Executive Overview

We design, manufacture and service technologically sophisticated systems and products for customers in the energy industry. We have manufacturing operations worldwide, strategically located to facilitate delivery of our products, systems and services to our customers. We report the results of operations in the following segments: Subsea Technologies, Surface Technologies and Energy Infrastructure. Management's determination of the Company's reporting segments was made on the basis of our strategic priorities and corresponds to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to the segment.

A description of our products and services, as well as annual financial data, for each segment can be found in Part I, Item 1, "Business" and Note 19 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. The discussions below include the results of each of our segments for the years ended December 31, 2012, 2011 and 2010.

We focus on economic and industry-specific drivers and key risk factors affecting our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources. The following discussion provides examples of economic and industry factors and key risks that we consider.

The results of our businesses are primarily driven by changes in exploration and production spending by oil and gas companies, which largely depend upon current and anticipated future crude oil and natural gas demand, production volumes, and consequently, commodity prices. Our Subsea Technologies business is primarily affected by trends in deepwater oil and natural gas production. Our Surface Technologies business is primarily affected by trends in land-based and shallow water oil and natural gas production, including trends in shale production. We use crude oil and natural gas prices as an indicator of demand. The level of worldwide production activity influences spending decisions, and we use rig count as an additional indicator of demand.

We also focus on key risk factors when determining our overall strategy and making decisions for allocating capital. These factors include risks associated with the global economic outlook, product obsolescence and the competitive environment. We address these risks in our business strategies, which incorporate continuing development of leading edge technologies and cultivating strong customer relationships.

We have developed close working relationships with our customers. Our Subsea Technologies business results reflect our ability to build long-term alliances with oil and natural gas companies that are actively engaged in offshore deepwater development and to provide solutions for their needs in a timely and cost-effective manner. We believe that by working closely with our customers, we enhance our competitive advantage, strengthen our market positions and improve our operating results.

As we evaluate our operating results, we consider business segment performance indicators like segment revenue, operating profit and capital employed, in addition to the level of inbound orders and order backlog. A significant proportion of our revenue is recognized under the percentage of completion method of accounting. Cash receipts from such arrangements occur at milestones achieved under stated contract terms. Consequently, the timing of revenue recognition is not always highly correlated with the timing of customer payments. We may structure our contracts to receive advance payments that we typically use to fund engineering efforts and inventory purchases. Working capital (excluding cash) and net (debt) cash are therefore key performance indicators of cash flows.

In each of our segments, we serve customers from around the world. During 2012, approximately 75% of our total sales were generated from non-U.S. locations. We evaluate international markets and pursue opportunities that fit our technological capabilities and strategies. For example, we have targeted opportunities in West Africa, Brazil, the North Sea and the Asia-Pacific region because of the expected offshore drilling potential in those regions.

Business Outlook

Overall, management remains optimistic about business activity in 2013, despite expectations of slow global economic growth. While expectations of future energy demand remain closely tied to economic activity in major world economies, total world consumption of crude oil and liquid fuels is expected to slightly increase in 2013. As a result, we currently expect crude oil prices to remain at a level that supports strong exploration and production activity, especially in subsea markets.
Our strong subsea project backlog as of December 31, 2012, combined with increasing demand for subsea services related to exploration and production activity, supports our expectations of higher subsea revenue and increasing margins during 2013. These expectations are partly dependent upon our continued ability to successfully develop and advance the capacity and capabilities of our supply chain. We believe the workforce we added over the past two years, including increased capacity surrounding supply chain management, and the investments in facilities we have made are properly preparing us to take advantage of the expected subsea market growth. To complement this growth, we expect much of our subsea investment to center on expanding our subsea service offerings and processing capabilities. In 2012, there was evidence that pricing in our subsea technologies business was beginning to improve, and with the expected growth in the subsea market, we believe improved pricing will continue through 2013. Overall, we expect market demand to remain strong for our subsea technologies systems and service offerings worldwide.
Regarding our surface technologies portfolio, North American shale activity was strong during the first half of 2012; however, we experienced a slowdown in capital orders as a result of hydraulic fracturing fleets aligning with market demand during the latter half of 2012. Consequently, the downward market shift in North America in the second half of the year had a negative impact on segment profits in 2012 and is expected to continue through 2013. Despite the weakness in the North American market, our international surface wellhead business performed well in 2012 and is expected to continue to improve as a result of increasing international rig counts. In the fourth quarter of 2012, we completed the acquisition of Pure Energy which will allow us to offer an integrated fracturing rental service, consistent with our strategy for continued expansion in the shale markets and is expected to contribute to revenue and profit in 2013.

                  YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
                                  Year Ended December 31,                             Change
(In millions)                2012          2011          2010           2012 vs. 2011          2011 vs. 2010
Revenue                   $ 6,151.4     $ 5,099.0     $ 4,125.6     $ 1,052.4       21%      $  973.4      24%
Costs and expenses:
Cost of sales               4,832.9       3,966.2       3,074.0         866.7        22         892.2      29
Selling, general and
administrative expense        596.9         479.9         432.0         117.0        24          47.9      11
Research and development
expense                       116.8          90.5          68.0          26.3        29          22.5      33
Total costs and expenses    5,546.6       4,536.6       3,574.0       1,010.0        22         962.6      27
Other income (expense),
net                            23.0          (1.4 )        (4.9 )        24.4      1,743          3.5      71
Net interest expense          (26.6 )        (8.2 )        (8.8 )       (18.4 )    (224)          0.6       7
Income before income
taxes                         601.2         552.8         537.9          48.4        9           14.9       3
Provision for income
taxes                         166.4         149.3         159.6          17.1        11         (10.3 )    (6)
Income from continuing
operations                    434.8         403.5         378.3          31.3        8           25.2       7
Income (loss) from
discontinued operations,
net of income taxes               -             -          (0.4 )           -        *            0.4       *
Net income                    434.8         403.5         377.9          31.3        8           25.6       7
Less: net income
attributable to
noncontrolling interests       (4.8 )        (3.7 )        (2.4 )        (1.1 )     (30)         (1.3 )   (54)
Net income attributable
to FMC Technologies, Inc. $   430.0     $   399.8     $   375.5     $    30.2        8%      $   24.3      6%

* Not meaningful

2012 Compared With 2011

Revenue increased by $1,052.4 million in 2012 compared to the prior year and reflected revenue growth in all reporting segments. Revenue in 2012 included a $188.4 million unfavorable impact of foreign currency translation, as compared to 2011. Excluding the impact of foreign currency translation, total revenue increased by $1,240.8 million year-over-year. Subsea systems and services had another strong year of order activity during 2012. The impact of the higher backlog coming into 2012, combined with robust market activity, led to increased Subsea Technologies sales year-over-year. Additionally, revenue increased year-over-year as a result of our acquisition of the remaining 55% of Schilling Robotics during the second quarter of 2012. Surface Technologies posted higher revenue during 2012 from higher backlog entering the year. The higher backlog entering the year was due to increased demand for WecoŽ/ChiksanŽ equipment and well service pumps due to the ongoing strength of the North American oil and gas shale markets in 2011.

Gross profit (revenue less cost of sales) decreased as a percentage of sales to 21.4% in 2012 from 22.2% in the prior year. The margin decline was predominantly due to the remeasurement of the Multi Phase Meters contingent earn-out consideration in Subsea Technologies. Additionally, the decrease in gross profit was also due to higher staffing and increased depreciation expense as a result of our expansion of our fluid control business. Foreign currency translation unfavorably impacted gross profit by $41.0 million in 2012 compared to the prior year.

Selling, general and administrative ("SG&A") expense increased by $117.0 million year-over-year, driven by higher bid and proposal expenses, increased sales commissions and additional staffing to support operations.

R&D expense increased by $26.3 million year-over-year as we continued to advance new technologies in Subsea Technologies, including subsea processing capabilities, and related to the development of our permanent magnet motor technologies in our direct drive systems business.

Other income (expense), net, reflected a $20.0 million gain related to the fair valuation of our previously held equity interest in Schilling Robotics during 2012 and $1.4 million and $1.9 million of gains related to the remeasurement of foreign currency

exposures in 2012 and 2011, respectively. Further discussion of our derivative instruments is incorporated herein by reference from Note 14 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our provision for income taxes reflected an effective tax rate of 28.0% in 2012. In 2011, our effective tax rate was 27.2%. Excluding a benefit related to recognizing a retroactive holiday in Singapore in the first quarter of 2011, our effective tax rate was 28.5%. The decrease from this adjusted rate to the effective tax rate in 2012 was primarily due to changes in our international structure during 2012, partially offset by the tax impact of the remeasurement of the Multi Phase Meters contingent earn-out consideration and a less favorable mix of earnings. Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to lower tax rates than in the United States. In certain jurisdictions, primarily Singapore and Malaysia, our tax rate is significantly less than the relevant statutory rate due to tax holidays which are set to expire after 2018 and 2015, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate related primarily to differing foreign and state tax rates.

2011 Compared With 2010

Revenue increased by $973.4 million in 2011 compared to the prior year. Revenue in 2011 included a $197.9 million favorable impact of foreign currency translation, as compared to 2010. Excluding the impact of foreign currency translation, total revenue increased by $775.5 million year-over-year. We entered the year in 2011 with a solid backlog and continued to have strong order activity during 2011 for both subsea and surface products. The impact of the higher backlog coming into 2011 led to increased Subsea Technologies sales during the year. Additionally, Surface Technologies posted higher revenue during 2011 from increased demand for WecoŽ/ChiksanŽ equipment and well service pumps due to the ongoing strength of the North American oil and gas shale markets.

Gross profit (revenue less cost of sales) decreased as a percentage of sales to 22.2% in 2011 from 25.5% in 2010. The overall margin reduction was driven primarily by Subsea Technologies which experienced inefficiencies of integrating a rapidly increasing workforce. Additionally, we experienced higher project completion and post-completion costs in 2011, including costs associated with project delivery delays. The decrease in margins was partially offset by a margin improvement for Surface Technologies from increased sales in the expanding North American shale market. Foreign currency translation favorably impacted gross profit in 2011 by $35.5 million compared to the prior year.

SG&A expense increased by $47.9 million year-over-year, driven by increased bid activity and additional staffing to support operations.

R&D expense increased by $22.5 million year-over-year as we continued to advance new technologies in Subsea Technologies, including subsea processing capabilities.

Other expense, net, reflected gains of $1.9 million and losses of $6.9 million related to the remeasurement of foreign currency exposures, losses of $0.7 million and gains of $2.6 million associated with investments held in an employee benefit trust for our non-qualified deferred compensation plan, and losses of $2.6 million and $0.6 million of property, plant, and equipment disposals during the years ended December 31, 2011 and 2010, respectively. Further discussion of our derivative instruments is incorporated herein by reference from Note 14 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our provision for income taxes reflected an effective tax rate of 27.2% in 2011. In 2010, our effective tax rate was 29.8%. Our effective tax rate can fluctuate depending on our country mix of earnings, since our foreign earnings are generally subject to lower tax rates than in the United States. In certain jurisdictions, primarily Singapore and Malaysia, our tax rate is significantly less than the relevant statutory rate due to tax holidays which are set to expire after 2018 and 2015, respectively. Compared to 2010, our 2011 effective tax rate reflected a favorable change in the country mix of earnings. In addition, the decrease in the effective tax rate in 2011 was partially due to the impact of certain tax holidays in Singapore. In January 2011, we recognized a retroactive benefit of approximately $7.3 million related to these tax holidays which were retroactive to January 1, 2009. The difference between the effective tax rate and the statutory U.S. federal income tax rate related primarily to differing foreign and state tax rates.

Operating Results of Business Segments

Segment operating profit is defined as total segment revenue less segment
operating expenses. The following items have been excluded in computing segment
operating profit: corporate staff expense, interest income and expense
associated with corporate debt and investments, income taxes and other revenue
and other (expense), net.

The following table summarizes our operating results for the years ended
December 31, 2012, 2011 and 2010:
                                     Year Ended December 31,                            Change
(In millions)                   2012          2011          2010          2012 vs. 2011        2011 vs. 2010
Revenue
Subsea Technologies          $ 4,005.5     $ 3,288.1     $ 2,730.9     $   717.4      22%    $  557.2      20%
Surface Technologies           1,598.1       1,310.8         954.3         287.3      22        356.5      37
Energy Infrastructure            576.2         503.4         454.4          72.8      14         49.0      11
Other revenue and
intercompany eliminations        (28.4 )        (3.3 )       (14.0 )       (25.1 )   (761)       10.7      76
Total revenue                $ 6,151.4     $ 5,099.0     $ 4,125.6     $ 1,052.4      21     $  973.4      24
Net income
Segment operating profit:
Subsea Technologies          $   451.5     $   319.9     $   422.2     $   131.6      41     $ (102.3 )   (24)
Surface Technologies             284.3         250.1         173.4          34.2      14         76.7      44
Energy Infrastructure             48.9          49.3          37.8          (0.4 )    (1)        11.5      30
Total segment operating
profit                           784.7         619.3         633.4         165.4      27        (14.1 )    (2)
Corporate items:
Corporate expense                (41.8 )       (39.4 )       (40.2 )        (2.4 )    (6)         0.8       2
Other revenue and other
(expense), net                  (119.9 )       (22.6 )       (48.9 )       (97.3 )   (431)       26.3      54
Net interest expense             (26.6 )        (8.2 )        (8.8 )       (18.4 )   (224)        0.6       7
Total corporate items           (188.3 )       (70.2 )       (97.9 )      (118.1 )   (168)       27.7      28
Income from continuing
operations before income
taxes                            596.4         549.1         535.5          47.3       9         13.6       3
Provision for income taxes       166.4         149.3         159.6          17.1      11        (10.3 )    (6)
Income from continuing
operations attributable to
FMC Technologies, Inc.           430.0         399.8         375.9          30.2       8         23.9       6
Income (loss) from
discontinued operations, net
of income taxes                      -             -          (0.4 )           -       *          0.4       *
Net income attributable to
FMC Technologies, Inc.       $   430.0     $   399.8     $   375.5     $    30.2      8%     $   24.3      6%

* Not meaningful

We report our results of operations in U.S. dollars; however, our earnings are generated in various currencies worldwide. For example, we generate a significant amount of revenue, and incur a significant amount of costs, in Norwegian krone, Brazilian real, Singapore dollar, Malaysian ringgit, British pound and the euro. The earnings of subsidiaries functioning in their local currencies are translated into U.S. dollars based upon the average exchange rate during the period, in order to provide worldwide consolidated results. While the U.S. dollar results reported reflect the actual economics of the period reported upon, the variances from prior periods include the impact of translating earnings at different rates.

Subsea Technologies

2012 Compared With 2011

Subsea Technologies' revenue increased $717.4 million in 2012 compared to the prior year. Revenue for 2012 included a $159.9 million unfavorable impact of foreign currency translation, as compared to the prior year. Excluding the impact of foreign currency translation, total revenue increased by $877.3 million during 2012 compared to the prior year. With continued high crude oil prices, oil and gas exploration and production activity increased in 2012 when compared to the prior year, as

evidenced by increased spending by oil and gas companies. This led to a stronger market for subsea products and services. We entered the year with a strong backlog and continued to have solid order activity during 2012 from high demand for subsea systems. The year-over-year increase in revenue was attributable to the conversion of backlog, combined with the strong order activity in 2012. The revenue increase in 2012 was also due in part to our acquisition of the remaining 55% of Schilling Robotics in the second quarter of 2012.

Subsea Technologies' operating profit totaled $451.5 million, or 11.3% of revenue, in 2012, compared to the prior-year's operating profit as a percentage of revenue of 9.7%. The year-over-year margin improvement was predominantly due to the conversion of lower margin backlog and higher project-related and post-completion costs in 2011. Additionally, we experienced operating profit benefits from our acquisition of the remaining 55% of Schilling Robotics in the second quarter of 2012 as well as improved margins in Multi Phase Meters. Foreign currency translation unfavorably impacted operating profit in 2012 by $23.5 million compared to the prior year.

2011 Compared With 2010

Subsea Technologies' revenue increased $557.2 million in 2011 compared to the prior year. Revenue for 2011 included a $173.1 million favorable impact of foreign currency translation, as compared to the prior year. Excluding the impact of foreign currency translation, total revenue increased by $384.1 million during 2011, compared to the prior year. Oil and gas exploration and production activity increased in 2011 primarily due to higher average crude oil prices when compared to the prior year, leading to a strong subsea market. We entered the year with a strong backlog and continued to have solid order activity during 2011 from high demand for subsea systems. The year-over-year increase in revenue was attributable to the conversion of backlog. Revenue increases in 2011 were partially offset by a decrease in sales in the Gulf of Mexico due to slow recovery of the region after the United States imposed moratorium.

Subsea Technologies' operating profit totaled $319.9 million, or 9.7% of revenue, in 2011, compared to the prior-year's operating profit as a percentage of revenue of 15.5%. The year-over-year margin decline was predominantly due to the conversion of lower margin backlog from projects awarded prior to 2011, coupled with inefficiencies of integrating a rapidly increasing workforce. Additionally, we experienced higher project-related and post-completion costs in 2011, including costs associated with project delivery delays. Foreign currency translation favorably impacted operating profit in 2011 by $17.2 million compared to the prior year.

Surface Technologies

2012 Compared With 2011

Surface Technologies' revenue increased $287.3 million in 2012 compared to the prior year. The revenue increase was driven by strong demand for WecoŽ/ChiksanŽ equipment coupled with an increased demand for well service pumps in our fluid control business due to the strength in North American oil and gas shale activity in the first half of 2012. Surface wellhead also experienced revenue growth year-over-year primarily due to conventional wellhead system sales and increased services related to hydraulic fracturing activity in North America and strong market growth in Asia Pacific. In addition, revenue increased year-over-year due to the acquisition of our completion services business in the fourth quarter of 2012.

Surface Technologies' operating profit totaled $284.3 million, or 17.8% of revenue, in 2012, compared to the prior-year's operating profit as a percentage of revenue of 19.1%. The margin decline was primarily driven by higher staffing and increased depreciation expense as a result of our expansion of our fluid control business, coupled with a margin decline in our surface wellhead business in Europe from higher warranty costs.

2011 Compared With 2010

Surface Technologies' revenue increased $356.5 million in 2011 compared to the prior year. The increase was driven by strong demand for WecoŽ/ChiksanŽ equipment coupled with an increased demand for well service pumps due to the strength in North American oil and gas shale activity. In addition, surface wellhead markets in North America also led to revenue growth year-over-year primarily due to conventional wellhead system sales and increased services related to hydraulic fracturing activity.

Surface Technologies' operating profit totaled $250.1 million, or 19.1% of revenue, in 2011, compared to the prior-year's operating profit as a percentage of revenue of 18.2%. The margin improvement was driven primarily by higher sales volume for WecoŽ/ChiksanŽ equipment, well service pumps, and surface wellhead products and services and lower rates of SG&A expenses as a percent of sales from continued cost leveraging of segment growth.

Energy Infrastructure

2012 Compared With 2011

Energy Infrastructure's revenue increased $72.8 million in 2012 compared to the prior year. The increase in revenue was led by our measurement solutions business due to the strength of North American oil and gas custody and control activity, the acquisition of our automation and control business in the second quarter of 2012, and increased sales volumes in our material handling business. Foreign currency translation unfavorably impacted revenue by $15.8 million in 2012 compared to the prior year.

Energy Infrastructure's operating profit totaled $48.9 million, or 8.5% of revenue, in 2012, compared to the prior-year's operating profit as a percentage of revenue of 9.8%. The decline in margin was driven by higher research and development expense in our direct drive systems business, and higher margin projects in our separation systems business in 2011. These margin declines were partially offset by improved margins from project completions in material handling and the acquisition of our automation and control business in 2012.

2011 Compared With 2010

Energy Infrastructure's revenue increased $49.0 million in 2011 compared to the prior year. The increase was led by our material handling business due to improved activity in North America, however, increases in sales were realized in all lines of business. Foreign currency translation favorably impacted revenue in 2011 by $13.8 million compared to the prior year.

Energy Infrastructure's operating profit totaled $49.3 million, or 9.8% of revenue, in 2011, compared to the prior-year's operating profit as a percentage of revenue of 8.3%. The margin improvement was driven by higher sales volumes and margin improvement in all businesses as a result of lower period costs from improved execution, coupled with lower rates of SG&A expenses as a percent of sales from continued cost leveraging of segment growth.

Corporate Items

2012 Compared With 2011

. . .