Inbound orders totaled $1.6 billion in the quarter largely on increased requirements for subsea systems. Backlog reached a record $2.7 billion, with the company's subsea backlog at a record level of $1.8 billion.
Net income in the quarter was $102.8 million. Earnings per diluted share of $1.48 in the fourth quarter included $0.54 from discontinued operations. In the fourth quarter, the Company sold its SOFEC business, which was previously included in the Energy Production segment, for $54.4 million resulting in an after-tax gain of $34.8 million which was recorded in discontinued operations. Historical results have been restated to reflect SOFEC and a small FoodTech business as discontinued operations.
Full Year 2006 Results
Full year 2006 revenue of $3.8 billion increased 21 percent from $3.1 billion in 2005, reflecting the continued growth of Energy Systems' businesses. WECOŽ/ChiksanŽ equipment, subsea systems and surface wellhead saw significant growth over 2005.
Full year 2006 earnings per diluted share from continuing operations of $3.01 were up 62 percent from 2005 earnings per diluted share of $1.86. Energy Systems' operating profit increased 60 percent over the prior year.
Inbound orders totaled $4.6 billion, up 30 percent over 2005. Backlog grew to $2.7 billion primarily on record subsea inbound orders of $2.3 billion.
"We are very pleased with our results in 2006. Our full year results were driven by our subsea systems, fluid control, and surface wellhead businesses," said Joseph H. Netherland, Chairman, and Chief Executive Officer. "We enter 2007 with backlog of $2.7 billion providing a solid base for continued growth, and we have new developing technologies which should drive growth beyond 2007. We have increased our full year estimate of 2007 earnings per diluted share to a range of $3.80 to $4.00."
Review of Operations - Fourth Quarter 2006
Energy Production Systems
Energy Production Systems' fourth quarter revenue of $634.5 million increased 19 percent over the prior year quarter, due to higher subsea systems and surface wellhead sales. Revenue for subsea systems was $508 million in the quarter, up 19 percent from the prior-year quarter and up 14 percent sequentially. Surface wellhead revenue improved over 25 percent from the prior-year quarter and 8 percent sequentially.
Energy Production Systems' operating profit of $51.4 million increased 30 percent over the prior-year quarter. The operating profit increase was due primarily to stronger demand for subsea systems and surface wellhead equipment.
Energy Production Systems' inbound orders were $1.1 billion for the fourth quarter, up $499.7 million over the prior-year quarter and $702.9 million sequentially due to the strength of orders for subsea systems. Subsea systems inbound orders were $951.0 million in the quarter.
Energy Processing Systems
Energy Processing Systems' fourth quarter revenue of $186.5 million was 20 percent higher than the prior-year quarter and 7 percent higher sequentially. The revenue improvement over prior-year quarter was primarily the result of strong demand from service companies for WECOŽ/ChiksanŽ equipment, up 47 percent and increased demand for conveying systems for coal fired power plants in the Material Handling business.
Energy Processing Systems' fourth quarter operating profit of $23.7 million was 30 percent higher than the prior-year quarter. The operating profit improvement is largely the result of higher WECOŽ/ChiksanŽ equipment volume. Partially offsetting this increased quarter-over-quarter improvement is $3.7 million of restructuring and impairment expense associated with an announced plant closure and $1.7 million of expense associated with the resolution of a legal dispute, both of which are included in the fourth quarter 2006 operating profit.
Energy Processing Systems' inbound orders were $219.7 million for the fourth quarter, up 10 percent from the prior-year quarter. Stronger demand for loading systems and WECOŽ/ChiksanŽ equipment drove the quarter-over-quarter improvement.
Corporate expense in the fourth quarter of 2006 was $9.0 million, $0.9 million above the prior-year quarter. Other expense, net, of $11.1 million increased $6.6 million due mainly to higher stock compensation expense and foreign currency losses.
Net interest expense in the fourth quarter of 2006 was $1.5 million, level with the fourth quarter of 2005.
Income tax expense in the fourth quarter included a $12.2 million favorable adjustment, or $0.17 per diluted share. The effective income tax rate for continuing operations for the fourth quarter was lower than the rate included in the Company's guidance for the quarter. The lower effective rate was due to a reduction in a valuation allowance for foreign deferred income taxes in Brazil, amounting to approximately $0.07 per diluted share of the favorable adjustment, and reflects the Company's continued order growth and profitability in the region. Net debt of $138.9 million was down $25.2 million sequentially, but increased $35.9 million from year-end 2005 due mainly to cash requirements for working capital increases and capital expenditures to support growth in the Energy Systems businesses, and stock repurchases.
Depreciation and amortization for the fourth quarter of 2006 was $18.6 million, up from $17.1 million in the prior-year quarter.
Capital expenditures during the fourth quarter of 2006 totaled $41.8 million, up from $41.2 million in the prior-year quarter due mainly to continued capacity expansion projects in Energy Systems.
Review of Operations - Full Year 2006
Energy Production Systems
Energy Production Systems' revenue of $2.2 billion was up 27 percent from 2005. Subsea systems revenue of $1.8 billion increased 26 percent over the prior year. Surface wellhead revenue increased more than 30 percent over 2005 due to strong market demand.
Energy Production 2006 segment operating profit of $191.2 million is up 49 percent from the prior year, primarily due to increased demand for subsea systems and surface wellhead equipment. Operating margins also improved in both the subsea and surface businesses.
Energy Production Systems' inbound orders of $2.8 billion increased 38 percent over prior-year levels, an increase of $776.6 million. Subsea systems inbound orders reached $2.3 billion in 2006, up 40 percent over 2005. Orders for surface wellhead equipment were up 29 percent over the prior year.
Backlog at year-end was $2.0 billion, up 40 percent from year-end 2005. Subsea systems backlog is at a record level of $1.8 billion, up 39 percent from $1.3 billion in the prior year.
Energy Processing Systems
Energy Processing Systems' 2006 revenue of $672.3 million was up 29 percent from 2005, primarily driven by service company demand for WECOŽ/ChiksanŽ equipment, up more than 49 percent over 2005 revenues. In addition, demand for coal handling equipment and marine loading arms resulted in higher revenue in the Material Handling and Loading Systems businesses.
Segment operating profit of $100.9 million improved $46.8 million due mainly to strong volume and pricing of WECOŽ/ChiksanŽ equipment.
Energy Processing Systems' inbound orders of $763.5 million are at record levels, increasing 21 percent over 2005 primarily on strong demand for WECOŽ/ChiksanŽ equipment and all other businesses in the segment.
Backlog at year-end 2006 was $306.0 million, up 42 percent from the prior year.
Corporate expenses for the full year 2006 were $32.8 million compared to $30.0 million the prior year. This increase is due mainly to higher fees for professional services and provisions related to incentive compensation.
Other expense, net, for 2006 totaled $29.7 million, compared to $27.2 million in 2005, due mainly to higher stock-based compensation expense.
Corporate items in 2005 included a $25.3 million gain on the disposal of Modec, Inc. stock.
Net interest expense was $6.7 million compared to 2005 net interest expense of $5.5 million.
Depreciation and amortization for 2006 was $70.8 million, up from $65.0 million in 2005. Capital expenditures of $138.6 million were up $46.8 million from 2005 due mainly to capacity expansions in Energy Systems.
During 2006, the Company repurchased 2.5 million shares of its common stock for $142.5 million.
Summary and Outlook
FMC Technologies reported earnings per diluted share from continuing operations of $3.01 for the full year 2006, up 62 percent from the prior year. Subsea systems revenue grew 26 percent to $1.8 billion and subsea backlog increased 39 percent from the prior year on unprecedented subsea inbound orders. Operating profits from the Company's WECOŽ/ChiksanŽ business more than doubled on strong demand from service companies, and surface wellhead operating profit improved more than 40 percent from the prior year. FoodTech and Airport Systems segments both delivered revenue and operating profit improvement over 2006. Total company backlog reached a record $2.7 billion.
The Energy businesses are expected to have another strong year in 2007, primarily driven by the secular growth of subsea systems. FoodTech and Airport Systems' 2007 operating profits are expected to improve over 2006. The Company has increased its estimate for full year 2007 earnings per diluted share from continuing operations to a range of $3.80 to $4.00.
FMC Technologies, Inc. is a leading global provider of technology solutions for the energy industry and other industrial markets. The Company designs, manufactures and services technologically sophisticated systems and products such as subsea production and processing systems, surface wellhead systems, high pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry.
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