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 June 30, 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
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(Exact name of registrant as specified in its charter)
Delaware 94-0479804
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(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
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(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 June 30, 2001
- ---------------------------------------- ---------------------------------
Common Stock, par value $0.10 per share 31,116,481
PAGE 2
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 Six Months
Ended June 30 Ended June 30
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $1,001.3 $1,010.9 $ 1,877.9 $2,014.5
Costs and expenses:
Cost of sales or services 733.4 714.0 1,392.1 1,475.7
Selling, general and administrative
expense 134.5 134.8 270.2 272.9
Research and development expense 41.3 39.2 78.0 75.9
Asset impairments 323.1 11.6 324.4 11.6
Restructuring and other charges 184.5 45.0 194.7 45.0
-------- -------- --------- --------
Total costs and expenses 1,416.8 944.6 2,259.4 1,881.1
-------- -------- --------- --------
Income (loss) before minority interests, interest expense,
interest income, income taxes, and the cumulative effect of a
change in accounting principle (415.5) 66.3 (381.5) 133.4
Minority interests 2.0 0.8 2.4 1.5
Interest expense 24.3 26.5 46.5 51.3
Interest income (1.7) (0.9) (2.6) (2.7)
--------- -------- --------- --------
Income (loss) before income taxes and the
cumulative effect of a change in
accounting principle (440.1) 39.9 (427.8) 83.3
Provision (benefit) for income taxes (140.3) 1.9 (107.1) 12.5
-------- -------- --------- --------
Income (loss) before the cumulative effect
of a change in accounting principle (299.8) 38.0 (320.7) 70.8
Cumulative effect of a change in accounting
principle, net of income taxes (Note 3) - - (5.6) -
-------- -------- --------- --------
Net income (loss) $ (299.8) $ 38.0 $ (326.3) $ 70.8
======== ======== ========= ========
Basic earnings (loss) per common share:
Income (loss) before the cumulative effect
of a change in accounting principle $ (9.62) $ 1.25 $ (10.36) $ 2.33
Cumulative effect of a change in
accounting principle, net of income taxes - - (0.18) -
-------- -------- --------- --------
Net earnings (loss) per common share $ (9.62) $ 1.25 $ (10.54) $ 2.33
======== ======== ========= ========
Average number of shares used in basic
earnings (loss) per share computations 31.2 30.4 31.0 30.4
======== ======== ========= ========
Diluted earnings (loss) per common share:
Income (loss) before the cumulative effect
of a change in accounting principle $ (9.62) $ 1.20 $ (10.36) $ 2.25
Cumulative effect of a change in accounting
principle, net of income taxes - - (0.18) -
-------- -------- --------- --------
Net earnings (loss) per common share $ (9.62) $ 1.20 $ (10.54) $ 2.25
======== ======== ========= ========
Average number of shares used in diluted
earnings (loss) per share computations 31.2 31.5 31.0 31.4
======== ======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 3
FMC Corporation and Consolidated Subsidiaries
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Consolidated Balance Sheets
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(In millions, except share and per share data)
June 3
2001 December 31
(Unaudited) 2000
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $ 32.4 $ 25.1
Trade receivables, net of allowances
of $16.2 in 2001 and $13.4 in 2000 689.0 635.5
Inventories 469.5 426.2
Other current assets 221.9 152.4
Deferred income taxes 97.2 90.6
-------- --------
Total current assets 1,510.0 1,329.8
Investments 79.3 103.0
Property, plant and equipment, net (Note 4) 1,330.5 1,616.1
Goodwill and intangible assets 460.0 494.6
Other assets 140.2 112.2
Deferred income taxes 247.0 90.2
-------- --------
Total assets $3,767.0 $3,745.9
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Short-term debt (Note 6) $ 196.6 $ 153.9
Accounts payable, trade and other 589.3 657.3
Other current liabilities 619.9 462.2
Current portion of long-term debt (Note 6) 35.9 22.7
Current portion of accrued pension
and other postretirement benefits 13.0 37.5
Income taxes payable 74.8 66.3
-------- --------
Total current liabilities 1,529.5 1,399.9
Long-term debt, less current portion (Note 6) 932.1 872.1
Accrued pension and other postretirement
benefits, less current portion 188.9 189.8
Reserves for discontinued operations and
other liabilities (Note 7) 223.7 291.9
Other non-current liabilities 179.9 144.8
Minority interests in consolidated companies 111.4 47.0
Commitments and contingencies
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 4.0 3.9
shares in 2001 and 38,622,349 shares in
2000
Capital in excess of par value of common
stock 212.5 181.6
Retained earnings 1,212.6 1,398.9
Accumulated other comprehensive loss (315.1) (272.6)
Treasury stock, common, at cost;
7,963,622 shares in 2001 and 7,977,709
shares in 2000 (512.5) (511.4)
-------- --------
Total stockholders' equity 601.5 800.4
-------- --------
Total liabilities and stockholders' equity $3,767.0 $3,745.9
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 4
FMC Corporation and Consolidated Subsidiaries
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Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Six Months
Ended June 30
------------------
2001 2000
---- ----
Cash provided (required) by operating activities
of continuing operations:
Income (loss) before the cumulative effect of a
change in accounting principle $(320.7) $ 70.8
Adjustments to reconcile income (loss) before the
cumulative effect of a change in accounting
principle to cash provided by operating activities
of continuing operations:
Depreciation and amortization 96.3 95.7
Asset impairments (Note 5) 324.4 11.6
Restructuring and other charges (Note 5) 194.7 45.0
Settlement of derivative contracts (Note 3) (3.5) -
Deferred income taxes (163.3) 27.6
Minority interests 2.4 1.5
Other 7.2 23.8
Changes in operating assets and liabilities
excluding the effect of acquisitions of businesses:
Accounts receivable repurchased (39.0) (6.0)
Trade receivables, net (16.8) 24.6
Inventories (54.3) 19.1
Other current assets and other assets (78.6) (49.5)
Accounts payable, accrued and other current
and other non-current liabilities (49.8) (149.8)
Income taxes payable 8.9 (15.4)
Restructuring reserves (13.0) (33.7)
Accrued pension and other postretirement
benefits, net (27.8) (12.0)
------- -------
Cash provided (used) by operating activities of continuing
operations $(132.9) $ 53.3
------- -------
PAGE 5
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited) (Continued)
- -------------------------------------------------------------
(In millions)
Six Months
Ended June 30
------------------
2001 2000
---- ----
Cash provided by operating activities of continuing
operations $(132.9) $ 53.3
Cash required by discontinued operations (94.3) (17.4)
------- -------
Cash provided (required) by investing activities:
Capital expenditures (119.8) (101.7)
Acquisitions of businesses (3.0) (45.4)
Proceeds from disposal of property, plant and
equipment 18.0 27.9
Decrease (increase) in investments (3.9) 10.8
------- -------
Cash required by investing activities (108.7) (108.3)
------- -------
Cash provided (required) by financing activities:
Net proceeds from issuance of (net repayments
of) commercial paper 11.3 (26.0)
Net increase (decrease) in other short-term debt 31.3 (26.9)
Proceeds from issuance of long-term debt 270.4 -
Repayment of long-term debt (197.9) (33.6)
Net borrowings (repayments) under credit
facilities (5.9) 146.9
Proceeds from sale of subsidiary stock 207.2 -
Distributions to minority partner (2.3) (1.5)
Net issuances of common stock 30.0 2.3
------- -------
Cash provided by financing activities 344.1 61.2
------- -------
Effect of exchange rate changes on cash and cash
equivalents (0.9) 3.4
------- -------
Increase (decrease) in cash and cash equivalents 7.3 (7.8)
Cash and cash equivalents, beginning of period 25.1 64.0
------- -------
Cash and cash equivalents, end of period $ 32.4 $ 56.2
======= =======
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid for interest was $56.4 million and $58.4 million, and cash paid for
income taxes, net of refunds, was $19.2 million and $25.5 million for the
six-month periods ended June 30, 2001 and 2000, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 6
FMC Corporation and Consolidated Subsidiaries
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Notes to Consolidated Financial Statements (Unaudited)
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Note 1: Financial Information and Accounting Policies
- ------------------------------------------------------
The consolidated balance sheet of FMC Corporation ("FMC" or "the company") as of
June 30, 2001, and the related consolidated statements of income and cash flows
for the interim periods ended June 30, 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 June 30, 2001
and 2000 and of its financial position as of June 30, 2001. All such adjustments
are of a normal recurring nature. The results of operations for the six-month
periods ended June 30, 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, and Note 1 to the company's Form
10-Q for the three months ended March 31, 2001.
Note 2: FMC's 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 is named FMC Technologies, Inc. ("FTI") and includes FMC's
Energy Systems and Food and Transportation Systems businesses. The chemicals
company is comprised of FMC's Specialty Chemicals, Industrial Chemicals and
Agricultural Products businesses and will continue to operate as FMC
Corporation.
In accordance with the Separation and Distribution Agreement (the "Agreement")
between FMC and FTI, the company contributed to FTI substantially all the net
assets comprising the businesses of FTI effective June 1, 2001. On June 19,
2001, FTI completed an initial public offering ("IPO") of 17.0 percent of its
common stock. FMC continues to own the remaining 83.0 percent of FTI's common
stock. In exchange for the net assets distributed by FMC to FTI, FTI made
payments totaling $480.1 million to FMC in June of 2001. In addition, under the
Agreement, FMC expects FTI to make a further payment to the company of $52.2
million, of which $35.7 million resulted from changes in FTI's cash and debt
balances through May 31, 2001 and the remainder consisted of net intercompany
amounts owed by FTI to FMC.
The $480.1 million in proceeds received by FMC from FTI consisted of cash drawn
down by FTI under its newly established debt facility (Note 6) of $280.9 million
and the proceeds of FTI's IPO of $207.2 million, less $8.0 million retained by
FTI from the IPO proceeds to cover estimated expenses of the offering (which
will be adjusted to reflect actual expenses at a later date). The payments
received from FTI were used by FMC to retire short-term and long-term debt.
During the second quarter of 2001, FMC recognized a gain of $140.0 million on
the distribution and subsequent IPO, which the company has credited to retained
earnings. 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. See Note 5 for a
discussion of costs incurred through June 30, 2001.
PAGE 7
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
(loss), depending on whether a derivative is designated 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 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, effective January 1, 2001. The cash
outflow during 2001 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.
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 three months and
six months ended June 30, 2001, were less than $0.1 million. At June 30, 2001,
the net deferred hedging loss in accumulated other comprehensive loss was $17.5
million, of which approximately $6.0 million of net losses are expected to be
recognized in earnings during the twelve months ended June 30, 2002, at the time
the underlying hedged transactions are realized, and of which net losses of
$11.5 million are expected to be recognized at various times subsequent to June
30, 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 and six months ended June 30, 2000 increased revenue and cost of sales or
services by $44.6 million and $88.0 million, respectively, 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:
June 30
2001 December 31
(Unaudited) 2000
------------- -----------
Property, plant and equipment, at cost,
less reductions due to impairments $3,085.5 $3,406.2
Accumulated depreciation 1,755.0 1,790.1
-------- --------
Net property, plant and equipment $1,330.5 $1,616.1
======== ========
The decrease in net property, plant and equipment reflects the effect of asset
impairments (Note 5).
Note 5: Reserves for Restructuring, Impairment and Other Costs
- ---------------------------------------------------------------
During the three months ended June 30, 2001, the company recorded restructuring
and impairment charges of $507.6 million ($346.5 million after tax), of which
$86.9 million represents after-tax cash costs. These charges included asset
impairments and restructuring charges of $371.9 million ($226.9 million after
tax) related to FMC's U.S. phosphorus business. Leading to these charges were a
continuing and steeper decline in market conditions, the loss of a potential
site on which to develop an economically viable second purified phosphoric acid
plant, and FMC's expected payment
PAGE 8
into a fund for the Shoshone-Bannock tribes as a result of their agreement to
support a proposal to amend a consent decree to permit the earlier closure of
the largest remaining waste disposal pond. The components of the impairment and
restructuring charges were as follows (before tax): a $171.0 million impairment
of consent decree related environmental assets at Pocatello; a $68.7 million
reserve for further required consent decree spending at the site; a $40.0
million expected payment to the Shoshone-Bannock tribes; a $36.7 million
impairment of the company's investment in Astaris LLC ("Astaris"); and $55.5
million of future financing commitments to the joint venture, environmental
charges and other costs. Also included in the second quarter restructuring and
impairment charge was an impairment of $98.9 million ($97.0 million after tax)
of the assets at FMC's lithium operation in Argentina. This operation, which
includes a lithium mine and processing facilities, was established by the
company approximately five years ago in a remote area of the Andes Mountains.
With the entry of a South American manufacturer into this business and following
the continuation of other unfavorable market conditions, the company's lithium
assets in Argentina became impaired as the total capital invested is not
expected to be recovered. In addition, restructuring and impairment charges for
the quarter included $17.5 million ($10.8 million after tax) related to FMC's
corporate reorganization costs (Note 2) and $19.3 million ($11.8 million after
tax) reflecting a restructuring of chemical operations and the impairment of two
smaller chemical facilities. FMC expects to reduce its workforce by
approximately 135 people in connection with these restructuring activities.
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 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 people 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 second quarter of 2000, the company recorded asset impairments of
$11.6 million ($7.1 million after tax) and restructuring and other charges of
$45.0 million ($27.7 million after tax). Impairments of $9.0 million were
recognized as a result of the formation of the Astaris joint venture (Note 12),
including the writedown of certain phosphorus assets retained by FMC and the
planned closure of two phosphorus facilities subsequent to the joint-venture
formation. Other impairments included the reduction in value of certain
petroleum business equipment in the Energy Systems segment and of certain assets
in the Specialty Chemicals segment due to changes in the underlying businesses.
Restructuring charges of $20.6 million were attributable to Astaris formation
charges and the concurrent reorganization of FMC's Industrial Chemicals sales,
marketing and support organizations; the anticipated reduction of office space
requirements in FMC's Philadelphia chemical headquarters; and pension expense
related to the separation of phosphorus personnel from FMC. Other restructuring
charges included $4.5 million for reductions in FMC's agricultural machinery
workforce, $2.0 million resulting from the integration of the Northfield
Freezing Systems acquisition and $5.1 million for other smaller restructuring
projects. In addition, the company recorded environmental accruals of $12.5
million as a result of increased cost estimates for ongoing remediation of
several phosphorus properties.
During the first quarter of 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
PAGE 9
acquisition accounting for Tg Soda Ash, Inc. ("TgSA") and did not impact
earnings.
Reserves for restructuring and related programs were $184.6 million and $7.8
million at June 30, 2001 and December 31, 2000, respectively. Restructuring
spending of $8.1 million related to the 2001 programs and $4.9 million related
to previous programs occurred during the six months ended June 30, 2001.
Spending during the six months ended June 30, 2001 related primarily to
workforce reductions completed in the Energy Systems segment, in the FoodTech
businesses and in certain corporate and chemical shared service support
departments.
Restructuring and other reserve activities for the six months ended June 30,
2001 were as follows, in millions:
Reserves Increase Change to Reserves
------------------ Reserves
at in Cash Other at
12/31/00 Reserves Payments Changes 6/30/01
-------- -------- -------- ------- --------
- - Workforce-related $7.8 $ 14.4 $(12.7) $ - $ 9.5
- - Facility shut-
down costs - 6.2 (0.1) - 6.1
- - Costs reported
by Astaris - 2.7 - (2.7) -
- - Separation-related - 17.8 (0.2) - 17.6
- - Other - 153.6 - (2.2) 151.4
---- ------ ------ ------ ------
Total $7.8 $194.7 $(13.0) $(4.9) $184.6
==== ====== ====== ====== ======
Other reserves include accruals for the Shoshone-Bannock tribal fund ($40.0
million), required consent decree spending ($68.7 million), future financing
commitments ($42.7 million) and environmental liabilities ($2.2 million).
Note 6: Debt
- -------------
At June 30, 2001, the company had $450.0 million in committed credit under a
five-year non-amortizing revolving credit agreement due in December 2001. In
August of 2001, this commitment was reduced to $300 million.
To allocate debt between FMC and FTI pursuant to the reorganization of the
company, in the second quarter of 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 assumed from
FMC Corporation prior to any drawdown in conjunction with the separation.
At June 30, 2001, amounts borrowed by FTI under the credit facilities described
above consisted of $180.0 million under the five-year facility and $35.9 million
under the 364-day facility, the proceeds of which were subsequently remitted to
FMC and used to retire a portion of FMC's existing debt. FTI also entered into
interest rate swap agreements related to $100.0 million of the long-term amount
borrowed to fix the effective interest rate thereon at an average rate of 5.78
percent. Among other restrictions, FMC's and FTI's credit agreements contain
covenants relating to liens, consolidated net worth and cash flow coverage (as
defined in the agreements). The company and the lenders amended certain debt
agreements in July 2001. The company was in compliance with all debt covenants
effective as of June 30, 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 June
30, 2001.
At June 30, 2001, long-term debt includes $28.7 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 June 30, 2001, the company redeemed $11.2 million
of its exchangeable senior subordinated debentures; $91.3 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 $25.0 million of
long-term debt at maturity.
PAGE 10
Short-term debt consists of commercial paper, borrowings under uncommitted
credit facilities, borrowings from a joint venture and foreign borrowings at
June 30, 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 $34.1 million and $16.8 million was
outstanding at June 30, 2001 and December 31, 2000, respectively.
Advances under uncommitted credit facilities were $46.1 million and $50.0
million at June 30, 2001 and December 31, 2000, respectively. Foreign borrowings
totaled $43.7 million and $60.2 million at June 30, 2001 and December 31, 2000,
respectively, and borrowings from the joint venture were $24.6 million and $26.9
million, respectively.
Note 7: Reserves for Discontinued Operations and Other Liabilities
- -------------------------------------------------------------------
Reserves for discontinued operations and other liabilities at June 30, 2001 and
December 31, 2000 were $223.7 million and $291.9 million, respectively. At June
30, 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.
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 $212.0 million and $232.0
million, excluding recoveries, have been provided at June 30, 2001 and December
31, 2000, respectively. The long-term portions of these reserves, totaling
$152.0 million and $222.0 million, are included in the reserve for discontinued
operations and other liabilities at June 30, 2001 and December 31, 2000,
respectively, and the short-term portions are recorded as other current
liabilities. During the three months ended June 30, 2001, the company provided
$68.7 million of reserves for future environmental capital requirements and $2.2
million of additional environmental remediation reserves in conjunction with its
Pocatello, Idaho, remediation projects (Note 5).
Recoveries of $37.4 million have been recorded as probable realization of claims
against third parties at June 30, 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 June 30, 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 June
30, 2001. Depending on market conditions, the company may, from
PAGE 11
time to time, purchase additional shares of its common stock on the open market.
At June 30, 2001, the company had 31.1 million shares outstanding and .9 million
additional shares assuming conversion of stock options and other dilutive
potential common shares (calculated under the treasury stock method).
Note 10: Income Taxes
- ----------------------
The company's income tax benefit for the three and six months, respectively,
includes non-recurring charges of $4.2 million and $36.2 million related to
reorganization of the company's entities and repatriation of earnings in
anticipation of the separation of FTI from FMC.
Note 11: 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 and six-month periods ended June 30, 2001 and 2000 consisted of the
following, in millions:
Three Months Six Months
Ended June 30 Ended June 30
---------------------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) $(299.8) $ 38.0 $(326.3) $ 70.8
Other comprehensive gain (loss):
Foreign currency translation adjustment (8.4) (23.1) (25.0) (51.5)
Deferral of net hedging losses (19.6) - (32.6) -
Cumulative effect of a change in
accounting principle (Note 3) - - 15.1 -
------- ------ ------- ------
Comprehensive earnings (loss) $(327.8) $ 14.9 $(368.8) $ 19.3
======= ====== ======= ======
Note 12: Business Combinations and Divestitures
- ------------------------------------------------
Effective April 1, 2000, FMC and Solutia Inc. ("Solutia") formed the Astaris
joint venture, which includes the North American and Brazilian phosphorus
chemical operations of both companies. The joint venture is a limited liability
company equally owned by FMC and Solutia.
FMC's share of Astaris' earnings, exclusive of restructuring and impairment
charges reported by Astaris, is included in the Industrial Chemicals segment.
Sales of FMC's phosphorus chemical division, included in revenues, were $79.2
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 plus assumption of
certain liabilities. 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, divestitures and joint
ventures during the six-month periods ended June 30, 2001 and 2000.
Note 13: Commitments and Contingent Liabilities
- ------------------------------------------------
In connection with 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. In conjunction with
FMC's review resulting in the impairment of its phosphorus business, including
Astaris, the company recorded a liability of $42.7 million for probable future
funding obligations under this agreement. This amount has been recorded on the
company's consolidated balance sheets as an increase to other current
liabilities and to expense at June 30, 2001.
PAGE 12
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 14: Segment Information
- -----------------------------
(In millions)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue
- -------
Energy Systems $ 269.8 $ 255.4 $ 516.6 $ 511.8
Food and Transportation Systems 212.3 240.4 395.0 425.6
Agricultural Products 205.8 184.6 340.5 350.4
Specialty Chemicals 119.5 126.4 235.8 251.3
Industrial Chemicals (1) 200.3 207.1 398.9 480.9
Eliminations (6.4) (3.0) (8.9) (5.5)
-------- -------- -------- --------
$1,001.3 $1,010.9 $1,877.9 $2,014.5
======== ======== ======== ========
Income before income taxes
- --------------------------
Energy Systems $ 13.3 $ 20.4 $ 22.3 $ 31.4
Food and Transportation Systems 16.5 22.9 25.8 35.0
Agricultural Products 41.4 36.9 55.3 50.8
Specialty Chemicals 21.0 25.6 41.0 45.1
Industrial Chemicals 18.2 28.5 32.7 63.0
-------- -------- -------- --------
Operating profit 110.4 134.3 177.1 225.3
Corporate (17.3) (17.3) (33.8) (34.8)
Other income and (expense), net (2.0) 5.2 (5.5) (1.9)
Asset impairments (2) (323.1) (11.6) (324.4) (11.6)
Restructuring and other charges (3) (184.5) (45.0) (194.7) (45.0)
Net interest expense (4) (23.6) (25.7) (46.5) (48.7)
-------- -------- -------- --------
$ (440.1) $ 39.9 $ (427.8) $ 83.3
======== ======== ======== ========
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.
Business segment results are presented net of minority interests (excluding
minority interests of FTI shareholders), reflecting only FMC's share of
earnings. Minority interests for the periods ended June 30, 2001 and 2000,
including the interests of minority shareholders of FTI beginning June 14, 2001,
were not significant. The corporate line primarily includes staff expenses.
Other income and expenses, net consists of all other corporate items, including
LIFO inventory adjustments, certain components of employee benefit plan cost or
benefit, certain foreign exchange gains or losses and the minority interests of
FTI shareholders.
(1) Revenue for the three and six months ended June 30, 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 $44.6 million and $88.0 million
for the three and six month periods, respectively, and had no effect on
the company's previously reported income or earnings per share. (See Note
3.)
(2) Asset impairments for the three months ended June 30, 2001 related to
Industrial Chemicals ($224.2 million) and Specialty Chemicals ($98.9
million). Asset impairments for the six months ended June 30, 2001
related to Industrial Chemicals ($224.2 million), Specialty Chemicals
$98.9 million) and Food and Transportation Systems ($1.3 million). Asset
impairments for the three and six months ended June 30, 2000 related to
Industrial Chemicals ($9.0 million), Energy Systems ($1.5 million), and
Specialty Chemicals ($1.1 million).
PAGE 13
(3) Restructuring and other charges for the three months ended June 30, 2001
related to Industrial Chemicals ($166.0 million), Corporate ($17.6
million), and Specialty Chemicals ($0.9 million). Restructuring and other
charges for the six months ended June 30, 2001 related to Industrial
Chemicals ($166.8 million), Corporate ($17.8 million), Energy Systems
($5.2 million), Food and Transportation Systems ($4.0 million) and
Specialty Chemicals ($0.9 million). Restructuring and other charges for
the three and six months ended June 30, 2000 related to Industrial
Chemicals ($33.0 million), Food and Transportation Systems ($8.0
million), Specialty Chemicals ($1.8 million), Energy Systems ($1.4
million), and Corporate ($0.8 million).
(4) Net interest expense for segment purposes includes interest expense from
external financing of the phosphorus joint venture for the three months
($1.0 million) and six months ($2.6 million) ended June 30, 2001 and the
six months ($0.1 million) ended June 30, 2000. The joint venture is
included in Industrial Chemicals.
PAGE 14
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 June 30, 2001 and December 31, 2000 were $32.4
million and $25.1 million, respectively. The company had total borrowings of
$1.2 billion and $1.0 billion as of June 30, 2001 and December 31, 2000,
respectively.
Cash used in operating activities were $132.9 million for the six months ended
June 30, 2001 compared with cash provided by operating activities of $53.3
million in the first half of 2000. The change was primarily a result of
increases in working capital requirements in both the Energy Systems and
Agricultural Products businesses resulting from inventory requirements related
to backlog (see "Backlog" below) and to seasonality, respectively.
Cash required by discontinued operations amounted to $94.3 million and $17.4
million for the six-month periods ended June 30, 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 $108.7 million in the first half of
2001 was essentially unchanged from the 2000 requirement.
Cash provided by financing activities in 2001 of $344.1 million increased when
compared with cash provided of $61.2 million in the first half of 2000. For the
six-month period ended June 30, 2001, the company increased its total short and
long-term debt by $102.7 million. FMC used the proceeds of short-term debt drawn
down by FTI, FMC's 83-percent owned subsidiary, and remitted to FMC in June 2001
(Note 2 to the June 30, 2001 consolidated financial
PAGE 15
statements, to fund operating capital requirements and redeem $130.8 million in
higher interest long-term debt. During the six months ended June 30, 2001, the
company redeemed $11.2 million of its exchangeable senior subordinated
debentures; $94.6 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 $25.0 million of long-term debt at maturity. During the six month
period ended June 30, 2000, the company retired $32.0 million in senior
long-term bonds including $17.0 million due in 2008 bearing interest at 7.0
percent and $15.0 million due in 2011, bearing interest at 7.75 percent. In
addition, the company redeemed $0.8 million of senior subordinated debentures
bearing interest at 6.75 percent and maturing in 2005 during the six-month
periods ended June 30, 2000.
At June 30, 2001, the company had $450.0 million in committed credit under a
five-year non-amortizing revolving credit agreement, due in December 2001. In
August of 2001, the company elected to reduce these agreements to $300 million
due to reduced near-term liquidity requirements.
To allocate debt between FMC and FTI pursuant to the reorganization of the
company, FMC 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 assumed from FMC Corporation in conjunction with the
separation.
At June 30, 2001, amounts borrowed by FTI under the credit facilities described
above consisted of $180.0 million under the five-year facility and $35.9 million
under the 364-day facility, the proceeds of which were subsequently remitted to
FMC and used to retire a portion of FMC's existing debt. Among other
restrictions, FMC's and FTI's credit agreements contain covenants relating to
liens, consolidated net worth and cash flow coverage (as defined in the
agreements). The company and the lenders amended certain debt agreements in July
2001. The company was in compliance with all debt covenants effective as of June
30, 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 June
30, 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 June 30, 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 and available credit facilities.
Management expects that FMC will incur total incremental after-tax costs of $50
million to $60 million during 2001 related to the separation of FTI from FMC 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 $75.0 million for planned capital expenditures, excluding
potential acquisitions, and excluding the estimated second half of 2001 required
consent decree spending at the Pocatello site of $58.0 million. The latter
spending was reserved for at June 30, 2001 as other current liabilities and
therefore will not be capitalized by the company when spent. The balance of this
consent decree spending (approximately $10.7 million) is expected to occur in
early 2002. Also, expected in the second half of 2001 is a $40.0 million payment
to the Shoshone-Bannock tribes. (See Note 5 to the company's June 30, 2001
consolidated financial statements.) The company has an obligation to provide
Astaris with an estimated $42.7 million in funding, a quarter of which will be
required during the second half of 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 benchmarks. This
obligation has been recorded on the company's consolidated balance sheet at June
30, 2001, as an increase to other current liabilities. (See Note 13 to the
company's June 30, 2001 consolidated financial statements.)
PAGE 16
The company's accumulated other comprehensive loss increased from $272.6 million
at December 31, 2000 to $315.1 million at June 30, 2001, as a result of
increased cumulative foreign currency translation losses of $25.0 million
primarily reflecting the negative translation impact of the euro against the
U.S. dollar.
The company's net loss failed to cover fixed charges by $308.5 million for the
six months ended June 30, 2001. The company's ratio of earnings to fixed charges
was 2.1x for the six-month period ended June 30, 2000. Excluding the company's
impairment and restructuring and other charges in 2001 and 2000, respectively,
the company's ratio of earnings to fixed charges would have been 2.5x and 3.0x
in 2001 and 2000, respectively. The decrease in the adjusted ratio when compared
with June 30, 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 an FMC operation sells or purchases products or services outside the
United States, transactions are frequently denominated in currencies other than
that 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 June 30, 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. At June 30, 2001, FTI entered into interest rate swap
agreements, fixing the effective interest rate at an average of 5.78 percent for
$100 million of its long-term borrowings under FTI credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." The standards collectively provide
new guidance for the recognition, amortization and continuing valuation of
goodwill and other intangible assets acquired in a business combination, and
SFAS No. 141 prohibits the use of the pooling of interests method of accounting
for a business combination. The adoption of SFAS No. 141 is not expected to have
an impact on the company's historical financial statements. The company has not
yet determined the impact of the adoption of SFAS No. 142, which must be applied
beginning January 1, 2002.
PAGE 17
RESULTS OF OPERATIONS
---------------------
Industry segment financial data is included in Note 14 to the company's June 30,
2001 consolidated financial statements.
Second Quarter of 2001 Compared with Second Quarter of 2000
-----------------------------------------------------------
Consolidated Results of Operations
- ----------------------------------
Revenues in the second quarter of 2001 of $1.0 billion were essentially flat
compared with last year's second quarter with lower revenues in Food and
Transportation Systems largely offset by an increase in revenues from
Agricultural Products and, to a lesser extent, from Energy Systems. The decrease
in revenues for Food and Transportation Systems was related largely to the
slowing U.S. and global economies. Agricultural Products revenue increases were
primarily due to higher sales of specialty agricultural products. Lower revenues
were also recorded in Specialty Chemicals and in Industrial Chemicals in the
second quarter of 2001 compared to the 2000 period.
In the second quarter of 2001, the company reported a loss before income taxes
and the cumulative effect of a change in accounting principle of $440.1 million,
compared with earnings of $39.9 million in the prior year's quarter. The loss
was largely a result of restructuring and impairment charges totaling $507.6
million ($350.7 million after tax) recorded in the quarter. These charges
related primarily to the company's phosphorus and lithium operations. Earnings
in the prior year included $56.6 million ($34.8 million after tax) of
restructuring, impairment and environmental charges resulting largely from the
formation of Astaris and the resulting reorganization and downsizing of the
company's Industrial Chemicals sales, marketing and support organizations. (See
Note 5 to the company's June 30, 2001 consolidated financial statements for
further discussion of restructuring and impairment charges.)
Average shares outstanding used in the quarters' diluted earnings (loss) per
share calculations were 31.2 million in 2001 compared with 31.5 million in the
prior year's quarter. Additional weighted average shares of 1.2 million,
assuming conversion of stock awards, for the quarter ended June 30, 2001 were
not included in the computation of diluted earnings per share as their effect
would have been antidilutive.
Energy Systems
- --------------
Energy Systems' revenue for the three months ended June 30, 2001 was $269.8
million, up from $255.4 million during the same period in 2000, primarily the
result of increased sales of surface wellhead and fluid control equipment and,
to a lesser extent, subsea systems. Operating profits for Energy Systems were
$13.3 million for the second quarter of 2001, down from $20.4 million in 2000.
Increased sales volumes of surface wellhead and fluid control equipment
reflected a strengthening market, and, in the case of fluid control equipment,
improved pricing. The increase in revenue was partially offset by decreased
sales volumes of floating production equipment and loading systems, reflecting
the effect of project delays by customers.
PAGE 18
Lower operating profitability reflected lower volumes for floating production
equipment as well as weakness in the measurement solutions business, and was
offset somewhat by improved profitability in the surface wellhead and fluid
control businesses. Management initiated a restructuring action during the first
quarter of 2001 in the measurement solutions business to mitigate the effect of
lower volumes.
Subsea and surface markets continue to improve both domestically and
internationally, although pricing remains competitive. Long-term frame
agreements have been signed with BP and others, and several quotations are in
process for additional large subsea projects. Management anticipates an increase
in orders for energy transportation and measurement equipment during the second
half of 2001 based on increased quotation activity.
Food and Transportation Systems
- -------------------------------
Food and Transportation Systems' revenue for the three months ended June 30,
2001 was $212.3 million, down from $240.4 million during the same period in
2000, primarily as a result of a reduction in FoodTech revenue. Increased
revenues for airport systems partially offset the decrease. Operating profits
for the segment of $16.5 million were lower in 2001 when compared with $22.9
million in the second quarter of 2000.
FoodTech's second quarter revenues were affected by lower volumes of food
processing equipment and freezers, and to a lesser extent, harvesting equipment.
Business activity in the food processing markets has slowed and revenues have
been negatively affected because customers have postponed placing new orders for
large projects. Lower operating profits reflected the lower volumes for food
processing equipment, partially offset by cost savings from restructuring
activities initiated by management prior to the second quarter of 2001.
Increased revenue for airport systems was attributable to higher sales of ground
support equipment, primarily higher volumes of cargo loaders to the air freight
market and additional revenue from the Next Generation Small Loader (NGSL)
contract with the United States Air Force. Airport systems' operating profit
decreased in the second quarter of 2001, primarily as a result of lower margins
for Jetway passenger boarding bridges, partly offset by additional profits from
NGSLs.
Weakening commodity prices, excess processing capacity, industry consolidation
and a slowing of the global economy caused food processors to postpone capital
spending. While there has been a recent increase in inquiries from customers and
quotation activity, the level of future orders remains uncertain because of the
economic environment.
While inbound orders for airport systems' equipment have increased in 2001,
profit pressure on the airline industry will likely slow inbound orders in the
second half of 2001 and in 2002, the effect of which will offset future revenue
and operating profitability from the NGSL contract.
Agricultural Products
- ---------------------
Agricultural Products' revenue for the quarter ended June 30, 2001 was $205.8
million, up from $184.6 million in last year's quarter due to higher specialty
product sales, including sales of turf, ornamental and termiticide products.
Also contributing to the increase were higher herbicide sales in Latin America,
primarily in Brazil. These improved revenues contributed to earnings for the
2001 quarter of $41.4 million, which were up 12 percent from last year. The
earnings increase also reflects an additional, and final, $10 million payment
from DuPont. The payment relates to a 1998 agreement wherein FMC granted DuPont
exclusive marketing rights to sulfentrazone on soybeans in the United States in
return for specific contractual sales commitments. As DuPont's recent forecast
of purchase requirements continues to defer their future needs and DuPont has
not met their contractual sales commitments, they have consequently lost
exclusivity for sulfentrazone. The contractual payment from DuPont allows FMC an
appropriate transition period for FMC to replace the DuPont revenue from
internal development or other alliances.
Specialty Chemicals
- -------------------
Specialty Chemical revenues of $119.5 million in the second quarter of 2001,
were down from $126.4 million in the second quarter of 2000. Earnings of $21.0
million decreased from $25.6 million in the prior year period. The decrease in
both revenues and earnings reflected customer inventory corrections in
biopolymers related in part to the slower U.S. economic environment. Also
affecting revenues and earnings were a weaker euro and weakness in some
industrial specialty markets.
Second quarter 2001 revenues in the lithium division were down while earnings
were flat when compared with the 2000 period. Decreased revenue while
maintaining flat earnings reflected improved product mix and the positive effect
of the division's cost improvement efforts. The decrease in revenues resulted
from lower sales of lithium products in Europe and from lower demand in certain
niche markets, particularly pharmaceuticals, served by the division.
In the second quarter of 2001, FMC recorded an impairment charge of $98.9
million ($97.0 million after tax) for its lithium operation in Argentina. This
operation, which includes a lithium mine and processing facilities, was
established by the company approximately five years ago in a remote area of the
Andes Mountains. Certain developments in the lithium carbonate market indicate
an increase in the level of competitive intensity and a corresponding erosion in
prices. In addition, the uncertain economic environment in Argentina is expected
to impact negatively FMC's competitive position. The Argentine government has
already altered its export rebate program. The current crisis also reduces the
likelihood of completion of certain major projects that would have had a
positive impact on FMC's cost position.
Industrial Chemicals
- --------------------
Industrial Chemicals second quarter 2001 revenues of $200.3 million decreased
compared with 2000 revenues of $207.1 million, while earnings were $18.2 million
and $28.5 million in the second quarter of 2001 and 2000, respectively. The
decrease in revenues resulted from lower sales on lower volumes in both the
alkali and hydrogen peroxide operations. The earnings decrease was primarily
attributable to losses in the phosphorus operations, and to a lesser extent,
lower earnings in the hydrogen peroxide operation.
FMC's phosphorus business results (which include the company's share of earnings
in the Astaris joint venture) were down compared with the prior year period
primarily due to lower operating earnings at Astaris. This resulted from lower
volumes and unfavorable pricing due to weak economic conditions and competition
from imports, which were helped by the strong dollar. During the quarter,
Astaris began the resale of part of its low cost contract power at the Pocatello
plant to Idaho Power, which partially mitigated the losses incurred in the
period. The power is sold at fixed prices that will generate additional profit
in excess of the incremental costs of manufacturing and procurement. The
agreement to resell electricity to Idaho Power will continue 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.
PAGE 20
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.
In the second quarter the company recorded asset impairment and restructuring
charges of $371.9 million ($226.9 million after tax) related to FMC's U.S.
phosphorus business. These activities include the company's investment in
Astaris (its 50/50 joint venture with Solutia) and significant investments in
the company's environmental assets at its Pocatello, Idaho site. Leading to
these charges were a continuing and steeper decline in market conditions, the
loss of a potential site on which to develop an economically viable second
purified phosphoric acid plant, and FMC's expected payment into a fund for the
Shoshone-Bannock tribes as a result of their agreement to support a proposal to
amend a consent decree to permit the earlier closure of the largest remaining
waste disposal pond. The components of the impairment and restructuring charges
were as follows (before tax): a $171.0 million impairment of consent decree
related environmental assets at Pocatello; a $68.7 million reserve for further
required consent decree spending at the site; a $40.0 million expected payment
to the Shoshone-Bannock tribes; a $36.7 million impairment of the company's
investment in Astaris; and, $55.5 million of future financing commitments to the
joint venture, environmental charges and other costs.
Second quarter 2001 revenue in FMC's alkali operations were down slightly from
the 2000 quarter due to lower soda ash sales volumes. Earnings were essentially
flat as a result of both higher export prices and successful cost reduction
programs which largely offset the impact of higher energy prices, primarily
those for natural gas. Sales volumes were affected by the entry of a competitor
into the market early in 2001.
During the quarter, management temporarily suspended operations at the Granger
Soda Ash facility, formerly the Tg Soda Ash operation, which resulted in
facility and severance-related charges of approximately $5.7 million (after
minority interest) in the second quarter of 2001. This action is expected to
reduce costs as production shifts allow for better utilization of other
facilities and to defer capital expenditures at the facility. Industrial
Chemicals will focus its trona mining operations on its remaining lower cost
mine. Soda Ash demand in excess of production will be met through sourcing
product from third party suppliers. The Granger facility is on stand-by and can
be restarted when business conditions improve.
Hydrogen peroxide revenues and profits were down compared with the second
quarter of 2000. These decreases were driven by lower volumes as a result of a
slowdown in the pulp and textile industries, both of which are operating at
lower rates in the current economic environment. Volumes are expected to improve
in the second half of 2001.
Business conditions continue to deteriorate in FMC's sodium cyanide market. The
company's major customers continue to significantly reduce demand and a
potential customer has now decided to defer their projects for at least the next
four years. As a result, FMC has taken an impairment charge of $12.2 million,
before tax, representing a substantial impairment of its investment in these
assets. Management continues to evaluate alternatives for this facility.
FMC Foret had slightly higher revenues in the second quarter of 2001 when
compared with 2000, while operating profitability was lower, primarily the
result of product mix and unfavorable translation effects. Higher revenues
resulted primarily from higher phosphorus and zeolites volumes which were
partially offset by the negative effect of the currency translation from the
euro when compared with second quarter of 2000.
PAGE 21
Corporate
- ---------
Corporate expenses of $17.3 million in the second quarter of 2001 were flat
compared with the second quarter of 2000.
Asset Impairments and Restructuring and Other Charges
- -----------------------------------------------------
In the second quarter of 2001 and 2000, the company recorded certain asset
impairment and restructuring charges, some of which are discussed above. See
Note 5 to the June 30, 2001 consolidated financial statements.
Interest expense
- ----------------
Net interest expense of $22.6 million in 2001 (including FMC's share of interest
incurred by Astaris) was down from $25.6 million in the 2000 second quarter due
to lower average debt levels and the lower interest rates prevalent in 2001.
Income tax expense
- ------------------
Income tax benefit for the three months ended June 30, 2001 was $140.3 million
on pretax losses of $440.1 million. Excluding non-recurring provisions for
income taxes of $4.2 million related to the reorganization of the company's
worldwide entities in anticipation of the separation of FTI from FMC (Note 2 to
the June 30, 2001 consolidated financial statements) and the effects of
restructuring and impairment charges, income tax expense for the quarter was
$16.5 million on adjusted pretax earnings of $67.5 million, reflecting an
effective tax rate of 24.4 percent. Income tax expense of $1.9 million for the
second quarter of 2000 resulted in an effective tax rate of five percent,
reflecting the benefit of higher U.S. rates associated with a significant
portion of the asset impairment and restructuring charges recorded in that
period. 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, or qualifying foreign trade income, and
depletion benefits, incremental state taxes and non-deductible goodwill
amortization and expenses.
Order backlog
- -------------
Total order backlog as of June 30, 2001 was $904.9 million, compared with total
order backlog of $644.3 million at December 31, 2000. From December 31, 2000 to
June 30, 2001, Energy Systems' backlog increased from $425.1 million to $634.6
million, while Food and Transportation Systems' backlog increased from $219.2
million to $270.2 million.
Energy Systems' order backlog increased during the six-month period primarily as
a result of a stronger subsea market. A significant number of orders were
received for projects that included Enterprise Oil offshore Brazil, Statoil
offshore Norway, TotalFinaElf offshore West Africa, and BP in the Gulf of
Mexico. The BP order for five trees is for its Crazy Horse field offshore
Louisiana and is the first order under the new $250 million, five-year frame
agreement between FMC Technologies and BP. In addition, order backlog also
increased for loading systems and surface wellhead and floating production
equipment, the latter reflecting an order from Enterprise Oil for turret mooring
and related systems for a floating production, storage and offloading vessel.
Food and Transportation Systems' order backlog at June 30, 2001 increased when
compared with December 31, 2000, reflecting higher backlog for FoodTech,
primarily for food processing and freezing equipment, and for airport systems,
attributable to ground support equipment and NGSLs.
PAGE 22
Results of Operations -- Six Months Ended June 30, 2001 Compared
----------------------------------------------------------------
With Six Months Ended June 30, 2000
-----------------------------------
For the first six months of 2001, revenues were $1,877.9 million, down from
$2,014.5 million in the first half of 2000. Revenues declined in the first half
of 2001 for all segments except Energy Systems. The most significant decrease is
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 important were revenue decreases in Food and Transportation
Systems primarily as a result of lower sales of food processing equipment and
freezers.
Segment operating profit (net of minority interests) before asset impairments
and restructuring and other charges decreased to $177.1 million in the first
half of 2001 from $225.3 million in 2000. Each segment, with the exception of
Agricultural Chemicals, reported lower operating earnings with the most
significant decrease reported by Industrial Chemicals largely as a result of
reduced profitability from phosphorus operations. Asset impairments and
restructuring and other charges are described in Note 5 to the company's June
30, 2001 consolidated financial statements, and are excluded from the six-month
segment operating profit discussed below.
After-tax income from continuing operations before asset impairments and
restructuring and other charges were $69.0 million for the first six months of
2001, or $2.14 per share on a diluted basis, down from after-tax income from
continuing operations of $105.6 million, or $3.36 per share in the first six
months of 2000. Losses from continuing operations including one-time items
recorded in 2001 were $326.3 million, or $10.54 loss per share on a diluted
basis, in the first half of 2001 compared with income of $70.8 million, or $2.25
per share in the first half of 2000.
Corporate expenses were $33.8 million and $34.8 million for the six-month
periods ended June 30, 2001 and 2000, respectively, reflecting continued cost
control efforts.
For the six-month period ended June 30, net interest expense decreased $2.2
million to $46.5 million in 2001, primarily the result of lower average debt
levels.
The company's effective tax rates applicable to income from continuing
operations (before asset impairments and restructuring and other charges in 2001
and 2000) for the six-month periods ended June 30, 2001 and 2000 were 24.4
percent and 24.5 percent, respectively. Including one-time charges, the
effective tax rate for 2001 was 25.0 percent.
Energy Systems' revenues of $516.6 million in the first six months of 2001
increased from $511.8 million in the first six months of 2000, while earnings of
$22.3 million in 2001 decreased from $31.4 million in the prior year period.
Increased sales of surface wellhead equipment and fluid control equipment were
partially offset by lower sales of floating production systems and blending and
transfer equipment. The comparison for floating production equipment was
affected by sales during the first half of 2000 to the Petro Canada Terra Nova
project off the coast of Nova Scotia. Operating profits were lower, reflecting
the lower volumes of floating production systems, partially offset by the effect
of improved volumes and margins for fluid control equipment.
Food and Transportation Systems' revenues of $395.0 million for the six months
ended June 30, 2001 were lower than revenues of $425.6 million in 2000, and 2001
operating profits of $25.8 million were lower than operating profits of $35.0
million in the first six months of 2000. The decrease in revenue was primarily
the result of lower sales of food processing equipment and freezers, reflecting
the impact of economic factors on customers' capital spending decisions. An
increase in sales of food handling equipment partially offset this decrease,
along with increased sales volume of airport
PAGE 23
systems' ground support equipment and, to a lesser extent, additional revenue
from the Next Generation Small Loader contract with the United States Air Force.
In addition, airport systems' 2001 revenue was positively affected by the timing
of the receipt of customer orders when compared with 2000. Lower operating
profitability for the segment was primarily the result of lower sales volumes
for food processing equipment, and lower margins for Jetway passenger boarding
bridges and freezing equipment. Partially offsetting this decrease were
operating profits from ground support equipment and NGSLs, and cost savings from
restructuring of the food processing business.
Agricultural Products revenues of $340.5 million were lower in the first half of
2001 compared with 2000 revenues of $350.4 million, with operating profits
increasing to $55.3 million for 2001 year to date compared with $50.8 million in
the first half of the prior year. The decrease in revenues reflected lower sales
in Asia and lower sulfentrazone sales to DuPont. Lower revenues were offset by a
$10 million payment from DuPont in each of the first and second quarters. The
payments relate to DuPont's failure to meet contractual commitments on a 1998
agreement for the purchase of sulfentrazone.
Specialty Chemicals had lower revenues and earnings, as revenues of $235.8
million in the first half of 2001 decreased from $251.3 million in the prior
year period. Earnings decreased to $41.0 million in 2001 from $45.1 million in
the first half of 2000. Revenues and earnings decreased because of lower demand,
especially in the industrial specialties markets.
Industrial Chemical sales decreased to $398.9 million in the first half of 2001
from $480.9 million in 2000, and earnings (net of minority interest) decreased
to $32.7 million in 2001 from $63.0 million in 2000. This decrease in revenues
is largely attributable to 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. The decrease in earnings is largely
a result of reduced profitability from phosphorus operations.
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 24
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
A report by KPMG LLP, FMC's independent accountants, on the consolidated
financial statements included in Form 10-Q for the quarter ended June 30, 2001
is included on page 25.
PAGE 25
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 June 30, 2001, and the related consolidated
statements of income for the three-month and six-month periods ended June 30,
2001 and 2000 and the consolidated statements of cash flows for the six-month
periods ended June 30, 2001 and 2000. These consolidated financial statements
are the responsibility of the company's management.
We conducted our reviews 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 reviews, 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
August 10, 2001
PAGE 26
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The Registrant's Annual Meeting of Stockholders was held on April 20, 2001. At
the meeting, stockholders voted on (i) the election of four directors; (ii)
approval of the FMC Corporation Incentive Compensation and Stock Plan and (iii)
ratification of the appointment of KPMG LLP as the Registrant's independent
public accountants for 2001. Voting on each such matter was as follows:
Votes Withheld/ Broker
Votes For Against Abstentions Non-Votes
1. Election of Directors:
B. A. Bridgewater, Jr. 27,189,409 -- 202,115 --
W. F. Reilly 27,191,942 -- 199,582 --
J. R. Thompson 26,234,026 -- 1,157,498 --
W. G. Walter 27,187,089 -- 294,435 --
2. Approval of the FMC Corporation
Incentive Compensation and Stock
Plan 23,315,667 3,906,992 168,864
3. Ratification of Independent
Public Accountants 26,721,518 577,185 92,822 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits
--------
Number in
Exhibit
-------
Table Description
----- -----------
10.4.e* Third Amendment of FMC Corporation Employees' Retirement
Program - Part I Salaried and Non-Union Hourly Employees'
Plan
10.4.f* Third Amendment of FMC Corporation Employees' Retirement
Program - Part II Union Hourly Employees' Plan
10.4.g* Fourth Amendment of FMC Corporation Employees' Retirement
Program - Part I Salaried and Non-Union Hourly Employees'
Plan
10.4.h* Fourth Amendment of FMC Corporation Employees' Retirement
Program - Part II Union Hourly Employees' Plan
10.4.i Fifth amendment of FMC Corporation Employees' Retirement
Program, Part I Salaried and Non-union Hourly Employees'
Retirement Plan (As Amended and Restated Effective January 1,
1999)
10.6* FMC Corporation Salaried Employees' Equivalent Retirement
Plan (As amended and restated effective as of May 1, 2001)
10.10* FMC Corporation Executive Severance Plan (As amended and
restated effective as of May 1, 2001)
10.12.a Amendment to the FMC Corporation Defined Benefit Retirement
Trust
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 a report on Form 8-K dated June 18, 2001 containing slides
used during a presentation made at the Merrill Lynch Chemical Conference on June
14, 2001.
PAGE 27
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: August 9, 2001 /s/ Ronald D. Mambu
-------------- -------------------
Vice President, Controller and duly
Authorized officer
PAGE 1
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
------------- -----------
10.4.e* Third Amendment of FMC Corporation Employees' Retirement
Program - Part I Salaried and Non-Union Hourly Employees'
Plan
10.4.f* Third Amendment of FMC Corporation Employees' Retirement
Program - Part II Union Hourly Employees' Plan
10.4.g* Fourth Amendment of FMC Corporation Employees' Retirement
Program - Part I Salaried and Non-Union Hourly Employees'
Plan
10.4.h* Fourth Amendment of FMC Corporation Employees' Retirement
Program - Part II Union Hourly Employees' Plan
10.4.i Fifth amendment of FMC Corporation Employees' Retirement
Program Part I Salaried and Non-union Hourly Employees'
Retirement Plan (As Amended and Restated Effective January 1,
1999)
10.6* FMC Corporation Salaried Employees' Equivalent Retirement
Plan (As amended and restated effective as of May 1, 2001)
10.10* FMC Corporation Executive Severance Plan (As amended and
restated effective as of May 1, 2001)
10.12.a Amendment to the FMC Corporation Defined Benefit Retirement
Trust
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