In the fourth quarter, the Company recognized a $60.4 million pre-tax gain on the conversion of its ownership interest in MODEC International LLC for cash and stock in MODEC, Inc., resulting in a $36.1 million increase in net income after taxes. This $0.51 positive impact on diluted earnings per share is not included in segment operating profit. Also in the fourth quarter, a $6.5 million pre-tax goodwill impairment charge ($6.1 million after-tax) was recorded in the Energy Processing Systems segment, which reduced reported diluted earnings per share by $0.09.
"We are pleased with our performance in 2004. Revenue of $2.8 billion grew by 20 percent over 2003, driven by our Energy Systems businesses. Our subsea systems revenue exceeded $1.0 billion on the strength of our technology and alliances. Record orders of $3.1 billion contributed to our 2004 year-end backlog of $1.59 billion, providing a solid platform for 2005," said Joseph H. Netherland, Chairman, President and Chief Executive Officer. "By managing our capital tightly, we reduced our year-end debt, net of cash, to $39 million."
FMC Technologies plans to repurchase shares of its outstanding common stock during 2005, pursuant to a repurchase program previously approved by its Board of Directors. Under that program, the Company is authorized to repurchase up to two million shares of common stock. FMC Technologies plans to make repurchases through open-market transactions. The timing of repurchases will depend on market conditions, and the Company gives no assurance regarding the exact quantity of shares to be repurchased.
Review of Operations - Fourth Quarter 2004
Sales for Energy Systems, comprising Energy Production Systems and Energy Processing Systems, were $622.4 million in the fourth quarter of 2004, up 43 percent from $436.2 million in the fourth quarter of 2003. Energy Systems' operating profit for the fourth quarter was $13.7 million, down from $28.6 million in the same period last year due to a $17.0 million loss provision, primarily attributable to costs associated with weather-related delays on the Sonatrach project and a $6.5 million charge for goodwill impairment in the blending and transfer product line.
Energy Systems' orders were $595.9 million in the fourth quarter. Energy Systems' total backlog at the end of the fourth quarter was $1.3 billion, up 31 percent from $1.0 billion at the end of the fourth quarter of 2003.
Energy Production Systems' fourth quarter sales of $482.5 million increased 56 percent over the prior year, due primarily to higher subsea systems sales and, to a lesser extent, increased floating production systems sales and the impact of foreign currency translation. Sales for subsea systems were $333 million in the quarter, up 56 percent from the prior-year quarter. Segment operating profit of $6.9 million was $9.0 million below the prior-year period, due to the $17 million loss provision on the Sonatrach project. Higher sales volume and improved operating margins in both the subsea systems and surface wellhead product lines positively impacted the results.
Energy Production Systems' orders were $480.1 million for the fourth quarter, primarily on the strength of subsea systems orders but also on strong surface wellhead inbound which improved over 2003. Backlog of $1.2 billion is up $342.0 million from the prior year end on solid subsea systems orders, which are up 69 percent from the prior year end.
Energy Processing Systems' fourth quarter sales of $142.2 million were 11 percent higher than the prior-year period. The sales improvement was the result of strength in measurement systems, which continues to benefit from strong oil and gas demand, and in material handling systems, due to the timing of work on a coal conveying project. Strength in U.S. land drilling activity positively affected sales and profits of WECO(R)/Chiksan(R) equipment compared with 2003, due to continued strong service company demand. To a lesser extent, foreign currency translation also contributed to the sales improvement. Energy Processing Systems' fourth quarter operating profit was $6.8 million. Higher operating profit from improved WECO(R)/Chiksan(R) equipment volume, as well as strong material handling and measurement volume, compared with the prior-year period was offset by the $6.5 million goodwill impairment charge in blending and transfer. Lower production manifold systems sales and lower volume and operating margins in the loading systems product line contributed to the decline in operating profit.
Energy Processing Systems' orders were $117.0 million for the fourth quarter, down 13 percent from the prior-year period, primarily due to the large order for a coal conveying project received in the fourth quarter of 2003. Loading systems inbound was below the prior-year period due to delayed LNG projects. Partially offsetting these reductions were higher orders for WECO(R)/Chiksan(R) equipment from service companies.
FoodTech's sales in the fourth quarter of $133.2 million were down 3 percent from the fourth quarter of 2003, due mainly to lower citrus sales as a result of the Florida hurricanes. Fourth quarter operating profit of $10.0 million decreased 21 percent compared to the prior-year period, due to lower citrus operating profit from the effects of the Florida hurricanes and lower food processing equipment margins.
Airport Systems' fourth quarter sales of $80.5 million were up 22 percent compared to the fourth quarter of 2003, due to higher sales of Jetway(R) passenger boarding bridges to airport authorities and higher Halvorsen loader aftermarket sales to the U.S. Air Force. Airport Systems' fourth quarter operating profit of $4.7 million was up 7 percent from the prior-year period. The operating profit improvement reflects increased Halvorsen loader aftermarket sales to the U.S. Air Force, partially offset by the effects of higher steel costs in the Airport Systems segment.
Corporate expense in the fourth quarter of 2004 was $9.4 million, $2.7 million above the prior-year period, due mainly to higher fees for Sarbanes-Oxley compliance. Other expense, net, of $2.5 million decreased $4.7 million compared with the prior-year period, due to favorable changes in foreign currency hedging results, lower stock-based compensation expense and the absence of costs associated with the 2003 outsourcing of the Company's employee benefits administration functions. The gain on the conversion of the investment in MODEC International was $60.4 million in the fourth quarter. Net interest expense in the fourth quarter of 2004 was $1.7 million, down from $2.0 million in the fourth quarter of 2003 due to lower average debt. In the fourth quarter, a net favorable tax adjustment of $11.9 million was recorded due in part to a successful resolution of a tax dispute and the favorable resolution of foreign tax audits.
Debt, net of cash, of $39.0 million at year end decreased $128.2 million from $167.2 million at the end of the third quarter of 2004 on strong cash flow from operations.
Depreciation and amortization for the fourth quarter of 2004 was $16.9 million compared to $16.5 million in the prior-year period. Capital expenditures during the fourth quarter of 2004 totaled $16.9 million compared to $22.3 million in the prior-year period.
Review of Operations - Full-Year 2004
For full-year 2004, sales of $2.8 billion were up 20 percent from $2.3 billion in 2003, reflecting the continued growth of Energy Production Systems' subsea systems. Reported earnings per diluted share were $1.68. Excluding unusual items, adjusted income per diluted share (a non-GAAP measure) was $1.25.
Energy Systems' sales in 2004 of $1.97 billion were up 26 percent from $1.57 billion in 2003 and account for over 70 percent of FMC Technologies' total sales. Energy Systems' operating profit of $98.5 million includes the full-year loss provision on the Sonatrach project of $21.4 million and a $6.5 million charge for goodwill impairment in the blending and transfer product line.
Energy Production Systems' sales of $1.49 billion were up 31 percent from 2003. Subsea systems sales of over $1 billion increased 24 percent over 2004. Higher surface wellhead sales and higher floating production systems sales from the Sonatrach project also contributed to the year-over-year improvement. Energy Production Systems' operating profit of $71.1 million includes a $21.4 million loss provision attributable primarily to weather-related delays for the Sonatrach project. Operating profits in subsea systems and surface wellhead improved over 2003 performance due to both volume and operating margin improvements.
Energy Processing Systems' 2004 sales of $493.3 million improved 14 percent over 2003. Operating profit of $27.4 million includes a $6.5 million charge for the goodwill impairment of the blending and transfer product line. Sales improvements were the result of increased demand for measurement systems throughout 2004 as oil and gas prices remained high, driving demand for new pipeline and tank truck investments. Greater demand for material handling equipment, due to the strong economy and strong demand from service companies for WECO(R)/Chiksan(R) products, was the primary driver for the increased sales volume and operating profit improvements.
Energy Systems' orders for full-year 2004 of $2.3 billion increased 39 percent over 2003. Energy Production Systems' inbound of $1.8 billion was $635.5 million above 2003 levels, due primarily to the 69 percent increase in subsea systems orders over 2003. Record subsea systems inbound of $1.5 billion represents 66 percent of Energy Systems' total 2004 orders. Energy Processing Systems' inbound of $460.9 million is also at a record level. Service company demand increased WECO(R)/Chiksan(R) orders, while measurement systems benefited from new investments in gas and liquid pipelines in the Gulf of Mexico and in tank trucks in Europe. Partially offsetting the increase in Energy Processing orders were the effects of loading systems order delays and weaker demand for production manifold systems.
FoodTech's revenue in 2004 of $525.8 million was essentially flat with 2003. Strong volume in the North American and Asian freezing and cooking markets and, to a lesser extent, favorable foreign currency exchange were offset by reduced food processing equipment sales and lower citrus revenue. Operating profit of $36.8 million was below 2003 operating profit, due to lower citrus profit and lower food processing equipment sales offset in part by stronger freezing and cooking volume.
Airport Systems' sales in 2004 of $279.8 million were 25 percent above 2003 levels. Increased demand for both Jetway(R) and ground support systems products more than offset the anticipated reduction in Halvorsen loader volumes under the U.S. Air Force contract. Operating profit of $16.0 million was 29 percent above the prior-year levels. Increased volume and improved operating margins in both Jetway(R) and ground support products more than offset lower profit from the Halvorsen volume decline.
Corporate expenses for full-year 2004 were $28.3 million, up 16 percent from the prior year, due primarily to higher Sarbanes-Oxley compliance costs. Other expense, net, was $17.5 million compared to $23.9 million in 2003. The decrease is largely due to lower stock-based compensation expense, favorable changes in foreign currency hedging results and the absence of costs related to the 2003 outsourcing of the Company's employee benefits administration functions. Corporate items include the $60.4 million pre-tax gain on the conversion of the investment in MODEC International for cash and stock in MODEC, Inc. Net interest expense was reduced to $6.9 million compared to 2003 net interest expense of $8.9 million, due to lower average debt.
Depreciation and amortization for 2004 was $63.5 million compared to $57.7 million in 2003. Capital expenditures were $50.2 million for 2004 compared to $80.2 million in 2003 which included the repurchase of sale/leaseback assets amounting to $15 million.
FMC Technologies reported earnings per diluted share of $1.68 for full- year 2004. Adjusted income per diluted share (a non-GAAP measure) of $1.25 improved 21 percent over 2003 earnings per share of $1.03 on the strength of the Energy Systems businesses. Subsea systems sales and operating profit grew 24 percent and 46 percent, respectively. Increased drilling activity positively affected the Company's surface wellhead and WECO(R)/Chiksan(R) sales. FoodTech sales and operating profit were below 2003 on lower sales in citrus and food processing equipment. Airport Systems continued to show profit improvement in the ground support equipment and Jetway(R) product lines, offsetting the profit decline due to the anticipated reduction in Halvorsen loader volume under the U.S. Air Force contract. Backlog remained strong at $1.59 billion, reflecting the increase in subsea systems orders in 2004. Debt, net of cash, was $39 million at year end. The Company maintains its estimate of earnings per diluted share for full-year 2005 in the range of $1.30 to $1.50.
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