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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 September 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
(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
(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 September 30, 2001
----- ---------------------------------
Common Stock, par value $0.10 per share 31,218,470
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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 Nine Months
Ended Ended
September 30, September 30,
-------------- ------------------
2001 2000 2001 2000
------ ------ -------- --------
Revenue.................................................................................. $956.8 $958.6 $2,834.7 $2,973.3
Costs and expenses:
Cost of sales or services............................................................. 726.7 696.6 2,118.8 2,172.5
Selling, general and administrative expense........................................... 122.9 125.1 393.1 398.0
Research and development expense...................................................... 37.9 35.3 115.9 111.2
Asset impairments..................................................................... -- -- 324.4 11.6
Restructuring and other charges....................................................... 20.3 -- 215.0 45.0
------ ------ -------- --------
Total costs and expenses........................................................... 907.8 857.0 3,167.2 2,738.3
------ ------ -------- --------
Income (loss) before minority interests, interest expense, interest income, income taxes,
discontinued operations and the cumulative effect of a change in accounting principle... 49.0 101.6 (332.5) 235.0
Minority interests....................................................................... 3.4 1.2 5.8 2.7
Interest expense......................................................................... 20.6 26.3 67.1 77.5
Interest income.......................................................................... (1.0) (0.8) (3.6) (3.4)
------ ------ -------- --------
Income (loss) before income taxes, discontinued operations and the cumulative effect of a
change in accounting principle.......................................................... 26.0 74.9 (401.8) 158.2
Provision (benefit) for income taxes..................................................... 4.7 18.4 (102.4) 30.9
------ ------ -------- --------
Income (loss) before the effect of discontinued operations, net of income taxes.......... 21.3 56.5 (299.4) 127.3
Income (loss) from discontinued operations, net of income taxes.......................... -- (66.7) -- (66.7)
------ ------ -------- --------
Income (loss) before the cumulative effect of a change in accounting principle........... 21.3 (10.2) (299.4) 60.6
Cumulative effect of a change in accounting principle, net of income taxes (Note 3)...... -- -- (5.6) --
------ ------ -------- --------
Net income (loss)........................................................................ $ 21.3 $(10.2) $ (305.0) $ 60.6
====== ====== ======== ========
Basic earnings (loss) per common share:
Income (loss) before discontinued operations and the cumulative effect of a change in
accounting principle $ 0.68 $ 1.86 $ (9.65) $ 4.19
Discontinued operations, net of income taxes............................................. -- (2.20) -- (2.20)
Cumulative effect of a change in accounting principle, net of income taxes............... -- -- (0.18) --
------ ------ -------- --------
Net earnings (loss) per common share..................................................... $ 0.68 $(0.34) $ (9.83) $ 1.99
====== ====== ======== ========
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 discontinued operations and the cumulative effect of a change in
accounting principle $ 0.66 $ 1.79 $ (9.65) $ 4.04
Discontinued operations, net of income taxes............................................. -- (2.11) -- (2.12)
Cumulative effect of a change in accounting principle, net of income taxes............... -- -- (0.18) --
------ ------ -------- --------
Net earnings (loss) per common share..................................................... $ 0.66 $(0.32) $ (9.83) $ 1.92
====== ====== ======== ========
Average number of shares used in diluted earnings (loss) per share computations.......... 32.0 31.6 31.0 31.5
====== ====== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
2
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
September 30,
2001 December 31,
(Unaudited) 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 123.6 $ 25.1
Trade receivables, net of allowances of $20.2 in 2001 and $13.4 in 2000......... 669.8 635.5
Inventories..................................................................... 468.9 426.2
Other current assets............................................................ 195.8 152.4
Deferred income taxes........................................................... 116.9 90.6
-------- --------
Total current assets........................................................ 1,575.0 1,329.8
Investments..................................................................... 78.4 103.0
Property, plant and equipment, net (Note 4)..................................... 1,348.2 1,616.1
Goodwill and intangible assets.................................................. 459.6 494.6
Other assets.................................................................... 143.8 112.2
Deferred income taxes........................................................... 187.8 90.2
-------- --------
Total assets................................................................ $3,792.8 $3,745.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 6)........................................................ $ 192.9 $ 153.9
Accounts payable, trade and other............................................... 563.0 657.3
Other current liabilities....................................................... 616.5 462.2
Current portion of long-term debt (Note 6)...................................... 35.9 22.7
Current portion of accrued pension and other postretirement benefits............ 44.9 37.5
Income taxes payable............................................................ 40.4 66.3
-------- --------
Total current liabilities................................................... 1,493.6 1,399.9
Long-term debt, less current portion (Note 6)...................................... 1,001.7 872.1
Accrued pension and other postretirement benefits, less current portion............ 160.8 189.8
Reserves for discontinued operations and long-term environmental liabilities (Note
7)............................................................................... 257.7 291.9
Other non-current liabilities...................................................... 151.4 144.8
Minority interests in consolidated companies....................................... 117.2 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
39,193,208 shares in 2001 and 38,622,349 shares in 2000....................... 3.9 3.9
Capital in excess of par value of common stock.................................. 215.5 181.6
Retained earnings............................................................... 1,229.0 1,398.9
Accumulated other comprehensive loss............................................ (326.0) (272.6)
Treasury stock, common, at cost; 7,974,738 shares in 2001 and 7,977,709
shares in 2000................................................................ (512.0) (511.4)
-------- --------
Total stockholders' equity.................................................. 610.4 800.4
-------- --------
Total liabilities and stockholders' equity............................... $3,792.8 $3,745.9
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
Nine Months
Ended
September 30,
----------------
2001 2000
------- -------
Cash provided (required) by operating activities of continuing operations:
Income (loss) before the cumulative effect of a change in accounting principle and
discontinued operations............................................................... $(299.4) $ 127.3
Adjustments to reconcile income (loss) before the cumulative effect of a change in
accounting principle to cash provided by (used in) operating activities of continuing
operations:
Depreciation and amortization....................................................... 138.2 141.7
Asset impairments (Note 5).......................................................... 324.4 11.6
Restructuring and other charges (Note 5)............................................ 215.0 45.0
Settlement of derivative contracts (Note 3)......................................... (3.5) --
Deferred income taxes............................................................... (123.9) 34.4
Minority interests.................................................................. 5.8 2.7
Other............................................................................... 14.1 31.0
Changes in operating assets and liabilities excluding the effect
of acquisitions of businesses:
Accounts receivable repurchased......................................................... (39.0) (16.0)
Trade receivables, net.................................................................. 7.3 17.8
Inventories............................................................................. (43.5) 22.4
Other current assets and other assets................................................... (65.9) 6.8
Accounts payable, accrued and other current and other non-current liabilities........... (85.0) (219.2)
Income taxes payable.................................................................... (26.6) (29.0)
Restructuring reserves.................................................................. (37.3) (20.3)
Accrued pension and other postretirement benefits, net.................................. (32.0) (17.9)
------- -------
Cash provided by (used in) operating activities of continuing operations................... (51.3) 138.3
------- -------
Cash required by discontinued operations................................................... (106.9) (27.6)
------- -------
Cash provided (required) by investing activities:
Capital expenditures.................................................................... (159.1) (152.5)
Acquisitions of businesses.............................................................. (3.0) (47.4)
Proceeds from disposal of property, plant and equipment................................. 20.6 32.2
Decrease (increase) in investments...................................................... (11.5) 53.2
------- -------
Cash required by investing activities...................................................... (153.0) (114.5)
4
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)--Unaudited
(In millions)
Nine Months
Ended
September 30,
---------------
2001 2000
------- ------
Cash provided (required) by financing activities:
Net proceeds from issuance of (net repayments of) commercial paper. 45.1 (51.4)
Net increase (decrease) in other short-term debt................... (14.7) 11.5
Proceeds from issuance of long-term debt........................... 357.9 --
Repayment of long-term debt........................................ (216.0) (34.3)
Net borrowings (repayments) under credit facilities................ 1.9 72.0
Proceeds from sale of subsidiary stock............................. 207.1 --
Distributions to minority partner.................................. (3.2) (1.5)
Net issuances of common stock...................................... 33.5 5.7
------- ------
Cash provided by financing activities................................. 411.6 2.0
Effect of exchange rate changes on cash and cash equivalents.......... (1.9) (4.3)
------- ------
Increase (decrease) in cash and cash equivalents...................... 98.5 (6.1)
Cash and cash equivalents, beginning of period........................ 25.1 64.0
------- ------
Cash and cash equivalents, end of period.............................. $ 123.6 $ 57.9
======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest was $79.8 million and $86.5 million, and cash paid
for income taxes, net of refunds, was $22.5 million and $21.9 million for the
nine-month periods ended September 30, 2001 and 2000, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
5
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 September 30, 2001, and the related consolidated statements of income and
cash flows for the interim periods ended September 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 September 30, 2001 and 2000 and of its financial position
as of September 30, 2001. All such adjustments are of a normal recurring
nature. The results of operations for the nine-month periods ended September
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. ("Technologies") 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 Technologies, the company contributed to
Technologies substantially all the net assets comprising the businesses of
Technologies effective June 1, 2001. On June 14, 2001, Technologies made an
initial public offering ("IPO") of 17.0 percent of its common stock. FMC
continues to own the remaining 83.0 percent of Technologies' common stock. In
exchange for the net assets distributed by FMC to Technologies, Technologies
made payments totaling $480.1 million to FMC in June of 2001. In addition FMC
expects Technologies to make a further payment to the company of $32.7 million,
of which the majority resulted from changes in Technologies' cash and debt
balances through May 31, 2001.
The $480.1 million in proceeds received by FMC from Technologies consisted
of cash drawn down by Technologies under its debt facility established in
connection with the IPO (Note 6) of $280.9 million and the proceeds of
Technologies' IPO of $207.2 million, less $8.0 million retained by Technologies
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 Technologies 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 directly to
retained earnings. Upon 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 Technologies by the end of 2001.
Management expects that FMC will incur incremental after-tax costs of
approximately $60.0 million during 2001 related to this transaction and the
restructuring of certain corporate operations. See Note 5 for a discussion of
costs incurred through September 30, 2001.
6
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 January 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 nine months ending September 30, 2001, were less than $0.1 million. At
September 30, 2001, the net deferred after-tax hedging loss in accumulated
other comprehensive loss was $21.3 million, of which approximately $10.4
million of net losses are expected to be recognized in earnings during the
twelve months ending September 30, 2002, at the time the underlying hedged
transactions are realized, and of which net losses of $10.6 million are
expected to be recognized at various times subsequent to September 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 nine months ended September 30, 2000 increased revenue and cost of
sales or services by $39.4 million and $127.6 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:
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Property, plant and equipment, at cost, less reductions due to
impairments................................................. $3,136.4 $3,406.2
Accumulated depreciation...................................... 1,788.2 1,790.1
-------- --------
Net property, plant and equipment............................. $1,348.2 $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 September 30, 2001, the company recorded
restructuring charges of $20.3 million ($13.9 million after tax). These charges
were largely for FMC reorganization costs and
7
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
corporate restructuring activities ($13.8 million, see Note 2) and
restructuring activities in the Food and Transportation Systems ($4.8 million),
Energy Systems ($1.0 million) and Specialty Chemicals ($0.7 million) segments.
The after tax charges included a charge to the tax provision of $1.4 million
related to the reorganization of the company's worldwide entities in
anticipation of the separation of Technologies from FMC (Note 2).
In the second quarter, 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 into a fund for the Shoshone-Bannock tribes as a result of
their agreement to support a proposal to amend an EPA consent decree to permit
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 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. The restructuring and impairment
charges for the quarter included $17.8 million ($10.8 million after tax)
related to FMC's corporate reorganization costs (Note 2) and $19.0 million
($11.8 million after tax) reflecting a restructuring of chemical operations and
the impairment of two smaller chemical facilities. Included in the after tax
charge is a non-recurring tax provision of $4.2 million related to the
reorganization of the company's worldwide entities in anticipation of the
separation of Technologies from FMC (Note 2). 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. 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, primarily in
connection with the repatriation of cash from certain foreign operations.
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.
8
0FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 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.
Reserves for restructuring and related programs were $150.6 million and $7.8
million at September 30, 2001 and December 31, 2000, respectively. Spending
during the nine months ended September 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 nine months ended
September 30, 2001 were as follows, in millions:
Change to Reserves
Reserves Increase ----------------- Reserves
at in Cash Other at
12/31/00 Reserves Payments Changes 9/30/01
-------- -------- -------- ------- --------
--Workforce-related and facility shutdown costs $7.8 $ 32.5 $(24.4) $(4.9) $ 11.0
--Phosphorus Related:
Tribal fund -- 40.0 -- -- 40.0
Consent decree -- 68.7 (21.2) -- 47.5
Financing commitments to Astaris joint venture. -- 42.7 (13.8) -- 28.9
--FMC Reorganization -- 31.6 (8.4) -- 23.2
---- ------ ------ ----- ------
Total $7.8 $215.5 $(67.8) $(4.9) $150.6
==== ====== ====== ===== ======
Note 6: Debt
At September 30, 2001 the company had $300.0 million in committed undrawn
credit under a five-year non-amortizing revolving credit agreement due in
December 2001. This credit agreement will be retained by FMC subsequent to the
reorganization.
To allocate debt between FMC and Technologies pursuant to the reorganization
of the company, in the second quarter of 2001, FMC obtained commitments for two
revolving credit facilities: a $250.0 million five-year credit agreement and a
$150.0 million 364-day revolving credit facility, both of which Technologies
assumed from FMC Corporation prior to Technologies draw down in conjunction
with the separation.
At September 30, 2001, amounts borrowed by Technologies under the credit
facilities described above consisted of $250.0 million under the five-year
facility and $38.9 million under the 364-day facility. Of the total, $280.9
million was drawn down by Technologies pursuant to the separation and
distribution agreement and paid to FMC, which used the funds to retire a
portion of its existing debt. Technologies entered into interest rate swap
agreements related to $150.0 million of the long-term amount borrowed to fix
the effective interest rate thereon at an average rate of 5.37 percent.
9
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Among other restrictions, FMC's and Technologies' 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 September 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 September 30, 2001.
At September 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.
Short-term debt consists of commercial paper, borrowings under uncommitted
credit facilities, borrowings from a joint venture and foreign borrowings at
September 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 $68.6 million and $16.8 million was
outstanding at September 30, 2001 and December 31, 2000, respectively.
Advances under uncommitted credit facilities were $53.9 million and $50.0
million at September 30, 2001 and December 31, 2000, respectively. Foreign
borrowings totaled $46.9 million and $60.2 million at September 30, 2001 and
December 31, 2000, respectively, and borrowings from the joint venture were
$21.3 million and $26.9 million, respectively.
Note 7: Reserves for Discontinued Operations and Long-term Environmental
Liabilities
Reserves for discontinued operations and long-term environmental liabilities
at September 30, 2001 and December 31, 2000 were $257.7 million and $291.9
million, respectively. At September 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. During the third quarter of 2000, the
company recorded a net loss from discontinued operations of $66.7 million (net
of income taxes of $15.0; $2.11 per share on a diluted basis), substantially
all of which related to settlement of litigation related to FMC's discontinued
defense business.
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 $202.2 million and $232.0
million, excluding recoveries, have been provided at September 30, 2001 and
December 31, 2000, respectively. The long-term portions of these reserves,
totaling $186.8 million and $222.0 million, are included in the reserve for
discontinued operations and Long-term environmental liabilities at September
30, 2001 and December 31, 2000, respectively, and the short-term portions are
recorded as other current liabilities.
10
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Recoveries of $36.7 million have been recorded as probable realization of
claims against third parties at September 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 $80.0 million at September 30,
2001. In the future, due to changing facts and circumstances, obligations may
arise that the company will be required to reserve for under its policies.
These accruals, when required, may be material to any one quarter's or year's
results of operations. 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 $50.0 million of open
market repurchases of FMC common stock, which the company has not commenced as
of September 30, 2001. Depending on market conditions, the company may, from
time to time, purchase additional shares of its common stock on the open market.
Note 10: Income Taxes
The company's income tax expense for the three months ended September 30,
2001 and income tax benefit for the nine months ended September 30, 2001,
respectively, includes non-recurring charges of $1.4 million and $37.6 million
related to reorganization of the company's entities and repatriation of
earnings in anticipation of the separation of Technologies 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 nine-month periods ended September 30, 2001 and 2000 consisted
of the following, in millions:
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- ---------------
2001 2000 2001 2000
----- ------ ------- ------
Net income (loss)........................................ $21.3 $(10.2) $(305.0) $ 60.6
Other comprehensive earnings (loss):
Foreign currency translation adjustment............... (7.1) (31.0) (32.1) (82.5)
Deferral of net hedging losses........................ (3.8) -- (36.4) --
Cumulative effect of a change in accounting principle
(Note 3)............................................ -- -- 15.1 --
----- ------ ------- ------
Comprehensive earnings (loss)............................ $10.4 $(41.2) $(358.4) $(21.9)
===== ====== ======= ======
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.
11
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
FMC's share of Astaris' earnings, exclusive of restructuring, interest and
impairment charges reported by Astaris, is included in the Industrial Chemicals
segment. Sales of FMC's phosphorus chemical division 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 nine-month periods ended September 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. The company's
September 30, 2001 liability of $28.9 million for probable future funding
obligations under this agreement has been recorded on the company's
consolidated balance sheets as an increase to other current liabilities.
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
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In millions)
Revenue
Energy Systems..................... $ 271.5 $ 243.9 $ 788.1 $ 755.7
Food and Transportation Systems.... 204.6 209.4 599.7 635.0
Agricultural Products.............. 156.8 181.4 497.3 531.9
Specialty Chemicals................ 115.2 114.9 351.0 366.2
Industrial Chemicals(1)............ 211.0 211.9 609.9 692.9
Eliminations....................... (2.3) (2.9) (11.3) (8.4)
-------- -------- -------- --------
$ 956.8 $ 958.6 $2,834.7 $2,973.3
======== ======== ======== ========
Income before income taxes
Energy Systems..................... $ 20.4 $ 17.7 $ 42.7 $ 49.1
Food and Transportation Systems.... 16.9 14.6 42.7 49.5
Agricultural Products.............. 9.7 28.8 64.9 79.6
Specialty Chemicals................ 20.1 21.8 61.1 66.9
Industrial Chemicals............... 20.3 29.7 53.0 92.7
-------- -------- -------- --------
Operating profit................... 87.4 112.6 264.4 337.8
Corporate.......................... (16.6) (17.4) (50.4) (52.1)
Other income and (expense), net.... (3.7) 6.0 (9.1) 4.1
Asset impairments(2)............... -- -- (324.4) (11.6)
Restructuring and other charges(3). (20.3) -- (215.0) (45.0)
Net interest expense(4)............ (20.8) (26.3) (67.3) (75.0)
-------- -------- -------- --------
$ 26.0 $ 74.9 $ (401.8) $ 158.2
======== ======== ======== ========
12
FMC CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 reflecting
only FMC's share of earnings. Minority interests for the three months ended
September 30, 2001 and 2000 were $3.4 million and $1.2 million, respectively.
Minority interests for the nine months ended September 30, 2001 and 2000,
including the interests of minority shareholders of Technologies beginning June
14, 2001, were $5.8 and $2.7 respectively. The corporate line primarily
includes staff expenses. Other income and expense, 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 Technologies shareholders.
--------
(1) Revenue for the three and nine months ended September 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 $39.4 million and $127.6 million for
the three and nine 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 nine months ended September 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 nine months ended September 30, 2000 related to Industrial
Chemicals ($9.0 million), Energy Systems ($1.5 million), and Specialty
Chemicals ($1.1 million).
(3) Restructuring and other charges for the three months ended September 30,
2001 related to Energy Systems ($1.0 million), Food and Transportation
Systems ($4.8 million), Specialty Chemicals ($.7 million) and Corporate
($13.8 million). Restructuring and other charges for the nine months ended
September 30, 2001 related to Energy Systems ($6.2 million), Food and
Transportation Systems ($8.8 million), Industrial Chemicals ($166.8
million), Specialty Chemicals ($1.6 million) and Corporate ($31.6 million).
Restructuring and other charges for the three and nine months ended
September 30, 2000 related to Food and Transportation Systems ($8.0
million), Energy Systems ($1.4 million), Industrial Chemicals ($33.0
million), Specialty Chemicals ($1.8 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
($1.2 million) and nine months ($3.8 million) ended September 30, 2001 and
the three months ($0.8 million) and nine months ($0.9 million) ended
September 30, 2000. The joint venture is included in Industrial Chemicals.
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 September 30, 2001 and December 31, 2000 were
$123.6 million and $25.1 million, respectively. The company had total
borrowings of $1.2 billion and $1.0 billion as of September 30, 2001 and
December 31, 2000, respectively. The increase in cash and cash equivalents and
long term debt reflects higher foreign cash balances at September 30, 2001,
which will be used to pay down debt in the fourth quarter of 2001.
Cash used in operating activities was $51.3 million for the nine months
ended September 30, 2001 compared with cash provided by operating activities of
$138.3 million in the first three quarters of 2000. The change was primarily a
result of increases in working capital in both the Energy Systems and
Agricultural Products businesses resulting from inventory requirements related
to backlog (see "Order Backlog" below) and to seasonality, respectively.
Cash required by discontinued operations amounted to $106.9 million and
$27.6 million for the nine-month periods ended September 30, 2001 and 2000,
respectively. During 2001, the company paid approximately $80.0 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 was $153.0 million through September
30, 2001 compared to $114.5 through September 30, 2000.
Cash provided by financing activities in 2001 of $411.6 million increased
when compared with cash provided of $2.0 million through September 30, 2000.
For the nine-month period ended September 30, 2001, the company increased its
total short and long-term debt by $129.6 million. FMC used the proceeds of
short-term debt drawn down by Technologies, FMC's 83-percent owned subsidiary,
and remitted to FMC in June 2001 (Note 2 to the September 30, 2001 consolidated
financial Statements), to fund operating capital
14
requirements and redeem $127.5 million in higher interest long-term debt.
During the nine months ended September 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. The company retired $32.5 million in senior
long-term bonds during the nine-month period ended September 30, 2000. Bonds
retired during the period were due in 2002, 2008 and 2011, with interest rates
at 7.0 to 7.75 percent. During the nine-month period ended September 30, 1999,
the company retired $250.0 million of currently due senior debt bearing
interest at 8.75 percent. Lower long-term debt resulting from repayment
activity was more than offset by an increase in borrowings under short-term
uncommitted credit facilities, which increased by $72.0 million during the
first nine months of 2000.
At September 30, 2001, the company had $300.0 million in undrawn committed
credit under a five-year non-amortizing revolving credit agreement, due in
December 2001. The company expects to maintain committed credit of at least
$200.0 million under a new 364 day revolving credit agreement. This agreement
is currently being negotiated and is expected to be finalized in the fourth
quarter of 2001.
To allocate debt between FMC and Technologies pursuant to the reorganization
of the company, FMC obtained commitments for two revolving credit facilities: a
$250 million five-year credit agreement and a $150.0 million 364-day revolving
credit facility, both of which Technologies assumed from FMC Corporation in
conjunction with the separation.
At September 30, 2001, amounts borrowed by Technologies under the credit
facilities described above consisted of $250.0 million under the five-year
facility and $38.9 million under the 364-day facility, of which 280.9 was
remitted to FMC in June 2001 pursuant to the signed agreements between FMC and
Technologies and used to retire a portion of FMC's existing debt. Among other
restrictions, FMC's and Technologies' credit agreements contain covenants
relating to liens, consolidated net worth and cash flow coverage (as defined in
the agreements). The company was in compliance with all debt covenants
effective as of September 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 September 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 September 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
approximately $60.0 million during 2001 related to the separation of
Technologies from FMC and the restructuring of certain corporate operations.
In addition, FMC expects its remaining cash requirements for 2001 to include
approximately $50.0 million for planned capital expenditures. In October 2001
the company made a $30.0 million payment to the Shoshone-Bannock tribes. (See
Note 5 to the company's September 30, 2001 consolidated financial statements.)
The company has an obligation to provide Astaris with an estimated $28.9
million in funding, of which $2.8 million will be required during the fourth
quarter of 2001.
15
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 September 30, 2001, as an increase to
other current liabilities. (See Note 13 to the company's September 30, 2001
consolidated financial statements.)
The company's accumulated other comprehensive loss increased from $272.6
million at December 31, 2000 to $326.0 million at September 30, 2001, as a
result of increased cumulative foreign currency translation losses of $32.1
million, which primarily reflected the translation impact of the euro against
the U.S. dollar and net deferred hedging losses of $21.3 million.
The company's net loss did not cover fixed charges by $230.0 million for the
nine months ended September 30, 2001. The company's ratio of earnings to fixed
charges was 3.0x for the nine-month period ended September 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
1.6x and 3.6x in 2001 and 2000, respectively. The decrease in the adjusted
ratio when compared with the 2000 period 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 September 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. As of September 30, 2001, Technologies had interest rate
swap agreements fixing the effective interest rate at an average of 5.37
percent for $150.0 million of its long-term borrowings under Technologies
credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") 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.
16
In June of 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. The statement will be effective beginning
January 1, 2003. In August of 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 is effective beginning January 1, 2002. The company has
not yet determined the impact of adopting SFAS Nos. 143 and 144, but expects to
adopt both statements when required.
RESULTS OF OPERATIONS
Industry segment financial data is included in Note 14 to the company's
September 30, 2001 consolidated financial statements.
Third Quarter of 2001 Compared with Third Quarter of 2000
Consolidated Results of Operations
Revenues in the third quarter of 2001 of $956.8 million were flat compared
with last year's third quarter with lower revenues in Agricultural Products
largely offset by an increase in revenues from Energy Systems. The decrease in
revenues for Agricultural Products was related largely to a decrease in
sulfentrazone sales. Energy Systems revenue increases were primarily due to
increased surface and subsea sales.
In the third quarter of 2001, the company reported income before income
taxes, discontinued operations and cumulative effect of a change in accounting
principle of $26.0 million, compared with earnings of $74.9 million in the
prior year's quarter. The decrease can be attributed to the continuing global
economic deceleration, which has had a negative impact on volumes in most
segments, and the $20.3 million before-tax charge for restructuring and other
charges in the third quarter of 2001.
During the third quarter of 2000, the company recorded a net loss from
discontinued operations of $66.7 million (net of an income tax benefit of $15.0
million), which primarily related to the settlement of litigation of FMC's
discontinued defense business.
The company recorded net income of $21.3 million, or $0.66 earnings per
share on a diluted basis in the third quarter of 2001 compared to a $10.2
million net loss, or $0.32 loss per share in the third quarter of 2000.
Average shares outstanding used in the quarters' diluted earnings (loss) per
share calculations were 32.0 million in 2001 compared with 31.6 million in the
prior year's quarter. Additional weighted average shares of 0.7 million,
assuming conversion of stock awards, for the quarter ended September 30, 2001
were included in the computation of diluted earnings per share.
Energy Systems
Energy Systems' revenue for the three months ended September 30, 2001 was
$271.5 million, up from $243.9 million during the same period in 2000,
primarily the result of increased sales of surface wellhead, subsea systems and
fluid control equipment, partially offset by reduced sales of blending and
transfer equipment. Operating profit for Energy Systems was $20.4 million for
the third quarter of 2001, up from $17.7 million in 2000.
17
Increased volumes for subsea systems reflected a strengthening market,
particularly in the Gulf of Mexico and in offshore Brazil, offset by lower
volumes in Europe. During the third quarter of 2001, higher sales of surface
wellhead and fluid control equipment were the result of a stronger market for
this equipment when compared to 2000; however, reduced sales of blending and
transfer equipment reflected lower demand for bulk conveying systems in 2001.
Higher operating profitability reflected improvements in measurement
solutions and loading systems businesses, in part the result of restructuring
actions implemented during the first quarter of 2001. In addition, higher
volumes and improved pricing for fluid control equipment contributed to
improved profitability.
With its BP and Shell alliances, the company is positioned to benefit from a
strengthening subsea market, and management expects to obtain additional subsea
equipment contracts during the fourth quarter of 2001. Domestic surface markets
are beginning to show some signs of slowing. While the outlook for fluid
control flowline equipment remains strong for the remainder of 2001, demand for
this equipment in 2002 is expected to weaken.
Food and Transportation Systems
Food and Transportation Systems' revenue for the three months ended
September 30, 2001 was $204.6 million, down from $209.4 million during the same
period in 2000, primarily as a result of a reduction in FoodTech volumes.
Increased revenue for Airport Systems partially offset the FoodTech decrease.
Operating profit for the segment of $16.9 million was higher in 2001 when
compared with $14.6 million in the third quarter of 2000.
FMC FoodTech's third quarter 2001 revenue was affected by lower sales of
freezing systems and poultry processing equipment, primarily the result of
customers' decisions to delay capital spending projects. Operating profit for
the third quarter of 2001 was slightly higher, reflecting cost savings from
restructuring activities initiated by management in late 2000 and early 2001,
partly offset by the effect of lower sales.
The slowing U.S. and global economies have caused many food processors to
postpone capital spending plans, and decisions to commit to large capital
expenditures are also influenced by industry profitability.
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 resulting from the company's contract to
supply the United States Air Force with Next Generation Small Loaders, also
known as Halvorsen Loaders. Increased revenue was partly offset by a decline in
sales of Jetway passenger boarding bridges due primarily to the timing of
orders. Airport Systems' operating profit increased in the third quarter of
2001, primarily as a result of higher volumes and margins for ground support
equipment, partly offset by the effect of delayed revenue and reduced margins
in the Jetway business.
The events of September 11 have severely impacted the outlook for Airport
Systems. Lower profitability for this business is expected for fourth quarter
2001 as airlines have essentially put a freeze on capital expenditures. These
conditions cloud our outlook for 2002, however the Halvorsen Loader program,
with projected deliveries of up to 100 units in 2002, is expected to somewhat
offset lower investment levels by commercial airlines.
Agricultural Products
Agricultural Products' revenue for the quarter ended September 30, 2001 was
$156.8 million, down from $181.4 million in last year's quarter. The sales
shortfall is largely a result of no sulfentrazone sales to DuPont. As
previously announced, DuPont elected to pay contractual penalties during the
first and second quarters of 2001 rather than purchase sulfentrazone in the
last year of their contract. During 2000, DuPont's purchases of sulfentrazone
were in the first and third quarters. In addition, a weaker Asian insecticide
market resulting from
18
unfavorable weather conditions, competitive pricing, inventory reductions in
Japanese distribution channels and unfavorable currency fluctuations in
Indonesia and Pakistan also contributed to lower sales. Partially offsetting
the lower sulfentrazone and Asian sales were increased sales in the Specialty
Product Business and higher herbicide sales in Latin America.
Earnings of $9.7 million, for the quarter, were down from $28.8 million in
the third quarter of 2000. The earnings decrease reflects the loss of
sulfentrazone sales to DuPont in North America and the unfavorable pricing of
insecticides due to the weakness in the Asian market previously discussed.
During the quarter, Agricultural Products announced an agreement with
Ishihara Sangyo Kaisha, Ltd (ISK) for FMC to develop and distribute, in the
Americas, a new ISK insecticide that is highly complementary to FMC's products.
FMC and ISK have also increased their equity position in Belchim, a
Belgian-based distribution company. The company believes that this will
strengthen access to the European markets for FMC products.
Specialty Chemicals
Specialty Chemical revenues of $115.2 million in the third quarter of 2001,
were flat compared to the third quarter of 2000. Earnings of $20.1 million
decreased from $21.8 million in the prior year quarter.
Biopolymer revenue and earnings improved, compared to the prior year
quarter, as a result of the increased demand for microcrystalline cellulose and
alginates in the food ingredients and pharmaceutical markets.
Lithium sales were down due to weakness in the hydroxide market and an
overall decline in European synthesis market demand for butyllithium. Lithium
earnings in the third quarter reflected improved product mix and the positive
effect of the division's cost improvement efforts offset by lower lithium
demand and competitive pricing pressures. In an attempt to mitigate the risk of
additional price erosion, the Company has focused its strategy on specialty
applications for lithium.
Industrial Chemicals
Industrial Chemicals third quarter 2001 revenues of $211.0 million were
approximately flat when compared with 2000 revenues of $211.9 million, while
earnings were $20.3 million and $29.7 million in the third quarter of 2001 and
2000, respectively. The flat revenues resulted from lower volumes offset by
price increases in the soda ash and hydrogen peroxide markets. The earnings
decrease was primarily attributable to startup expenses in the phosphorus
operations related to the new purified phosphoric acid ("PPA") facility and
higher energy costs throughout the segment.
FMC's U.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 price deterioration, startup costs for the new purified
phosphoric acid plant and unfavorable manufacturing variances at Astaris,
offset by income generated from the resale of power to Idaho Power. During the
second quarter, Astaris began the resale of part of its low cost contract power
at the Pocatello plant to Idaho Power. 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.
At the start of the fourth quarter, Astaris announced its plans to cease
production at the Pocatello, Idaho elemental phosphorus facility. Beginning in
the fourth quarter FMC will be responsible for decommissioning of the plant and
remediation of the site at an estimated incremental after tax cost of $40.0 to
$60.0 million. Closure will result in a decrease in the future operating costs
of the joint venture.
In October 2001 the company made a $30.0 million payment to the
Shoshone-Bonnock tribes. This payment relates to an agreement between FMC and
the tribes to allow FMC to modify an EPA consent decree to permit the capping
of a specific waste disposal pond. The company reserved $40.0 million in the
second quarter of 2001 for this payment. The remaining balance of the reserve
will be paid in five equal annual installments starting in 2002.
19
Third quarter 2001 revenue in FMC's alkali operations was up slightly from
the 2000 quarter due to an increase in soda ash prices. Volumes decreased as a
result of the entry of a competitor into the soda ash market early in 2001.
Earnings were down as a result of both higher energy costs and increased
manufacturing costs, which were only partially offset by price increases.
Hydrogen peroxide revenues and profits were down compared with the third
quarter of 2000. The decreases were driven by lower volumes due to a cyclical
slowdown in the pulp industry. The decreases were partially offset by price
increases and energy surcharges. Volumes are not expected to recover in the
fourth quarter of 2001.
During the third quarter FMC mothballed a combined 105 million pounds of
hydrogen peroxide capacity in Bayport, Texas and Prince George, British
Columbia, reflecting the weakness in the pulp market.
Foret, FMC's European subsidiary, had higher revenues in the third quarter
of 2001 when compared with 2000, resulting primarily from higher phosphorus and
zeolites volumes and prices, which were partially offset by the negative effect
of currency translation. Operating profitability was lower primarily as a
result of unfavorable translation effects.
Corporate
Corporate expenses of $16.6 million in the third quarter of 2001 were lower
compared with the $17.4 million recorded in the third quarter of 2000 due to
continued cost control activity.
Restructuring and Other Charges
In the third quarter and first nine months of 2001 and 2000, the company
recorded certain restructuring charges. See Note 5 to the September 30, 2001
consolidated financial statements.
Interest Expense
Net interest expense of $20.8 million in 2001 (including FMC's share of
interest incurred by Astaris) was down from $26.3 million in the 2000 third
quarter due to lower average debt levels and the lower interest rates prevalent
in 2001.
Other Income and Expense
Other expense was $3.7 million in the third quarter of 2001 compared to $6.0
million of other income for the same period in 2000. This decrease primarily
reflected an increase in non-cash pension expense.
Income Tax Expense
Income tax expense for the three months ended September 30, 2001 was $4.7
million on pretax income of $26.0 million. Excluding non-recurring provisions
for income taxes of $1.4 million related to the reorganization of the company's
worldwide entities in anticipation of the separation of Technologies from FMC
(Note 2 to the September 30, 2001 consolidated financial statements) and a
benefit of $7.9 million related to restructuring and impairment charges, income
tax expense for the quarter was $11.1 million on adjusted pretax earnings of
$46.3 million, reflecting an effective tax rate of 24.0 percent. Income tax
expense of $18.4 million for the third quarter of 2000 resulted in an effective
tax rate of 24.6 percent. 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.
20
Order backlog
Total order backlog as of September 30, 2001 was $914.6 million, compared
with total order backlog of $644.3 million at December 31, 2000. From December
31, 2000 to September 30, 2001, Energy Systems' backlog increased from $425.1
million to $667.9 million, while Food and Transportation Systems' backlog
increased from $219.2 million to $246.7 million.
Energy Systems' order backlog increased during the nine-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 Shell and BP in
the Gulf of Mexico. In addition, order backlog also increased for surface
systems 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 September 30, 2001
increased when compared with December 31, 2000, as a result of an increase in
backlog for FoodTech that was partially offset by a decrease in backlog for
Airport Systems. Increased backlog for freezing systems and food processing
equipment in 2001 were partially offset by lower backlog for Airport Systems,
the latter the result of a recent slow down in orders, primarily affecting
Jetway, partially offset by an increase in backlog for loaders, arising from
orders by air freight customers.
Results of Operations--Nine Months Ended September 30, 2001 Compared With Nine
Months Ended September 30, 2000
For the first nine months of 2001, revenues were $2,834.7 million, down from
$2,973.3 million in the first nine months of 2000. Revenues declined in the
nine months of 2001 for all segments except Energy Systems. Revenue decreased
in Food and Transportation Systems primarily as a result of lower sales of food
processing equipment and freezer systems. Agricultural Products revenue fell
due to the loss of sulfentrazone sales to DuPont in North America.
The company recorded $324.4 million in asset impairments and $215.0 million
in restructuring and other charges in 2001, compared to $11.6 million and $45.0
million, respectively, in 2000, with the most significant portion of these
costs recorded in the second quarter of 2001. The majority of 2001 charges
relate to the company's phosphorus and lithium operations. Asset impairments
and restructuring and other charges are described in Note 5 to the company's
September 30, 2001 consolidated financial statements.
Segment operating profit (net of minority interests) before asset
impairments and restructuring and other charges decreased to $264.4 million in
the first nine months of 2001 from $337.8 million in 2000. Each segment
reported lower operating earnings with the most significant decrease reported
by Industrial Chemicals largely as a result of reduced profitability from
phosphorus operations.
Energy Systems' revenues of $788.1 million in the first nine months of 2001
increased from $755.7 million in the first nine months of 2000, while earnings
of $42.7 million in 2001 decreased from $49.1 million in the prior year period.
Increased sales of surface wellhead 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 in 2000 for 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 $599.7 million for the nine
months ended September 30, 2001 were lower than revenues of $635.0 million in
2000, and 2001 operating profits of $42.7 million were lower than operating
profits of $49.5 million in the first nine months of 2000. The decrease in
revenue was primarily
21
the result of lower sales of freezing systems and food processing equipment,
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 systems' ground
support equipment and, to a lesser extent, additional revenue from the
Halvorsen Loader program to supply the United States Air Force. 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. Partially offsetting this decrease were operating profits from sales
of ground support equipment and Halvorsen Loaders, and cost savings obtained
through restructuring of the food processing business.
Agricultural Products revenues of $497.3 million were lower in the first
nine months of 2001 compared with 2000 revenues of $531.9 million, with
operating profits decreasing to $64.9 million for 2001 year to date compared
with $79.6 million in the first nine months of the prior year. The decrease in
revenues reflected lower sulfentrazone sales to DuPont. Absent the DuPont
sulfentrazone sales, Agricultural Products experienced volume growth in 2001
compare to 2000 as a result of developing new sulfentrazone partners and
stronger sales in Latin America and Specialty Products Business. This was
partially offset by weaker performance in Asia. Lower earnings from lower
revenues were partially offset by two $10 million payments from DuPont, one in
the first and one in the second quarter.
Specialty Chemicals had revenues of $351.0 million in the first nine months
of 2001 decreased from $366.2 million in the prior year period. Earnings
decreased to $61.1 million in 2001 from $66.9 million in the first nine months
of 2000. Revenues and earnings declines resulted from lower demand and price
decreases, particularly in the industrial specialties markets of the lithium
division.
Industrial Chemical sales decreased to $609.9 million in the first nine
months of 2001 from $692.9 million in 2000, and earnings (net of minority
interest) decreased to $53.0 million in 2001 from $92.7 million in 2000. This
decrease in revenues is largely attributable to the formation of Astaris in
April 2000. After that date, U.S. phosphorus revenues were no longer
consolidated with FMC's revenues. The decrease in earnings is largely a result
of reduced profitability from U.S. phosphorus operations, increased power costs
and cost related to the startup of the PPA plant at Astaris.
Corporate expenses were $50.4 million and $52.1 million for the nine-month
periods ended September 30, 2001 and 2000, respectively, reflecting continued
cost control efforts.
For the nine-month period ended September 30, net interest expense decreased
$7.7 million to $67.3 million in 2001, primarily as the result of lower average
debt levels and reduced interest rates.
The company's effective tax rates applicable to income from continuing
operations (before asset impairments and restructuring and other charges in
2001 and 2000 and non-recurring tax charges of $37.6 million in 2001) for the
nine-month periods ended September 30, 2001 and 2000 were 24.3 percent and 24.5
percent, respectively. Including one-time charges, the effective tax rates for
2001 and 2000 were 25.5 percent and 19.5 percent.
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.
22
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 September 30,
2001 is included on page 24.
23
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 September 30, 2001, and the
related consolidated statements of income for the three-month and nine-month
periods ended September 30, 2001 and 2000, and the consolidated statements of
cash flows for the nine-month periods ended September 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
October 31, 2001
24
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
--------- -----------
10.5 FMC Corporation Savings and Investment Plan
10.5.a FMC Corporation Savings and Investment Plan Trust
10.6 FMC Corporation Salaried Employees' Equivalent Retirement Plan (As amended and restated
effective as of May 1, 2001)
10.6.a FMC Corporation Salaried Employees' Equivalent Retirement Plan Grantor Trust Agreement
(As amended and restated effective as of July 31, 2001)
10.7 FMC Corporation Non-Qualified Savings and Investment Plan (As amended and restated effective as
of September 28, 2001)
10.7.a FMC Corporation Non-Qualified Savings and Investment Plan Trust (As amended and restated
effective as of September 28, 2001)
10.10 FMC Corporation Executive Severance Plan (As amended and restated effective as of May 1, 2001)
10.10.a FMC Corporation Executive Severance Grantor Trust Agreement
10.12.b Second 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 July 27, 2001 containing
historical pro forma information for the machinery and chemical operations as
if they had been unaffiliated companies for the last five quarters.
The company filed a report on Form 8-K dated August 9, 2001 to report its 2001
second quarter results.
The company filed a report on Form 8-K dated September 10, 2001 to announce the
election of William G. Walter as Chief Executive Officer and President.
The company filed a report on Form 8-K dated September 28, 2001 announcing that
earnings for the third quarter and full year are expected to be lower than
previously expected for its chemical businesses.
The company filed a report on Form 8-K dated October 8, 2001 announcing the
decommissioning of the Pocatello Plant.
II-1
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)
/S/ RONALD D. MAMBU
------------------------------------------------------
Vice President, Controller and duly authorized officer
Date: November 7, 2001
II-2
EXHIBIT INDEX
Number in
Exhibit
Table Description
--------- -----------
10.5 FMC Corporation Savings and Investment Plan
10.5.a FMC Corporation Savings and Investment Plan Trust
10.6 FMC Corporation Salaried Employees' Equivalent Retirement Plan (As amended and restated
effective as of May 1, 2001)
10.6.a FMC Corporation Salaried Employees' Equivalent Retirement Plan Grantor Trust Agreement (As
amended and restated effective as of July 31, 2001)
10.7 FMC Corporation Non-Qualified Savings and Investment Plan (As amended and restated effective
as of September 28, 2001)
10.7.a FMC Corporation Non-Qualified Savings and Investment Plan Trust (As amended and restated
effective as of September 28, 2001)
10.10 FMC Corporation Executive Severance Plan (As amended and restated effective as of May 1,
2001)
10.10.a FMC Corporation Executive Severance Grantor Trust Agreement
10.12.b Second 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