TechnipFMC plc — 2017 Form 10-K Summary
Business context and reporting period
For the year ended December 31, 2017, TechnipFMC reported across Subsea, Onshore/Offshore, and Surface Technologies. The merger of Technip and FMC Technologies closed on January 16, 2017; 2017 includes the combined company, while reported 2016 results largely reflect Technip alone. Management therefore provides unaudited 2016 pro forma comparisons, which include the merger and Yamal consolidation but exclude potential synergies. Approximately 90% of 2017 sales were outside the United States.
Key financial metrics
| Metric | 2017 | Comparison / context |
|---|---|---|
| Revenue | $15.06 billion | Down 21% from 2016 pro forma revenue of $19.07 billion; reported 2016 revenue of $9.20 billion is not directly comparable. |
| Gross margin | 16.8% | Up from 14.1% on a 2016 pro forma basis. |
| Net income | $134.2 million | Down from $354.6 million on a 2016 pro forma basis. Net income attributable to TechnipFMC was $113.3 million; diluted EPS was $0.24. |
| Operating cash flow | $210.7 million | Down from $493.8 million in 2016; working-capital movements were significant. |
| Capital expenditures | $255.7 million | Management projected approximately $300 million for 2018. |
| Cash, debt, and net cash | Cash $6.74 billion; debt $3.86 billion; net cash $2.88 billion | Net cash was $3.72 billion at year-end 2016. The $2.5 billion revolving facility had $1.05 billion of unused capacity. |
| Orders and backlog | Inbound orders $10.20 billion; backlog $12.98 billion | Orders rose from $6.07 billion in 2016; backlog fell from $15.00 billion. |
Segment results: Subsea revenue was $5.88 billion, operating profit $460.5 million, and operating margin 7.8% (10.7% on a 2016 pro forma basis). Onshore/Offshore revenue was $7.90 billion, operating profit $810.9 million, and margin 10.3% (2.1% pro forma). Surface Technologies revenue was $1.27 billion, operating profit $82.7 million, and margin 6.5%; its 2016 pro forma comparison showed an operating loss.
Fourth-quarter 2017 revenue was $3.68 billion and net loss attributable to TechnipFMC was $153.9 million, or diluted loss per share of $0.33. Quarterly figures are unaudited; merger-related comparability limitations also apply.
Material changes and unusual items
- Revenue fell versus 2016 pro forma, principally from lower Subsea activity, project completions, reduced vessel utilization, and lower Onshore/Offshore activity. Higher gross margin reflected project execution, cost reductions, synergies, and mix.
- Onshore/Offshore results benefited from successful project progress and resolution of certain contract disputes. Favorable revisions to contract estimates increased 2017 operating profit by approximately $378.4 million, including $325.0 million in Onshore/Offshore and $53.4 million in Subsea.
- Interest expense included a $293.7 million loss from revaluing a mandatorily redeemable financial liability. The liability was $312.0 million at year-end.
- The income tax provision was $545.5 million, an effective rate of 80.3%. It included a $148.7 million U.S. deemed-repatriation transition tax and an $18.9 million charge from U.S. deferred-tax revaluation; management described the tax-reform accounting as provisional.
- Impairment, restructuring, and other expense totaled $191.5 million; merger transaction and integration costs were $101.8 million. Management attributed $10.9 million of expense to lost productivity from Hurricane Harvey.
- Subsea inbound orders were $5.14 billion, up 16% from 2016. Subsea backlog increased, partly due to the merger; Onshore/Offshore backlog declined by $3.7 billion to $6.37 billion.
Outlook, risks, and contingencies
Management expected 2018 operating cash flow to decrease, citing the industry downturn, fewer new project awards, and project payment terms. It anticipated improved Subsea market activity and more project awards, while warning that sanction delays could prompt further cost reductions. Onshore/Offshore opportunities included LNG, refining, and petrochemicals. Surface activity was expected to improve, though international pricing pressure could weigh on margins into the first half of 2018.
Principal risks include oil and gas price and spending volatility; fixed-price project execution, cost overruns, schedule delays, and supplier or subcontractor performance; customer concentration (Yamal LNG exceeded 10% of 2017 consolidated revenue); foreign-exchange exposure; and merger integration. The company reported $4.60 billion of guarantees, letters of credit, and surety bonds, primarily supporting project performance, and $11.74 billion of contractual obligations. Management did not expect known guarantee or legal matters to materially affect results, but outcomes are uncertain.
Management concluded internal control over financial reporting and disclosure controls were ineffective at December 31, 2017, due to material weaknesses involving foreign-exchange adjustments, IT general controls, and period-end journal-entry and reconciliation controls. The company had restated first-quarter 2017 results and was defending a shareholder securities class action. It was also cooperating with U.S. and Brazilian authorities in investigations concerning historical matters, including potential anti-corruption compliance issues. The financial statement auditor gave an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
Important facts for investors to verify
- Use the filing’s 2016 pro forma figures—not reported 2016 actuals—for meaningful year-over-year comparison, and note the pro forma figures are unaudited.
- Assess whether improved margins and the $378.4 million favorable contract-estimate revisions are repeatable, and review project-level execution and claims.
- Track operating cash flow, working capital, project payment terms, and the expected 2018 cash-flow decline against capital spending and debt needs.
- Monitor remediation and testing of the three material weaknesses, including any further restatements or control-related disclosures.
- Follow the mandatorily redeemable liability, tax-reform estimates, anti-corruption investigations, and securities litigation for changes in amounts or status.