PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from________ to________
Commission File Number 1-2376
FMC Corporation
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-0479804
----------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Randolph Drive, Chicago, Illinois 60601
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(312) 861-6000
------------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2001
- ---------------------------------------- ---------------------------------
Common Stock, par value $0.10 per share 31,116,481
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Income (Unaudited)
- ---------------------------------------------
(In millions, except per share data)
Three Months
Ended March 31
--------------------------------------
2001 2000
---- ----
Revenue $876.6 $1,003.6
Costs and expenses:
Cost of sales or services 660.9 761.7
Selling, general and
administrative expense 133.4 138.1
Research and development expense 36.6 36.7
Asset impairment 1.3 -
Restructuring and other charges 10.2 -
------ ---------
Total costs and expenses 842.4 936.5
------ --------
Income before minority interests, interest expense,
interest income, income taxes, and the cumulative
effect of a change in accounting principle 34.2 67.1
Minority interests 0.4 0.7
Interest expense 22.2 24.8
Interest income (0.9) (1.8)
------ --------
Income before income taxes and the
cumulative effect of a change in
accounting principle 12.5 43.4
Provision for income taxes 33.4 10.6
------ --------
Income (loss) before the cumulative effect
of a change in accounting principle (20.9) 32.8
Cumulative effect of a change in accounting
principle, net of income taxes (5.6) -
------ --------
Net income (loss) $(26.5) $ 32.8
====== ========
Basic earnings (loss) per common share:
Income (loss) before the cumulative effect
of a change in accounting principle $(0.68) $ 1.08
Cumulative effect of a change in
accounting principle, net of income taxes (0.18) -
------ --------
Net earnings (loss) per common share $(0.86) $ 1.08
====== ========
Average number of shares used in basic
earnings (loss) per share computations 30.8 30.4
====== ========
Diluted earnings (loss) per common share:
Income (loss) before the cumulative effect
of a change in accounting principle $(0.68) $ 1.05
Cumulative effect of a change in
accounting principle, net of income taxes (0.18) -
------ --------
Net earnings (loss) per common share $(0.86) $ 1.05
====== ========
Average number of shares used in diluted
earnings (loss) per share computations 30.8 31.3
====== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Balance Sheets
- ---------------------------
(In millions, except share and per share data)
March 31
2001 December 31
(Unaudited) 2000
-------------- -------------
Assets:
Current assets:
Cash and cash equivalents $ 30.8 $ 25.1
Trade receivables, net of allowances
of $14.8 in 2001 and $13.4 in 2000 654.7 635.5
Inventories 483.5 426.2
Other current assets 245.7 152.4
Deferred income taxes 107.2 90.6
--------- --------
Total current assets 1,521.9 1,329.8
Investments 115.4 103.0
Property, plant and equipment, net (Note 4) 1,619.2 1,616.1
Goodwill and intangible assets 481.1 494.6
Other assets 93.2 112.2
Deferred income taxes 60.3 90.2
-------- --------
Total assets $3,891.1 $3,745.9
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Short-term debt (Note 6) $ 506.7 $ 153.9
Accounts payable, trade and other 602.6 657.3
Other current liabilities 393.8 462.2
Current portion of long-term debt (Note 6) 2.8 22.7
Current portion of accrued pensions
and other postretirement benefits 36.0 37.5
Income taxes payable 58.7 66.3
-------- -------
Total current liabilities 1,600.6 1,399.9
Long-term debt, less current portion (Note 6) 843.2 872.1
Accrued pension and other postretirement
benefits, less current portion 190.7 189.8
Reserve for discontinued operations and
other liabilities (Note 7) 278.0 291.9
Other non-current liabilities 147.7 144.8
Minority interests in consolidated companies 46.0 47.0
Stockholders' equity:
Preferred stock, no par value, authorized
5,000,000 shares; no shares issued in
2001 or 2000 - -
Common stock, $0.10 par value, authorized
130,000,000 shares; issued 39,080,103
shares in 2001 and 38,622,349 shares in 2000 3.9 3.9
Capital in excess of par value of common
stock 206.2 181.6
Retained earnings 1,372.4 1,398.9
Accumulated other comprehensive loss (286.8) (272.6)
Treasury stock, common, at cost;
7,963,622 shares in 2001 and 7,977,709
shares in 2000 (510.8) (511.4)
-------- --------
Total stockholders' equity 784.9 800.4
-------- --------
Total liabilities and stockholders' equity $3,891.1 $3,745.9
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Three Months
Ended March 31
----------------------------
2001 2000
------- -------
Cash provided (required) by operating activities
of continuing operations:
Income (loss) before the cumulative effect of a
change in accounting principle $(20.9) $ 32.8
Adjustments to reconcile income (loss) before
the cumulative effect of a change in accounting
principle to cash required by operating activities
of continuing operations:
Depreciation and amortization 46.0 45.7
Asset impairment (Note 5) 1.3 -
Restructuring and other charges (Note 5) 10.2 2.7
Settlement of derivative contracts (Note 1) (3.5) -
Deferred income taxes 13.4 14.5
Minority interests 0.9 0.7
Other 6.2 (7.2)
Changes in operating assets and liabilities
excluding the effect of acquisitions of
businesses:
Accounts receivable sold 8.0 23.0
Trade receivables, net (27.2) 0.9
Inventories (59.3) 17.5
Other current assets and other assets (71.0) (24.8)
Accounts payable, accrued and other
current and other non-current liabilities (78.1) (119.7)
Income taxes payable (7.6) (8.2)
Accrued pension and other
postretirement benefits, net (1.9) (2.6)
------- -------
Cash required by operating activities of
continuing operations $(183.5) $ (24.7)
------- -------
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited) (Continued)
- -------------------------------------------------------------
(In millions)
Three Months
Ended March 31
---------------------------
2001 2000
---------- ---------
Cash required by operating activities
of continuing operations $(183.5) $ (24.7)
------- -------
Cash required by discontinued operations (91.7) (11.9)
------- -------
Cash provided (required) by investing activities:
Acquisitions of businesses - (45.4)
Capital expenditures (51.4) (53.3)
Proceeds from disposal of property,
plant and equipment and sale leasebacks 7.1 7.3
Decrease in investments 1.6 5.0
------- -------
Cash required by investing activities (42.7) (86.4)
------- -------
Cash provided (required) by financing activities:
Net proceeds from issuance of commercial
paper 201.2 164.3
Net decrease in other short-term debt (25.9) (23.1)
Repayment of long-term debt (49.0) (17.2)
Net borrowings (repayments) under
credit facilities 174.8 (8.9)
Distributions to minority partner (2.3) (1.5)
Net issuances of common stock 25.3 (0.3)
------- -------
Cash provided by financing activities 324.1 113.3
------- -------
Effect of exchange rate changes on cash
and cash equivalents (0.5) (2.0)
------- -------
Increase (decrease) in cash and cash equivalents 5.7 (11.7)
Cash and cash equivalents, beginning of period 25.1 64.0
------- -------
Cash and cash equivalents, end of period $ 30.8 $ 52.3
======= =======
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid for interest was $29.3 million and $29.6 million, and cash paid for
income taxes, net of refunds, was $4.6 million and $35.1 million for the three-
month periods ended March 31, 2001 and 2000, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------
Note 1: Financial Information and Accounting Policies
- ------------------------------------------------------
The consolidated balance sheet of FMC Corporation ("FMC" or "the company") as of
March 31, 2001, and the related consolidated statements of income and cash flows
for the interim periods ended March 31, 2001 and 2000 have been reviewed by
FMC's independent accountants. The review is described more fully in their
report included herein. In the opinion of management, these consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States applicable to interim period financial
statements and reflect all adjustments necessary for a fair statement of the
company's results of operations and cash flows for the interim periods ended
March 31, 2001 and 2000 and of its financial position as of March 31, 2001. All
such adjustments are of a normal recurring nature. The results of operations for
the three-month periods ended March 31, 2001 and 2000 are not necessarily
indicative of the results of operations for the full year.
The company's accounting policies are set forth in Note 1 to the company's
consolidated 2000 financial statements, which are incorporated by reference in
the company's 2000 Annual Report on Form 10-K. Effective January 1, 2001, the
company adopted the following revised accounting policy:
Derivative financial instruments and foreign currency transactions. The company
- -------------------------------------------------------------------
uses derivative financial instruments selectively to offset exposure to market
risks arising from changes in foreign exchange rates and natural gas prices.
Derivative financial instruments currently used by the company primarily consist
of foreign currency and natural gas forward contracts. Where feasible, contracts
are executed centrally to minimize transaction costs and minimize losses due to
adverse changes in foreign currency markets.
For anticipated foreign currency transactions, the company enters into external
derivative contracts that individually correlate with each exposure in terms of
currency and maturity; the amount of a contract does not exceed the amount of
the exposure being hedged. For amounts recorded on the company's consolidated
balance sheet, such as accounts receivable or payable, the company evaluates and
monitors net exposures by currency and maturity, and external derivative
financial instruments correlate with that net exposure in all material respects.
The company uses natural gas forward contracts with the objective of reducing
commodity price risks related to future requirements for natural gas used in
FMC's production facilities. Commodity price risks arise from price volatility
due to factors such as weather conditions, government regulations, economic
climate and other unforeseen circumstances.
Generally, the company applies hedge accounting as allowed by Statement of
Financial Accounting Standards ("SFAS") No. 133 for derivatives related to
anticipated future cash flows, including substantially all natural gas and
certain foreign currency forward contracts, and does not apply hedge accounting
for derivatives related to fair value exposures. For derivatives where hedge
accounting is used, the company formally designates the derivative as either (1)
a cash flow hedge of an anticipated transaction, or (2) a foreign currency cash
flow hedge. The company also documents the designated hedging relationship upon
entering into the derivative, including identification of the hedging instrument
and the hedged item or transaction, strategy and risk management ojective for
undertaking the hedge, and the nature of the risk being hedged. Each derivative
is assessed for hedge effectiveness both at the inception of the hedging
relationship and, at a minimum, on a quarterly basis, for as long as the
derivative is outstanding. Hedge accounting is only applied when the derivative
is deemed to be highly effective at offsetting changes in anticipated cash flows
of the hedged item or transaction. Hedge accounting is discontinued if the
forecasted transaction is no longer expected to occur, and any previously
deferred hedging gains or losses are recorded in earnings immediately. Gains or
losses for all designated hedges are recorded in the consolidated statements
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of income generally on the same line item as the gain or loss on the item being
hedged.
The company records all derivatives at fair value as assets or liabilities in
the consolidated balance sheets, with classification as current or long-term.
For cash flow hedges, the effective portion of the change in fair value of the
derivative is deferred in accumulated other comprehensive loss in the
consolidated balance sheets until the transaction is reflected in earnings, at
which time any deferred hedging gains or losses are also recorded in earnings.
The ineffective portion of the change in the fair value of a derivative used as
a cash flow hedge is recorded in earnings as incurred.
For periods prior to the adoption of SFAS No. 133, gains and losses on hedges of
existing assets and liabilities were included in the carrying amounts of those
assets or liabilities and were ultimately recognized in income when those
carrying amounts were converted. Gains and losses related to hedges of firm
commitments also were deferred and included in the basis of the transaction when
it was completed. Gains and losses on unhedged foreign currency transactions
were included in income as part of cost of sales or services. Gains and losses
on derivative financial instruments that protected the company from exposure in
a particular currency, but did not currently have a designated underlying
transaction, were also included in income as part of cost of sales or services.
If a hedged item matured, was sold, extinguished, or terminated, or was related
to an anticipated transaction that is no longer likely to take place, the
derivative financial instrument related to the hedged item was closed out and
the related gain or loss was included in income as part of cost of sales or
services or interest expense, as appropriate in relation to the hedged item.
Cash flows from derivative contracts are reported in the consolidated statements
of cash flows in the same categories as the cash flows from the underlying
transactions. The 2001 cash outflow related to contracts settled as a result of
the adoption of SFAS No. 133 of $3.5 million is reported separately in the
consolidated statements of cash flows.
Note 2: FMC's Plan for Reorganization
- --------------------------------------
In October 2000, management announced that it was initiating a strategic
reorganization (the "reorganization" or "separation") that ultimately is
expected to split the company into two independent publicly traded companies--a
machinery business and a chemicals business.
The machinery company will be named FMC Technologies, Inc. ("FTI") and will
include FMC's Energy Systems and Food and Transportation Systems businesses. The
chemicals company will be comprised of FMC's Specialty Chemicals, Industrial
Chemicals and Agricultural Products businesses and will continue to operate as
FMC Corporation.
The company plans an initial public offering of slightly less than 20 percent of
the common stock of FTI during the second quarter of 2001. Subject to market
conditions, final board approval and a favorable ruling from the Internal
Revenue Service, FMC intends to make a tax-free distribution of the remaining
shares of FTI by the end of 2001.
Management expects that FMC will incur incremental after-tax costs of $50
million to $60 million during 2001 related to this transaction and the
restructuring of certain corporate and business operations, although the
ultimate amount could differ significantly from this estimate.
Note 3: Recently Adopted Accounting Pronouncements
- ---------------------------------------------------
On January 1, 2001, the company implemented, on a prospective basis, SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS 137 and SFAS No. 138 (collectively, the "Statement.") The Statement
requires the company to recognize all derivatives in the consolidated balance
sheets at fair value, with changes in the fair value of derivative instruments
to be recorded in current earnings or deferred in other comprehensive income,
depending on whether a derivative is designated
PAGE 8
as and is effective as a hedge and on the type of hedging transaction. In
accordance with the provisions of the Statement, the company recorded a
first-quarter 2001 loss from the cumulative effect of a change in accounting
principle of $5.6 million, net of an income tax benefit of $3.6 million, in the
company's consolidated statement of earnings, and a deferred gain of $15.1
million, net of income taxes of $9.6 million, in accumulated other comprehensive
loss.
Hedge ineffectiveness and the portion of derivative gains or losses excluded
from assessments of hedge effectiveness, related to the company's outstanding
cash flow hedges and which were recorded to earnings during the quarter ended
March 31, 2001, were less than $0.1 million. At March 31, 2001, the net deferred
hedging gain in accumulated other comprehensive loss was $2.1 million, of which
approximately $18.5 million of net gains are expected to be recognized in
earnings during the twelve months ended March 31, 2002, at the time the
underlying hedged transactions are realized, and of which net losses of $16.4
million are expected to be recognized at various times subsequent to March 31,
2002 and continuing through November 30, 2009.
In the fourth quarter of 2000, the company adopted the requirements of the
Emerging Issues Task Force consensus on Issue No. 00-10 ("EITF 00-10"),
"Accounting for Shipping and Handling Fees and Costs." EITF 00-10 requires the
company to report costs associated with shipping and handling, including those
costs passed on to customers, as costs of sales or services in the company's
consolidated income statements. In conjunction with the adoption, the company
reclassified as cost of sales or services certain amounts that had previously
been recorded as offsets (reductions) of revenue. The reclassification for the
three months ended March 31, 2000 increased revenue and cost of sales or
services by $60.4 million and had no effect on the company's previously reported
income or earnings per share.
Note 4: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment comprised the following, in millions:
March 31
2001 December 31
(Unaudited) 2000
----------- -----------
Property, plant and equipment, at cost $3,446.9 $3,406.2
Accumulated depreciation 1,827.7 1,790.1
-------- --------
Net property, plant and equipment $1,619.2 $1,616.1
======== ========
Note 5: Reserves for Restructuring, Impairment and Other Costs
- ---------------------------------------------------------------
In the first quarter of 2001, the company recorded an asset impairment and
restructuring and other one-time charges of $11.5 million before taxes ($7.1
million after tax). An asset impairment of $1.3 million was required to write
off goodwill associated with a small FMC FoodTech product line. Restructuring
and other one-time charges were $10.2 million, of which $5.2 million related to
planned reductions in force of 91 individuals in the Energy Systems businesses;
$2.5 million related to planned reductions in force of 72 positions in FoodTech
businesses; $1.5 million related to a planned plant closing and restructuring of
an airport systems facility, including 73 planned workforce reductions; and $1.0
million related to the cost of continuing Industrial Chemical and Corporate
realignments.
During the three months ended March 31, 2000, the company established new
reserves of $5.0 million related to the consolidation of its combined workforce
at its alkali chemical facilities in Wyoming, including the cost of separation
programs for approximately 80 people. Of the amounts reserved, $2.7 million was
charged to expense and $2.3 million was recorded as a liability in the
acquisition accounting for Tg Soda Ash, Inc. ("TgSA") and did not impact
earnings in the three months ended March 31, 2000.
Reserves for restructuring programs were $13.0 million and $7.8 million at March
31, 2001 and December 31, 2000, respectively. Restructuring spending of $1.5
million related to the 2001 programs and $3.5 million related to previous
programs occured during the three months ended March 31,2001. Spending during
the three months ended March 31, 2001 related primarily to workforce reductions
completed in the Energy Systems segment,
PAGE 9
in the FMC FoodTech businesses and in certain corporate and chemical shared
service support departments.
Note 6: Debt
- -------------
The company has $450.0 million in committed credit under a five-year
non-amortizing revolving credit agreement due in December 2001.
In order to allocate debt between FMC and FTI pursuant to the reorganization of
the company, FMC obtained an additional $200.0 million of committed credit in
February 2001, maturing at the earlier of 180 days from inception or seven days
after the completion of the offering of FTI common stock. In addition,
subsequent to March 31, 2001, the company obtained commitments for two revolving
credit facilities: a $250 million five-year credit agreement and a $150 million
364-day revolving credit facility, both of which FTI will assume from FMC
Corporation in conjunction with the separation.
To date, there have been no amounts borrowed under the credit facilities
described above, although the company may borrow under these agreements at any
time, including for the purpose of retiring other debt. Among other
restrictions, the credit agreements contain covenants relating to liens,
consolidated net worth and cash flow coverage (as defined in the agreements).
The company is in compliance with all debt covenants as of March 31, 2001.
In 1998, a universal shelf registration statement became effective, under which
$500.0 million of debt and/or equity securities may be offered. Unused capacity
of $345.0 million remains available under the 1998 shelf registration at March
31, 2001.
At March 31, 2001, long-term debt includes $29.7 million in exchangeable senior
subordinated debentures bearing interest at 6.75 percent, maturing in 2005 and
exchangeable at any time into Meridian Gold Inc. common stock at an exchange
price of $15.125 per share, subject to adjustment. The company may, at its
option, pay an amount equal to the market price of Meridian Gold Inc. common
stock in lieu of delivery of the shares. The debentures are subordinated in
right of payment to all existing and future senior indebtedness of the company
and are currently redeemable at the option of FMC at par.
During the three months ended March 31, 2001, the company redeemed $10.2 million
of its exchangeable senior subordinated debentures; $18.5 million of various
other debt issues maturing in 2003 through 2011, and bearing interest at rates
ranging from 6.375 percent to 7.75 percent; and retired $20.3 million of long-
term debt at maturity.
Short-term debt consists of commercial paper, borrowings under uncommitted
credit facilities and foreign borrowings at March 31, 2001 and December 31,
2000.
In November 1995, the company commenced a short-term commercial paper program,
supported by committed credit facilities, providing for the issuance of up to
$500.0 million in aggregate maturity value of commercial paper at any given
time. Three-day commercial paper of $220.6 million and $16.8 million was
outstanding at March 31, 2001 and December 31, 2000, respectively.
Advances under uncommitted credit facilities were $226.8 million and $50.0
million at March 31, 2001 and December 31, 2000, respectively.
Note 7: Reserves for Discontinued Operations and Other Liabilities
- -------------------------------------------------------------------
Reserves for discontinued operations and other liabilities at March 31, 2001 and
December 31, 2000 were $278.0 million and $291.9 million, respectively. At March
31, 2001, substantially all reserves related to environmental, post-employment
benefit, self-insurance and other long-term obligations associated with
operations discontinued between 1976 and 1997 and to environmental obligations
related to the company's operating facilities. See Note 5 to the company's
December 31, 2000 consolidated financial statements and Note 8 below.
PAGE 10
Note 8: Environmental Obligations
- ----------------------------------
The company has provided reserves for potential environmental obligations, which
management considers probable and for which a reasonable estimate of the
obligation could be made. Accordingly, reserves of $221.6 million and $232.0
million, excluding recoveries, have been provided at March 31, 2001 and December
31, 2000, respectively. The long-term portions of these reserves, totaling
$209.2 million and $222.0 million, are included in the reserve for discontinued
operations and other liabilities at March 31, 2001 and December 31, 2000,
respectively, and the short-term portions are recorded as other current
liabilities.
Recoveries of $44.8 million have been recorded as probable realization of claims
against third parties at March 31, 2001. Total recoveries recorded at December
31, 2000 were $46.9 million. The assets, the majority of which relate to
existing contractual arrangements with U.S. government agencies and insurance
carriers, are recorded as an offset to the reserve for discontinued operations
and other liabilities.
The company has estimated that reasonably possible contingent environmental
losses may exceed amounts accrued by as much as $80 million at March 31, 2001.
Obligations that have not been reserved for may be material to any one quarter's
or year's results of operations in the future. Management, however, believes the
liability arising from the potential environmental obligations is not likely to
have a materially adverse effect on the company's liquidity or financial
condition and may be satisfied over the next twenty years or longer.
A more complete description of the company's environmental contingencies and the
nature of its potential obligations are included in Notes 1 and 12 to FMC's
December 31, 2000 consolidated financial statements.
Note 9: Capital Stock
- ----------------------
On August 27, 1999, the Board of Directors authorized $50 million of open market
repurchases of FMC common stock, which the company has not commenced as of March
31, 2001. Depending on market conditions, the company may, from time to time,
purchase additional shares of its common stock on the open market.
At March 31, 2001, the company had 31.1 million shares outstanding and 1.3
million additional shares assuming conversion of stock options and other
dilutive potential common shares (calculated under the treasury stock method).
Note 10: Comprehensive Earnings (Loss)
- ---------------------------------------
Comprehensive earnings or loss includes all changes in stockholders' equity
during the period except those resulting from investments by owners and
distributions to owners. The company's comprehensive earnings (loss) for the
three-month periods ended March 31, 2000 and 1999 consisted of the following, in
millions:
2001 2000
---- ----
Net income (loss) $(26.5) $ 32.8
Other comprehensive gain (loss):
Foreign currency translation adjustment (16.3) (28.4)
Net deferral of hedging gains (losses) (13.0) -
Cumulative effect of a change in
accounting principle (Note 3) 15.1 -
------ ------
Comprehensive earnings (loss) $(40.7) $ 4.4
====== ======
Note 11: Business Combinations
- -------------------------------
Effective April 1, 2000, FMC and Solutia Inc. ("Solutia") formed a joint
venture, which includes the North American and Brazilian phosphorus chemical
operations of both companies. The joint venture, Astaris LLC ("Astaris"), is a
limited liability company equally owned by FMC and Solutia.
PAGE 11
FMC's share of Astaris' earnings is included in the Industrial Chemicals
segment. Sales of FMC's phosphorus chemical division, included in revenues, were
approximately $73 million for the three months ended March 31, 2000.
On February 16, 2000, FMC acquired York International's Northfield Freezing
Systems Group ("Northfield") for $39.8 million in cash. Northfield,
headquartered in Northfield, MN, is a manufacturer of freezing systems for
industrial food processing. Northfield's key products include freezers, coolers,
proofers and dehydrators for the food processing industry. Northfield's results
have been included in the Food and Transportation Systems segment from the date
of acquisition.
The company completed several smaller acquisitions and joint ventures during the
three-month period ended March 31, 2000.
Note 12: Commitments and Contingent Liabilities
- ------------------------------------------------
In connection with the Astaris' external financing agreement, FMC and Solutia
independently contractually agreed to provide Astaris with funding when the
joint venture does not achieve certain financial benchmarks. Subsequent to
December 31, 2000, the company received notification that based on Astaris'
performance to date, payments to Astaris amounting to approximately $16 million
will be required by June 2001. This amount has been recorded on the company's
consolidated balance sheets as an increase to investments and other current
liabilities at March 31, 2001.
The company also has certain other contingent liabilities arising from
litigation, claims, performance guarantees, leases, and other commitments
incident to the ordinary course of business. Management believes that the
ultimate resolution of its known contingencies will not materially affect the
consolidated financial position, results of operations or cash flows of FMC.
Note 13: Segment Information
- -----------------------------
Three Months Ended
March 31
-------------------------------
(In millions)
2001 2000
Revenue ---- ----
- -------
Energy Systems $246.8 $ 256.4
Food and Transportation Systems 182.8 185.2
Agricultural Products 134.6 165.8
Specialty Chemicals 116.3 124.9
Industrial Chemicals (1) 198.6 273.8
Eliminations (2.5) (2.5)
------ --------
$876.6 $1,003.6
====== ========
Income before income taxes
- --------------------------
Energy Systems $ 9.0 $ 11.0
Food and Transportation Systems 9.4 12.0
Agricultural Products 13.8 13.9
Specialty Chemicals 20.0 19.5
Industrial Chemicals 14.4 34.5
------ ------
Operating profit 16.6 90.9
Corporate (16.5) (17.4)
Other income and (expense), net (3.2) (7.1)
Asset impairment (2) (1.3) -
Restructuring and other charges (3) (10.2) -
Net interest expense (4) (22.9) (23.0)
------ ------
$ 12.5 $ 43.4
====== ======
A description of the company's segment determination, composition and
presentation is included in Note 1 to the company's December 31, 2000
consolidated financial statements.
PAGE 12
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests for the periods ended March 31,
2001 and 2000 were not significant. The corporate line primarily includes staff
expenses, and other income and expense consists of all other corporate items,
including LIFO inventory adjustments and certain components of employee benefit
plan cost or benefit.
(1) Revenue for the three months ended March 31, 2000 was adjusted to apply
recently issued accounting guidance for reporting shipping and handling
costs. The reclassification increased revenue and cost of sales or
services for Industrial Chemicals by $60.4 million and had no effect on
the company's previously reported income or earnings per share. (See
Note 3.)
(2) The asset impairment in 2001 (Note 5) related to Food and Transportation
Systems.
(3) Restructuring and other charges in 2001 (Note 5) were related to Energy
Systems ($5.2 million), Food and Transportation Systems ($4.0 million),
Industrial Chemicals ($0.8 million) and Corporate ($0.2 million).
(4) Net interest expense in 2001 included interest expense of $1.6 million
from external financing of the phosphorus joint venture.
PAGE 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FORWARD-LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
---------------------------------------------------
Item 2 of this report contains certain forward-looking statements that are based
on management's current views and assumptions regarding future events, future
business conditions and the outlook for the company based on currently available
information.
Whenever possible, the company has identified these forward-looking statements
by such words or phrases as "will likely result", "is confident that",
"expects", "should", "could", "may", "will continue to", "believes",
"anticipates", "predicts", "forecasts", "estimates", "projects", "potential",
"intends" or similar expressions identifying "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, including
the negative of those words or phrases. Such forward-looking statements are
based on management's current views and assumptions regarding future events,
future business conditions and the outlook for the company based on currently
available information. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those expressed in, or implied by, these statements. These statements are
qualified by reference to the section "Forward-Looking Statements - Safe Harbor
Provisions" in Item 1 of the company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000. The company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.
The company cautions that the referenced list of factors may not be
all-inclusive, and the company specifically declines to undertake any obligation
to publicly revise any forward-looking statements that have been made to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents at March 31, 2001 and December 31, 2000 were $30.8
million and $25.1 million, respectively. The company had total borrowings of
$1.4 billion and $1.0 billion as of March 31, 2001 and December 31, 2000,
respectively.
Cash required by operating activities of $183.5 million for the quarter ended
March 31, 2001 increased when compared with $24.7 million in the first quarter
of 2000. The increase is largely the result of increased working capital
requirements in both the Energy Systems and Agricultural Products businesses.
In Energy Systems, higher inventory levels were related to increased production
to meet the requirements of a higher level of long-term contracts in backlog.
For Agricultural Products, working capital requirements were related to
inventory build up to meet seasonal requirements along with the effect on
accounts receivable of higher sales in the fourth quarter of 2000 when compared
with the prior year. Cash provided through sales of receivables provided $8.0
million during the first quarter of 2001 and provided $23.0 million in the first
quarter of 2000.
Cash required by discontinued operations amounted to $91.7 million and $11.9
million for the three-month periods ended March 31, 2001 and 2000, respectively.
During 2001, the company paid approximately $80 million in connection with a
legal matter related to the discontinued defense business. This obligation was
included in other current liabilities on the company's December 31, 2000
consolidated balance sheet.
Cash required by investing activities of $42.7 million in the first quarter of
2001 decreased from the 2000 requirement of $86.4 million, reflecting the higher
costs of business acquisitions arising from the Northfield acquisition in the
first quarter of 2000.
The company routinely evaluates potential acquisitions, divestitures and joint
ventures in the ordinary course of business.
PAGE 14
Cash provided by financing activities in 2001 of $324.1 million increased when
compared with cash provided of $113.3 million in the first quarter of 2000. For
the three-month period ended March 31, 2001, the company increased its
commercial paper borrowings and its borrowings under uncommitted credit
facilities by $201.2 million, and $174.8 million, respectively, with the
proceeds being used to fund operating capital requirements and redeem higher
interest long-term debt. Partially offsetting this increase were reductions in
other short-term debt of $25.9 million. During the three months ended March 31,
2001, the company redeemed $10.2 million of its exchangeable senior subordinated
debentures; $18.5 million of various other debt issues maturing in 2003 through
2011, and bearing interest at rates ranging from 6.375 percent to 7.75 percent;
and retired $20.3 million of long-term debt at maturity. During the three months
ended March 31, 2000, FMC retired $17.0 million in senior long-term bonds due in
2011, bearing interest at 7.75 percent.
The company has $450.0 million in committed credit under a five-year
non-amortizing revolving credit agreement, due in December 2001.
In order to allocate debt between FMC and FTI pursuant to the reorganization of
the company, FMC obtained an additional $200.0 million of committed credit in
February 2001, maturing at the earlier of 180 days from inception or seven days
after the completion of the offering of FTI common stock. In addition,
subsequent to March 31, 2001, the company obtained commitments for two revolving
credit facilities: a $250 million five-year credit agreement and a $150 million
364-day revolving credit facility, both of which FTI will assume from FMC
Corporation in conjunction with the separation.
To date, there have been no amounts borrowed under the credit facilities
described above, although the company may borrow under these agreements at any
time, including for the purpose of retiring other debt. Among other
restrictions, the credit agreements contain covenants relating to liens,
consolidated net worth and cash flow coverage (as defined in the agreements).
The company is in compliance with all debt covenants at March 31, 2001.
In 1998, a universal shelf registration statement became effective, under which
$500.0 million of debt and/or equity securities may be offered. Unused capacity
of $345.0 million remains available under the 1998 shelf registration at March
31, 2001.
On August 27, 1999, the Board of Directors authorized an additional $50.0
million of open market repurchases of FMC common stock, which the company has
not commenced as of March 31, 2001. Depending on market conditions, the company
may, from time to time, purchase additional shares of its common stock on the
open market.
The company expects to meet operating needs, fund capital expenditures and
potential acquisitions, and meet debt service requirements for the remainder of
2001 through cash generated from operations, available credit facilities and
proceeds from the common stock offering associated with the company's
reorganization (Note 2 to the company's March 31, 2001 consolidated financial
statements). Management expects that FMC will incur incremental after-tax costs
of $50 million to $60 million during 2001 related to this transaction and the
restructuring of certain corporate and business operations, although the
ultimate amount could differ significantly from this estimate.
In addition, FMC expects its remaining cash requirements for 2001 to include
approximately $222 million for planned capital expenditures, excluding potential
acquisitions, and including approximately $98 million for capital projects
related to environmental control facilities. Projected remaining 2001 spending
also includes approximately $25 million for environmental compliance at current
operating sites, which is an operating expense of the company, plus
approximately $28 million of remediation spending and $6 million for
environmental study costs at current operating, previously operated and other
sites, which has been accrued in prior periods.
The company has an obligation to provide Astaris with an estimated $16 million
in funding during 2001. In connection with Astaris' external financing
agreement, FMC and Solutia have agreed to provide Astaris with funding when the
joint venture does not achieve certain financial
PAGE 15
benchmarks. This obligation is based on Astaris' performance to date and has
been recorded on the company's consolidated balance sheet at March 31, 2001, as
an increase to investments and other current liabilities.
The company's accumulated other comprehensive loss increased from $272.6 million
at December 31, 2000 to $286.8 million at March 31, 2001, as a result of
increased cumulative foreign currency translation losses of $16.3 million
primarily reflecting the negative translation impact of the euro against the
U.S. dollar. Net gains of $2.1 million, primarily from forward contracts for
natural gas purchases, were deferred under SFAS No. 133 and partly offset the
translation adjustments.
The company's ratios of earnings to fixed charges were 1.4x and 2.4x for the
three-month periods ended March 31, 2001 and 2000, respectively. Excluding the
company's impairment and restructuring and other charges in 2001, the company's
ratio of earnings to fixed charges would have been 1.8x. The decrease in the
ratio when compared with March 31, 2000 is primarily the result of lower income
before income taxes in 2001.
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS
-------------------------------------------------
FMC's primary financial market risks include fluctuations in interest rates and
currency exchange rates. The company manages these risks by using derivative
financial instruments in accordance with established policies and procedures.
FMC does not use derivative financial instruments for trading purposes.
When FMC's operations sell or purchase products or services outside the United
States, transactions are frequently denominated in currencies other than the
particular operation's functional currency. Exposure to variability in currency
exchange rates is mitigated, when possible, through the use of natural hedges,
whereby purchases and sales in the same foreign currency and with similar
maturity dates offset one another. Additionally, FMC initiates hedging
activities by entering into foreign exchange forward contracts with third
parties when natural hedges are not feasible. The maturity dates and currencies
of the exchange agreements that provide hedge coverage are synchronized with
those of the underlying purchase or sales commitments, and the amount of hedge
coverage related to each underlying transaction does not exceed the amount of
the underlying purchase or sales commitment.
To monitor its currency exchange rate risks, the company uses a sensitivity
analysis, which measures the impact on earnings of a 10 percent devaluation of
the foreign currencies to which it has exposure. Based on a sensitivity analysis
at March 31, 2001, fluctuations in currency exchange rates in the near term
would not materially affect FMC's consolidated operating results, financial
position or cash flows. FMC's management believes that its hedging activities
have been effective in reducing its risks related to currency exchange rate
fluctuations.
The company's debt instruments subject it to the risk of loss associated with
movements in interest rates. The company may, from time to time, enter into
arrangements to manage or mitigate interest rate risk utilizing derivative
financial instruments. No such arrangements existed at March 31, 2001.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
-----------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, was effective for the company's
consolidated financial statements beginning January 1, 2001. This statement
requires the company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset against the change
in fair value of the hedged item through earnings or recognized in other
comprehensive income until the hedge item is recognized in earnings. The
ineffective portion of a
PAGE 16
derivative's change in fair value is recognized in earnings immediately. The
company's adoption of this statement on January 1, 2001 resulted in the
recognition of a loss of $5.6 million after tax in the consolidated statement of
income and a deferred gain of $15.1 million after tax to other accumulated
comprehensive loss in the first quarter of 2001, both of which were accounted
for as the cumulative effect of a change in accounting principle.
RESULTS OF OPERATIONS
---------------------
Industry segment financial data is included in Note 13 to the company's March
31, 2001 consolidated financial statements.
Consolidated Results of Operations
- ----------------------------------
First quarter 2001 revenue decreased $127.0 million, or 12.7 percent, to $876.6
million, as compared to $1,003.6 million in the prior year's quarter. Lower
revenue in 2001 when compared with 2000 was principally attributable to
reduction in Industrial Chemicals' revenues, resulting from the contribution of
FMC's phosphorus operations to a joint venture effective April 1, 2000. After
that date, phosphorus revenues were no longer consolidated with FMC's revenues.
Also contributing to the decrease were lower sales for Agricultural Products.
Income before income taxes and the cumulative effect of a change in accounting
principle decreased to $12.5 million in 2001 from $43.4 million in the prior
year's quarter. Lower profitability was primarily attributable to the Industrial
Chemicals segment and reflected reduced profitability from phosphorus
operations.
A net loss of $26.5 million was recorded for the three-month period ended March
31, 2001, as compared to net income of $32.8 million for the same period in
2000. During the three months ended March 31, 2001, the company recorded
restructuring and impairment charges of $11.5 million ($7.1 million after tax),
related primarily to workforce reductions in the Energy Systems and Food and
Transportation Systems segments. In addition, FMC recognized the impact of FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which resulted in an after-tax cumulative loss of $5.6 million from
a change in accounting principle. Also, in conjunction with the company's plan
to reorganize into two publicly traded corporations later in 2001, FMC recorded
a one-time, largely non-cash, tax charge of $32.0 million, triggered by the
repatriation of cash from certain foreign operations.
Average shares outstanding used in the quarter's diluted earnings (loss) per
common share calculations were 30.8 million in 2001 compared with 31.3 million
in the prior year's quarter. Additional weighted average shares of 1.4 million,
assuming conversion of stock awards, for the quarter ended March 31, 2001 were
not included in the computation of diluted earnings per share as their effect
would be antidilutive.
Energy Systems
- --------------
Energy Systems sales in the first three months of 2001 decreased $9.6 million,
or 3.7 percent, to $246.8 million from $256.4 million in the first three months
of 2000. Lower Energy Systems' revenue in the first three months of 2001
reflected a reduction in sales of floating production equipment and, to a lesser
extent, subsea systems. This decline was partially offset by continued strength
in demand for fluid control equipment. In the first three months of 2001, lower
subsea systems sales for projects in the North Sea and offshore West Africa were
partly offset by increased sales of subsea systems for projects in the Gulf of
Mexico and offshore Brazil.
Energy Systems' operating profit in 2001 decreased $2.0 million, or 18.2
percent, to $9.0 million from $11.0 million in the first three months of 2000.
Energy Systems' lower operating profit in the first three months of 2001 was
primarily due to lower subsea volumes in the North Sea and West Africa and was
offset somewhat by improvements in business areas for surface wellhead
PAGE 17
and fluid control equipment and the subsea systems business in the Gulf of
Mexico and offshore Brazil.
While revenues from large deepwater exploration and production contracts have
been slower to materialize following the recent recovery of crude oil and
natural gas prices than the company previously expected, FMC has recently begun
to realize benefits from increasing deepwater production spending. During the
first quarter of 2001, the company entered into a frame agreement with BP p.l.c.
regarding BP's deepwater development programs in the Gulf of Mexico. Hardware
deliveries are expected to begin in late 2002, with the initial project
management and engineering work expected to begin in the second quarter of 2001.
Recently, FMC was awarded additional orders for subsea tree systems by Petroleo
Brasileiro S.A. and Norsk Hydro, amounting to $28.5 million and $35 million,
respectively. The company believes that many of its major oil and gas customers
that have announced mergers have essentially completed the integration of the
merged entities, and that they will focus on exploration and development
efforts, including the development of large offshore deepwater basins. While
management views the increased activity as a positive indicator of strengthening
oil and gas industry exploration and production activity, pricing remains
competitive, and a continued lack of investment in infrastructure projects may
result in weakness for measurement and metering markets.
Food and Transportation Systems
- -------------------------------
Food and Transportation Systems' revenue of $182.8 million for the first quarter
of 2001 was down slightly from $185.2 million in last year's quarter. Earnings
of $9.4 million declined from $12.0 million in 2000. Lower sales and earnings of
food processing and citrus systems were partially offset by stronger airport
systems sales and earnings.
FMC FoodTech's revenue and operating profit declined in the first three months
of 2001, primarily as a result of lower sales of fruit and tomato processing
equipment and food sterilization systems. Lower sales were due in large part to
the timing of major projects and reduced capital investment by customers because
of lower prices for tomatoes, poultry and citrus. An increase in sales of
freezing equipment in the first three months of 2001, attributable to the
acquisition of Northfield Freezing Systems Group on February 16, 2000, partially
offset this reduction in revenue. FMC FoodTech's earnings decrease was partially
offset by lower costs, primarily due to the benefit of cost reduction
initiatives that began in 2000 and that involved process improvements and
reductions in headcount.
FMC is currently responding to the impact on the FoodTech business in North
America of lower tomato, citrus and chicken commodity prices. The company
expects that higher international sales, particularly in Europe and the Middle
East, will partly offset reduced orders from chicken processors and other
equipment customers.
Increased revenue for airport systems in the first three months of 2001 reflects
higher volumes for all types of airport ground support equipment consisting of
deicers, cargo loaders and push-back tractors. Purchases of deicers were
postponed by customers in the fourth quarter of 2000, and higher sales of cargo
loaders and push-back tractors were attributable to the strong air freight
market. Operating profit on airport systems increased in the first three months
of 2001, primarily reflecting the timing of deicer sales, increased volumes of
cargo loaders sold to the air freight market and improved manufacturing
efficiencies realized from the higher volumes. In addition, increased revenue
and profitability was realized from the Next Generation Small Loader business.
Lower margins on Jetway Systems, primarily related to spending on new product
releases for two domestic projects, partially offset the increased
profitability.
Management does not expect purchases of airline ground support equipment and
systems to change significantly in 2001 from the levels in 2000, but increased
operating costs for airlines may negatively impact airlines' investment in
capital assets beginning later this year, and airline orders could
PAGE 18
decline during the second half of 2001. Subsequent to March 31, 2001, the
company received a $25 million order for Jetway passenger boarding bridges for
the Kansas City airport. In addition, revenue generated from the Next Generation
Small Loader contract with the U.S. Air Force could favorably impact the
company's operating results in 2001 as compared with 2000. The five-year
contract is valued at $180 million and has the potential to generate revenue of
$458 million over the next 15 years.
Agricultural Products
- ---------------------
Agricultural Products' revenue for the quarter ended March 31, 2001 was $134.6
million, down from $165.8 million in last year's quarter due to lower
insecticide sales in Asia and the lack of sales of sulfentrazone to DuPont.
Earnings for the 2001 quarter were $13.8 million, approximately even with last
year.
The negative margin impact of DuPont's decision to not purchase sulfentrazone
was essentially offset by a contractual protection payment from DuPont. FMC
entered into an exclusive agreement with DuPont in 1998 to provide sulfentrazone
to DuPont in North America. DuPont's soybean herbicide sales have not reached
the levels contemplated when this agreement was signed and DuPont now has
adequate inventory of sulfentrazone to cover its needs through at least this
current season. The company still believes that DuPont will be a customer for
sulfentrazone in the future. As a result of its decision to not purchase
sulfentrazone in the current period, DuPont no longer has exclusivity for use of
sulfentrazone on soybeans in the United States. FMC, therefore, has begun
developing other customers and will continue to expand its markets for this
product. Additional sales from newly-developed sulfentrazone markets, combined
with lower operating costs, offset the first quarter 2001 impact of lower sales
in Asia.
Specialty Chemicals
- -------------------
Specialty Chemicals' sales for the three months ended March 31, 2001 were $116.3
million, down from $124.9 million in the prior year period. Earnings of $20.0
million were approximately even with last year.
The decrease in sales reflects weaker European demand for the company's lithium
products as well as softness in demand for food and pharmaceutical biopolymer
applications. Additionally, the weaker euro resulted in lower translated sales
from FMC's European operations. However, improved mix and lower costs allowed
Specialty Chemicals' earnings to be approximately even with last year.
FMC currently sources a majority of its lithium carbonate from a South American
manufacturer under a three-year agreement. FMC periodically evaluates various
sourcing, production and restructuring alternatives to continue to improve its
results of operations, some of which could reduce the company's reliance on
certain components of its existing asset base.
Industrial Chemicals
- --------------------
Industrial Chemicals' first quarter 2001 revenue of $198.6 million was lower
than last year's revenue by $75.2 million, and earnings for the three months
ended March 31, 2001 of $14.4 million declined from year 2000 earnings of $34.5
million.
Lower revenue in 2001 is largely attributable to a change in reporting with the
startup of Astaris, a joint venture with Solutia. Sales of FMC's phosphorus
chemicals division, included in revenues for the three months ended March 31,
2000, were approximately $73 million. As a result of the formation of the joint
venture, phosphorus revenues have not been consolidated in segment revenues
beginning in the second quarter of 2000. (See Note 11 to the March 31, 2001
consolidated financial statements.) FMC's phosphorus earnings (which include
FMC's share of earnings from Astaris) decreased primarily due to continued
environmental compliance-related costs retained by FMC and higher electrical
power and natural gas costs versus last year. As a result of the continuation of
higher power costs, Astaris announced that it would further reduce Pocatello's
operations from two furnaces to one furnace in April of 2001 and will resell
PAGE 19
approximately half of its low-cost contractual power back to Idaho Power. The
power will be sold at fixed prices that will produce earnings in excess of the
costs to procure phosphorus from third party suppliers. The agreement to resell
electricity to Idaho Power will continue from April of 2001 through March 2003
with the most significant benefit to Astaris occurring in the second half of
2001 when the contract resale prices are at their highest.
Also expected to affect Astaris' performance in the second half of 2001 will be
the start-up of a new purified phosphoric acid plant, partially replacing the
high-energy dependent process of producing elemental phosphorus in Pocatello.
The new plant is expected to produce purified phosphoric acid volumes in excess
of the equivalent elemental phosphorus produced by one furnace at Pocatello.
Management continues to evaluate alternatives to reduce capital and expenses
related to FMC's phosphorus consent decree environmental compliance projects and
to reduce its reliance on Pocatello's high cost, energy-intensive operations.
These alternatives include the option to reduce FMC's investment in its existing
asset base.
First quarter 2001 revenue in the company's alkali operations improved over the
2000 quarter due to higher soda ash sales volumes. Earnings were also favorable
as higher sales volumes and successful cost reduction programs offset the impact
of higher energy prices, primarily those for natural gas.
In April 2001, management announced a temporary suspension of operations at the
Granger Soda Ash facility, formerly the Tg Soda Ash operation. This decision
will result in facility-related and severance-related costs of up to $5.0
million (after minority interest) in the second quarter of 2001, but is expected
to reduce costs in the current high-cost energy environment and defer capital
expenditures at the facility. Industrial Chemicals will focus its trona mining
operations on the remaining lower cost mines.
Soda Ash demand in excess of production will be met through sourcing product
from third party suppliers. The Granger facility will be on stand-by and can be
restarted when business conditions improve.
Hydrogen peroxide sales were relatively flat, while profits improved slightly.
Lower volumes, primarily the result of a slowdown in the pulp and paper market,
were more than offset by improved pricing when compared with first quarter 2000.
FMC Foret had slightly higher sales in the first quarter of 2001 when compared
with 2000, while profitability was somewhat lower. Increased revenues resulting
primarily from higher phosphorus volumes were partially offset by the negative
affect of the foreign currency translation of the euro when compared with first
quarter of 2000. Operating profitability was lower, primarily the result of
product mix.
Corporate
- ---------
During the first quarter of 2001, corporate expenses decreased to $16.5 million,
compared with $17.4 million in the 2000 period, reflecting the results of
corporate cost reductions as well as timing of expenses.
Asset impairments and restructuring and other charges
- -----------------------------------------------------
In the first quarter of 2001, FMC recorded an asset impairment and one-time
restructuring and other charges of $11.5 million before tax ($7.1 million after
tax). See Note 5 to the March 31, 2001 consolidated financial statements.
Net interest expense
- --------------------
Net interest expense of $22.9 million in 2001 (including FMC's share of interest
incurred by Astaris) was level with $23.0 million in the 2000 first quarter due
to lower average debt levels that more than offset higher rates in 2001 and the
effect of a gain in 2000 on a hedge of eurobond borrowing rates.
PAGE 20
Income tax expense
- ------------------
Income tax expense for the three months ended March 31, 2001 was $33.4 million
on pretax income of $12.5 million. Included in the provision for the three
months ended March 31, 2001 was a one-time, largely non-cash, charge of $32.0
million triggered by the repatriation of cash from certain foreign operations in
preparation for the expected separation of FMC's machinery operations. Excluding
the effects of restructuring and impairment charges and the tax expense related
to the repatriation of offshore earnings, income tax expense for the quarter was
$5.8 million on adjusted pretax earnings of $24.0 million, resulting in an
effective tax rate of 24.1%. Income tax expense of $10.6 million for the first
quarter of 2000 resulted in an effective tax rate of 24.4%. The differences
between the effective tax rates for these periods and the statutory U.S. Federal
income tax rate relate primarily to differing foreign tax rates, foreign sales
corporation and depletion benefits, incremental state taxes and non-deductible
goodwill amortization and expenses.
Order backlog
- -------------
The company's combined order backlog as of March 31, 2001 was $835.8 million, of
which $548.5 million was related to Energy Systems and $287.3 million was
related to Food and Transportation Systems. At December 31, 2000, order backlog
was $644.3 million, of which $425.1 million was related to Energy Systems and
$219.2 million was related to Food and Transportation Systems.
The increase in Energy Systems' backlog is primarily the result of strengthening
in the subsea market and an increase in orders for surface systems. The increase
in backlog for Food and Transportation systems is, in large part, the result of
the company's contract to provide the United States Air Force with Next
Generation Small Loaders. Additionally, air freight carriers placed substantial
orders early in 2001, and food processing systems customers tend to place orders
for capital equipment at the beginning of the calendar year. Partially
offsetting the increases to backlog is a reduction in Jetway backlog due to the
completion of several large projects in 2001.
Backlog is not reported for the Agricultural Products, Specialty Chemicals or
Industrial Chemicals segments due to the nature of these businesses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------ ---------------------------------------------------------
The information required by this item is provided in "Derivative Financial
Instruments and Market Risks", under ITEM 2 - Management's Discussion and
------------------------------------
Analysis of Financial Condition and Results of Operations.
- ---------------------------------------------------------
PAGE 21
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
A report by KPMG LLP, FMC's independent accountants, on the financial statements
included in Form 10-Q for the quarter ended March 31, 2001 is included on page
22.
PAGE 22
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
The Board of Directors
FMC Corporation:
We have reviewed the accompanying consolidated balance sheet of FMC Corporation
and consolidated subsidiaries as of March 31, 2001, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
2001 and 2000. These consolidated financial statements are the responsibility of
the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of FMC
Corporation and consolidated subsidiaries as of December 31, 2000 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the year then ended (not presented herein); and in our
report dated February 9, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 2000 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
KPMG LLP
Chicago, Illinois
April 17, 2001
PAGE 23
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
There has been no material change in the company's significant legal proceedings
from the information reported in Part I, Item 3 of the company's 2000 Annual
Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits
--------
Number in
Exhibit Table Description
------------- -----------
11 Statement re: computation of
diluted earnings per share
12 Statement re: computation of
ratios of earnings to fixed
charges
15 Letter re: unaudited
interim financial information
(b) Reports on Form 8-K
-------------------
The company filed the following reports on Form 8-K during the three
months ended March 31, 2001:
Form 8-K dated March 14, 2001 containing slides used during a
presentation made at the Merrill Lynch Chemical Conference on March 14,
2001.
Form 8-K dated March 27, 2001 containing slides used during a
presentation made at the UBS Warburg Grass Roots Chemical Conference on
March 27, 2001.
PAGE 24
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FMC CORPORATION
---------------
(Registrant)
Date: May 15, 2001 /s/ Ronald D. Mambu
------------ -------------------------------
Vice President, Controller, and
duly authorized officer
PAGE 1
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
------------- -----------
11 Statement re: computation of
diluted earnings per share
12 Statement re: computation of
ratios of earnings to fixed
charges
15 Letter re: unaudited
interim financial
information (KPMG LLP)