Husky West White Rose; Santos Barossa Phase I and Tullow Jubilee South East. Surface Technologies - Order backlog for Surface Technologies as ofDecember 31, 2021 , increased by$711.2 million compared toDecember 31, 2020 , driven by a ten-year contract awarded in 2021 from ADNOC. Given the short-cycle nature of the business, most orders are quickly converted into sales revenue; longer contracts are typically converted within twelve months. Non-consolidated backlog - As ofDecember 31, 2021 , we had$578.7 million of non-consolidated order backlog in ourSubsea segment. Non-consolidated order backlog reflects the proportional share of backlog related to joint ventures that is not consolidated due to our minority ownership position.
LIQUIDITY AND CAPITAL RESOURCES
Most of our cash is managed centrally and flows through centralized bank accounts controlled and maintained byTechnipFMC globally and in many operating jurisdictions to best meet the liquidity needs of our global operations. Net Debt - Net debt, is a non-GAAP financial measure reflecting cash and cash equivalents, net of debt. Management uses this non-GAAP financial measure to evaluate our capital structure and financial leverage. We believe net debt is a meaningful financial measure that may assist investors in understanding our financial condition and recognizing underlying trends in our capital structure. Net debt should not be considered an alternative to, or more meaningful than, cash and cash equivalents as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. The following table provides a reconciliation of our cash and cash equivalents to net debt, utilizing details of classifications from our consolidated balance sheets. December 31, December 31, (In millions) 2021 2020 Cash and cash equivalents$ 1,327.4 $ 1,269.2 Short-term debt and current portion of long-term debt (277.6) (624.7) Long-term debt, less current portion (1,727.3) (2,835.5) Net debt$ (677.5) $ (2,191.0) Cash Flows Cash flows for the years endedDecember 31, 2021 , 2020 and 2019 were as follows: Year Ended December 31, (In millions) 2021 2020 2019
Cash provided by operating activities from continuing operations
$ 715.0
821.8 (120.8) (378.5)
Cash required by financing activities from continuing operations
(1,447.3) (651.9) (165.6)
Net cash attributable to discontinued operations (3,555.9) (605.6) (169.3)
Effect of exchange rate changes on cash and cash
equivalents (14.0) 223.5 5.9
Decrease in cash and cash equivalents $ (3,480.4) Working capital from continuing operations$ 497.5
Free cash flow (deficit) from continuing operations
Operating cash flows from continuing operations - During 2021 and 2020, we generated$715.0 million and$772.4 million , respectively, in operating cash flows from continuing operations. The decrease of$57.4 million in cash generated by operating activities from continuing operations in 2021 as compared to 2020 was primarily due to timing differences on project milestones and vendor payments. 51 --------------------------------------------------------------------------------
Investing cash flows from continuing operations - Investing activities from
continuing operations provided
Financing cash flows from continuing operations - Financing activities from
continuing operations used
Working capital represents total changes in operating current assets and liabilities.
Free cash flow (deficit) from continuing operations is defined as operating cash
flows from continuing operations less capital expenditures. The following table
reconciles cash provided by operating activities from continuing operations,
which is the most directly comparable financial measure determined in accordance
with GAAP, to free cash flow (non-GAAP measure).
Year Ended December 31,
(In millions) 2021 2020 2019
Cash provided by operating activities from continuing operations
$ 715.0 $ 772.4 $ 357.7 Capital expenditures (191.7) (256.1) (412.7)
Free cash flow (deficit) from continuing operations
516.3$ (55.0) Debt and Liquidity Debt Financing Transactions
During 2021, we executed a series of refinancing transactions in connection with the Spin-off, in order to provide a capital structure with sufficient cash resources to support future operating and investment plans.
Debt Issuance •OnFebruary 16, 2021 , we entered into a credit agreement, which provides for a$1.0 billion three-year senior secured multi-currency revolving credit facility ("Revolving Credit Facility"), including a$450.0 million letter of credit subfacility; and
•On
Repayment of Debt The proceeds from the debt issuance described above along with the available cash on hand were used to fund: •the repayment of all$542.4 million of the outstanding Synthetic Convertible Bonds that matured inJanuary 2021 ;
•the repayment of all
•the termination of the$2.5 billion senior unsecured revolving credit facility we entered into onJanuary 17, 2017 ; the termination of the €500.0 million Euro Facility entered into onMay 19, 2020 ; and the termination of the CCFF Program entered into onMay 19, 2020 . In connection with the termination of these credit facilities, we repaid$830.9 million of the outstanding commercial paper borrowings. Availability of borrowings under the Revolving Credit Facility is reduced by the outstanding letters of credit issued against the facility. As ofDecember 31, 2021 , there were$16.7 million letters of credit outstanding and availability of borrowings under the Revolving Credit Facility was$983.3 million .
During 2021, we completed two tender offers and purchased for cash
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--------------------------------------------------------------------------------2021, we were in compliance with all debt covenants. See Note 17 to our consolidated financial statements for further details.
Credit Ratings - Our credit ratings with Standard and Poor's ("S&P") are BB+ for
our long-term unsecured, guaranteed debt (2021 Notes) and BB for our long-term
unsecured debt (the Private Placement notes). Our credit ratings with Moody's
are Ba1 for our long-term unsecured, guaranteed debt.
Credit Risk Analysis
For the purposes of mitigating the effect of the changes in exchange rates, we hold derivative financial instruments. Valuations of derivative assets and liabilities reflect the fair value of the instruments, including the values associated with counterparty risk. These values must also take into account our credit standing, thus including the valuation of the derivative instrument and the value of the net credit differential between the counterparties to the derivative contract. Adjustments to our derivative assets and liabilities related to credit risk were not material for any period presented. The income approach was used 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 using the spread of similar companies in the same industry, of similar size, and with the same credit rating. See Notes 24 and 25 to our consolidated financial statements for further details.
At this 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.
Contractual and Other Obligations
For a description of our contractual obligations such as debt and leases, see Part II, Item 8 Notes to Consolidated Financial Statements Note 5 (Leases) and Note 17 (Debt). Purchase obligations - In the normal course of business, we enter into agreements with our suppliers to purchase raw materials or services. These agreements include a requirements that our suppliers provide products or services to our specifications and requires us to make a firm purchase commitment to suppliers. As substantially all of these commitments are associated with purchases made to fulfill our customer's orders, the costs associated with these agreements will ultimately be reflected in cost of sales in our consolidated statement of income. The future purchase obligations as ofDecember 31, 2021 are as follows: Payments Due by Period Total Less than 1-3 3-5 After 5 (In millions) payments 1 year years years years Purchase obligations$ 636.4 $ 564.9 $ 71.2 $ 0.3 $ - Financial Position Outlook We are committed to a strong balance sheet and ample liquidity that will enable us to access capital markets throughout the cycle. We believe our liquidity continues to exceed the level required to achieve this goal. Our capital expenditures can be adjusted and managed to match market demand and activity levels. Based on current market conditions and our future expectations, our capital expenditures for 2022 are estimated to be approximately$230.0 million . Projected capital expenditures do not include any contingent capital that may be needed to respond to contract awards. In addition, we intend to conduct an orderly sale of our remaining stake in Technip Energies over time and will use the proceeds from future sales to further reduce our net leverage. We do not intend to remain a long-term shareholder of Technip Energies and anticipate that we will exit our ownership stake in an orderly manner within a year. The carrying amount of the investment as ofDecember 31, 2021 was$317.3 million . InJanuary 2022 , we sold 53 -------------------------------------------------------------------------------- an additional 9.0 million Technip Energies shares and received €118.4 million, or$135.1 million in net proceeds. As ofFebruary 25, 2022 , the value of our investment in Technip Energies was$155.3 million .
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates, judgments and assumptions about future
events that affect the reported amounts of assets and liabilities at the date of
the financial statements, the reported amounts of revenue and expenses during
the periods presented and the related disclosures in the accompanying notes to
the financial statements. Management has reviewed these critical accounting
estimates with the Audit Committee of our Board of Directors. We believe the
following critical accounting estimates used in preparing our financial
statements address all important accounting areas where the nature of the
estimates or assumptions is material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change. See Note 1 to our consolidated financial statements
for further details.
Revenue Recognition
The majority of our revenue is derived from long-term contracts that can span
several years. We account for revenue in accordance with Accounting Standard
Codification ("ASC") Topic 606, Revenues from Contracts with Customers. The unit
of account in ASC Topic 606 is a performance obligation. A contract's
transaction price is allocated to each distinct performance obligation and
recognized as revenue when, or as, the performance obligation is satisfied. Our
performance obligations are satisfied over time as work progresses or at a point
in time.
A significant portion of our total revenue recognized over time relates to our
Subsea segment, primarily for the subsea exploration and production equipment
projects that involve the design, engineering, manufacturing, construction, and
assembly of complex systems. Because of control transferring over time, revenue
is recognized based on the extent of progress towards completion of the
performance obligation. The selection of the method to measure progress towards
completion requires judgment and is based on the nature of the products or
services to be provided. We generally use the cost-to-cost measure of progress
for our contracts because it best depicts the transfer of control to the
customer that occurs as we incur costs on our contracts. Under the cost-to-cost
measure of progress, the extent of progress towards completion is measured based
on the ratio of costs incurred to date to the total estimated costs at
completion of the performance obligation. Revenues, including estimated fees or
profits, are recorded proportionally as costs are incurred.
Due to the nature of the work required to be performed on many of our
performance obligations, the estimation of total revenue and cost at completion
is complex, subject to many variables, and requires significant judgment. It is
common for our long-term contracts to contain award fees, incentive fees, or
other provisions that can either increase or decrease the transaction price. We
include estimated amounts in the transaction price when we believe we have an
enforceable right to the modification, the amount can be estimated reliably, and
its realization is probable. The estimated amounts are included in the
transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved.
We execute contracts with our customers that clearly describe the equipment,
systems, and/or services. After analyzing the drawings and specifications of the
contract requirements, our project engineers estimate total contract costs based
on their experience with similar projects and then adjust these estimates for
specific risks associated with each project, such as technical risks associated
with a new design. Costs associated with specific risks are estimated by
assessing the probability that conditions arising from these specific risks will
affect our total cost to complete the project. After work on a project begins,
assumptions that form the basis for our calculation of total project cost are
examined on a regular basis and our estimates are updated to reflect the most
current information and management's best judgment.
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Adjustments to estimates of contract revenue, total contract cost, or extent of
progress toward completion are often required as work progresses under the
contract and as experience is gained, even though the scope of work required
under the contract may not change. The nature of accounting for long-term
contracts is such that refinements of the estimating process for changing
conditions and new developments are continuous and characteristic of the
process. Consequently, the amount of revenue recognized over time is sensitive
to changes in our estimates of total contract costs. There are many factors,
including, but not limited to, the ability to properly execute the engineering
and design phases consistent with our customers' expectations, the availability
and costs of labor and material resources, productivity, and weather, all of
which can affect the accuracy of our cost estimates, and ultimately, our future
profitability.
Our operating income for the year ended December 31, 2021 was negatively
impacted by approximately $68.4 million , as a result of changes in contract
estimates related to projects that were in progress as of December 31, 2020 .
During the year ended December 31, 2021 , we recognized changes in our estimates
that had an impact on our margin in the amounts of $(72.5) million and $4.1
million in our Subsea and Surface Technologies segments, respectively. The
changes in contract estimates are attributed to worse than expected performance
throughout our execution of our projects.
Accounting for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for uncertain tax positions reflect management's best assessment of estimated future taxes to be paid. We are subject to income taxes in theUnited Kingdom and numerous foreign jurisdictions. Significant judgments and estimates are required in determining our consolidated income tax expense. In determining our current income tax provision, we assess temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. When we maintain deferred tax assets, we must assess the likelihood that these assets will be recovered through adjustments to future taxable income. To the extent we believe recovery is not likely, we establish a valuation allowance. We record a valuation allowance to reduce the asset to a value we believe will be recoverable based on our expectation of future taxable income. We believe the accounting estimate related to the valuation allowance is a critical accounting estimate because it is highly susceptible to change from period to period, requires management to make assumptions about our future income over the lives of the deferred tax assets, and finally, the impact of increasing or decreasing the valuation allowance is potentially material to our results of operations. Forecasting future income requires us to use a significant amount of judgment. In estimating future income, we use our internal operating budgets and long-range planning projections. We develop our budgets and long-range projections based on recent results, trends, economic and industry forecasts influencing our segments' performance, our backlog, planned timing of new product launches and customer sales commitments. Significant changes in our judgment related to the expected realizability of a deferred tax asset results in an adjustment to the associated valuation allowance.
As of
The calculation of our income tax expense involves dealing with uncertainties in the application of complex tax laws and regulations in numerous jurisdictions in which we operate. We recognize tax benefits related to uncertain tax positions when, in our judgment, it is more likely than not that such positions will be sustained on examination, including resolutions of any related appeals or litigation, based on the technical merits. We adjust our liabilities for uncertain tax positions when our judgment changes as a result of new information previously unavailable. Due to the complexity of some of these uncertainties, their ultimate resolution may result in payments that are materially different from our current estimates. Any such differences will be reflected as adjustments to income tax expense in the periods in which they are determined.
Accounting for
The determination of the projected benefit obligations of our pension and other
post-retirement benefit plans are important to the recorded amounts of such
obligations in our consolidated balance sheets and to the amount of pension
expense in our consolidated statements of income. In order to measure the
obligations and expense associated with our pension benefits, management must
make a variety of estimates, including discount rates used to value certain
liabilities, expected return on plan assets set aside to fund these costs, rate
of compensation
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increase, employee turnover rates, retirement rates, mortality rates and other
factors. We update these estimates on an annual basis or more frequently upon
the occurrence of significant events. These accounting estimates bear the risk
of change due to the uncertainty and difficulty in estimating these measures.
Different estimates used by management could result in our recognition of
different amounts of expense over different periods of time.
Due to the specialized and statistical nature of these calculations which
attempt to anticipate future events, we engage third-party specialists to assist
management in evaluating our assumptions as well as appropriately measuring the
costs and obligations associated with these pension benefits. The discount rate
and expected long-term rate of return on plan assets are primarily based on
investment yields available and the historical performance of our plan assets,
respectively. The timing and amount of cash outflows related to the bonds
included in the indices matches estimated defined benefits payments. These
measures are critical accounting estimates because they are subject to
management's judgment and can materially affect net income.
The actuarial assumptions and estimates made by management in determining our
pension benefit obligations may materially differ from actual results as a
result of changing market and economic conditions and changes in plan
participant assumptions. While we believe the assumptions and estimates used are
appropriate, differences in actual experience or changes in plan participant
assumptions may materially affect our financial position or results of
operations.
The following table illustrates the sensitivity of changes in the discount rate and expected long-term return on plan assets on pension expense and the projected benefit obligation:
Increase
(Decrease) in
Increase Projected
(Decrease) in Benefit
2021 Pension Obligation as
Expense Before of December
(In millions, except basis points) Income Taxes 31, 2021
25 basis point decrease in discount rate $ 0.9 $ (2.2)
25 basis point increase in discount rate $ (0.9) $ 2.8 N/A 25 basis point increase in expected long-term rate of return on plan assets$ (2.8) N/A
Determination of Fair Value in Business Combinations
Accounting for the acquisition of a business requires the allocation of the
purchase price to the various assets acquired and liabilities assumed at their
respective fair values. The determination of fair value requires the use of
significant estimates and assumptions, and in making these determinations,
management uses all available information. If necessary, we have up to one year
after the acquisition closing date to finalize these fair value determinations.
For tangible and identifiable intangible assets acquired in a business
combination, the determination of fair value utilizes several valuation
methodologies including discounted cash flows which has assumptions with respect
to the timing and amount of future revenue and expenses associated with an
asset. The assumptions made in performing these valuations include, but are not
limited to, discount rates, future revenues and operating costs, projections of
capital costs, and other assumptions believed to be consistent with those used
by principal market participants. Due to the specialized nature of these
calculations, we engage third-party specialists to assist management in
evaluating our assumptions as well as appropriately measuring the fair value of
assets acquired and liabilities assumed. See Note 3 to our consolidated
financial statements for further details.
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--------------------------------------------------------------------------------Impairment of Long-Lived and Intangible Assets
Long-lived assets, including vessels, property, plant and equipment, identifiable intangible assets being amortized and capitalized software costs are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. Because there usually is a lack of quoted market prices for long-lived assets, fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants, or based on a multiple of operating cash flows validated with historical market transactions of similar assets where possible. The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments of revenue, forecasted utilization, operating costs and capital decisions and all available information at the date of review. If future market conditions deteriorate beyond our current expectations and assumptions, impairments of long-lived assets may be identified if we conclude that the carrying amounts are no longer recoverable.
Impairment of
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations.Goodwill is not subject to amortization but is tested for impairment at a reporting unit level on an annual basis, or more frequently if impairment indicators arise. We have establishedOctober 31 as the date of our annual test for impairment of goodwill. We identify a potential impairment by comparing the fair value of the applicable reporting unit to its net book value, including goodwill. If the net book value exceeds the fair value of the reporting unit, we measure the impairment by comparing the carrying value of the reporting unit to its fair value. Reporting units with goodwill are tested for impairment using a quantitative impairment test. When using the quantitative impairment test, determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We estimate the fair value of our reporting units using a discounted future cash flow model. The majority of the estimates and assumptions used in a discounted future cash flow model involve unobservable inputs reflecting management's own assumptions about the assumptions market participants would use in estimating the fair value of a business. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates and future economic and market conditions. Our estimates are based upon assumptions believed to be reasonable, but they are inherently uncertain and unpredictable and do not reflect unanticipated events and circumstances that may occur. The income approach estimates fair value by discounting each reporting unit's estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and the risk profile of the reporting unit. To arrive at our future cash flows, we use estimates of economic and market assumptions, including growth rates in revenues, costs, estimates of future expected changes in operating margins, tax rates and cash expenditures. Future revenues are also adjusted to match changes in our business strategy. We believe this approach is an appropriate valuation method. Under the market multiple approach, we determine the estimated fair value of each of our reporting units by applying transaction multiples to each reporting unit's projected EBITDA and then averaging that estimate with similar historical calculations using either a one, two or three year average. Our reporting unit valuations were determined primarily by utilizing the income approach, with a lesser weighting attributed the market multiple approach.
As of
See Notes 16 and 20 to our consolidated financial statements for further details.
OTHER MATTERS
OnMarch 28, 2016 , FMC Technologies received an inquiry from theU.S. Department of Justice ("DOJ") related to the DOJ's investigation of whether certain services Unaoil S.A.M. provided to its clients, including FMC Technologies, violated the FCPA. OnMarch 29, 2016 ,Technip S.A. also received an inquiry from the DOJ related to 57 --------------------------------------------------------------------------------
Unaoil. We cooperated with the DOJ's investigations and, with regard to FMC
Technologies, a related investigation by the
In late 2016,Technip S.A. was contacted by the DOJ regarding its investigation of offshore platform projects awarded between 2003 and 2007, performed inBrazil by a joint venture company in whichTechnip S.A. was a minority participant, and we have also raised with DOJ certain other projects performed byTechnip S.A. subsidiaries inBrazil between 2002 and 2013. The DOJ has also inquired about projects inGhana andEquatorial Guinea that were awarded toTechnip S.A. subsidiaries in 2008 and 2009, respectively. We cooperated with the DOJ in its investigation into potential violations of the FCPA in connection with these projects. We contacted and cooperated with the Brazilian authorities (Federal Prosecution Service ("MPF"), the Comptroller General ofBrazil ("CGU") and the Attorney General ofBrazil ("AGU")) with their investigation concerning the projects inBrazil and have also contacted and are cooperating with French authorities (the Parquet National Financier ("PNF")) about these existing matters. OnJune 25, 2019 , we announced a global resolution to pay a total of$301.3 million to the DOJ, theSEC , the MPF, and the CGU/AGU to resolve these anti-corruption investigations. We will not be required to have a monitor and will, instead, provide reports on our anti-corruption program to the Brazilian andU.S. authorities for two and three years, respectively. As part of this resolution, we entered into a three-year Deferred Prosecution Agreement ("DPA") with the DOJ related to charges of conspiracy to violate the FCPA related to conduct inBrazil and with Unaoil. In addition,Technip USA, Inc. , aU.S. subsidiary, pled guilty to one count of conspiracy to violate the FCPA related to conduct inBrazil . We will also provide the DOJ reports on our anti-corruption program during the term of the DPA. InBrazil , our subsidiaries Technip Brasil - Engenharia, Instalações E Apoio Marítimo Ltda. and Flexibrás Tubos Flexíveis Ltda. entered into leniency agreements with both the MPF and the CGU/AGU. We have committed, as part of those agreements, to make certain enhancements to their compliance programs inBrazil during a two-year self-reporting period, which aligns with our commitment to cooperation and transparency with the compliance community inBrazil and globally. InSeptember 2019 , theSEC approved our previously disclosed agreement in principle with theSEC Staff and issued an Administrative Order, pursuant to which we paid theSEC $5.1 million , which was included in the global resolution of$301.3 million . To date, the investigation by PNF related to historical projects inEquatorial Guinea andGhana has not reached resolution. We remain committed to finding a resolution with the PNF and will maintain a$70.0 million provision related to this investigation. Additionally, the PNF recently informed us that it is reviewing historical projects inAngola . We are not aware of any evidence that would support a finding of liability with respect to these projects, whether the PNF would seek any additional penalty. As we continue our discussions with PNF towards a potential resolution of all of these matters, the amount of a settlement could exceed this provision. There is no certainty that a settlement with PNF will be reached or that the settlement will not exceed current accruals. The PNF has a broad range of potential sanctions under anti-corruption laws and regulations that it may seek to impose in appropriate circumstances including, but not limited to, fines, penalties, confiscations and modifications to business practices and compliance programs. Any of these measures, if applicable to us, as well as potential customer reaction to such measures, could have a material adverse impact on our business, results of operations, and financial condition. If we cannot reach a resolution with the PNF, we could be subject to criminal proceedings inFrance , the outcome of which cannot be predicted.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4 to our consolidated financial statements for further details.
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