| FMC TECHNOLOGIES INC ITEM 1A RISK FACTORS Important risk factors that could impact our ability to achieve our anticipated operating results and growth plan goals are presented below |
| You should read the following risk factors in conjunction with discussions of our business and the factors affecting our business located elsewhere in this Annual Report on Form 10-K and in our other filings with the SEC - 8 - ______________________________________________________________________ [29]Table of Contents INDUSTRY-RELATED RISKS • Demand for the systems and services provided by our Energy Production Systems and Energy Processing Systems businesses depends on oil and gas industry activity and expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas |
| Our Energy Systems businesses are substantially dependent on conditions in the oil and gas industry and that industry’s willingness and ability to spend capital on the exploration for and development of crude oil and natural gas |
| Any substantial or extended decline in these expenditures may result in the reduced discovery and development of new reserves of oil and gas and the reduced exploitation of existing wells, which could adversely affect demand for the systems and services of both Energy Production Systems and Energy Processing Systems |
| The level of spending is generally dependent on current and anticipated crude oil and natural gas prices, which have been volatile in the past |
| • Demand for the systems and services provided by our FoodTech and Airport Systems businesses is significantly dependent upon our customers’ expenditures for capital equipment, and a prolonged substantial reduction in those expenditures could adversely affect the demand for our systems and services |
| The demand for our FoodTech systems, equipment and services is affected by factors such as consumer demand for processed and frozen foods, conditions in the agricultural sector affecting prices and public perception of food safety and contamination |
| Adverse weather conditions can have significant impacts on profits in the agricultural industry which directly impact demand for our systems and services |
| The magnitude and/or duration of the impact of severe weather conditions on the industry are difficult to predict |
| Futhermore, Airport Systems customers include airport authorities, domestic and international commercial airlines, and air freight companies |
| The profitability of companies in these industries is influenced by factors including jet fuel prices and the level of passenger and air freight activity |
| Changes in business strategies and capital spending levels in the airline industry due to changes in international, national, regional and local economic conditions, war, political instability and terrorism (and the threat thereof) may have a detrimental impact on demand for our systems and services |
| • The industries in which we operate or have operated expose us to potential liabilities arising out of the installation or use of our systems that could adversely affect our financial condition |
| Our Energy Systems businesses operate in an industry that is subject to equipment defects, malfunctions and failures, equipment misuse and natural disasters, the occurrence of which may result in uncontrollable flows of gas or well fluids, fires and explosions |
| Our FoodTech businesses supply machinery and equipment with similar risks |
| In addition, our Airport Services businesses supply machinery and equipment used in airports all over the world, which could expose us to substantial liability for personal injury, wrongful death, product liability, commercial claims, property damage, pollution and other environmental damages |
| Although we have obtained insurance against many of these risks, we cannot assure you that our insurance will be adequate to cover our liabilities |
| Further, we cannot assure you that insurance will generally be available in the future or, if available, that premiums will be commercially justifiable |
| If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations or financial condition could be materially adversely affected |
| - 9 - ______________________________________________________________________ [30]Table of Contents • Our customers’ industries are undergoing continuing consolidation that may impact our results of operations |
| Some of our largest customers have consolidated and are using their size and purchasing power to achieve economies of scale and pricing concessions |
| This consolidation may result in reduced capital spending by such customers or the acquisition of one or more of our other primary customers, which may lead to decreased demand for our products and services |
| We cannot assure you that we will be able to maintain our level of sales to any customer that has consolidated or replace that revenue with increased business activities with other customers |
| As a result, this consolidation activity could have a significant negative impact on our results of operations or financial condition |
| We are unable to predict what effect consolidations in the industries may have on prices, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers |
| • Our operations and the industries in which we operate are subject to a variety of US and international laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations |
| We depend on the demand for our systems and services from oil and gas companies |
| This demand is affected by changing taxes, price controls and other laws and regulations relating to the oil and gas industry |
| For example, the adoption of laws and regulations curtailing exploration and development of drilling for crude oil and natural gas in our areas of operation for economic, environmental or other reasons could adversely affect our operations by limiting demand for our systems and services |
| In light of our foreign operations and sales, we are also subject to changes in foreign laws and regulations that may encourage or require hiring of local contractor or require foreign contractors to employ citizens of, or purchase supplies from, a particular non-US jurisdiction |
| In addition, environmental laws and regulations affect the systems and services we design, market and sell, as well as the facilities where we manufacture our systems |
| We are required to invest financial and managerial resources to comply with environmental laws and regulations and anticipate that we will continue to be required to do so in the future |
| Because these laws and regulations change frequently, we are unable to predict the cost or impact that they may have on our businesses |
| The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect our operations |
| COMPANY-RELATED RISKS • Disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we conduct business could adversely affect our business or results of operations |
| We operate manufacturing facilities in 16 countries outside of the United States, and our international operations accounted for approximately 70prca of our 2005 revenue |
| Instability and unforeseen changes in the international markets in which we conduct business, including economically and politically volatile areas such as North Africa, West Africa, the Middle East, Latin America and the Asia Pacific region, could cause or contribute to factors that could have an adverse effect on the demand for our systems and services, our financial condition or our results of operations |
| These factors include: • foreign currency fluctuations or currency restrictions; - 10 - ______________________________________________________________________ [31]Table of Contents • nationalization and expropriation; • potentially burdensome taxation; • inflationary and recessionary markets, including capital and equity markets; • civil unrest, political instability, terrorist attacks and wars; • seizure of assets; • trade restrictions, trade protection measures or price controls; • foreign ownership restrictions; • import or export licensing requirements; • restrictions on operations, trade practices, trade partners and investment decisions resulting from domestic and foreign laws and regulations; • changes in governmental laws and regulations and the level of enforcement of laws and regulations; • inability to repatriate income or capital; and • reductions in the availability of qualified personnel |
| Because a significant portion of our revenue is denominated in foreign currencies, changes in exchange rates will produce fluctuations in our costs and earnings, and may also affect the book value of our assets located outside of the US and the amount of our stockholders’ equity |
| Although it is our policy to seek to minimize our currency exposure by engaging in hedging transactions where appropriate, we cannot assure you that our efforts will be successful |
| To the extent we sell our products and services in foreign markets, currency fluctuations may result in our products and services becoming too expensive for foreign customers |
| As is customary for several of the business areas in which we operate, we agree to provide products and services under fixed-price contracts |
| Under these contracts, we are typically responsible for cost overruns |
| Our actual costs and any gross profit realized on these fixed-price contracts may vary from the estimated amounts on which these contracts were originally based |
| There is inherent risk in the estimation process and including significant unforeseen technical and logistical challenges or longer than expected lead times |
| A fixed-price contract may prohibit our ability to mitigate the impact of unanticipated increases in raw material prices (including the price of steel) through increased pricing |
| Depending on the size of a project, variations from estimated contract performance could have a significant impact on our operating results |
| • Due to the types of contracts we enter into, the cumulative loss of several major contracts or alliances may have an adverse effect on our results of operations |
| We often enter into large, long-term contracts and leases that, collectively, represent a significant portion of our revenue |
| These agreements, if terminated or breached, may have a larger impact on our operating results or our financial condition than shorter-term contracts due to the value at risk |
| If we were to lose several key alliances or agreements over a relatively short period of time we could experience a significant adverse impact on our financial condition or results of operations |
| • Our businesses are dependent on the continuing services of certain of our key managers and employees |
| We depend on our senior executive officers and other key personnel |
| The loss of any of these officers or key management could adversely impact our business if we are unable to effect key strategies or transactions in their absence |
| In addition, competition for qualified employees among companies that rely heavily on engineering and technology (as we do) is intense |
| The loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully and develop marketable products and services |
| • Increased costs of raw materials and other components may result in increase operating expenses and adversely affect our results of operations and cash flows |
| Our results of operations may be adversely affected by our inability to manage the rising costs and availability of raw materials and components used in our wide variety of products and systems |
| Unexpected changes in the size and timing of regional and/or product markets, particularly for short lead-time products, could affect our results of operations and our cash flows |
| - 11 - ______________________________________________________________________ [32]Table of Contents • Our success depends on our ability to implement new technologies and services |
| Our success depends on the development and implementation of new product designs and improvements, and on our ability to protect and maintain critical intellectual property assets related to these developments |
| If we are not able to obtain patent or other protection of our technology, we may not be able to continue to develop systems, services and technologies to meet evolving industry requirements, and if so, at prices acceptable to our customers |
| Some of our competitors are large national and multinational companies that may be able to devote greater resources to research and development of new systems, services and technologies than we are able to do |
| Moreover, some of our competitors operate in narrow business areas, allowing them to concentrate their research and development efforts directly on products and services for those areas |
| If we are unable to compete effectively given these risks, our business, results of operations and financial condition could be adversely affected |