NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations - TechnipFMC plc and consolidated subsidiaries (“TechnipFMC,” “we,” “us” or “our”) is a global leader in oil and gas projects, technologies, systems and services through our business segments: Subsea and Surface Technologies. We have manufacturing operations worldwide, strategically located to facilitate delivery of our products, systems and services to our customers.
Basis of presentation - Our consolidated financial statements were prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and rules and regulations of the Securities and Exchange Commission (“SEC”) pertaining to annual financial information. 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.
Principles of consolidation - The consolidated financial statements include the accounts of TechnipFMC and its majority-owned subsidiaries and affiliates. Intercompany accounts and transactions are eliminated in consolidation.
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Such estimates include, but are not limited to, estimates of total contract profit or loss on long-term construction-type contracts; estimated realizable value on excess and obsolete inventory; estimates related to pension accounting; estimates related to fair value for purposes of assessing goodwill, long-lived assets and intangible assets for impairment; estimates of fair value in business combinations and estimates related to income taxes.
Investments in the common stock of unconsolidated affiliates - The equity method of accounting is used to account for investments in unconsolidated affiliates where we have the ability to exert significant influence over the affiliates’ operating and financial policies. We measure equity investments not accounted for under the equity method at fair value and recognize any changes in fair value in net income. For certain construction joint ventures, we use the proportionate consolidation method, whereby our proportionate share of each entity’s assets, liabilities, revenues and expenses are included in the appropriate classifications in the consolidated financial statements. Intercompany balances and transactions have been eliminated in preparing the consolidated financial statements.
Investments in unconsolidated affiliates are assessed for impairment whenever events or changes in facts and circumstances indicate the carrying value of the investments may not be fully recoverable. When such a condition is subjectively determined to be other than temporary, the carrying value of the investment is written down to fair value. Management’s assessment as to whether any decline in value is other than temporary is based on our ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity method investees to be strategic, long-term investments and completes its assessments for impairment with a long-term viewpoint.
Investments in which ownership is less than 20% or that do not represent significant investments are reported in other assets in the consolidated balance sheets. Where no active market exists and where no other valuation method can be used, these financial assets are maintained at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
We determine whether investments involve a variable interest entity (“VIE”) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if we are the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb significant losses of or the right to receive significant benefits from the VIE. If we are deemed to be the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a non-controlling interest. Our unconsolidated VIEs are accounted for using the equity method of accounting.
Business combinations - Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. Determining the fair value of assets and liabilities involves significant judgment regarding methods and assumptions used to calculate estimated fair values. The purchase price is allocated to the acquired assets, assumed liabilities and identifiable intangible assets based on their estimated fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Transaction related costs are expensed as incurred.
Leases - The majority of our leases are operating leases. We account for leases in accordance with Accounting Standard Codification (“ASC”)Topic 842, Leases, which we adopted on January 1, 2019 using the modified retrospective method. See Note 5 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 ASC Topic 606, Revenue from Contracts with Customers. See Note 6 for further details.
Contract costs to obtain a contract - Our incremental direct costs of obtaining a contract are deferred and amortized over the period of contract performance or a longer period, generally the estimated life of the customer relationship, if renewals are expected and the renewal commission is not commensurate with the initial commission. We classify deferred commissions as current or non-current based on the timing of when we expect to recognize the expense. The current and non-current portions of deferred commissions are included in other current assets and other assets, respectively, in our consolidated balance sheets.
Amortization of deferred commissions is included in selling, general and administrative expenses in our consolidated statements of income.
Cash equivalents - Cash equivalents are highly-liquid, short-term investments with original maturities of three months or less from their date of purchase.
Trade receivables, net of allowances - An allowance for doubtful accounts is provided on receivables equal to the estimated uncollectible amounts and is calculated based on loss rates from historical data. We develop loss-rate statistics on the basis of the amount written off over the life of the receivable and adjust these historical credit loss trends for forward-looking factors specific to the debtors and the economic environment to determine lifetime expected losses.
Inventories - Inventories are stated at the lower of cost or net realizable value, except as it relates to inventory measured using the last-in, first-out (“LIFO”) method, for which the inventories are stated at the lower of cost or market. Inventory costs include those costs directly attributable to products, including all manufacturing overhead, but excluding costs to distribute. Cost for a significant portion of the U.S. domiciled inventories is determined on the LIFO method. The first-in, first-out (“FIFO”) or weighted average methods are used to determine the cost for the remaining inventories. Write-down of inventories is recorded when the net realizable value of inventories is lower than their net book value.
Property, plant and equipment - Property, plant, and equipment is recorded at cost. Depreciation is principally provided on the straight-line basis over the estimated useful lives of the assets (vessels - 10 to 30 years; buildings - 10 to 50 years; and machinery and equipment - 3 to 20 years). Gains and losses are realized upon the sale or retirement of assets and are recorded in other income (expense), net on our consolidated statements of income. Maintenance and repair costs are expensed as incurred. Expenditures that extend the useful lives of property, plant and equipment are capitalized and depreciated over the estimated new remaining life of the asset.
Impairment of property, plant and equipment - Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the long-lived asset may not be recoverable. The carrying value of an asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the impairment loss is measured as the amount by which the carrying value of the long-lived asset exceeds its fair value.
Long-lived assets classified as held for sale are reported at the lower of carrying value or fair value less cost to sell.
Goodwill - Goodwill is not subject to amortization but is tested for impairment on an annual basis (or more frequently if impairment indicators arise) by comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. A reporting unit is defined as an operating segment or one level below the operating segment. We have established October 31 as the date of our annual test for impairment of goodwill. Reporting units with goodwill are tested for impairment using a quantitative impairment test known as the income approach, which 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. If the fair value of the reporting unit is less than its carrying amount as a result of this method, then an impairment loss is recorded.
A lower fair value estimate in the future for any of our reporting units could result in goodwill impairments. Factors that could trigger a lower fair value estimate include sustained price declines of the reporting unit’s products and services, cost increases, regulatory or political environment changes, changes in customer demand, and other changes in market conditions, which may affect certain market participant assumptions used in the discounted future cash flow model. As of December 31, 2021, we did not have any goodwill outstanding.
Intangible assets - Our acquired intangible assets are generally amortized on a straight-line basis over their estimated useful lives, which generally range from 2 to 20 years. Our acquired intangible assets do not have indefinite lives. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the intangible asset may not be recoverable. The carrying amount of an intangible 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 intangible asset exceeds its fair value.
Capitalized software costs are recorded at cost. Capitalized software costs include purchases of software and internal and external costs incurred during the application development stage of software projects. These costs are amortized on a straight-line basis over the estimated useful lives. For internal use software, the useful lives range from 3 to 10 years. For Internet website costs, the estimated useful lives do not exceed 3 years.
Research and development expense is expensed as incurred. Research and development expense includes improvement of existing products and services, design and development of new products and services and test of new technologies.
Debt instruments - Debt instruments include senior and private placement notes and other borrowings. Issuance fees and redemption premium on debt instruments are included in the cost of debt in the consolidated balance sheets, as an adjustment to the nominal amount of the debt. Loan origination costs for revolving credit facilities are recorded as an asset and amortized over the life of the underlying debt.
Fair value measurements - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The fair value framework requires the categorization of assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities, with the exception of certain assets and liabilities measured using the net asset value practical expedient, which are not required to be leveled. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
•Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
•Level 2: Observable inputs other than quoted prices included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
•Level 3: Unobservable inputs reflecting management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
Income taxes - Current income taxes are provided on income reported for financial statement purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred tax assets and liabilities are measured using enacted tax rates for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established whenever management believes that it is more likely than not that deferred tax assets may not be realizable.
Income taxes are not provided on our equity in undistributed earnings of foreign subsidiaries or affiliates to the extent we have determined that the earnings are indefinitely reinvested. Income taxes are provided on such earnings in the period in which we can no longer support that such earnings are indefinitely reinvested.
Tax benefits related to uncertain tax positions are recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.
We classify interest expense and penalties recognized on underpayments of income taxes as income tax expense.
Share-based compensation - The measurement of share-based compensation expense on restricted share awards and performance share awards is based on the market price at the grant date and the number of shares awarded. We use Black-Scholes options pricing model to measure the fair value of stock options granted on or after January 1, 2017. The stock-based compensation expense for each award is recognized ratably over the applicable service period or the period beginning at the start of the service period and ending when an employee becomes eligible for retirement, after taking into account estimated forfeitures.
Earnings per ordinary share (“EPS”) - Basic EPS is computed using the weighted-average number of ordinary shares outstanding during the year. We use the treasury stock method to compute diluted EPS which gives effect to the potential dilution of earnings that could have occurred if additional shares were issued for awards granted under our incentive compensation and stock plan. The treasury stock method assumes proceeds that would be obtained upon exercise of awards granted under our incentive compensation and stock plan are used to purchase outstanding ordinary shares at the average market price during the period.
Foreign currency - Financial statements of operations for which the U.S. dollar is not the functional currency, and which are located in non-highly inflationary countries, are translated into U.S. dollars prior to consolidation. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date, while income statement accounts are translated at the average exchange rate for each period. For these operations, translation gains and losses are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity until the foreign entity is sold or liquidated. For operations in highly inflationary countries and where the local currency is not the functional currency, inventories, property, plant and equipment, and other non-current assets are converted to U.S. dollars at historical exchange rates, and all gains or losses from conversion are included in net income. Foreign currency effects on cash, cash equivalents and debt in highly inflationary economies are included in interest income or expense.
For certain committed and anticipated future cash flows and recognized assets and liabilities which are denominated in a foreign currency, we may choose to manage our risk against changes in the exchange rates, when compared against the functional currency, through the economic netting of exposures instead of derivative instruments. Cash outflows or liabilities in a foreign currency are matched against cash inflows or assets in the same currency, such that movements in exchange rates will result in offsetting gains or losses. Due to the inherent unpredictability of the timing of cash flows, gains and losses in the current period may be economically offset by gains and losses in a future period. All gains and losses are recorded in our consolidated statements of income in the period in which they are incurred. Gains and losses from the remeasurement of assets and liabilities are recognized in other income (expense), net.
Derivative instruments - Derivatives are recognized on the consolidated balance sheets at fair value, with classification as current or non-current based upon the maturity of the derivative instrument. Changes in the fair value of derivative instruments are recorded in current earnings or deferred in accumulated other comprehensive income (loss), depending on the type of hedging transaction and whether a derivative is designated as, and is effective as, a hedge. Each instrument is accounted for individually and assets and liabilities are not offset.
Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting changes in anticipated cash flows of the hedged item or transaction. Changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) until the underlying transactions are recognized in earnings. At such time, related deferred hedging gains or losses are recorded in earnings on the same line as the hedged item. Effectiveness is assessed at the inception of the hedge and on a quarterly basis. Effectiveness of forward contract cash flow hedges are assessed based solely on changes in fair value attributable to the change in the spot rate. The change in the fair value of the contract related to the change in forward rates is excluded from the assessment of hedge effectiveness. Changes in this excluded component of the derivative instrument, along with any ineffectiveness identified, are recorded in earnings as incurred. We document our risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge.
We also use forward contracts to hedge foreign currency assets and liabilities, for which we do not apply hedge accounting. The changes in fair value of these contracts are recognized in other income (expense), net on our consolidated statements of income, as they occur and offset gains or losses on the remeasurement of the related asset or liability.
Reclassifications - Certain prior-year amounts have been reclassified to conform to the current year’s presentation.
NOTE 2. DISCONTINUED OPERATIONS
The Spin-off
On February 16, 2021, we completed our separation of the Technip Energies business segment. The transaction was structured as a spin-off (the “Spin-off”), which occurred by way of a pro rata dividend (the “Distribution”) to our shareholders of 50.1% 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 of TechnipFMC held at 5:00 p.m., Eastern Standard 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 the Euronext Paris Stock Exchange.
In connection with the Spin-off, TechnipFMC and Technip Energies entered into a separation and distribution agreement, as well as various other agreements, including, among others, a tax matters agreement, an employee matters agreement and a transition services agreement and certain agreements relating to intellectual property. These agreements provide for the allocation between TechnipFMC and Technip Energies of assets, employees, taxes, liabilities and obligations attributable to periods prior to, at and after the Spin-off.
Discontinued Operations
The Spin-off represented a strategic shift that will have a major impact on our operations and consolidated financial statements. Accordingly, historical results of Technip Energies prior to the Distribution on February 16, 2021 have been presented as discontinued operations in our consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows for the years ended December 31, 2021, 2020 and 2019. Our consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows and notes to the consolidated financial statements have been updated to reflect continuing operations only.
The following table summarizes the components of income from discontinued operations, net of tax:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 906.0 | | | $ | 6,520.0 | | | $ | 6,458.9 | |
| Costs and expenses | | (932.0) | | | (5,899.0) | | | (5,627.6) | |
| Other income and (expense), net | | (18.6) | | | (206.8) | | | (396.0) | |
| Income (loss) from discontinued operations before income taxes | | $ | (44.6) | | | $ | 414.2 | | | $ | 435.3 | |
| Income (loss) from discontinued operations, net of income taxes | | $ | (72.6) | | | $ | 280.2 | | | $ | 238.0 | |
Supplemental information: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Capital expenditures | | $ | 5.1 | | | $ | 35.7 | | | $ | 41.7 | |
| Depreciation and amortization expense | | 17.1 | | | 35.1 | | | 41.9 | |
| Research and development expense | | 4.4 | | | 44.5 | | | 13.4 | |
| | | | | | |
Assets and liabilities of discontinued operations are summarized below:
| | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | |
| Assets | | | | |
| Cash and cash equivalents | | $ | 3,538.6 | | | |
| Trade receivables, net of allowances | | 1,302.1 | | | |
| Contract assets | | 380.8 | | | |
| Other current assets | | 503.6 | | | |
| Total current assets of discontinued operations | | 5,725.1 | | | |
| Property, plant and equipment, net of accumulated depreciation | | 105.6 | | | |
| Goodwill | | 2,512.5 | | | |
| Other assets | | 665.4 | | | |
| Total non-current assets of discontinued operations | | 3,283.5 | | | |
| Total assets of discontinued operations | | $ | 9,008.6 | | | |
| | | | |
| Liabilities | | | | |
| Accounts payable, trade | | $ | 1,539.5 | | | |
| Contract liabilities | | 3,689.3 | | | |
| Other current liabilities | | 867.7 | | | |
| Total current liabilities of discontinued operations | | 6,096.5 | | | |
| Long-term debt, less current portion | | 482.2 | | | |
| Operating lease liabilities | | 248.2 | | | |
| Other liabilities | | 350.9 | | | |
| Total non-current liabilities of discontinued operations | | 1,081.3 | | | |
| Total liabilities of discontinued operations | | $ | 7,177.8 | | | |
On February 16, 2021, all assets and liabilities of Technip Energies were spun-off; therefore, as of December 31, 2021, there were no assets and liabilities classified as discontinued operations. During the fourth quarter of 2021, we finalized the disposition process, which resulted in an immaterial adjustment to the net assets transferred to Technip Energies in the statement of stockholders’ equity. As of December 31, 2021, we had $84.4 million and $72.2 million of accounts receivable and accounts payable, respectively, outstanding with Technip Energies.
NOTE 3. BUSINESS COMBINATION AND OTHER TRANSACTIONS
2021
Magma Global Ltd.
In 2018, we entered into a collaboration agreement with Magma Global Ltd. (“Magma Global”) to develop a new generation of hybrid flexible pipe for use in the traditional and new energy industries. As part of the collaboration, we purchased a minority ownership interest in Magma Global.
In October 2021, we entered into a transaction to purchase the remaining ownership interest in Magma Global for $64.0 million. The cash consideration will be paid to the shareholders of Magma Global in three annual installments. The first payment of $23.9 million was paid on October 12, 2021. Magma technology enables the manufacture of
Thermoplastic Composite Pipe (TCP) using Polyether Ether Ketone (PEEK) polymer, which is highly resistant to corrosive compounds, such as CO2.
With the step acquisition of the remaining outstanding shares of Magma Global and our resulting control of the company, we recorded a $36.7 million impairment during the third quarter of 2021 to adjust our equity method investment to its estimated fair market value. The impairment charge is included in income/loss from equity affiliates line in our consolidated statement of income.
As a result of the purchase price allocation of the remaining interest, we recognized $50.2 million of intangible assets consisting primarily of in-process research and development and trademarks, which are being amortized on a straight-line basis over 15 years. The fair value of the identifiable intangible assets has been estimated using an income approach.
TIOS
In accordance with the Share Purchase Agreement between Technip-Coflexip UK Holdings Limited (“TUK”) and Island Offshore Management AS (“Island Offshore”) that was executed on March 12, 2018, whereby TUK initially purchased 51% of the shares of TIOS AS (“TIOS”), a joint venture between TUK and Island Offshore, TUK acquired the remaining 49% interest in TIOS at a total price of $48.6 million during the third quarter of 2021. As of December 31, 2020, we owned a 51% share in TIOS and the redeemable non-controlling interest was recorded as mezzanine equity at fair value of $43.7 million. As of December 31, 2021 and 2020, TIOS was fully consolidated.
2019
On December 30, 2019, we completed the acquisition of the remaining 50% interest in Technip Odebrecht PLSV CV (“TOP CV”). TOP CV was formed as a joint venture between Technip SA and Ocyan SA to provide pipeline installation ships to Petroleo Brasileiro SA (“Petrobras”) for their work in oil and gas fields offshore Brazil with results reported in our Subsea segment using the equity method of accounting. Subsequent to this transaction the investment became a fully consolidated entity. In connection with the acquisition, we acquired $391.0 million in assets, including two vessels valued at $335.2 million. In addition, we assumed $239.9 million of liabilities, including a $203.1 million term loan. As a result of the acquisition, we recorded a net loss of $0.9 million. The net loss on acquisition was comprised of the impairment charge of $84.2 million partially offset by a gain on bargain purchase of $83.3 million included within restructuring and other charges in our consolidated statement of income.
NOTE 4. NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standards under GAAP
In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This update amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. We adopted this amendment as of January 1, 2021, which did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes to Topic 740—Simplifying the Accounting for Income Taxes.” The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This update also improves and simplifies areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. We adopted this amendment as of January 1, 2021, which did not have a material impact on our consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, “Investments—Equity Securities (Topic 321),” “Investments—Equity Method and Joint Ventures (Topic 323),” and “Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” and made targeted improvements to address certain aspects of accounting for financial instruments. This update clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU
also clarifies that, when determining the accounting for certain forward contracts and purchased options, a company should not consider whether underlying securities would be accounted for under the equity method or fair value option upon settlement or exercise. We adopted this amendment as of January 1, 2021, which did not have a material impact on our consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements.” The amendments in this update improve consistency by amending the accounting standards codification (the “Codification”) to include all disclosure guidance in the appropriate sections and clarify the application of various provisions in the Codification by amending and adding new headings, cross-referencing to other guidance, and refining or correcting terminology. We adopted this update as of January 1, 2021, which did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This update simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. We adopted this update as of January 1, 2021, which did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards under GAAP
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).” In addition, in January 2021, FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848)” which clarifies the scope of Topic 848. The amendments in these updates apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update were issued as of March 12, 2020, effective through December 31, 2022. We do not anticipate the adoption of this update to have a material impact on our consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. The amendment is this update should be applied with early adoption permitted. We do not anticipate the adoption of this update to have a material impact on our consolidated financial statements.
We consider the applicability and impact of all ASUs. We assessed ASUs not listed above and determined that they either were not applicable or were not expected to have a material impact on our financial statements.
NOTE 5. LEASES
Lessee Arrangements
We lease real estate, including land, buildings and warehouses, machinery/equipment, vessels, vehicles, and various types of manufacturing and data processing equipment, from a lessee perspective. Leases of real estate generally provide for payment of property taxes, insurance, and repairs by us. Substantially all our leases are classified as operating leases.
We determine if an arrangement is a lease at inception by assessing whether an identified asset exists and if we have the right to control the use of the identified asset. Operating leases are included in Operating lease right-of-use assets, Operating lease liabilities (current), and Operating lease liabilities (non-current) in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term. With the exception of rare cases in which the implicit rate is readily determinable, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Operating lease right-of-use assets also includes any lease prepayments
made and excludes lease incentives we received from the lessor. Lease cost for lease payments is recognized on a straight-line basis over the lease term. Several of our leases provide for certain guarantees of residual value. We estimate and include in the determination of lease payments any amount probable of being owed under these residual value guarantees.
Lease terms within our lessee arrangements may include options to extend/renew or terminate the lease and/or purchase the underlying asset when it is reasonably certain that we will exercise that option. TechnipFMC applies a portfolio approach by asset class to determine lease term renewals. The leases within these portfolios are categorized by asset class and have initial lease terms that vary depending on the asset class. The renewal terms range from 60 days to 5 years for asset classes such as temporary residential housing, forklifts, vehicles, vessels, office and IT equipment, and tool rentals, and up to 15 years or more for commercial real estate. Short-term leases with an initial term of 12 months or less that do not include a purchase option are not recorded on the balance sheet. Lease costs for short-term leases are recognized on a straight-line basis over the lease term and amounts related to short-term leases are disclosed within our financial statements.
TechnipFMC has variable lease payments, including adjustments to lease payments based on an index or rate (such as the Consumer Price Index), fair value adjustments to lease payments, and common area maintenance, real estate taxes, and insurance payments in triple-net real estate leases. Variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are included when measuring consideration within our lease arrangements using the payments’ base rate or index. Variable payments that do not depend on an index or rate are recognized in the consolidated income statements and are disclosed as “variable lease costs” in the period they are incurred.
We adopted the practical expedient to not separate lease and non-lease components for all asset classes except for vessels, which have significant non-lease components.
TechnipFMC currently subleases certain of its leased real estate and vessels to third parties.
The following table is a summary of the Company’s components of net lease cost for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 |
| Operating lease costs including variable costs | $ | 175.9 | | | $ | 195.6 | |
| Short-term lease costs | 5.2 | | | 11.0 | |
| | | |
| Less: sublease income | 2.4 | | | 2.8 | |
| Net lease cost | $ | 178.7 | | | $ | 203.8 | |
Supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows from operating leases | $ | 176.5 | | | $ | 206.5 | |
| | | |
| Right-of-use assets obtained in exchange for lease liabilities | | | |
| Operating leases | $ | 114.9 | | | $ | 421.3 | |
| Finance leases | $ | 24.6 | | | $ | 26.9 | |
Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| December 31, |
| (In millions, except lease term and discount rate) | 2021 | | 2020 |
| Weighted average remaining lease term | | | |
| Operating leases | 13.3 years | | 13.6 years |
| Finance leases | 1.1 years | | 0.6 years |
| | | |
| Weighted average discount rate | | | |
| Operating leases | 5.86 | % | | 5.35 | % |
| Finance leases | 1.2 | % | | 2.1 | % |
Maturities of operating and finance lease liabilities as of December 31, 2021 are as follows:
| | | | | | | | | | | |
| (In millions) | Maturity of Operating Lease Liabilities | | Maturity of Finance Lease Liabilities |
| 2022 | $ | 150.2 | | | $ | 1.0 | |
| 2023 | 108.3 | | | 103.0 | |
| 2024 | 102.3 | | | — | |
| 2025 | 83.1 | | | — | |
| 2026 | 74.7 | | | — | |
| Thereafter | 675.9 | | | — | |
| Total lease payments | 1,194.5 | | | 104.0 | |
Less: Imputed interest (a) | 421.5 | | | 52.2 | |
Total lease liabilities (b) | $ | 773.0 | | | $ | 51.8 | |
Note: For leases that commenced prior to 2019, minimum lease payments exclude payments to landlords for real estate taxes and common area maintenance.
(a)Calculated using the interest rate for each lease.
(b)Includes the current portion of $126.9 million.
In December 2020, TechnipFMC sold its leased office building at Gremp Campus in Houston, Texas on behalf of the existing lessor to Oak Street Real Estate Capital, LLC (“New Lessor”). TechnipFMC also sold the underlying land at Gremp Campus, which the Company owned, to the New Lessor. TechnipFMC concurrently executed a new lease agreement for both the land and the office building (collectively, “Gremp Campus Properties”) with New Lessor.
The new lease agreement of Gremp Campus Properties commenced on December 11, 2020 and the initial term ends on December 31, 2042. TechnipFMC paid net cash of $1.8 million in connection with the new lease agreement and recognized a loss of $3.1 million from derecognition of the existing lease. There was no gain or loss from the sale of the land at Gremp Campus.
Lessor Arrangements
We lease real estate including land, buildings and warehouses, machinery/equipment, and vessels from a lessor perspective. We determine if an arrangement is a lease at inception by assessing whether an identified asset exists and if the customer has the right to control the use of the identified asset. We use our implicit rate for our lessor arrangements. We have elected the practical expedient available for lessors to not separate lease and non-lease components for vessels. If the non-lease component is predominant in our contracts, we account for the contracts under the revenue recognition guidance in ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). If the lease component is predominant in our contracts, we account for the contracts under the lease guidance in Topic 842. We estimate the amount we expect to derive from the underlying asset following the end of the lease term based on remaining economic life. Our lessor arrangements generally do not include any residual value guarantees. We recognize lessee payments of lessor costs such as taxes and insurance on a net basis when the lessee pays those costs directly to a third party or when the amount paid by the lessee is not readily determinable.
Our operating lease revenue, including variable revenue, was $158.4 million and $142.0 million for the years ended December 31, 2021 and 2020, respectively. During the next five years, we expect to receive $19.3 million in
total undiscounted cash flows, of which $18.3 million is expected to be received in 2022 and $1.0 million is expected to be received in 2023.
NOTE 6. REVENUE
The majority of our revenue is from long-term contracts associated with designing and manufacturing products and systems and providing services to customers involved in exploration and production of crude oil and natural gas.
Significant Revenue Recognition Criteria Explained
Allocation of transaction price to performance obligations - A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue, when, or as, the performance obligation is satisfied. To determine the proper revenue recognition method, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment; some of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
Variable consideration - 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 variable considerations that can either increase or decrease the transaction price. Variability in the transaction price arises primarily due to liquidated damages. We consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration to which we will be entitled, and determining whether the estimated variable consideration should be constrained. We include estimated amounts 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. Our estimates of variable consideration are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Payment terms - Progress billings are generally issued upon completion of certain phases of the work as stipulated in the contract. Payment terms may either be fixed, lump-sum or driven by time and materials (e.g., daily or hourly rates, plus materials). Because typically the customer retains a small portion of the contract price until completion of the contract, our contracts generally result in revenue recognized in excess of billings which we present as contract assets on the balance sheet. Amounts billed and due from our customers are classified as receivables in the consolidated balance sheets. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For some contracts, we may be entitled to receive an advance payment. We recognize a liability for these advance payments in excess of revenue recognized and present it as contract liabilities in the consolidated balance sheets. The advance payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract.
Warranty - Certain contracts include an assurance-type warranty clause, typically between 18 to 36 months, to guarantee that the products comply with agreed specifications. A service-type warranty may also be provided to the customer; in such a case, management allocates a portion of the transaction price to the warranty based on the estimated stand-alone selling price of the service-type warranty.
Revenue recognized over time - Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for approximately 68%, 72% and 68% of our revenue for the years ended December 31, 2021, 2020 and 2019, respectively. Typically, revenue is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.
Cost-to-cost method - For our long-term contracts, because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which 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. Any expected losses on construction-type contracts in progress are charged to earnings, in total, in the period the losses are identified.
Right to invoice practical expedient - The right-to-invoice practical expedient can be applied to a performance obligation satisfied over time if we have a right to invoice the customer for an amount that corresponds directly with the value transferred to the customer for our performance completed to date. When this practical expedient is used, we do not estimate variable consideration at the inception of the contract to determine the transaction price or for disclosure purposes. We have contracts which have payment terms dictated by daily or hourly rates where some contracts may have mixed pricing terms which include a fixed fee portion. For contracts in which we charge the customer a fixed rate based on the time or materials spent during the project that correspond to the value transferred to the customer, we recognize revenue in the amount to which we have the right to invoice.
Contract modifications - Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
Revenue Recognition by Segment
The following is a description of principal activities separated by reportable segments from which TechnipFMC generates its revenue. See Note 7 for more detailed information about reportable segments.
Subsea
Our Subsea segment manufactures and designs products and systems, performs engineering, procurement and project management and provides services used by oil and gas companies involved in offshore exploration and production of crude oil and natural gas. Systems and services may be sold separately or as combined integrated systems and services offered within one contract. Many of the systems and products TechnipFMC supplies for subsea applications are highly engineered to meet the unique demands of our customers’ field properties and are typically ordered one to two years prior to installation. We often receive advance payments and progress billings from our customers in order to fund initial development and working capital requirements.
Under Subsea engineering, procurement, construction and installation contracts, revenue is principally generated from long-term contracts with customers. We have determined these contracts generally have one performance obligation as the delivered product is highly customized to customer and field specifications. We generally recognize revenue over time for such contracts as the customized products do not have an alternative use for TechnipFMC and we have an enforceable right to payment plus a reasonable profit for performance completed to date.
Our Subsea segment also performs an array of subsea services including (i) installation services, (ii) asset management services (iii) product optimization, (iv) inspection, maintenance and repair services, and (v) well access and intervention services, where revenue is generally earned through the execution of either installation-type or maintenance-type contracts. For either contract-type, management has determined that the performance of the service generally represents one single performance obligation. We have determined that revenue from these contracts is recognized over time as the customer simultaneously receives and consumes the benefit of the services.
Surface Technologies
Our Surface Technologies segment designs, manufactures and supplies technologically advanced wellhead systems and high pressure valves and pumps used in stimulation activities for oilfield service companies and provides installation, flowback and other services for exploration and production companies.
We provide a full range of drilling, completion and production wellhead systems for both standard and custom-engineered applications. Under pressure control product contracts, we design and manufacture flowline products, under the Weco®/Chiksan® trademarks, articulating frac arm manifold trailers, well service pumps, compact valves and reciprocating pumps used in well completion and stimulation activities by major oilfield service companies. Performance obligations within these systems are satisfied either through delivery of a standardized product or equipment or the delivery of a customized product or equipment.
For contracts with a standardized product or equipment performance obligation, management has determined that because there is limited customization to products sold within such contracts and the asset delivered can be resold to another customer, revenue should be recognized as of a point in time, upon transfer of control to the customer and after the customer acceptance provisions have been met.
For contracts with a customized product or equipment performance obligation, the revenue is recognized over time, as the manufacturing of our product does not create an asset with an alternative use for us and we have an enforceable right to payment plus a reasonable profit for performance completed to date.
This segment also designs, manufactures and services measurement products globally. Contract-types include standard product or equipment and maintenance-type services where we have determined that each contract under this product line represents one performance obligation.
Revenue from standard measurement equipment contracts is recognized at a point in time, while maintenance-type contracts are typically priced at a daily or hourly rate. We have determined that revenue for these contracts is recognized over time because the customer simultaneously receives and consumes the benefit of the services.
Disaggregation of Revenue
We disaggregate revenue by geographic location and contract type. The following table presents total revenue by geography for each reportable segment for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reportable Segments |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In millions) | Subsea | | Surface Technologies | | Subsea | | Surface Technologies | | Subsea | | Surface Technologies |
| Europe, Central Asia | $ | 1,404.4 | | | $ | 191.5 | | | $ | 1,664.1 | | | $ | 192.7 | | | 1,690.2 | | | 160.1 | |
| North America | 753.6 | | | 372.7 | | | 899.7 | | | 367.9 | | | 660.8 | | | 751.9 | |
| Latin America | 1,157.7 | | | 86.7 | | | 1,042.4 | | | 76.6 | | | 1,139.5 | | | 108.6 | |
| Asia Pacific | 927.4 | | | 104.2 | | | 772.1 | | | 131.0 | | | 673.3 | | | 195.4 | |
| Africa | 1,057.3 | | | 44.0 | | | 908.6 | | | 46.9 | | | 836.4 | | | 62.7 | |
| Middle East | 28.7 | | | 275.3 | | | 184.5 | | | 244.1 | | | 419.3 | | | 252.0 | |
| Total revenue | $ | 5,329.1 | | | $ | 1,074.4 | | | $ | 5,471.4 | | | $ | 1,059.2 | | | $ | 5,419.5 | | | $ | 1,530.7 | |
The following table represents revenue by contract type for each reportable segment for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reportable Segments |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In millions) | Subsea | | Surface Technologies | | Subsea | | Surface Technologies | | Subsea | | Surface Technologies |
| Services | $ | 3,282.0 | | | $ | 158.7 | | | $ | 3,121.1 | | | $ | 150.2 | | | $ | 3,141.0 | | | $ | 271.0 | |
| Products | 2,002.5 | | | 801.9 | | | 2,295.4 | | | 821.9 | | | 2,162.5 | | | 1,109.2 | |
Lease(a) | 44.6 | | | 113.8 | | | 54.9 | | | 87.1 | | | 116.0 | | | 150.5 | |
| Total revenue | $ | 5,329.1 | | | $ | 1,074.4 | | | $ | 5,471.4 | | | $ | 1,059.2 | | | $ | 5,419.5 | | | $ | 1,530.7 | |
(a)Represents revenue not subject to ASC Topic 606.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in the consolidated balance sheets. Any expected contract losses are recorded in the period in which they become probable.
Contract Assets - Contract Assets include unbilled amounts typically resulting from sales under long-term contracts when revenue is recognized over time and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs and estimated earnings in excess of billings on uncompleted contracts are generally classified as current.
Contract Liabilities - We sometimes receive advances or deposits from our customers, before revenue is recognized, resulting in contract liabilities.
The following table provides information about net contract assets (liabilities) as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | |
| (In millions) | 2021 | | 2020 | | $ change | | % change |
| Contract assets | $ | 966.0 | | | $ | 886.8 | | | $ | 79.2 | | | 8.9 | |
| Contract (liabilities) | (1,012.9) | | | (1,046.8) | | | 33.9 | | | 3.2 | |
| Net contract (liabilities) | $ | (46.9) | | | $ | (160.0) | | | $ | 113.1 | | | 70.7 | |
The increase in our contract assets from December 31, 2020 to December 31, 2021 was primarily due to the timing of project milestones.
The decrease in our contract liabilities was primarily due to completion of performance obligations for contracts, for which consideration was received in advance of the work performed during the period.
In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. Any subsequent revenue we recognize increases contract asset balance. Revenue recognized for the years ended December 31, 2021 and 2020 that were included in the contract liabilities balance as of December 31, 2020 and 2019 was $305.3 million and $484.3 million, respectively.
In addition, net revenue recognized for the years ended December 31, 2021 and 2020 from our performance obligations satisfied in previous periods had favorable (unfavorable) impacts of $25.9 million and $(21.7) million, respectively. This primarily relates to the changes in the estimate of the stage of completion that impacted revenue.
Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations
Remaining unsatisfied performance obligations (“RUPO” or “order backlog”) represent the transaction price for products and services for which we have a material right, but work has not been performed. Transaction price of the order backlog includes the base transaction price, variable consideration and changes in transaction price. The order backlog table does not include contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The transaction price of order backlog related to unfilled, confirmed customer orders is estimated at each reporting date. As of December 31, 2021, the aggregate amount of the transaction price allocated to order backlog was $7,657.7 million. TechnipFMC expects to recognize revenue on approximately 49.0% of the order backlog through 2022 and 51.0% thereafter.
The following table details the order backlog for each business segment as of December 31, 2021:
| | | | | | | | | | | | | | | | | |
| (In millions) | 2022 | | 2023 | | Thereafter |
| Subsea | $ | 3,372.8 | | | $ | 2,227.5 | | | $ | 932.7 | |
| Surface Technologies | 376.8 | | | 95.2 | | | 652.7 | |
| Total remaining unsatisfied performance obligations | $ | 3,749.6 | | | $ | 2,322.7 | | | $ | 1,585.4 | |
NOTE 7. BUSINESS SEGMENTS
Management’s determination of our reporting segments was made on the basis of our strategic priorities within each segment and the differences in the products and services we provide, which corresponds to the manner in which our Chair and Chief Executive Officer, as our chief operating decision maker, reviews and evaluates operating performance to make decisions about resources to be allocated to the segment. We now operate under two reportable segments: Subsea and Surface Technologies.
•Subsea - designs and manufactures products and systems, performs engineering, procurement and project management, and provides services used by oil and gas companies involved in offshore exploration and production of crude oil and natural gas.
•Surface Technologies - designs and manufactures products and systems and provides services used by oil and gas companies involved in land and shallow water exploration and production of crude oil and natural gas; designs, manufactures, and supplies technologically advanced high-pressure valves and fittings for oilfield service companies; and also provides flowback and well testing services.
Segment operating profit (loss) is defined as total segment revenue less segment operating expenses. Income (loss) from equity method investments is included in computing segment operating profit. The following items have been excluded in computing segment operating profit (loss): corporate staff expense, foreign exchange gains (losses), income from investment in Technip Energies, net interest income (expense) associated with corporate debt facilities and income taxes.
Information by business segment
Segment revenue and segment operating profit (loss) were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Segment revenue | | | | | |
| Subsea | $ | 5,329.1 | | | $ | 5,471.4 | | | $ | 5,419.5 | |
| Surface Technologies | 1,074.4 | | | 1,059.2 | | | 1,530.7 | |
| Total revenue | $ | 6,403.5 | | | $ | 6,530.6 | | | $ | 6,950.2 | |
| | | | | |
| Segment operating profit (loss) | | | | | |
| Subsea | $ | 141.4 | | | $ | (2,815.5) | | | $ | (1,442.7) | |
| Surface Technologies | 42.0 | | | (429.3) | | | (662.7) | |
| Total segment operating profit (loss) | 183.4 | | | (3,244.8) | | | (2,105.4) | |
| | | | | |
| Corporate items | | | | | |
| Merger transaction and integration costs | — | | | — | | | (14.2) | |
| Legal expenses | — | | | — | | | (33.0) | |
Other corporate expenses (a) | (118.1) | | | (131.9) | | | (191.7) | |
| Net interest expense | (143.3) | | | (81.8) | | | (91.3) | |
| Loss on early extinguishment of debt | (61.9) | | | — | | | — | |
| Income from investment in Technip Energies | 322.2 | | | — | | | — | |
| Foreign exchange gains (losses) | 15.8 | | | (40.2) | | | (135.5) | |
| Total corporate items | 14.7 | | | (253.9) | | | (465.7) | |
Income (loss) before income taxes(b) | $ | 198.1 | | | $ | (3,498.7) | | | $ | (2,571.1) | |
(a)Other corporate expenses primarily include corporate staff expenses, share-based compensation expenses, certain long-lived assets impairments, restructuring and other expenses and other employee benefits.
(b)Includes amounts attributable to non-controlling interests.
Segment assets were as follows:
| | | | | | | | | | | |
| | December 31, |
| (In millions) | 2021 | | 2020 |
| Segment assets | | | |
| Subsea | $ | 6,532.5 | | | $ | 6,796.6 | |
| Surface Technologies | 1,420.0 | | | 1,758.3 | |
| Total segment assets | 7,952.5 | | | 8,554.9 | |
Corporate (a) | 2,067.6 | | | 2,129.1 | |
| Assets from discontinued operations | — | | | 9,008.6 | |
| Total assets | $ | 10,020.1 | | | $ | 19,692.6 | |
(a)Corporate includes cash, investment in Technip Energies, LIFO adjustments, deferred income tax balances, property, plant and equipment and intercompany eliminations not associated with a specific segment, pension assets and the fair value of derivative financial instruments.
Other business segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Expenditures | | Depreciation and
Amortization | | Research and
Development Expense |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Subsea | $ | 149.4 | | | $ | 213.6 | | | $ | 287.5 | | | $ | 317.2 | | | $ | 324.9 | | | $ | 345.0 | | | $ | 73.2 | | | $ | 66.5 | | | $ | 134.2 | |
| Surface Technologies | 36.8 | | | 38.5 | | | 96.0 | | | 64.8 | | | 70.1 | | | 107.1 | | | 5.2 | | | 8.8 | | | 15.3 | |
| Corporate | 5.5 | | | 4.0 | | | 29.2 | | | 3.4 | | | 17.1 | | | 15.6 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | $ | 191.7 | | | $ | 256.1 | | | $ | 412.7 | | | $ | 385.4 | | | $ | 412.1 | | | $ | 467.7 | | | $ | 78.4 | | | $ | 75.3 | | | $ | 149.5 | |
Information by geography
Revenue by geography was identified based on the country where our products and services were delivered, and is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Revenue | | | | | |
| United States | $ | 1,137.2 | | | $ | 1,320.1 | | | $ | 1,458.6 | |
| Norway | 979.9 | | | 1,216.6 | | | 1,352.6 | |
| Brazil | 767.8 | | | 600.6 | | | 1,086.2 | |
| United Kingdom | 542.5 | | | 489.0 | | | 535.8 | |
| Mozambique | 472.0 | | | 320.4 | | | 80.0 | |
| Australia | 419.8 | | | 122.5 | | | 133.4 | |
| Angola | 406.3 | | | 482.8 | | | 498.1 | |
| Guyana | 314.7 | | | 330.1 | | | 7.2 | |
| Indonesia | 224.9 | | | 280.0 | | | 262.6 | |
| Singapore | 216.3 | | | 219.9 | | | 190.5 | |
| Malaysia | 206.9 | | | 190.0 | | | 197.2 | |
| India | 109.8 | | | 26.8 | | | — | |
| Trinidad | 78.1 | | | 106.3 | | | 42.8 | |
| Israel | 26.8 | | | 179.3 | | | 319.6 | |
| | | | | |
| All other countries | 500.5 | | | 646.2 | | | 785.6 | |
| Total revenue | $ | 6,403.5 | | | $ | 6,530.6 | | | $ | 6,950.2 | |
Long-lived assets by geography represent property, plant and equipment, net, and are as follows:
| | | | | | | | | | | |
| | December 31, |
| (In millions) | 2021 | | 2020 |
| Long-lived assets | | | |
| United Kingdom | $ | 882.9 | | | $ | 928.8 | |
| Netherlands | 414.7 | | | 417.6 | |
| United States | 383.4 | | | 439.1 | |
| Norway | 271.9 | | | 312.1 | |
| Brazil | 265.5 | | | 259.9 | |
| All other countries | 378.8 | | | 398.7 | |
| Total long-lived assets | $ | 2,597.2 | | | $ | 2,756.2 | |
NOTE 8. EARNINGS (LOSS) PER SHARE
A reconciliation of the number of shares used for the basic and diluted earnings (loss) per share calculation was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions, except per share data) | 2021 | | 2020 | | 2019 |
| Income (loss) from continuing operations attributable to TechnipFMC plc | $ | 87.8 | | | $ | (3,552.6) | | | $ | (2,645.5) | |
| Income (loss) from discontinued operations attributable to TechnipFMC plc | (74.5) | | | 265.0 | | | 230.3 | |
| Net income (loss) attributable to TechnipFMC plc | $ | 13.3 | | | $ | (3,287.6) | | | $ | (2,415.2) | |
| | | | | |
| | | | | |
| Weighted average number of shares outstanding | 450.5 | | | 448.7 | | | 448.0 | |
| Dilutive effect of restricted stock units | 4.1 | | | — | | | — | |
| | | | | |
| | | | | |
| Total shares and dilutive securities | 454.6 | | | 448.7 | | | 448.0 | |
| | | | | |
| Basic and diluted earnings (loss) per share attributable to TechnipFMC plc: | | | | | |
| Earnings (loss) per share from continuing operations attributable to TechnipFMC plc | | | | | |
| Basic | $ | 0.19 | | | $ | (7.92) | | | $ | (5.91) | |
| Diluted | $ | 0.19 | | | $ | (7.92) | | | $ | (5.91) | |
| | | | | |
| Earnings (loss) per share from discontinued operations attributable to TechnipFMC plc | | | | | |
| Basic | $ | (0.17) | | | $ | 0.59 | | | $ | 0.51 | |
| Diluted | $ | (0.16) | | | $ | 0.59 | | | $ | 0.51 | |
| | | | | |
| Total earnings (loss) per share attributable to TechnipFMC plc | | | | | |
| Basic and diluted | $ | 0.03 | | | $ | (7.33) | | | $ | (5.39) | |
| | | | | |
For the years ended December 31, 2020 and 2019, we incurred net losses; therefore, the impact of any incremental shares from our share-based compensation awards would be anti-dilutive. For the years ended December 31, 2020 and 2019, 3.8 million shares and 4.3 million shares, respectively, were anti-dilutive due to a net loss position.
Weighted average shares of the following share-based compensation awards were excluded from the calculation of diluted weighted average number of shares where the assumed proceeds exceed the average market price from the calculation of diluted weighted average number of shares, because their effect would be anti-dilutive:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (millions of shares) | 2021 | | 2020 | | 2019 |
| Share option awards | 1.7 | | | 4.6 | | | 4.0 | |
| Restricted share units | 0.1 | | | 1.8 | | | — | |
| Performance shares | — | | | 1.9 | | | 1.6 | |
| Total | 1.8 | | | 8.3 | | | 5.6 | |
NOTE 9. RECEIVABLES
We manage our receivables portfolios using published default risk as a key credit quality indicator for our loans and receivables. Our loans receivable and security deposits were related to sales of long-lived assets or businesses, loans to related parties for capital expenditure purposes, or security deposits for lease arrangements.
We manage our held-to-maturity debt securities using published credit ratings as a key credit quality indicator as our held-to-maturity debt securities consist of government bonds.
The table below summarizes the amortized cost basis of financial assets by years of origination and credit quality. The key credit quality indicator is updated as of December 31, 2021.
| | | | | | | | | | | | | | | | | |
| (In millions) | Year of origination | | Balance as of December 31, 2021 | | Balance as of December 31, 2020 |
| Loans receivables, security deposits and other | | | | | |
| Moody’s rating Ba2 | 2019 | | $ | 50.9 | | | $ | 107.6 | |
| | | | | |
| Debt securities at amortized cost | | | | | |
| Moody’s rating B3 | 2019 | | 24.0 | | | 23.7 | |
| Total financial assets | | | $ | 74.9 | | | $ | 131.3 | |
Credit Losses
For contract assets, trade receivables, loans receivable, and security deposits and other, we have elected to calculate an expected credit loss based on loss rates from historical data. We develop loss-rate statistics on the basis of the amount written-off over the life of the financial assets and contract assets and adjust these historical credit loss trends for forward-looking factors specific to the debtors and the economic environment to determine lifetime expected losses.
For held-to-maturity debt securities at amortized cost, we evaluate whether the debt securities are considered to have low credit risk at the reporting date using available, reasonable and supportable information.
The table below shows the roll-forward of allowance for credit losses as of December 31, 2021 and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2021 |
| (In millions) | Trade receivables | | Contract assets | | Loans receivable | | Security deposit and other | | Held-to-maturity debt securities |
| Allowance for credit losses at December 31, 2020 | $ | 40.2 | | | $ | 2.4 | | | $ | 7.5 | | | $ | 0.4 | | | $ | 0.5 | |
| Current period provision (release) for expected credit losses | 3.5 | | | (1.3) | | | (7.2) | | | (0.1) | | | 2.2 | |
| | | | | | | | | |
| Recoveries | (5.6) | | | — | | | — | | | — | | | — | |
| Allowance for credit losses at December 31, 2021 | $ | 38.1 | | | $ | 1.1 | | | $ | 0.3 | | | $ | 0.3 | | | $ | 2.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2020 |
| (In millions) | Trade receivables | | Contract assets | | Loans receivable | | Security deposit and other | | Held-to-maturity debt securities |
| Allowance for credit losses at December 31, 2019 | $ | 59.4 | | | $ | 4.5 | | | $ | 9.5 | | | $ | 0.7 | | | $ | 1.1 | |
| Current period provision for expected credit losses | 27.2 | | | 0.5 | | | (0.2) | | | (0.3) | | | (0.6) | |
| Write-offs charged against the allowance | (43.0) | | | — | | | — | | | — | | | — | |
| Recoveries | (3.4) | | | (2.6) | | | (1.8) | | | — | | | — | |
| Allowance for credit losses at December 31, 2020 | $ | 40.2 | | | $ | 2.4 | | | $ | 7.5 | | | $ | 0.4 | | | $ | 0.5 | |
Certain trade receivables are due in one year or less.
NOTE 10. INVENTORIES
Inventories consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Raw materials | $ | 250.1 | | | $ | 270.3 | |
| Work in process | 178.7 | | | 242.7 | |
| Finished goods | 603.1 | | | 739.8 | |
| Inventories, net | $ | 1,031.9 | | | $ | 1,252.8 | |
All amounts in the table above are reported net of obsolescence reserves of $116.6 million and $155.7 million as of December 31, 2021 and 2020, respectively.
Net inventories accounted for under the LIFO method totaled $350.1 million and $408.5 million as of December 31, 2021 and 2020, respectively. The current replacement costs of LIFO inventories exceeded their recorded values by $10.9 million and $11.6 million as of December 31, 2021 and 2020, respectively.
NOTE 11. OTHER CURRENT ASSETS & OTHER CURRENT LIABILITIES
Other current assets consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Value - added tax receivables | $ | 222.4 | | | $ | 256.9 | |
| Sundry receivables | 106.1 | | | 138.4 | |
| Other taxes receivables | 70.6 | | | 73.8 | |
| Prepaid expenses | 50.7 | | | 78.1 | |
| Current financial assets at amortized cost | 21.9 | | | 40.6 | |
| Held-to-maturity investments | 8.8 | | | 24.2 | |
| Assets held for sale | 5.0 | | | 47.3 | |
| Other | 26.8 | | | 24.1 | |
| Total other current assets | $ | 512.3 | | | $ | 683.4 | |
Other current liabilities consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Warranty accruals and project contingencies | $ | 119.5 | | | $ | 168.8 | |
| Legal provisions | 121.7 | | | 127.6 | |
| Value - added tax and other taxes payable | 71.0 | | | 109.6 | |
| Compensation accrual | 85.7 | | | 54.3 | |
| Social security liability | 70.4 | | | 67.9 | |
| Provisions | 23.6 | | | 53.0 | |
| Current portion of accrued pension and other post-retirement benefits | 5.2 | | | 6.9 | |
| Other accrued liabilities | 163.3 | | | 230.2 | |
| Total other current liabilities | $ | 660.4 | | | $ | 818.3 | |
NOTE 12. WARRANTY OBLIGATIONS
Warranty obligations are included within other current liabilities in our consolidated balance sheets as of December 31, 2021 and 2020. A reconciliation of warranty obligations for the years ended December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 |
| Balance at beginning of period | $ | 109.6 | | | $ | 121.7 | |
| Warranty expenses | 54.0 | | | 52.0 | |
| Adjustment to existing accruals | (56.5) | | | (48.2) | |
| Claims paid | (20.9) | | | (15.9) | |
| Balance at end of period | $ | 86.2 | | | $ | 109.6 | |
NOTE 13. INVESTMENTS
Equity Method Investments
The equity method of accounting is used to account for investments in unconsolidated affiliates where we can have the ability to exert significant influence over the affiliates operating and financial policies.
Our equity investments were as follows as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2021 | | 2020 |
| (In millions, except %) | Percentage Owned | | Carrying Value |
| Dofcon Brasil AS | 50.0 | % | | 276.9 | | | 234.7 | |
| Magma Global Limited | — | % | | — | | | 51.4 | |
| Serimax Holdings SAS | 20.0 | % | | 15.0 | | | 18.8 | |
| Other | | | 0.5 | | | 0.6 | |
| Investments in equity affiliates | | | $ | 292.4 | | | $ | 305.5 | |
Our income from equity affiliates for the years ended December 31, 2021, 2020 and 2019, was $0.6 million, $64.6 million and $59.8 million, respectively and included within our Subsea segment.
Our major equity method investments are as follows:
Dofcon Brasil AS (“Dofcon”) - is an affiliated company in the form of a joint venture between TechnipFMC and DOF Subsea and was founded in 2006. Dofcon provides Pipe-Laying Support Vessels (PLSVs) for work in oil and gas fields offshore Brazil. Dofcon is considered a VIE because it does not have sufficient equity to finance its activities without additional subordinated financial support from other parties. We are not the primary beneficiary of the VIE. As such, we have accounted for our 50% investment using the equity method of accounting with results reported in our Subsea segment.
Magma Global Limited (“Magma Global”) - In 2018, we entered into a collaboration agreement with Magma Global to develop a new generation of hybrid flexible pipe for use in the traditional and new energy industries. As part of the collaboration, we purchased a 25% ownership interest in Magma Global. In October 2021, we purchased the remaining ownership interest in Magma Global for $64.0 million. See Note 3 for further details.
Serimax Holdings SAS (“Serimax”) - is an affiliated company in the form of a joint venture between TechnipFMC and Vallourec SA and was founded in 2016. Serimax is headquartered in Paris, France and provides rigid pipes welding services for work in oil and gas fields around the world. We have accounted for our 20% investment using the equity method of accounting with results reported in our Subsea segment.
Investment in Technip Energies
As discussed in Note 2, immediately following the completion of the Spin-off, we owned 49.9% of the outstanding shares of Technip Energies. At the Spin-off date, on initial recognition of the investment, we elected to account for our investment in Technip Energies at fair value with all subsequent changes in fair value for the investment reported in our consolidated statement of income.
On January 7, 2021, Bpifrance Participations SA (“BPI”) entered into the Share Purchase Agreement with us pursuant to which BPI agreed to purchase a portion of our retained stake in Technip Energies N.V. (the “BPI Investment”) for $200.0 million (the “Purchase Price”), subject to certain adjustments. On March 31, 2021, BPI ultimately purchased 7.5 million shares in Technip Energies from us for $100.0 million. Accordingly, on April 8, 2021, we refunded $100.0 million to BPI as a result of their revised level of investment.
On April 27, 2021 we sold 25.0 million Technip Energies shares, representing 14% of Technip Energies’ share capital, through a private placement by way of an accelerated bookbuild offering (the “April Placement”). The sale price of the shares in the April Placement was set at €11.10 per share, yielding total gross proceeds of €277.5 million, or $335.2 million.
Concurrently with the April Placement, Technip Energies purchased from us 1.8 million shares of Technip Energies (equivalent to 1% of share capital) at €11.10 per share, corresponding to the price of the April Placement (the “Concurrent Sale to Technip Energies”). The sale of shares to Technip Energies yielded total gross proceeds of €20.0 million or $24.2 million. This purchase was separate from the April Placement.
On July 29, 2021 we announced the sale of 16.0 million Technip Energies shares, representing approximately 9% of Technip Energies’ issued and outstanding share capital, through a private placement by way of an accelerated bookbuild offering (the “July Placement”). The sale price of the shares in the July Placement was set at €11.20 per share, yielding total gross proceeds of €179.2 million, or $213.1 million. We agreed to a 60-day lock-up for our remaining shares in Technip Energies, subject to waiver from the Joint Global Coordinators and certain other customary exceptions.
On September 2, 2021 we announced the sale of 17.6 million Technip Energies shares, representing approximately 10% of Technip Energies’ issued and outstanding share capital, through a private sale transaction with HAL Investments, the Dutch investment subsidiary of HAL Holding, N.V. (the “September Sale”). The sale price of the shares in the September Sale was set at €11.15 per share, yielding total gross proceeds of €196.2 million, or $231.5 million. The Joint Global Coordinators from the July Placement granted a waiver of the 60-day lock-up solely for the purpose of the September Sale.
The September Sale was completed in two tranches. The first tranche of 8.6 million shares was sold and settled in September for gross proceeds of €96.3 million, or $114.4 million. The second tranche of 9.0 million shares was settled on October 22, 2021 for gross proceeds of €99.9 million, or $116.4 million.
As a result of the reduced ownership interest in Technip Energies and related loss of significant influence, we discontinued the use of equity method of accounting for our interest in Technip Energies. Following the September sale, we account for our remaining ownership interest in Technip Energies as equity security at fair value.
As of December 31, 2021, we retained a direct stake of 21.9 million shares, representing 12.2% of Technip Energies’ issued and outstanding share capital. There is no lock-up associated with our remaining stake in Technip Energies. The carrying amount of our investment in Technip Energies as of December 31, 2021 was $317.3 million.
For the year ended December 31, 2021, we recognized $322.2 million of income related to our investment in Technip Energies. The amounts recognized include purchase price discounts on the sales of shares and a fair value revaluation gains and losses of our investment. See Note 26 for further details.
NOTE 14. RELATED PARTY TRANSACTIONS
Receivables, payables, revenues and expenses which are included in our consolidated financial statements for all transactions with related parties, defined as entities related to our directors and main shareholders as well as the partners of our consolidated joint ventures, were as follows.
Trade receivables consisted of trade receivables due from the following related parties:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Equinor ASA | $ | — | | | $ | 24.1 | |
| Dofcon Navegacao | 22.7 | | | 4.2 | |
| Techdof Brasil AS | 4.5 | | | 8.0 | |
| | | |
| Others | 2.5 | | | 1.7 | |
| Total trade receivables | $ | 29.7 | | | $ | 38.0 | |
Dofcon Navegacao and Dofcon Brasil AS are our equity method investments and Techdof Brasil AS is a wholly owned subsidiary of Dofcon Brasil AS. In October 2020, we added a new member to our Board of Directors who was an executive of Equinor ASA up through January 2021.
Payables consisted of payables due to the following related parties:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Crescent Energy | $ | 2.7 | | | $ | — | |
| Dofcon Navegacao | $ | — | | | $ | 1.5 | |
| Arkema S.A. | 0.9 | | | 0.5 | |
| Others | 1.9 | | | 2.6 | |
| Total trade payables | $ | 5.5 | | | $ | 4.6 | |
Additionally, we have a note receivable balance of $12.6 million and $37.6 million with Dofcon Brasil AS as of December 31, 2021 and 2020, respectively. These are included in other assets in our consolidated balance sheets.
Revenue consisted of amount from following related parties:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Equinor ASA | $ | — | | | $ | 119.6 | | | $ | — | |
| Anadarko Petroleum Company | — | | | — | | | 67.1 | |
| TOP CV | — | | | — | | | 11.9 | |
| Dofcon Navegacao | 9.9 | | | 3.4 | | | 8.4 | |
| Techdof Brasil AS | 15.8 | | | 11.2 | | | 8.3 | |
| Others | 14.0 | | | 18.5 | | | 14.4 | |
| Total revenue | $ | 39.7 | | | $ | 152.7 | | | $ | 110.1 | |
A member of our Board of Directors (the “Director”) served on the Board of Directors of Anadarko Petroleum Company (“Anadarko”) until August 2019. In August 2019, Anadarko was acquired by Occidental Petroleum Corporation (“Occidental”). As a result, the Director no longer serves as a member of the Board of Directors of Anadarko. The Director is not an officer or director of Occidental.
TOP CV was previously an equity method affiliate that became a fully consolidated subsidiary on December 30, 2019. See Note 3 for further details.
Expenses consisted of amounts to following related parties:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Arkema S.A. | $ | 3.8 | | | $ | 1.5 | | | $ | 3.8 | |
| Serimax Holdings SAS | 7.6 | | | 0.4 | | | 17.7 | |
| Magma Global Limited | 8.8 | | | 14.0 | | | 7.3 | |
| Jumbo Shipping | — | | | 16.0 | | | 4.5 | |
| Dofcon Navegacao | 26.7 | | | 24.0 | | | 1.8 | |
| Altus Intervention | — | | | 3.6 | | | 1.8 | |
| Others | 18.5 | | | 17.6 | | | 17.8 | |
| Total expenses | $ | 65.4 | | | $ | 77.1 | | | $ | 54.7 | |
Serimax Holdings SAS is an equity method affiliate. Members of our Board of Directors served on the Board of Directors for Jumbo Shipping. Magma Global Limited was an equity method affiliate through September 30, 2021. In October 2021, we purchased the remaining ownership interest in Magma Global, see Note 3 for further details.
NOTE 15. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Land and land improvements | $ | 79.4 | | | $ | 80.0 | |
| Buildings | 471.6 | | | 514.6 | |
| Vessels | 1,979.0 | | | 1,968.1 | |
| Machinery and equipment | 1,849.0 | | | 1,871.8 | |
| Office fixtures and furniture | 121.9 | | | 125.4 | |
| Construction in process | 110.5 | | | 147.3 | |
| Other | 189.8 | | | 203.2 | |
| 4,801.2 | | | 4,910.4 | |
| Accumulated depreciation | (2,204.0) | | | (2,154.2) | |
| Property, plant and equipment, net | $ | 2,597.2 | | | $ | 2,756.2 | |
Depreciation expense was $291.3 million, $308.7 million and $363.0 million in 2021, 2020 and 2019, respectively. The amount of interest cost capitalized was not material for the years presented.
During 2021 and 2020, we determined the carrying amount of certain of our long-lived assets exceeded their fair value and recorded impairments. See Note 20 for further details.
NOTE 16. GOODWILL AND INTANGIBLE ASSETS
Goodwill - We record goodwill as the excess of the purchase price over the fair value of the net assets acquired in acquisitions accounted for under the purchase method of accounting. We test goodwill for impairment annually as of October 31 of each year, or more frequently if circumstances indicate possible impairment. We identify a potential impairment by comparing the fair value of the applicable reporting unit (which is consistent with our business segments) 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.
We test our goodwill for impairment by comparing the fair value of each of our reporting units to their net carrying value. Our impairment analysis is quantitative; however, it includes subjective estimates based on assumptions regarding future growth rates, interest rates and operating expenses.
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 capital 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 and the market multiple approach.
During the first quarter of 2020, triggering events were identified which led to performing interim goodwill impairment testing in our reporting units as of March 31, 2020. These events included the COVID-19 pandemic breakout, commodity price declines, and a significant decrease in our market capitalization as well as those of our peers and customers. The fair value for our reporting units for the interim testing was valued using a market approach. An appropriate control premium was considered for each of the reporting units and applied to the output of the market approach. An interim impairment test during the first quarter of 2020 resulted in $2,747.5 million and $335.9 million of goodwill impairment charges recorded in our Subsea and Surface Technologies segments, respectively. Subsequent to the charges, we do not have any goodwill recorded in either of our segment.
The carrying amount of goodwill by reporting segment was as follows:
| | | | | | | | | | | | | | | | | |
| (In millions) | Subsea | | Surface Technologies | | Total |
| December 31, 2019 | $ | 2,792.8 | | | $ | 335.7 | | | $ | 3,128.5 | |
| Impairments | (2,747.5) | | | (335.9) | | | (3,083.4) | |
| | | | | |
| Translation | (45.3) | | | 0.2 | | | (45.1) | |
| December 31, 2020 | $ | — | | | $ | — | | | $ | — | |
Intangible assets - The components of intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In millions) | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Acquired technology | $ | 247.0 | | | $ | 122.4 | | | $ | 247.1 | | | $ | 98.1 | |
| | | | | | | |
| Customer relationships | 285.4 | | | 142.9 | | | 285.3 | | | 114.4 | |
| Licenses, patents and trademarks | 694.6 | | | 220.7 | | | 690.3 | | | 189.3 | |
| Software | 108.2 | | | 84.8 | | | 111.3 | | | 81.1 | |
| Other | 54.0 | | | 4.7 | | | 10.4 | | | 10.2 | |
| Total intangible assets | $ | 1,389.2 | | | $ | 575.5 | | | $ | 1,344.4 | | | $ | 493.1 | |
We recorded $94.1 million, $103.4 million and $104.7 million in amortization expense related to intangible assets during the years ended December 31, 2021, 2020 and 2019, respectively. During the years 2022 through 2026, annual amortization expense is expected to be $87 million in each of the five years and $351 million thereafter in the aggregate.
NOTE 17. DEBT
Overview
Long-term debt consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2021 | | 2020 |
| Commercial paper | $ | — | | | $ | 1,043.7 | |
| Synthetic bonds due 2021 | — | | | 551.2 | |
3.45% Senior Notes due 2022 | — | | | 500.0 | |
3.40% 2012 Private placement notes due 2022 | 169.9 | | | 184.0 | |
3.15% 2013 Private placement notes due 2023 | 288.8 | | | 312.9 | |
5.75% 2020 Private placement notes due 2025 | 226.5 | | | 245.4 | |
6.50% Senior notes due 2026 | 633.1 | | | — | |
4.00% 2012 Private placement notes due 2027 | 84.9 | | | 92.0 | |
4.00% 2012 Private placement notes due 2032 | 113.3 | | | 122.7 | |
3.75% 2013 Private placement notes due 2033 | 113.3 | | | 122.7 | |
| Bank borrowings and other | 397.4 | | | 298.4 | |
| Unamortized debt issuance costs and discounts | (22.3) | | | (12.8) | |
| Total debt | 2,004.9 | | | 3,460.2 | |
| Less: current borrowings | 277.6 | | | 624.7 | |
| Long-term debt | $ | 1,727.3 | | | $ | 2,835.5 | |
Debt maturities as of December 31, 2021, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (In millions) | Total
payments | | Less than
1 year | | 1-3
years | | 3-5
years | | After 5
years |
| Total debt | $ | 2,004.9 | | | $ | 277.6 | | | $ | 402.1 | | | $ | 942.9 | | | $ | 382.3 | |
Debt Financing Transactions in Connection with the Spin-off
In connection with the Spin-off, we executed a series of refinancing transactions, in order to provide a capital structure with sufficient cash resources to support future operating and investment plans.
Debt Issuance
•On February 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 sub-facility; and
•On January 29, 2021, we issued $1.0 billion of 6.50% senior notes due 2026 (the “2021 Notes”).
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 in January 2021;
•the repayment of all $500.0 million aggregate principal amount of outstanding 3.45% Senior Notes due 2022. In connection with the repayment, we recorded a loss on extinguishment of debt of $23.5 million related to the difference between the amount paid and the net carrying value of the debt; and
•the termination of the $2.5 billion senior unsecured revolving credit facility entered into on January 17, 2017; the termination of the €500.0 million Euro Facility entered into on May 19, 2020, and the termination of the CCFF Program entered into on May 19, 2020. In connection with the termination of these credit facilities, we repaid $830.9 million of the outstanding commercial paper borrowings.
Credit Facilities and Debt
Revolving Credit Facility - On February 16, 2021, we entered into a credit agreement, which provides for a $1.0 billion three-year senior secured multi-currency Revolving Credit Facility including a $450.0 million letter of credit sub-facility. We incurred $34.8 million of debt issuance costs in connection with the Revolving Credit Facility. These debt issuance costs are deferred and are included in other assets in our consolidated balance sheet as of December 31, 2021. The deferred debt issuance costs are amortized to interest expense over the term of the Revolving Credit Facility.
Availability of borrowings under the Revolving Credit Facility is reduced by the outstanding letters of credit issued against the facility. As of December 31, 2021, there were $16.7 million letters of credit outstanding and availability of borrowings under the Revolving Credit Facility was $983.3 million.
Borrowings under the Revolving Credit Facility bear interest at the following rates, plus an applicable margin, depending on currency:
•U.S. dollar-denominated loans bear interest, at the Company’s option, at a base rate or an adjusted rate linked to the London interbank offered rate (“Adjusted LIBOR”); and
•Euro-denominated loans bear interest on an adjusted rate linked to the Euro interbank offered rate.
The applicable margin for borrowings under the Revolving Credit Facility ranges from 2.50% to 3.50% for Eurocurrency loans and 1.50% to 2.50% for base rate loans, depending on a total leverage ratio. The Revolving Credit Facility is subject to customary representations and warranties, covenants, events of default, mandatory repayment provisions and financial covenants.
2021 Notes - On January 29, 2021, we issued $1.0 billion of 6.50% senior notes due 2026. The interest on the 2021 Notes is paid semi-annually on February 1 and August 1 of each year, beginning on August 1, 2021. The 2021 Notes are senior unsecured obligations and are guaranteed on a senior unsecured basis by substantially all of our wholly-owned U.S. subsidiaries and non-U.S. subsidiaries in Brazil, the Netherlands, Norway, Singapore and the United Kingdom. We incurred $25.7 million of debt issuance costs in connection with issuance of the 2021 Notes. These debt issuance costs are deferred and are included in long-term debt in our consolidated balance sheet as of December 31, 2021. The deferred debt issuance costs are amortized to interest expense over the term of the 2021 Notes, which approximates the effective interest method.
During 2021, we completed two tender offers and purchased for cash $366.9 million of the outstanding 2021 Notes. We paid a cash premium of $29.5 million to the note holders who tendered and wrote-off $8.9 million of bond issuance costs.
As of December 31, 2021, we were in compliance with all debt covenants.
Commercial paper - As of December 31, 2021, we had no commercial paper outstanding. In accordance with the terms of the new Revolving Credit Facility, we do not have an ability to issue any new commercial paper notes going forward. As of December 31, 2020, our commercial paper borrowings had a weighted average interest rate of 0.34% on the U.S. dollar denominated borrowings. Commercial paper borrowings were issued at market interest rates. As of December 31, 2020, we had $225.8 million of outstanding commercial paper borrowings under this program.
Synthetic bonds - In 2016, we issued €450.0 million principal amount of 0.875% convertible bonds. Interest on the synthetic bonds was payable semi-annually in arrears on January 25 and July 25 of each year, beginning July 26, 2016. The synthetic bonds were repaid during the first quarter of 2021.
Senior Notes - As of December 31, 2020, we had outstanding 3.45% $500.0 million senior notes due October 1, 2022. The senior notes were redeemed during the first quarter of 2021.
Private Placement Notes
2020 Issuance:
During 2020, we completed the private placement of €200 million aggregate principal amount of the 2020 Private Placement Notes. The 2020 Private Placement Notes bear interest of 5.75% and are due June 2025. Prior to 2021, these notes had an interest of 4.50%. Interest on the notes is payable annually in arrears on June 30 of each year beginning June 30, 2020. The 2020 Private Placement Notes contain usual and customary covenants and events of default for notes of this type.
2013 Issuances:
In October 2013, we completed the private placement of €355.0 million aggregate principal amount of senior notes. The notes were issued in three tranches with €100.0 million bearing interest at 3.75% and due October 2033 (the “Tranche A 2033 Notes”), €130.0 million bearing interest of 3.15% and due October 2023 (the “Tranche B 2023 Notes) and €125.0 million bearing interest of 3.15% and due October 2023 (the “Tranche C 2023 Notes” and, collectively with the “Tranche A 2033 Notes and the “Tranche B 2023 Notes”, the “2013 Private Placement Notes”).
Interest on the Tranche A 2033 Notes is payable annually in arrears on October 7 each year, beginning October 7, 2014. Interest on the Tranche B 2023 Notes is payable annually in arrears on October 16 of each year beginning October 16, 2014. Interest on the Tranche C 2023 Notes is payable annually in arrears on October 18 of each year, beginning October 18, 2014.
2012 Issuances:
In June 2012, we completed the private placement of €325.0 million aggregate principal amount of notes. The notes were issued in three tranches with €150.0 million bearing interest at 3.40% and due June 2022 (the “Tranche A 2022 Notes”), €75.0 million bearing interest of 4.0% and due June 2027 (the “Tranche B 2027 Notes”) and €100.0 million bearing interest of 4.0% and due June 2032 (the “Tranche C 2032 Notes” and, collectively with the “Tranche A 2022 Notes and the “Tranche B 2027 Notes,” the “2012 Private Placement Notes”). Interest on the Tranche A 2022 Notes and the Tranche C 2032 Notes is payable annually in arrears on June 14 of each year beginning June 14, 2013. Interest on the Tranche B 2027 Notes is payable annually in arrears on June 15 of each year, beginning June 15, 2013.
The 2013 and 2012 Private Placement Notes contain usual and customary covenants and events of default for notes of this type. In the event of a change of control resulting in a downgrade in the rating of the notes below BBB-, the 2013 and 2012 Private Placement Notes may be redeemed early at the request of any bondholder, at its sole discretion. The 2013 and 2012 Private Placement Notes are our unsecured obligations. The 2013 and 2012 Private Placement Notes will rank equally in right of payment with all of our existing and future unsubordinated debt.
Term loan - In December 2016, we entered into a £160.0 million term loan agreement to finance the Deep Explorer, a diving support vessel (“DSV”), maturing December 2028. Under the loan agreement, interest accrues at an annual rate of 2.813%. This loan agreement contains usual and customary covenants and events of default for loans of this type.
Bank borrowings - In January 2019, we executed a sale-leaseback transaction to finance the purchase of a deepwater dive support vessel, Deep Discoverer (the “Vessel”) for the full transaction price of $116.8 million. The sale-leaseback agreement (“Charter”) was entered into with a French joint-stock company, owned by Credit Industrial et Commercial (“CIC”) which was formed for the sole purpose to purchase and act as the lessor of the Vessel. It is a variable interest entity, which is fully consolidated in our consolidated financial statements. The transaction was funded through debt of $96.2 million which is primarily long-term, expiring on January 8, 2031.
Foreign committed credit - We have committed credit lines at many of our international subsidiaries for immaterial amounts. We utilize these facilities for asset financing and to provide a more efficient daily source of liquidity. The effective interest rates depend upon the local national market.
NOTE 18. STOCKHOLDERS’ EQUITY
Cash dividends paid during the years ended December 31, 2021, 2020 and 2019 were nil, $59.2 million and $232.8 million, respectively.
As an English public limited company, we are required under U.K. law to have available “distributable reserves” to conduct share repurchases or pay dividends to shareholders. Distributable reserves are a statutory requirement and are not linked to a GAAP reported amount (e.g., retained earnings). The declaration and payment of dividends require the authorization of our Board of Directors, provided that such dividends on issued share capital may be paid only out of our “distributable reserves” on our statutory balance sheet. Therefore, we are not permitted to pay dividends out of share capital, which includes share premium. On November 27, 2019, we redeemed 50,000 redeemable shares of £1 each and cancelled one deferred ordinary share of £1 in the capital of TechnipFMC.
The following is a summary of our capital stock activity for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| (Number of shares in millions) | Ordinary
Shares Issued | | Ordinary Shares
Held in
Employee
Benefit Trust | | Treasury Stock |
| December 31, 2018 | 450.5 | | | 0.1 | | | — | |
| | | | | |
| Stock awards | 0.6 | | | — | | | — | |
| | | | | |
| Treasury stock purchases | — | | | — | | | 4.0 | |
| Treasury stock cancellation | (4.0) | | | — | | | (4.0) | |
| Net stock purchased for employee benefit trust | — | | | (0.1) | | | — | |
| December 31, 2019 | 447.1 | | | — | | | — | |
| | | | | |
| Stock awards | 2.4 | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| December 31, 2020 | 449.5 | | | — | | | — | |
| | | | | |
| Stock awards | 1.2 | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| December 31, 2021 | 450.7 | | | — | | | — | |
In 2017, the Board of Directors authorized a share repurchase program of up to $500.0 million in ordinary shares and in December 2018, the Board of Directors authorized an extension of the share repurchase program of up to $300.0 million of additional shares. During the years ended December 31, 2021, 2020 and 2019, we repurchased nil, nil and $92.7 million of shares, respectively. As of December 31, 2021, we had $207.8 million of shares authorized for repurchase. Repurchased shares are canceled and not held in treasury. Canceled treasury shares are accounted for using the constructive retirement method.
Accumulated other comprehensive income (loss) - Accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Foreign Currency
Translation | | | | Hedging | | Defined Pension
and Other
Post-Retirement
Benefits | | Accumulated Other
Comprehensive
Loss Attributable to
TechnipFMC plc | | Accumulated Other
Comprehensive
Loss Attributable
to Non-Controlling Interest |
| December 31, 2019 | $ | (1,230.1) | | | | | $ | (5.8) | | | $ | (171.6) | | | $ | (1,407.5) | | | $ | (4.7) | |
| Other comprehensive income (loss) before reclassifications, net of tax | (171.1) | | | | | 26.8 | | | (92.9) | | | (237.2) | | | 0.6 | |
| Reclassification adjustment for net (gains) losses included in net income, net of tax | — | | | | | 13.0 | | | 9.2 | | | 22.2 | | | — | |
| Other comprehensive income (loss), net of tax | (171.1) | | | | | 39.8 | | | (83.7) | | | (215.0) | | | 0.6 | |
| December 31, 2020 | $ | (1,401.2) | | | | | $ | 34.0 | | | $ | (255.3) | | | $ | (1,622.5) | | | $ | (4.1) | |
| Other comprehensive income (loss) before reclassifications, net of tax | 29.2 | | | | | (19.8) | | | 70.8 | | | 80.2 | | | (1.6) | |
| Reclassification adjustment for net (gains) losses included in net income, net of tax | — | | | | | (11.8) | | | 18.0 | | | 6.2 | | | — | |
| Other comprehensive income (loss), net of tax | 29.2 | | | | | (31.6) | | | 88.8 | | | 86.4 | | | (1.6) | |
| Spin-off of Technip Energies | 213.6 | | | | | (19.7) | | | 37.2 | | | 231.1 | | | — | |
| December 31, 2021 | $ | (1,158.4) | | | | | $ | (17.3) | | | $ | (129.3) | | | $ | (1,305.0) | | | $ | (5.7) | |
Reclassifications out of accumulated other comprehensive income (loss) - Reclassifications out of accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| (In millions) | | 2021 | | 2020 | | 2019 | | |
| Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified out of Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income |
| Gains on foreign currency translation | | $ | — | | | $ | — | | | $ | 12.0 | | | Other income (expense), net |
| | | | | | | | |
| Gains (losses) on hedging instruments | | | | | | | | |
| Foreign exchange contracts | | $ | (29.7) | | | $ | (83.7) | | | $ | (26.6) | | | Revenue |
| | 10.7 | | | 68.5 | | | 12.0 | | | Costs of sales |
| | 0.2 | | | (0.4) | | | — | | | Selling, general and administrative expense |
| | | | | | | | |
| | 32.9 | | | (4.4) | | | (9.1) | | | Other Income (expense), net |
| | 14.1 | | | (20.0) | | | (23.7) | | | Income (loss) before income taxes |
| | 2.3 | | | (7.0) | | | (5.5) | | | Provision (benefit) for income taxes |
| | $ | 11.8 | | | $ | (13.0) | | | $ | (18.2) | | | Net income (loss) |
| | | | | | | | |
| Pension and other post-retirement benefits | | | | | | | | |
| Settlements and curtailments | | $ | (3.3) | | | $ | (2.2) | | | $ | (0.3) | | | (a) |
| Amortization of actuarial gain (loss) | | (18.2) | | | (9.0) | | | (2.5) | | | (a) |
| Amortization of prior service credit (cost) | | (0.5) | | | (1.2) | | | (1.0) | | | (a) |
| | (22.0) | | | (12.4) | | | (3.8) | | | Income (loss) before income taxes |
| | (4.0) | | | (3.2) | | | (0.8) | | | Provision (benefit) for income taxes |
| | $ | (18.0) | | | $ | (9.2) | | | $ | (3.0) | | | Net income (loss) |
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (See Note 23 for further details).
NOTE 19. SHARE-BASED COMPENSATION
Incentive compensation and award plan - On January 11, 2017, we adopted the TechnipFMC plc Incentive Award Plan (the “Plan”). The Plan provides certain incentives and awards to officers, employees, non-employee directors and consultants of TechnipFMC and its subsidiaries. The Plan allows our Board of Directors to make various types of awards to non-employee directors and the Compensation Committee (the “Committee”) of the Board of Directors to make various types of awards to other eligible individuals. Awards may include share options, share appreciation rights, performance share units, restricted share units, restricted shares or other awards authorized under the Plan. All awards are subject to the Plan’s provisions, including all share-based grants previously issued prior to consummation of the merger of FMC Technologies and Technip S.A. (the “Merger”). Under the Plan, 24.1 million ordinary shares were authorized for awards in 2017. On the record date of the Spin-off, 11.9 million shares remained available under the Plan, which were adjusted to reflect the Spin-off using an adjustment ratio, calculated as the ratio of the closing price of shares of TechnipFMC on the NYSE on the date immediately after the Spin-off. After this adjustment, 15.2 million ordinary shares remained authorized for awards under the Plan as of February 17, 2021. As of December 31, 2021, 7.8 million ordinary shares were available for future grant
The exercise price for options is determined by the Committee but cannot be less than the fair market value of our ordinary shares at the grant date. Restricted share and performance share unit grants generally vest after three years of service.
Under the Plan, our Board of Directors has the authority to grant non-employee directors share options, restricted shares, restricted share units and performance shares. Unless otherwise determined by our Board of Directors, awards to non-employee directors generally vest one year from the date of grant. All restricted share units awarded prior to 2020 will be settled when a non-executive director ceases services on the Board of Directors. Beginning with the 2020 equity award, non-executive directors now have the opportunity to elect the year in which they will take receipt of the equity grants from either (a) a period of 1 to 10 years from the grant date or (b) upon their separation from Board service. The elections are made prior to the beginning of the grant year and are irrevocable after December 31 of the year prior to grant. Restricted share units are settled when a director ceases services to the Board of Directors. As of December 31, 2021, outstanding awards to active and retired non-employee directors included 184.6 thousand of share units.
The measurement of share-based compensation expense on restricted share awards is based on the market price and fair value at the grant date and the number of shares awarded. The fair value of performance shares is estimated using a combination of the closing stock price on the grant date and the Monte Carlo simulation model. We use Black-Scholes options pricing model to measure the fair value of stock options granted on or after January 1, 2017.
The share-based compensation expense for each award is recognized ratably over the applicable service period or the period beginning at the start of the service period and ending when an employee becomes eligible for retirement (currently age 62 under the Plan), after taking into account estimated forfeitures.
We recognize compensation expense and the corresponding tax benefits for awards under the Plan. The compensation expense under the Plan for continuing operations was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Share-based compensation expense | $ | 26.8 | | | $ | 38.3 | | | $ | 44.4 | |
| Income tax benefits related to share-based compensation expense | 7.2 | | | 10.3 | | | 12.0 | |
In connection with the Spin-off and in accordance with the employee matters agreement, TechnipFMC has made certain adjustments to the exercise price and the number of share-based compensation awards. Share options and restricted share units were modified and converted into similar awards of the entity where the employee is working post the Spin-off using an adjustment ratio with the intention of preserving the intrinsic value of the awards prior to the Spin-off. Performance share units have been modified and converted to restricted share units at the target value using the adjustment ratio. The pre-tax share-based compensation expense due to the adjustments was $5.2 million in fiscal year 2021. All outstanding share awards and share options for employees transferred to Technip Energies were cancelled in connection with the Spin-off.
Additionally, in connection with the Spin-off, the Board of Directors approved amendments to certain outstanding long-term incentive awards on January 28, 2021. The amendments provided for the accelerated vesting on February 2, 2021 of certain stock-based awards that were otherwise scheduled to vest between June 1, 2021 and November 31, 2021.
As of December 31, 2021, the portion of share-based compensation expense related to outstanding awards to be recognized in future periods is as follows:
| | | | | |
| December 31, 2021 |
| Share-based compensation expense not yet recognized (in millions) | $ | 51.6 | |
| Weighted-average recognition period (in years) | 1.4 |
Restricted Share Units
A summary of the non-vested restricted share units’ activity is as follows:
| | | | | | | | | | | |
| (Shares in thousands) | Shares | | Weighted-Average
Grant Date
Fair Value |
| Non-vested as of December 31, 2020 | 6,121.9 | | | $ | 18.43 | |
| | | |
| Granted | 2,893.0 | | | $ | 7.97 | |
| Vested | (667.1) | | | $ | 37.57 | |
| Cancelled/forfeited | (882.6) | | | $ | 13.75 | |
| Adjustment due to the Spin-off | 2,124.3 | | | $ | 12.37 | |
| Non-vested as of December 31, 2021 | 9,589.5 | | | $ | 11.35 | |
The total grant date fair value of restricted stock share units vested during the years ended December 31, 2021, 2020 and 2019 was $25.1 million, $51.8 million and $10.2 million, respectively.
Performance Share Units
The Board of Directors has granted certain employees, senior executives and directors performance share units that vest subject to achieving satisfactory performances. For performance share units issued on or after January 1, 2017, performance is based on results of return on invested capital and total shareholder return (“TSR”).
For the performance share units which vest based on TSR, the fair value of performance shares is estimated using a combination of the closing stock price on the grant date and the Monte Carlo simulation model. The weighted-average fair value and the assumptions used to measure the fair value of performance share units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Weighted-average fair value (a) | $11.50 | | $10.02 | | $29.04 |
Expected volatility (b) | 62.70 | % | | 38.30 | % | | 34.00 | % |
Risk-free interest rate (c) | 0.35 | % | | 0.40 | % | | 2.42 | % |
Expected performance period in years (d) | 2.9 | | 3.0 | | 3.0 |
(a) The weighted-average fair value was based on performance share units granted during the period.
(b) Expected volatility is based on normalized historical volatility of our shares over a preceding period commensurate with the expected term of the performance share units.
(c) The risk-free rate for the expected term of the performance share units is based on the U.S. Treasury yield curve in effect at the time of grant.
(d) For awards subject to service-based vesting, due to the lack of historical exercise and post-vesting termination patterns of the post-Merger employee base, the expected term was estimated using a simplified method for all awards granted in 2021, 2020 and 2019.
A summary of the non-vested performance share units’ activity is as follows:
| | | | | | | | | | | |
| (Shares in thousands) | Shares | | Weighted-Average
Grant Date
Fair Value |
| Non-vested as of December 31, 2020 | 4,840.7 | | | $ | 17.55 | |
| | | |
| Granted | 2,426.2 | | | $ | 11.50 | |
| Vested | (111.3) | | | $ | 30.42 | |
| Cancelled/forfeited | (1,723.2) | | | $ | 16.03 | |
| Adjustment due to the Spin-off | (3,122.8) | | | $ | 12.37 | |
| Non-vested as of December 31, 2021 | 2,309.6 | | | $ | 13.26 | |
The total grant date fair value of performance share units vested during years ended December 31, 2021, 2020 and 2019 was $3.4 million, $43.2 million and $13.3 million, respectively.
Share Option Awards
The fair value of each share option award is estimated as of the date of grant using the Black-Scholes options pricing model.
Share options awarded prior to 2017 were granted subject to performance criteria based upon certain targets, such as TSR, return on capital employed, and operating income from recurring activities. Subsequent share options granted are time-based awards vesting over three years.
There were no share option awards granted in 2021 or 2020. The weighted-average fair value and the assumptions used to measure fair value of 2019 grant were as follows:
| | | | | | | | |
| | December 31, 2019 |
Weighted-average fair value (a) | | $ | 5.64 | |
Expected volatility (b) | | 32.5 | % |
Risk-free interest rate (c) | | 2.5 | % |
| Expected dividend yield | | 2.6 | % |
Expected term in years (d) | | 6.5 |
(a)The weighted-average fair value was based on stock options granted during the period.
(b)Expected volatility is based on normalized historical volatility of our shares over a preceding period commensurate with the expected term of the option.
(c)The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
(d)For awards subject to service-based vesting, due to the lack of historical exercise and post-vesting termination patterns of the post-Merger employee base, the expected term was estimated using a simplified method for all awards granted in 2019.
The following is a summary of share option transactions during the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted average exercise price | | Weighted average remaining life
(in years) | | |
| Balance as of December 31, 2020 | 4,598.4 | | | $ | 29.77 | | | 4.2 | | |
| Granted | — | | | $ | — | | | | | |
| Exercised | — | | | $ | — | | | | | |
| Cancelled | (532.0) | | | $ | 24.10 | | | | | |
| Adjustment due to the Spin-off | (2,490.3) | | | $ | — | | | | | |
| Balance as of December 31, 2021 | 1,576.1 | | | $ | 20.17 | | | 6.3 | | |
| Exercisable as of December 31, 2021 | 939.3 | | | $ | 22.99 | | | 5.6 | | |
The aggregate intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2021 was nil and nil, respectively.
Cash received from the share option exercises was nil, during each of the years ended December 31, 2021, 2020 and 2019. The total intrinsic value of share options exercised during each of the years ended December 31, 2021, 2020 and 2019 was nil. To exercise share options, an employee may choose (1) to pay, either directly or by way of the group savings plan, the share option strike price to obtain shares, or (2) to sell the shares immediately after having exercised the share option (in this case, the employee does not pay the strike price but instead receives the intrinsic value of the share options in cash).
The following summarizes significant ranges of outstanding and exercisable share options as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
| Exercise Price Range | Number of options
(in thousands) | | Weighted average remaining life (in years) | | Weighted average exercise price | | Number of options
(in thousands) | | Weighted average exercise price |
$16.00-$19.00 | 636.7 | | | 7.2 | | $ | 16.46 | | | — | | | $ | — | |
$20.00-$24.00 | 721.2 | | | 5.6 | | $ | 22.28 | | | 721.2 | | | $ | 22.28 | |
$25.00-$26.00 | 218.2 | | | 5.6 | | $ | 25.32 | | | 218.1 | | | $ | 25.32 | |
| Total | 1,576.1 | | | 6.3 | | $ | 20.17 | | | 939.3 | | | $ | 22.99 | |
NOTE 20. IMPAIRMENT, RESTRUCTURING AND OTHER EXPENSES
Impairment, restructuring and other expenses were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Subsea | $ | 53.5 | | | $ | 2,957.5 | | | $ | 1,748.4 | |
| Surface Technologies | 7.6 | | | 440.2 | | | 704.2 | |
| Corporate and other | 5.6 | | | 4.3 | | | 4.1 | |
| Total impairment, restructuring and other expenses | $ | 66.7 | | | $ | 3,402.0 | | | $ | 2,456.7 | |
Goodwill and Long-Lived Assets Impairments
Goodwill and long-lived assets impairments were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Subsea | $ | 44.2 | | | $ | 2,854.5 | | | $ | 1,794.8 | |
| Surface Technologies | 1.9 | | | 419.3 | | | 685.5 | |
| Corporate and other | 3.0 | | | — | | | — | |
| Total impairments | $ | 49.1 | | | $ | 3,273.8 | | | $ | 2,480.3 | |
Subsequent to the Spin-off, certain real estate rationalization actions were taken, and as a result, we recorded $24.2 million of impairment charges relating to our operating lease right-of-use assets and $24.9 million of impairment of property, plant and equipment during the year ended December 31, 2021.
Due to the substantial decline in global demand for oil caused by the COVID-19 pandemic in 2020 we reviewed the future utilization of our vessels and service potential of our subsea service and surface equipment and determined that the carrying amount of our goodwill and some of our long-lived assets exceeded their respective fair values. We recorded $3,083.4 million and $190.4 million, respectively, related to goodwill and long-lived assets impairments. The $190.4 million of long-lived asset impairments during the year ended December 31, 2020 consisted of $88.4 million attributable to plant, equipment and various machinery infrastructure in our Subsea operating segment; $82.0 million mainly related to building and surface equipment in our Surface Technologies reportable segment; and $20.0 million of operating lease right-of-use assets impairments.
The prolonged downturn in the energy market and its corresponding impact on our business outlook in 2019 led us to conclude the carrying amount of certain of our assets in our Subsea and Surface Technologies segments exceeded their fair value as of December 31, 2019. During the 2019 year we recorded $1,988.7 million and $491.6 million, respectively, related to goodwill and long-lived assets impairments. The $491.6 million of long-lived asset impairments during the year ended December 31, 2019, primarily consisted of $153.8 million related to vessels in our Subsea operating segment and $168.9 million related to our flexible pipe and umbilical manufacturing facilities in our Surface Technologies reportable segment due to the prolonged downturn in the energy market and its corresponding impact on our business outlook.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts of such assets may not be recoverable. Assessing the recoverability of assets to be held and used requires the use of unobservable inputs, which involves significant judgment. Such judgments include expected future asset utilization while taking into account reduced future capital spending by certain customers in response to market conditions.
Restructuring and Other Expenses
Restructuring and other charges primarily consisted of severance and other employee related costs and COVID-19 related expenses across all segments. Restructuring and other expenses were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | 2019 |
| (In millions) | Restructuring and other charges | | Restructuring and other charges | | COVID-19 expenses | | Restructuring and other charges |
| Subsea | $ | 9.3 | | | $ | 52.9 | | | $ | 50.1 | | | $ | (46.4) | |
| Surface Technologies | 5.7 | | | 13.2 | | | 7.7 | | | 18.7 | |
| Corporate and other | 2.6 | | | 4.3 | | | — | | | 4.1 | |
| Total | $ | 17.6 | | | $ | 70.4 | | | $ | 57.8 | | | $ | (23.6) | |
COVID-19 related expenses represent unplanned, one-off, incremental and non-recoverable costs incurred solely as a result of the COVID-19 pandemic situation, which would not have been incurred otherwise. COVID-19 related expenses primarily included (a) employee payroll and travel, operational disruptions associated with quarantining, personnel travel restrictions to job sites, and shutdown of manufacturing plants and sites; (b) supply chain and related expediting costs of accelerated shipments for previously ordered and undelivered products; (c) costs associated with implementing additional information technology to support remote working environments; and (d) facilities-related expenses to ensure safe working environments.
Prolonged uncertainty in energy markets could lead to further future reductions in capital spending from our customer base. In turn, this may lead to changes in our strategy. We will continue to take actions designed to mitigate the adverse effects of the rapidly changing market environment and expect to continue to adjust our cost structure to market conditions. If market conditions continue to deteriorate, we may record additional restructuring charges and additional impairments of our long-lived assets, operating lease right-of-use assets and equity method investments.
NOTE 21. COMMITMENTS AND CONTINGENT LIABILITIES
Contingent liabilities associated with guarantees - In the ordinary course of business, we enter into standby letters of credit, performance bonds, surety bonds, and other guarantees with financial institutions for the benefit of our customers, vendors, and other parties. The majority of these financial instruments expire within five years. Management does not expect any of these financial instruments to result in losses that, if incurred, would have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Guarantees made by our consolidated subsidiaries consisted of the following:
| | | | | |
| (In millions) | December 31, 2021 |
Financial guarantees (a) | $ | 177.4 | |
Performance guarantees (b) | 1,069.0 | |
| Maximum potential undiscounted payments | $ | 1,246.4 | |
(a)Financial guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on changes in an underlying agreement that is related to an asset, a liability or an equity security of the guaranteed party. These tend to be drawn down only if there is a failure to fulfill our financial obligations.
(b)Performance guarantees represent contracts that contingently require a guarantor to make payments to a guaranteed party based on another entity's failure to perform under a nonfinancial obligating agreement. Events that trigger payment are performance-related, such as failure to ship a product or provide a service.
We believe the ultimate resolution of our known contingencies will not materially adversely affect our consolidated financial position, results of operations, or cash flows.
Contingent liabilities associated with legal and tax matters - We are involved in various pending or potential legal and tax actions or disputes in the ordinary course of our business. These actions and disputes can involve our agents, suppliers, clients, and venture partners, and can include claims related to payment of fees, service quality, and ownership arrangements, including certain put or call options. We are unable to predict the ultimate outcome of these actions because of their inherent uncertainty. However, we believe 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.
On March 28, 2016, FMC Technologies received an inquiry from the U.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 U.S. Foreign Corrupt Practices Act (“FCPA”). On March 29, 2016, Technip S.A. also received an inquiry from the DOJ related to Unaoil. We cooperated with the DOJ's investigations and, with regard to FMC Technologies, a related investigation by the SEC.
In late 2016, Technip S.A. was contacted by the DOJ regarding its investigation of offshore platform projects awarded between 2003 and 2007, performed in Brazil by a joint venture company in which Technip S.A. was a minority participant, and we have also raised with the DOJ certain other projects performed by Technip S.A. subsidiaries in Brazil between 2002 and 2013. The DOJ has also inquired about projects in Ghana and Equatorial Guinea that were awarded to Technip 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 of Brazil (“CGU”) and the Attorney General of Brazil (“AGU”)) with their investigation concerning the projects in Brazil and have also contacted and are cooperating with French authorities (the Parquet National Financier (“PNF”)) with their investigation about these existing matters.
On June 25, 2019, we announced a global resolution to pay a total of $301.3 million to the DOJ, the SEC, 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 and U.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 in Brazil and with Unaoil. In addition, Technip USA, Inc., a U.S. subsidiary, pled guilty to one count of conspiracy to violate the FCPA related to conduct in Brazil. We will also provide the DOJ reports on our anti-corruption program during the term of the DPA.
In Brazil, 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 in Brazil during a two-year self-reporting period, which aligns with our commitment to cooperation and transparency with the compliance community in Brazil and globally.
In September 2019, the SEC approved our previously disclosed agreement in principle with the SEC Staff and issued an Administrative Order, pursuant to which we paid the SEC $5.1 million, which was included in the global resolution of $301.3 million.
To date, the investigation by PNF related to historical projects in Equatorial Guinea and Ghana 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 other historical projects in Angola. We are not aware of any evidence that would support a finding of liability with respect to these projects, whether the PNF would seek to impose 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 anticorruption 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 in France, the outcome of which cannot be predicted.
Contingent liabilities associated with liquidated damages - Some of our contracts contain 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 commercial and legal analysis, management believes we have appropriately recognized probable liquidated damages as of December 31, 2021 and 2020, and that the ultimate resolution of such matters will not materially affect our consolidated financial position, results of operations, or cash flows.
NOTE 22. INCOME TAXES
Components of income (loss) from continuing operations before income taxes - U.S. and outside U.S. components of income (loss) from continuing operations before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| United States | $ | (288.2) | | | $ | (2,169.3) | | | $ | (2,376.4) | |
| Outside United States | 486.3 | | | (1,329.4) | | | (194.7) | |
| Income (loss) from continuing operations before income taxes | $ | 198.1 | | | $ | (3,498.7) | | | $ | (2,571.1) | |
Provision (benefit) for income tax - The provision for income taxes consisted of:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Current | | | | | |
| United States | $ | 0.2 | | | $ | (18.3) | | | $ | 39.1 | |
| Outside United States | 206.0 | | | 69.5 | | | 12.0 | |
| Total current income taxes | 206.2 | | | 51.2 | | | 51.1 | |
| Deferred | | | | | |
| United States | — | | | (2.8) | | | 3.8 | |
| Outside United States | (95.1) | | | (29.0) | | | 24.1 | |
| | | | | |
| Total deferred income taxes | (95.1) | | | (31.8) | | | 27.9 | |
| Provision for income taxes | $ | 111.1 | | | $ | 19.4 | | | $ | 79.0 | |
Deferred tax assets and liabilities - Significant components of deferred tax assets and liabilities were as follows:
| | | | | | | | | | | |
| | December 31, |
| (In millions) | 2021 | | 2020 |
| Deferred tax assets attributable to | | | |
| Accrued expenses | $ | 173.0 | | | $ | 133.0 | |
| Capital loss | 21.1 | | | 21.1 | |
| Non-deductible interest | 95.4 | | | 77.0 | |
| Foreign tax credit carryforwards | 136.5 | | | 134.4 | |
| Other tax credits | 146.0 | | | 163.8 | |
| Net operating loss carryforwards | 455.5 | | | 383.5 | |
| Inventories | 1.2 | | | 16.6 | |
| Research and development credit | 3.8 | | | 2.9 | |
| Foreign exchange | 17.2 | | | — | |
| Provisions for pensions and other long-term employee benefits | 31.9 | | | 66.1 | |
| Contingencies | 38.3 | | | 2.9 | |
| | | |
| | | |
| Margin recognition on construction contracts | 18.0 | | | 20.6 | |
| Leases | 183.4 | | | 170.4 | |
| | | |
| Other | 5.4 | | | 0.6 | |
| Deferred tax assets | 1,326.7 | | | 1,192.9 | |
| Valuation allowance | (935.5) | | | (815.1) | |
| Deferred tax assets, net of valuation allowance | 391.2 | | | 377.8 | |
| | | |
| Deferred tax liabilities attributable to | | | |
| Revenue in excess of billings on contracts accounted for under the percentage of completion method | 32.2 | | | 33.6 | |
| | | |
| U.S. tax on foreign subsidiaries’ undistributed earnings not indefinitely reinvested | — | | | 4.2 | |
| Property, plant and equipment, intangibles and other assets | 162.8 | | | 180.1 | |
| Foreign exchange | — | | | 43.9 | |
| Leases | 169.4 | | | 161.1 | |
| | | |
| Deferred tax liabilities | 364.4 | | | 422.9 | |
| Net deferred tax assets/(liabilities) | $ | 26.8 | | | $ | (45.1) | |
At December 31, 2021 and 2020, the carrying amount of net deferred tax assets and the related valuation allowance included the impact of foreign currency translation adjustments.
Non-deductible interest. At December 31, 2021, deferred tax assets include tax benefits related to certain intercompany interest costs which are not currently deductible, but which may be deductible in future periods. If not utilized, these costs will become permanently non-deductible beginning in 2025. Management believes that it is more likely than not that we will not be able to deduct these costs before expiration of the carry forward period; therefore, we have established an uncertain tax position and valuation allowance against the related deferred tax assets.
Foreign tax credit carryforwards. At December 31, 2021, deferred tax assets included U.S. foreign tax credit carryforwards of $136.5 million, which, if not utilized, will begin to expire in 2023. Realization of these deferred tax assets is dependent on the generation of sufficient U.S. taxable income prior to the above date. Based on long-term forecasts of operating results, management believes that it is more likely than not that our U.S. earnings over the forecast period will not result in sufficient U.S. taxable income to fully realize these deferred tax assets; therefore, we have established a valuation allowance against the related deferred tax assets. In its analysis, management has considered the effect of deemed dividends and other expected adjustments to U.S. earnings that are required in determining U.S. taxable income. Non-U.S. earnings subject to U.S. tax, including deemed dividends for U.S. tax purposes, were $19.5 million in 2021, $0.1 million in 2020 and $21.4 million in 2019.
Net operating loss carryforwards. At December 31, 2021, we had $455.5 million of tax-effected net operating loss carryforwards, with approximately $23.5 million estimated to be utilized against our unrecognized tax benefits. The ultimate realization of these deferred tax assets depends on our ability to generate sufficient taxable income in the appropriate taxing jurisdiction. Our deferred tax assets from net operating losses will expire as follows:
| | | | | |
| (In millions) | Net Operating Loss |
| 2022 – 2026 | $ | 55.4 | |
| 2027 – 2031 | 42.0 | |
| 2032 – 2042 | 70.1 | |
| Non-Expiring | 288.0 | |
| $ | 455.5 | |
Unrecognized tax benefits - The following table presents a summary of changes in our unrecognized tax benefits:
| | | | | | | | | |
| (In millions) | Federal,
State and
Foreign
Tax | | | | |
| Balance at December 31, 2019 | $ | 57.6 | | | | | |
| Reductions for tax positions related to prior years | (7.9) | | | | | |
| Reductions for tax positions related to current year | (2.9) | | | | | |
| Reductions for tax positions due to settlements | (0.6) | | | | | |
| Balance at December 31, 2020 | 46.2 | | | | | |
| Reductions for tax positions related to prior years | (15.2) | | | | | |
| Additions for tax positions related to current year | 39.9 | | | | | |
| Reductions for tax positions due to settlements | (2.1) | | | | | |
| | | | | |
| Balance at December 31, 2021 | $ | 68.8 | | | | | |
The amounts reported above for uncertain tax positions excludes interest and penalties of $0.2 million, $0.6 million, and nil for the years ended December 31, 2021, 2020, and 2019, respectively. Interest and penalties relating to these uncertain tax positions were included in income tax expense in our consolidated statements of income. It is reasonably possible that within twelve months, $14.3 million of assets for unrecognized tax benefits will be settled. This amount is reflected in income taxes payable, the remaining balance of the unrecognized tax benefit is recorded in other long term liabilities. As of December 31, 2021, a net $32.5 million unrecognized tax benefit, without a net operating loss carryforward or other deferred tax asset to offset, would positively impact the effective tax rate and be recognized as additional tax benefits in our statement of operations if resolved in our favor.
We operate in numerous jurisdictions around the world and could be subject to multiple tax audits at any given time. Most notably, the following tax years and thereafter remain subject to examination: 2012 for Norway, 2016 for Nigeria, 2017 for Brazil, 2019 for France, and 2018 for the United States.
TechnipFMC plc is a public limited company incorporated under the laws of England and Wales. Therefore, our earnings are subject to the U.K. statutory rate which is 19.0% for 2021, 2020, and 2019.
Effective income tax rate reconciliation - The effective income tax rate was different from the statutory U.K. income tax rate due to the following:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Statutory income tax rate | 19.0 | % | | 19.0 | % | | 19.0 | % |
| Net difference resulting from | | | | | |
| Foreign earnings subject to different tax rates | 24.4 | % | | 1.3 | % | | 3.4 | % |
| | | | | |
| Adjustments to prior year taxes | (52.4) | % | | (1.2) | % | | 0.8 | % |
| Net change in unrecognized tax benefits | 12.3 | % | | — | % | | — | % |
| Changes in valuation allowance | 65.4 | % | | (0.9) | % | | (7.2) | % |
| Deferred tax asset/liability revaluation for tax rate change | (12.2) | % | | 0.3 | % | | (0.4) | % |
| | | | | |
| Impairments | — | % | | (19.5) | % | | (19.7) | % |
| Non-deductible legal provision | — | % | | 0.3 | % | | 1.1 | % |
| Other | (0.4) | % | | 0.1 | % | | (0.1) | % |
| Effective income tax rate | 56.1 | % | | (0.6) | % | | (3.1) | % |
Income tax holidays. We did not benefit from income tax holidays in 2021.
NOTE 23. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
We have funded and unfunded defined benefit pension plans, which provide defined benefits based on years of service and final average salary.
On December 31, 2017, we amended the U.S. retirement plans (the “Plans”) to freeze benefit accruals for all participants of the Plans as of December 31, 2017. After that date, participants in the Plans will no longer accrue any further benefits and participants’ benefits under the Plans will be determined based on credited service and eligible earnings as of December 31, 2017.
Foreign-based employees are eligible to participate in TechnipFMC-sponsored or government-sponsored benefit plans to which we contribute. Several of the foreign defined benefit pension plans sponsored by us provide for employee contributions; the remaining plans are noncontributory. The most significant of these plans are in the Netherlands, France, and the United Kingdom.
We have other post-retirement benefit plans covering substantially all of our U.S. unionized employees. The post-retirement health care plans are contributory; the post-retirement life insurance plans are noncontributory.
We are required to recognize the funded status of defined benefit post-retirement plans as an asset or liability in the consolidated balance sheet and recognize changes in that funded status in comprehensive income (loss) in the year in which the changes occur. Further, we are required to measure the plan’s assets and its obligations that determine its funded status as of the date of the consolidated balance sheet. We have applied this guidance to our domestic pension and other post-retirement benefit plans as well as for many of our non-U.S. plans, including those in the United Kingdom, Germany, France and Canada. Pension expense measured in compliance with GAAP for the other non-U.S. pension plans is not materially different from the locally reported pension expense.
In connection with the Spin-off, certain international plans were transferred to Technip Energies and reported as discontinued operations for the years ended December 31, 2020 and 2019.
The funded status of our U.S. Pension Plans, certain foreign pension plans and U.S. post-retirement health care and life insurance benefit plans, together with the associated balances recognized in our consolidated balance sheets as of December 31, 2021 and 2020, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| Accumulated benefit obligation | $ | 653.6 | | | $ | 589.1 | | | $ | 684.7 | | | $ | 598.1 | | | | | |
| Projected benefit obligation at January 1 | $ | 684.7 | | | $ | 656.4 | | | $ | 669.7 | | | $ | 585.1 | | | $ | 9.4 | | | $ | 10.2 | |
| Service cost | — | | | 10.0 | | | — | | | 10.4 | | | — | | | — | |
| Interest cost | 18.0 | | | 9.8 | | | 22.2 | | | 11.3 | | | 0.3 | | | 0.4 | |
| Actuarial (gain) loss | 7.1 | | | (32.5) | | | 53.9 | | | 30.4 | | | (0.7) | | | (0.2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Settlements | (22.6) | | | — | | | (25.6) | | | (2.6) | | | — | | | — | |
| Foreign currency exchange rate changes | — | | | (11.9) | | | — | | | 23.6 | | | (0.2) | | | (0.6) | |
| Plan participants’ contributions | — | | | 0.9 | | | — | | | 1.1 | | | — | | | — | |
| Benefits paid | (33.6) | | | (22.0) | | | (35.5) | | | (17.8) | | | (0.4) | | | (0.4) | |
| | | | | | | | | | | |
| Other | — | | | (9.1) | | | — | | | 14.9 | | | — | | | — | |
| Projected benefit obligation as of December 31 | 653.6 | | | 601.6 | | | 684.7 | | | 656.4 | | | 8.4 | | | 9.4 | |
| Fair value of plan assets at January 1 | 483.7 | | | 591.5 | | | 520.0 | | | 521.2 | | | — | | | — | |
| Actual return on plan assets | 61.1 | | | 46.4 | | | 14.3 | | | 40.1 | | | — | | | — | |
| Company contributions | 28.9 | | | 19.6 | | | — | | | 27.1 | | | — | | | — | |
| Foreign currency exchange rate changes | — | | | (8.9) | | | — | | | 20.4 | | | — | | | — | |
| Settlements | (22.6) | | | — | | | (19.6) | | | (1.9) | | | — | | | — | |
| Plan participants’ contributions | — | | | 0.9 | | | — | | | 1.1 | | | — | | | — | |
| Benefits paid | (33.6) | | | (22.0) | | | (31.0) | | | (15.8) | | | — | | | — | |
| | | | | | | | | | | |
| Other | — | | | — | | | — | | | (0.7) | | | — | | | — | |
| Fair value of plan assets as of December 31 | 517.5 | | | 627.5 | | | 483.7 | | | 591.5 | | | — | | | — | |
| Funded status of the plans (liability) as of December 31 | $ | (136.1) | | | $ | 25.9 | | | $ | (201.0) | | | $ | (64.9) | | | $ | (8.4) | | | $ | (9.4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| | | | | | | | | | | |
| Current portion of accrued pension and other post-retirement benefits | $ | (2.9) | | | $ | (1.7) | | | $ | (4.6) | | | $ | (1.6) | | | $ | (0.6) | | | $ | (0.7) | |
| Accrued pension and other post-retirement benefits, net of current portion | (133.2) | | | 27.6 | | | (196.4) | | | (63.3) | | | (7.8) | | | (8.7) | |
| Funded status as of December 31 | $ | (136.1) | | | $ | 25.9 | | | $ | (201.0) | | | $ | (64.9) | | | $ | (8.4) | | | $ | (9.4) | |
The following table summarizes the pre-tax amounts in accumulated other comprehensive (income) loss as of December 31, 2021 and 2020 that have not been recognized as components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| Pre-tax amounts recognized in accumulated other comprehensive (income) loss | | | | | | | | | | | |
| Unrecognized actuarial loss | $ | 156.6 | | | $ | 15.9 | | | $ | 198.4 | | | $ | 79.1 | | | $ | 0.4 | | | $ | 1.3 | |
| Unrecognized prior service cost | — | | | 3.4 | | | — | | | 3.9 | | | — | | | — | |
| | | | | | | | | | | |
| Accumulated other comprehensive (income) loss as of December 31 | $ | 156.6 | | | $ | 19.3 | | | $ | 198.4 | | | $ | 83.0 | | | $ | 0.4 | | | $ | 1.3 | |
The following tables summarize the projected and accumulated benefit obligations and fair values of plan assets where the projected or accumulated benefit obligation exceeds the fair value of plan assets as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| Plans with underfunded or non-funded projected benefit obligation | | | | | | | | | | | |
| Aggregate projected benefit obligation | $ | 652.2 | | | $ | 57.9 | | | $ | 684.7 | | | $ | 513.1 | | | $ | 8.4 | | | $ | 9.4 | |
| Aggregate fair value of plan assets | $ | 516.0 | | | $ | — | | | $ | 483.7 | | | $ | 442.7 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| Plans with underfunded or non-funded accumulated benefit obligation | | | | | | | | | | | |
| Aggregate accumulated benefit obligation | $ | 652.2 | | | $ | 46.7 | | | $ | 684.7 | | | $ | 50.8 | | | $ | — | | | $ | — | |
| Aggregate fair value of plan assets | $ | 516.0 | | | $ | — | | | $ | 483.7 | | | $ | — | | | $ | — | | | $ | — | |
The following table summarizes the components of net periodic benefit cost (income) for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other Post-retirement
Benefits |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | U.S. | | Int’l | | | | | | |
| Components of net periodic benefit cost (income) | | | | | | | | | | | | | | | | | |
| Service cost | $ | — | | | $ | 10.0 | | | $ | — | | | $ | 10.4 | | | $ | — | | | $ | 7.0 | | | $ | — | | | $ | — | | | $ | — | |
| Interest cost | 18.0 | | | 9.8 | | | 22.2 | | | 11.3 | | | 25.6 | | | 13.7 | | | 0.3 | | | 0.4 | | | 0.5 | |
| Expected return on plan assets | (31.9) | | | (25.0) | | | (45.4) | | | (36.5) | | | (41.6) | | | (31.3) | | | — | | | — | | | — | |
| Settlement cost | 2.8 | | | — | | | 1.4 | | | 0.5 | | | — | | | — | | | — | | | — | | | — | |
| Curtailment benefit | — | | | 0.4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Amortization of net actuarial loss (gain) | 16.8 | | | 1.4 | | | 6.9 | | | 0.6 | | | 1.8 | | | 0.3 | | | 0.1 | | | 0.1 | | | — | |
| Amortization of prior service cost (credit) | — | | | 0.5 | | | — | | | 0.6 | | | — | | | 0.4 | | | — | | | — | | | — | |
| Net periodic benefit cost (income) | $ | 5.7 | | | $ | (2.9) | | | $ | (14.9) | | | $ | (13.1) | | | $ | (14.2) | | | $ | (9.9) | | | $ | 0.4 | | | $ | 0.5 | | | $ | 0.5 | |
The following table summarizes changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other Post-retirement
Benefits |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (In millions) | U.S. | | Int’l | | U.S. | | Int’l | | U.S. | | Int’l | | | | | | |
| Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) | | | | | | | | | | | | | | | | | |
| Net actuarial gain (loss) arising during period | $ | (22.1) | | | $ | (58.4) | | | $ | (85.1) | | | $ | (26.8) | | | $ | (50.2) | | | $ | (37.5) | | | $ | — | | | $ | — | | | $ | — | |
| Prior service (cost) credit arising during period | — | | | 0.6 | | | — | | | — | | | — | | | (0.9) | | | — | | | — | | | — | |
| Settlements and curtailments | (2.8) | | | (0.4) | | | 1.4 | | | 0.4 | | | — | | | — | | | — | | | — | | | — | |
| Amortization of net actuarial loss (gain) | (16.8) | | | (1.4) | | | 6.9 | | | 0.6 | | | 1.8 | | | 0.3 | | | — | | | (0.1) | | | — | |
| Amortization of prior service cost (credit) | — | | | (0.5) | | | — | | | 0.6 | | | — | | | 0.4 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Other | — | | | — | | | — | | | (7.5) | | | — | | | (1.5) | | | (0.9) | | | (0.6) | | | 1.5 | |
| Total recognized in other comprehensive income (loss) | $ | (41.7) | | | $ | (60.1) | | | $ | (76.8) | | | $ | (32.7) | | | $ | (48.4) | | | $ | (39.2) | | | $ | (0.9) | | | $ | (0.7) | | | $ | 1.5 | |
Included in accumulated other comprehensive income (loss) as of December 31, 2021, are noncash, pre-tax charges which have not yet been recognized in net periodic benefit cost (income). The estimated amounts expected to be amortized from the portion of each component of accumulated other comprehensive income (loss) as a component of net period benefit cost (income), during the next fiscal year are as follows:
| | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| (In millions) | U.S. | | Int’l | | |
| Net actuarial losses | $ | 12.0 | | | $ | — | | | $ | — | |
| Prior service cost | $ | — | | | $ | 0.4 | | | $ | — | |
| | | | | |
Key assumptions - The following weighted-average assumptions were used to determine the benefit obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | U.S. | | Int’l | | U.S. | | Int’l | | | | |
| Discount rate | 2.90 | % | | 1.99 | % | | 2.70 | % | | 1.48 | % | | 5.26 | % | | 3.63 | % |
| Rate of compensation increase | N/A | | 3.15 | % | | N/A | | 2.93 | % | | 4.00 | % | | 4.00 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The following weighted-average assumptions were used to determine net periodic benefit cost:
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| | Pensions | | Other
Post-retirement
Benefits |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| | U.S. | | Int’l | | U.S. | | Int’l | | U.S. | | Int’l | | | | | | |
| Discount rate | 2.70 | % | | 3.09 | % | | 3.40 | % | | 2.01 | % | | 4.40 | % | | 2.89 | % | | 4.46 | % | | 4.48 | % | | 5.32 | % |
| Rate of compensation increase | N/A | | 3.15 | % | | N/A | | 3.84 | % | | N/A | | 3.80 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % |
| Expected rate of return on plan assets | 6.75 | % | | 2.22 | % | | 7.75 | % | | 7.27 | % | | 8.65 | % | | 7.15 | % | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Our estimate of expected rate of return on plan assets is primarily based on the historical performance of plan assets, current market conditions, our asset allocation and long-term growth expectations.
Plan assets - We actively monitor how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. We have not changed the processes used to manage its risks from previous periods. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. Our pension investment strategy emphasizes maximizing returns consistent with balancing risk. Excluding our international plans with insurance-based investments, 98.8% of our total pension plan assets represent the U.S. qualified plan and the U.K. plan. These plans are primarily invested in equity securities to maximize the long-term returns of the plans. The investment managers of these assets, including the hedge funds and limited partnerships, use Graham and Dodd fundamental investment analysis to select securities that have a margin of safety between the price of the security and the estimated value of the security. This value-oriented approach tends to mitigate the risk of a large equity allocation.
The following is a description of the valuation methodologies used for the pension plan assets. There have been no changes in the methodologies used as of December 31, 2021 and 2020.
•Cash is valued at cost, which approximates fair value.
•Equity securities are comprised of common stock and preferred stock. The fair values of equity securities are valued at the closing price reported on the active market on which the securities are traded.
•Fair values of registered investment companies and common/collective trusts are valued based on quoted market prices, which represent the net asset value (“NAV”) of shares held. Registered investment companies primarily include investments in emerging market bonds. Common/collective trusts primarily includes money market instruments with short maturities.
•Insurance contracts are valued at book value, which approximates fair value, and is calculated using the prior-year balance plus or minus investment returns and changes in cash flows.
•The fair values of hedge funds are valued using the NAV as determined by the administrator or custodian of the fund. The funds primarily invest in U.S. and international equities, debt securities and other hedge funds.
•The fair values of limited partnerships are valued using the NAV as determined by the administrator or custodian of the fund. The partnerships primarily invest in U.S. and international equities and debt securities.
•Real estate and other investments primarily consist of real estate investment trusts and other investments. These investments are measured at quoted market prices, which represent the NAV of the securities held in such funds at year end.
Our pension plan assets measured at fair value on a recurring basis are as follows as of December 31, 2021 and 2020. Refer to “Fair value measurements” in Note 1 to these consolidated financial statements for a description of the levels.
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| (In millions) | U.S. | | International |
| December 31, 2021 | Total | | Level 1 | | Level 2 | | Level 3 | | Net Asset Value (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Net Asset Value (a) |
| Cash and cash equivalents | $ | 43.4 | | | $ | 43.4 | | | $ | — | | | $ | — | | | $ | — | | | $ | 40.5 | | | $ | 40.5 | | | $ | — | | | $ | — | | | $ | — | |
| Equity securities | | | | | | | | | | | | | | | | | | | |
| U.S. companies | 102.1 | | | 102.1 | | | — | | | — | | | — | | | 45.5 | | | 45.5 | | | — | | | — | | | — | |
| International companies | 2.1 | | | 2.1 | | | — | | | — | | | — | | | 143.4 | | | 143.4 | | | — | | | — | | | — | |
| Registered investment companies | 37.9 | | | — | | | — | | | — | | | 37.9 | | | 36.0 | | | — | | | — | | | — | | | 36.0 | |
| | | | | | | | | | | | | | | | | | | |
| Insurance contracts | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Hedge funds | 138.8 | | | — | | | — | | | — | | | 138.8 | | | 291.0 | | | — | | | — | | | — | | | 291.0 | |
| Limited partnerships | 192.5 | | | — | | | — | | | — | | | 192.5 | | | 3.6 | | | — | | | — | | | — | | | 3.6 | |
| | | | | | | | | | | | | | | | | | | |
| Real estate and other investments | 0.6 | | | 0.6 | | | — | | | — | | | — | | | 69.7 | | | 69.7 | | | — | | | — | | | — | |
| Total assets | $ | 517.4 | | | $ | 148.2 | | | $ | — | | | $ | — | | | $ | 369.2 | | | $ | 629.7 | | | $ | 299.1 | | | $ | — | | | $ | — | | | $ | 330.6 | |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 38.1 | | | $ | 38.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66.3 | | | $ | 66.3 | | | $ | — | | | $ | — | | | $ | — | |
| Equity securities | | | | | | | | | | | | | | | | | | | |
| U.S. companies | 83.3 | | | 83.3 | | | — | | | — | | | — | | | 96.3 | | | 96.3 | | | — | | | — | | | — | |
| International companies | 1.1 | | | 1.1 | | | — | | | — | | | — | | | 208.4 | | | 208.4 | | | — | | | — | | | — | |
| Registered investment companies | 38.4 | | | — | | | — | | | — | | | 38.4 | | | 68.2 | | | — | | | — | | | — | | | 68.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Hedge funds | 160.9 | | | — | | | — | | | — | | | 160.9 | | | 98.3 | | | — | | | — | | | — | | | 98.3 | |
| Limited partnerships | 160.9 | | | — | | | — | | | — | | | 160.9 | | | 14.5 | | | — | | | — | | | — | | | 14.5 | |
| Real estate and other investments | 1.0 | | | 1.0 | | | — | | | — | | | — | | | 39.5 | | | 39.5 | | | — | | | — | | | — | |
| Total assets | $ | 483.7 | | | $ | 123.5 | | | $ | — | | | $ | — | | | $ | 360.2 | | | $ | 591.5 | | | $ | 410.5 | | | $ | — | | | $ | — | | | $ | 181.0 | |
(a)Certain investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
Contributions - We expect to contribute approximately $12.3 million to our international pension plans, representing primarily the U.K. qualified pension plans in 2022. We do not expect to make any contributions to our U.S. Qualified Pension Plan and our U.S. Non-Qualified Defined Benefit Pension Plan in 2022. All of the contributions are expected to be in the form of cash. In 2021 and 2020, we contributed $34.3 million and $27.1 million to all pension plans, respectively.
Estimated future benefit payments - The following table summarizes expected benefit payments from our various pension and post-retirement benefit plans through 2031. Actual benefit payments may differ from expected benefit payments.
| | | | | | | | | | | | | | | | | |
| | Pensions | | Other
Post-retirement
Benefits |
| (In millions) | U.S. | | International | | |
| 2022 | $ | 33.3 | | | $ | 22.0 | | | $ | 0.6 | |
| 2023 | 31.4 | | | 22.4 | | | 0.6 | |
| 2024 | 31.7 | | | 23.8 | | | 0.6 | |
| 2025 | 32.3 | | | 24.4 | | | 0.5 | |
| 2026 | 32.7 | | | 25.6 | | | 0.5 | |
| 2027-2031 | 165.9 | | | 149.9 | | | 2.3 | |
Savings plans - The TechnipFMC Retirement Savings Plan (“Qualified Plan”), a qualified salary reduction plan under Section 401(k) of the Internal Revenue Code, is a defined contribution plan. Additionally, we have a non-qualified deferred compensation plan, the Non-Qualified Plan, which allows certain highly compensated employees the option to defer the receipt of a portion of their salary. We match a portion of the participants’ deferrals to both plans. Both plans relate to FMC Technologies, Inc.
Participants in the Non-Qualified Plan earn a return based on hypothetical investments in the same options as our 401(k) plan. Changes in the market value of these participant investments are reflected as an adjustment to the deferred compensation liability with an offset to other income (expense), net. As of December 31, 2021 and 2020, our liability for the Non-Qualified Plan was $24.1 million and $22.8 million, respectively, and was recorded in other liabilities in our consolidated balance sheets. We hedge the financial impact of changes in the participants’ hypothetical investments by purchasing the investments that the participants have chosen. Changes in the fair value of these investments are recognized as an offset to other income (expense), net in our consolidated statements of income. As of December 31, 2021 and 2020, we had investments for the Non-Qualified Plan totaling $24.1 million and $22.8 million at fair market value, respectively.
During the years ended December 31, 2021, and 2020 we recognized expense of $21.5 million and $21.3 million, respectively for matching contributions to these plans in 2021 and 2020, respectively. Additionally, during the years ended December 31, 2021 and 2020, we recognized expense of $9.0 million and $8.3 million, respectively, for non-elective contributions.
NOTE 24. DERIVATIVE FINANCIAL INSTRUMENTS
For purposes of mitigating the effect of changes in exchange rates, we hold derivative financial instruments to hedge the risks of certain identifiable and anticipated transactions and recorded assets and liabilities in our consolidated balance sheets. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. Our policy is to hold derivatives only for the purpose of hedging risks associated with anticipated foreign currency purchases and sales created in the normal course of business, and not for speculative purposes.
Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, any change in the fair value of those instruments is reflected in earnings in the period such change occurs.
We hold the following types of derivative instruments:
Foreign exchange rate forward contracts – The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies and recorded assets and liabilities in our consolidated balance sheets. As of December 31, 2021, we held the following material net positions:
| | | | | | | | | | | |
| | Net Notional Amount
Bought (Sold) |
| (In millions) | | | USD Equivalent |
| Euro | 775.4 | | | 878.2 | |
| British pound | (197.2) | | | (265.9) | |
| Malaysian ringgit | (627.4) | | | (150.5) | |
| Norwegian krone | 967.9 | | | 109.8 | |
| Brazilian real | 1,299.8 | | | 232.9 | |
| Singapore dollar | 125.4 | | | 92.9 | |
| Mexican peso | (116.7) | | | (5.7) | |
| Australian dollar | 182.4 | | | 132.2 | |
| Indian rupee | 881.4 | | | 11.8 | |
| | | |
| | | |
| | | |
| Kuwaiti Dinar | (3.3) | | | (10.9) | |
| Russian Ruble | 925.0 | | | 12.5 | |
| Canadian dollar | 19.2 | | | 15.1 | |
| | | |
| | | |
| Indonesian rupiah | (45,656.9) | | | (3.2) | |
| U.S. dollar | (1,119.9) | | | (1,119.9) | |
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. As of December 31, 2021, our portfolio of these instruments included the following material net positions:
| | | | | | | | | | | |
| | Net Notional Amount
Bought (Sold) |
| (In millions) | | | USD Equivalent |
| Brazilian real | 52.5 | | | 9.4 | |
| | | |
| Euro | (7.3) | | | (8.3) | |
| Norwegian krone | 6.1 | | | 0.7 | |
| U.S. dollar | (1.2) | | | (1.2) | |
Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. See Note 25 for further details. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts are settled.
The following table presents the location and fair value amounts of derivative instruments reported in the consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (In millions) | Assets | | Liabilities | | Assets | | Liabilities |
| Derivatives designated as hedging instruments | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Current - Derivative financial instruments | $ | 106.4 | | | $ | 139.5 | | | $ | 189.5 | | | $ | 141.9 | |
| Long-term - Derivative financial instruments | 10.5 | | | 15.5 | | | 28.9 | | | 18.8 | |
| Total derivatives designated as hedging instruments | 116.9 | | | 155.0 | | | 218.4 | | | 160.7 | |
| Derivatives not designated as hedging instruments | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Current - Derivative financial instruments | 3.9 | | | 21.5 | | | 79.2 | | | 15.6 | |
| Long-term - Derivative financial instruments | — | | | — | | | 0.3 | | | — | |
| Total derivatives not designated as hedging instruments | 3.9 | | | 21.5 | | | 79.5 | | | 15.6 | |
| Total derivatives | $ | 120.8 | | | $ | 176.5 | | | $ | 297.9 | | | $ | 176.3 | |
Cash flow hedges of forecasted transactions, net of tax, which qualify for hedge accounting, resulted in accumulated other comprehensive gains (losses) of $(18.7) million and $12.9 million as of December 31, 2021 and 2020, respectively. We expect to transfer an approximately $3.4 million gain from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the second half of 2024.
The following tables present the location of gains (losses) in the consolidated statements of income related to derivative instruments designated as cash flow hedges.
| | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in OCI |
| | Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Foreign exchange contracts | $ | (26.3) | | | $ | 3.8 | | | $ | 12.2 | |
The following represents the effect of cash flow hedge accounting on the consolidated statements of income for the year ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2021 | | 2020 | | 2019 |
| Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives | Revenue | | Cost of sales | | Selling,
general
and
administrative
expense | | Other income (expense), net | | Revenue | | Cost of sales | | Selling,
general
and
administrative
expense | | Other income (expense), net | | Revenue | | Cost of sales | | | | Other income (expense), net |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Amounts reclassified from accumulated OCI to income (loss) | $ | (29.7) | | | $ | 10.7 | | | $ | 0.2 | | | $ | 32.9 | | | $ | (83.7) | | | $ | 68.5 | | | $ | (0.4) | | | $ | (0.2) | | | $ | (26.6) | | | $ | 12.0 | | | | | $ | (1.3) | |
| Amounts excluded from effectiveness testing | (1.8) | | | (3.3) | | | — | | | 3.8 | | | 7.7 | | | (9.8) | | | (0.2) | | | 0.3 | | | 0.6 | | | (7.6) | | | | | (7.2) | |
| Total cash flow hedge gain (loss) recognized in income | (31.5) | | | 7.4 | | | 0.2 | | | 36.7 | | | (76.0) | | | 58.7 | | | (0.6) | | | 0.1 | | | (26.0) | | | 4.4 | | | | | (8.5) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Gain (loss) recognized in income on derivatives not designated as hedging instruments | 1.3 | | | 0.3 | | | — | | | (13.3) | | | (0.8) | | | 3.4 | | | — | | | 35.9 | | | (1.6) | | | 0.2 | | | | | (21.4) | |
| Total | $ | (30.2) | | | $ | 7.7 | | | $ | 0.2 | | | $ | 23.4 | | | $ | (76.8) | | | $ | 62.1 | | | $ | (0.6) | | | $ | 36.0 | | | $ | (27.6) | | | $ | 4.6 | | | | | $ | (29.9) | |
Balance Sheet Offsetting - We execute derivative contracts with counterparties that consent to a master netting agreement which permits net settlement of the gross derivative assets against gross derivative liabilities. Each instrument is accounted for individually and assets and liabilities are not offset. As of December 31, 2021 and 2020, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (In millions) | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount | | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount |
| Derivative assets | $ | 120.8 | | | $ | (78.6) | | | $ | 42.2 | | | $ | 297.9 | | | $ | (128.7) | | | $ | 169.2 | |
| Derivative liabilities | $ | 176.5 | | | $ | (78.6) | | | $ | 97.9 | | | $ | 176.3 | | | $ | (128.7) | | | $ | 47.6 | |
NOTE 25. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (In millions) | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | | | | | | |
| Investments | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Investment in Technip Energies | $ | 317.3 | | | $ | 317.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Equity securities(a) | 25.0 | | | 25.0 | | | — | | | — | | | 23.4 | | | 23.4 | | | — | | | — | |
| Money market fund | 2.4 | | | — | | | 2.4 | | | — | | | 1.7 | | | — | | | 1.7 | | | — | |
Stable value fund(b) | 0.3 | | | — | | | — | | | — | | | 0.9 | | | — | | | — | | | — | |
| Held-to-maturity debt securities | 24.0 | | | — | | | 24.0 | | | — | | | 24.2 | | | — | | | 24.2 | | | — | |
| Derivative financial instruments | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 120.8 | | | — | | | 120.8 | | | — | | | 297.9 | | | — | | | 297.9 | | | — | |
| Assets held for sale | 5.0 | | | — | | | — | | | 5.0 | | | 47.3 | | | — | | | — | | | 47.3 | |
| Total assets | $ | 494.8 | | | $ | 342.3 | | | $ | 147.2 | | | $ | 5.0 | | | $ | 395.4 | | | $ | 23.4 | | | $ | 323.8 | | | $ | 47.3 | |
| Liabilities | | | | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 176.5 | | | — | | | 176.5 | | | — | | | 176.3 | | | — | | | 176.3 | | | — | |
| | | | | | | | | | | | | | | |
| Total liabilities | $ | 176.5 | | | $ | — | | | $ | 176.5 | | | $ | — | | | $ | 176.3 | | | $ | — | | | $ | 176.3 | | | $ | — | |
(a)Includes fixed income and other investments measured at fair value.
(b)Certain investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
Investment in Technip Energies - The fair value of our investment in Technip Energies is based on quoted prices that we have the ability to access in public markets, see Note 13 for further details.
Equity securities and Available-for-sale Securities - The fair value measurement of our traded securities and Available-for-sale-Securities is based on quoted prices that we have the ability to access in public markets.
Stable value fund and Money market fund - Stable value fund and money market fund are valued at the net asset value of the shares held at the end of the quarter, which is based on the fair value of the underlying investments using information reported by our investment advisor at quarter-end.
Held-to-maturity debt securities - Held-to-maturity debt securities consist of government bonds. These investments are stated at amortized cost, which approximates fair value.
Assets held for sale - The fair value of our assets held for sale was determined using a market approach that took into consideration the expected sales price. As of December 31, 2020, our G1200 vessel is classified as held for sale. In March 2021, we entered into a Memorandum of Agreement to sell the vessel. We completed the sale and received $48.0 million in cash proceeds during the second quarter of 2021.
Redeemable non-controlling interest - In accordance with the Share Purchase Agreement between Technip-Coflexip UK Holdings Limited (“TUK”) and Island Offshore Management AS (“Island Offshore”) that was executed on March 12, 2018, whereby TUK initially purchased 51% of the shares of TIOS AS, a joint venture between TUK and Island Offshore, TUK acquired the remaining 49% interest in TIOS at a total price of $48.6 million during the third quarter of 2021. As of December 31, 2020, we owned a 51% share in TIOS and the redeemable non-controlling interest was recorded as mezzanine equity at fair value of $43.7 million.
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.
We currently 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 24 for further details.
Nonrecurring Fair Value Measurements
Fair value of long-lived, non-financial assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts of such assets may not be recoverable.
The following summarizes impairments of long-lived assets and related post-impairment fair value for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | |
| (In millions) | Impairment | | Fair Value | | Impairment | | Fair Value | | | |
Long-lived assets(a) | $ | 49.1 | | | $ | 25.5 | | | $ | 190.4 | | | $ | 452.5 | | | | |
| | | | | | | | | | |
(a)Measuring these asset groups for recoverability required the use of unobservable inputs that require significant judgment. Such judgments include expected future asset utilization while taking into account reduced future capital spending by certain customers in response to market conditions.
Other fair value disclosures
The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, short-term debt, commercial paper, debt associated with our bank borrowings, credit facilities, as well as amounts included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair value.
Fair value of debt - We use a market approach to determine the fair value of our fixed-rate debt using observable market data, which results in a Level 2 fair value measurement. The estimated fair value of our private placement notes, senior notes and synthetic bonds was $1,706.1 million and $2,199.2 million as of December 31, 2021 and December 31, 2020, respectively.
Credit risk - By their nature, financial instruments involve risk, including credit risk, for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses on trade receivables are established based on collectability assessments. We mitigate credit risk on derivative contracts by executing contracts only with counterparties that consent to a master netting agreement, which permits the net settlement of gross derivative assets against gross derivative liabilities.
NOTE 26. SUBSEQUENT EVENTS
On January 10, 2022 we announced the sale of 9.0 million Technip Energies shares, representing approximately 5% of Technip Energies’ issued and outstanding share capital, through a private sale transaction (the “January Sale”). The sale price of the shares in the January Sale was set at €13.15 per share, yielding total net proceeds of €118.4 million, or $135.1 million. Upon completion of the January Sale, we retain a direct stake of 12.9 million
shares, representing 7.1% of Technip Energies’ issued and outstanding share capital. As of February 25, 2022, the value of our investment in Technip Energies was $155.3 million.
On January 14, 2022 we paid £6 million, or $8.3 million for 750,000 ordinary shares in Orbital Marine Power (Orbital) to complete the investment in accordance with the Memorandum of Understanding between Technip Holding Benelux B.V. and Orbital. Orbital is a Scotland-based renewable energy company focused on the development and global application of its floating turbine technology. Upon completion of the investment, we will hold approximately 10.2% of the ordinary shares in Orbital.