UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
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 March 31, 1997
------------------------- -----------------------------
Common Stock, 37,260,065
par value $0.10 per share
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FMC Corporation and Consolidated Subsidiaries
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Consolidated Statements of Income (Unaudited)
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(In millions, except per share data)
Three Months
Ended March 31
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1997 1996
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Revenue:
Sales $1,280.4 $1,094.3
Other revenue 17.3 38.8
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Total revenue 1,297.7 1,133.1
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Costs and expenses:
Cost of sales 978.0 800.3
Selling, general and
administrative expenses 170.6 162.8
Research and development 43.6 43.9
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Total costs and expenses 1,192.2 1,007.0
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Income from continuing operations
before minority interests, net
interest expense and income taxes 105.5 126.1
Minority interests 19.1 23.5
Interest expense (net) 30.1 22.6
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Income from continuing operations
before income taxes 56.3 80.0
Provision for income taxes 16.4 23.2
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Income from continuing operations 39.9 56.8
Discontinued operation, net of
income taxes (Note 4) - (1.6)
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Net income $ 39.9 $ 55.2
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Average number of shares 38.1 38.0
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Earnings (loss) per common share:
Continuing operations $ 1.05 $ 1.49
Discontinued operation - (0.04)
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Net income per common share $ 1.05 $ 1.45
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See accompanying notes to consolidated financial statements.
FMC Corporation and Consolidated Subsidiaries
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Consolidated Balance Sheets
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(In millions, except share and per share data)
March 31
1997 December 31
Assets: (Unaudited) 1996
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Current assets:
Cash and cash equivalents $ 52.0 $ 74.8
Trade receivables, net of allowances
of $10.9 in 1997 and 1996 1,013.3 1,001.9
Inventories 851.8 835.3
Other current assets 166.9 194.3
Deferred income taxes 84.4 86.8
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Total current assets 2,168.4 2,193.1
Investments 54.5 59.4
Property, plant and equipment at cost 4,277.8 4,284.2
Less -- accumulated depreciation 2,336.5 2,324.9
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Net property, plant and equipment 1,941.3 1,959.3
Goodwill and intangible assets 476.3 498.8
Other assets 216.8 204.0
Deferred income taxes 69.5 75.2
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Total assets $4,926.8 $4,989.8
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt (Note 2) $ 462.8 $ 555.6
Accounts payable, trade and other 898.6 886.0
Accrued and other current liabilities 476.3 500.5
Current portion of long-term debt (Note 2) 21.9 10.4
Current portion of accrued pension
and other postretirement benefits 17.9 17.9
Income taxes payable 57.4 51.0
-------- --------
Total current liabilities 1,934.9 2,021.4
Long-term debt, less current portion (Note 2) 1,293.3 1,268.4
Accrued pension and other postretirement
benefits, less current portion 272.7 276.5
Reserve for discontinued operations (Note 4) 183.1 191.4
Other liabilities 232.9 236.9
Minority interests in consolidated companies 145.6 139.4
Stockholders' equity:
Preferred stock, no par value, authorized
5,000,000 shares; no shares issued in
1997 or 1996 - -
Common stock, $0.10 par value, authorized
60,000,000 shares; issued 37,564,892
shares in 1997 and 37,480,854 shares
in 1996 3.8 3.7
Capital in excess of par value 124.4 120.1
Retained earnings 846.7 806.8
Foreign currency translation adjustment (101.0) (65.5)
Treasury stock, common, at cost;
304,827 shares in 1997 and 300,427
shares in 1996 (9.6) (9.3)
-------- --------
Total stockholders' equity 864.3 855.8
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Total liabilities and stockholders' equity $4,926.8 $4,989.8
======== ========
See accompanying notes to consolidated financial statements.
FMC Corporation and Consolidated Subsidiaries
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Consolidated Statements of Cash Flows (Unaudited)
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(In millions)
Three Months
Ended March 31
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1997 1996
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Reconciliation from income from continuing
operations to cash provided (required) by
operating activities of continuing operations:
Income from continuing operations $ 39.9 $ 56.8
Adjustments for non-cash components of income from
continuing operations:
Depreciation and amortization 63.5 59.8
Deferred income taxes 8.1 7.3
Minority interests 19.1 23.5
Other (14.5) 6.1
(Increase) decrease in assets:
Trade receivables (11.4) 5.9
Inventories (12.5) (83.9)
Other current assets and other assets 31.6 (54.2)
(Decrease) increase in liabilities:
Accounts payable, accrued and other current
liabilities and other liabilities (14.7) (84.8)
Income taxes payable 6.4 5.5
Restructuring reserve (0.9) (3.8)
Accrued pension and other postretirement
benefits, net (6.6) (2.9)
------ ------
Cash provided (required) by operating activities of
continuing operations $108.0 $(64.7)
====== ======
See accompanying notes to consolidated financial statements.
FMC Corporation and Consolidated Subsidiaries
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Consolidated Statements of Cash Flows (Unaudited)
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(In millions)
Three Months
Ended March 31
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1997 1996
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Cash provided (required) by operating activities of
continuing operations $ 108.0 $ (64.7)
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Cash (required) by discontinued operations (8.3) (7.9)
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Cash provided (required) by investing activities:
Capital spending (78.4) (119.2)
Disposal of property, plant and equipment 20.0 22.9
Decrease in investments 10.1 4.4
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(48.3) (91.9)
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Cash provided (required) by financing activities:
Net (redemption of) proceeds from issuance of
commercial paper (176.4) 104.1
(Decrease) increase in other short-term debt (92.8) 116.1
Proceeds from issuance of long-term debt 44.7 -
Repayment of long-term debt (8.3) (29.0)
Net borrowings under credit facilities 170.8 5.0
Distributions to limited partner (13.7) (3.3)
Issuance of capital stock, net 4.1 9.4
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(71.6) 202.3
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Effect of exchange rate changes on cash and cash
equivalents (2.6) (1.1)
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(Decrease) increase in cash and cash equivalents (22.8) 36.7
Cash and cash equivalents, beginning of year 74.8 70.9
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Cash and cash equivalents, end of period $ 52.0 $ 107.6
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized, was $34.0 million and $25.6
million, and net cash (received) paid for income taxes was $(9.0) million and
$0.7 million for the three-month periods ended March 31, 1997 and 1996,
respectively.
See accompanying notes to consolidated financial statements.
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
March 31, 1997, and the related consolidated statements of income and cash flows
for the interim periods ended March 31, 1997 and 1996 have been reviewed by
FMC's independent accountants. The review is discussed more fully in their
report included herein. In the opinion of management, such financial statements
have been prepared in conformity with generally accepted accounting principles
and reflect all adjustments necessary for a fair statement of the results of
operations for the interim periods. All such adjustments are of a normal
recurring nature. The results of operations for the three-month periods ended
March 31, 1997 and 1996 are not necessarily indicative of the results of
operations for the full year.
Prior period balances have been reclassified to conform with the current
period's presentation, including the reclassification of operations constituting
the Precious Metals segment as a discontinued operation (Note 4).
The company's accounting policies are set forth in Note 1 to the company's 1996
financial statements which are incorporated by reference in the company's 1996
Annual Report on Form 10-K.
Note 2: Debt
- -------------
The company has $750 million in committed credit facilities consisting of a $300
million, 364-day non-amortizing revolving credit agreement due in December 1997
and a $450 million, five-year non-amortizing revolving credit agreement due in
December 2001. As of March 31, 1997, the company had advances under the five-
year revolving credit agreement of $120 million. No amounts were outstanding
under these facilities at December 31, 1996.
In November 1995, the company commenced a short-term commercial paper program
supported by the committed facilities. Outstanding commercial paper borrowings
totaled $219.9 million at March 31, 1997 ($390.6 million at December 31, 1996).
Committed credit available under the revolving credit facilities provides
management with the ability to refinance a portion of its debt on a long-term
basis and, as it is management's intent to do so, $219.9 million of outstanding
commercial paper and $110.1 million of borrowings under uncommitted U.S. credit
facilities have been classified as long-term debt at March 31, 1997. At
December 31, 1996, $390.6 million of outstanding commercial paper and $59.4
million of borrowings under uncommitted U.S. credit facilities were classified
as long-term debt.
In January 1997, the company registered $400 million of medium-term debt
securities pursuant to a $500 million universal shelf registration filed in 1995
under which, on January 29, 1997, the company issued $45 million of 7.32% notes
due in 2007. The net proceeds totaled $44.7 million and were used to retire
short-term borrowings. Additionally, on May 2, 1997, the company issued $25
million of notes due in 2002 at rates of 7.20% and 7.21%. The net proceeds of
$24.9 million were also used to retire short-term debt.
In July 1996, the company issued $100 million of 7.75% Senior Debentures due in
2011 under the 1995 universal shelf registration. The net proceeds totaled
$98.2 million and were used to reduce variable rate short-term debt.
Short-term debt at March 31, 1997 includes $235 million of advances under
uncommitted U.S. credit facilities. The remaining amount of short-term debt
consists of borrowings by FMC's foreign subsidiaries.
Note 3: Recent Accounting Pronouncements
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AICPA Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities" was adopted by the company effective January 1, 1997. SOP 96-1
provides guidance on the recognition, measurement and display and disclosure of
environmental remediation liabilities. The adoption of SOP 96-1 did not have a
material impact on the company's consolidated financial position, results of
operations, cash flows or disclosure practices (see Note 6).
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of the company, similar to fully diluted EPS under
APB No. 15. The Statement requires dual presentation of basic and diluted EPS
by entities with complex capital structures. FMC will adopt SFAS No. 128 for
the financial statements for the year ended December 31, 1997. Had the company
calculated earnings per share under the new Statement, basic EPS and diluted EPS
would have been $1.07 and $1.05, respectively, for the quarter ended March 31,
1997.
Note 4: Discontinued Operations
- --------------------------------
On July 15, 1996, FMC's management approved a plan to dispose of shares of FMC
Gold Company through a secondary offering of substantially all of FMC's interest
following a reincorporation of FMC Gold Company in Canada. In connection with
the approval of the plan of disposal, beginning in the second quarter of 1996,
the operations constituting the Precious Metals segment have been accounted for
as a discontinued operation. Prior period consolidated financial statements
presented herein have been restated for comparative purposes.
Upon completion of the reincorporation and offering in the third quarter of 1996
and the sale of outstanding rights to receive installment payments, FMC received
gross cash proceeds, including a dividend of $0.02 per share, of $210.7 million.
Amounts owing to FMC Gold Company totaling $79.2 million, and transaction and
other related costs aggregating $23.3 million were paid from proceeds or accrued
pending payment. FMC recorded a pretax gain of $9.4 million on the disposal of
FMC Gold Company during the third quarter of 1996.
The sale is subject to recourse (not to exceed Cdn$42.7 million) to the extent
the final installment payments of Cdn$2.50 per share, due July 31, 1997, are not
paid to Bank of Nova Scotia by the purchasers of the shares. Such installment
obligations are secured by stock of Meridian Gold Inc. The closing price of
Meridian Gold Inc. stock on April 16, 1997 was Cdn$6.12.
Sales and net losses of the Precious Metals segment for the three-month period
ended March 31, 1996 were as follows:
Three Months
Ended March 31, 1996
---------------------
Sales $17.8
Net loss $(1.6)
Reserves for discontinued operations at March 31, 1997 and December 31, 1996,
respectively, were $183 million and $191 million. At March 31, 1997, $4 million
of the reserves related to liabilities associated with the sale of FMC Gold
Company, and the remainder related to operations discontinued between 1976 and
1984. See Note 3 to the company's December 31, 1996 financial statements and
Note 6 below.
Note 5: Business Combinations and Divestitures
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Acquisition of Frigoscandia Equipment Holding AB. In June 1996, FMC acquired
all of the common shares of Frigoscandia Equipment Holding AB ("Frigoscandia"),
a wholly-owned subsidiary of ASG AB, for approximately $165 million plus
acquisition costs and debt assumed. Frigoscandia is a leading worldwide
manufacturer of freezers, ovens, fryers and other equipment for the food
processing industry. Frigoscandia's operations are included in the company's
Machinery and Equipment segment.
The acquisition was accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on the estimated fair value of such assets and
liabilities at the date of acquisition. In conjunction with the acquisition of
Frigoscandia, goodwill and other intangible assets of $164.4 million were
recorded during 1996.
Sale of Automotive Service Equipment Division. Effective March 31, 1996, FMC
sold its Automotive Service Equipment Division to Snap-on Incorporated. The
gain on the sale, net of 1996 operating losses, resulted in an immaterial pretax
gain for the quarter ended March 31, 1996. The Automotive Service Equipment
Division was included in the company's Machinery and Equipment segment.
Note 6: Environmental
- ----------------------
FMC is subject to various federal, state and local environmental laws and
regulations that govern emissions of air pollutants, discharges of water
pollutants, and the manufacture, storage, handling and disposal of hazardous
substances, hazardous wastes and other toxic materials. The most significant
environmental liabilities of the company consist of obligations relating to the
remediation and/or study of sites at which the company is alleged to have
disposed of hazardous substances. In particular, the company is subject to
liabilities arising under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws that impose responsibility
on persons who arranged for the disposal of hazardous substances and on current
and previous owners and operators of a facility for the clean up of the
hazardous substances released from the facility into the environment. In
addition, the company is subject to liabilities under the corrective action
provisions of the Resource Conservation and Recovery Act ("RCRA") and analogous
state laws that require owners and operators of facilities that treat, store or
dispose of hazardous waste to clean up releases of hazardous waste constituents
into the environment associated with past or present practices.
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 $256 million and $264
million, before recoveries, have been provided at March 31, 1997 and December
31, 1996, respectively, of which $111 million and $117 million are included in
the reserve for discontinued operations at March 31, 1997 and December 31, 1996,
respectively. The company's total environmental reserves include approximately
$234 million and $242 million for remediation activities and $22 million and $22
million for remedial investigation/feasibility study costs at March 31, 1997 and
December 31, 1996, respectively. In addition, the company has estimated that
reasonably possible environmental loss contingencies may exceed amounts accrued
by as much as $150 million at March 31, 1997.
Although potential environmental remediation expenditures in excess of the
current reserves and estimated loss contingencies could be significant, the
impact on the company's future financial results is not subject to reasonable
estimation due to numerous uncertainties concerning the nature and scope of
contamination at many sites, identification of remediation alternatives under
constantly changing requirements, selection of new and diverse clean-up
technologies to meet compliance standards, the timing of potential expenditures,
and the allocation of costs among Potentially Responsible Parties ("PRPs") as
well as other third parties.
The liability arising from potential environmental obligations that have not
been reserved for at this time 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 material adverse effect on the company's liquidity or financial condition
and may be satisfied over the next 20 years or longer.
An environmental inspection was conducted in July 1993 at FMC's Phosphorus
Chemicals Division plant in Pocatello, Idaho. In August 1994, the United States
EPA (Region 10) (the "EPA") formally notified FMC of a number of alleged
violations of the RCRA and related environmental regulations governing the
management of hazardous waste generated by the plant, including the operations
of hazardous waste storage and treatment units without interim status, the
failure to submit timely closure plans, the failure to implement an adequate
groundwater monitoring program, failure to comply with related reporting
requirements and the existence of several other improper treatment and disposal
practices. Although there are no legal proceedings pending at this time, FMC
has been advised that the matter has been referred to the United States
Department of Justice for an evaluation of whether to file a civil enforcement
action. If such a civil action is filed, the government is likely to demand
both injunctive relief and civil penalties. FMC is seeking to settle this
matter in advance of litigation. Management believes that the ultimate
resolution of this matter will not likely have a material adverse effect on
FMC's liquidity, results of operations or financial condition.
In a separate matter, the EPA issued a draft risk assessment on August 17, 1995
for the Eastern Michaud Flats Superfund site, which includes FMC's Pocatello
phosphorus facility, identifying potential risks from contamination potentially
associated with FMC. Release of the Risk Assessment allowed FMC to complete a
draft of the Remedial Investigation documenting the nature and extent of
contamination from the site. The company submitted its draft Remedial
Investigation documenting the nature and extent of contamination from the site
on September 28, 1995. On April 21, 1997, the EPA issued for public comment its
proposed remediation plan for the site. The EPA's preferred remediation
alternative is a combination of capping, surface runoff controls and
institutional controls for soils, and extraction and recycling for hydraulic
control of groundwater. While the company is still reviewing the EPA's proposed
plans, FMC believes its existing reserve of approximately $73 million for future
environmental costs at the Eastern Michaud Flats site adequately provides for
the estimated costs of all known site environmental issues.
To ensure FMC is held responsible only for its equitable share of site
remediation costs, FMC has initiated, and will continue to initiate, legal
proceedings for contributions from other PRPs, and for a determination of
coverage against its comprehensive general liability insurance carriers.
Approximately $115 million of recoveries ($45 million as other assets and $70
million as an offset to the reserve for discontinued operations) have been
recorded as probable realization on claims against third parties at March 31,
1997 and December 31, 1996. The majority of recorded assets related to
recoveries from PRPs are associated with insurance companies and with existing
contractual arrangements with U.S. government agencies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
LIQUIDITY AND FINANCIAL CONDITION
---------------------------------
Total cash and cash equivalents at March 31, 1997 and December 31, 1996 were
$52.0 million and $74.8 million, respectively. As of March 31, 1997 and December
31, 1996, the company had total borrowings of $1,778.0 million and $1,834.4
million, respectively. Decreases in commercial paper borrowings of $171 million
(net of discount) were partially offset by $120 million of new advances under
the five-year revolving credit agreement. The company has $750 million in
committed credit facilities consisting of a $300 million, 364-day non-amortizing
revolving credit agreement due in December 1997 and a $450 million, five-year
non-amortizing revolving credit agreement due in December 2001. As of March 31,
1997, the company had advances under the five-year revolving credit agreement of
$120 million and commercial paper borrowings (supported by committed credit
facilities) of $219.9 million.
In 1995, the company filed a universal shelf registration under which $500
million of debt and/or equity securities may be offered. As discussed in Note 2,
in July 1996, the company issued $100 million of 7.75% Senior Debentures due in
2011 for net proceeds of $98.2 million. The net proceeds were used to reduce
variable rate short-term debt. In January 1997, the company registered $400
million of medium-term debt securities pursuant to the universal shelf
registration under which, on January 29, 1997, the company issued $45 million of
7.32% notes due in 2007. The net proceeds of $44.7 million were used to retire
short-term borrowings. Also under the medium-term debt registration, the company
issued $25 million of notes due in 2002 at rates of 7.20% and 7.21% on May 2,
1997. The net proceeds of $24.9 million were also used to retire short-term
debt.
Capital spending of $78.4 million for the three months ended March 31, 1997
decreased $40.8 million versus the first three months of 1996. The decrease is
primarily driven by lower spending in the company's chemical businesses. During
1996, FMC substantially completed an expansion of the Green River soda ash
facility and construction of a plant to manufacture a new family of herbicides.
Development of a new lithium resource in Argentina continues. The company
continues to evaluate potential acquisitions on an ongoing basis.
Expected cash requirements for the remainder of 1997 include approximately $250
million to $350 million for planned capital expenditures, excluding potential
acquisitions, and net after-tax interest payments of approximately $60 million
based on expected debt levels and interest rates. Cash to meet these
requirements will be provided primarily by the company's operations and, if
necessary, by existing cash balances and available short- or long-term credit
facilities.
During the second quarter of 1997, the company began a stock repurchase program.
The company will use the repurchased stock to cover stock options that may be
exercised during the year.
The company's ratios of earnings to fixed charges were 2.9x and 4.1x for the
three months ended March 31, 1997 and 1996, respectively. The decrease in the
three-month ratio from 1996 to 1997 primarily reflects the decrease in income
from continuing operations and higher interest charges resulting from increased
borrowings.
The company's foreign currency translation adjustment increased from $65.5
million at December 31, 1996 to $101.0 million at March 31, 1997 primarily as a
result of the weakening of the Spanish peseta, Belgian franc and Norwegian
krone.
RESULTS OF OPERATIONS
First quarter 1997 compared to first quarter 1996
Industry Segment Data (Unaudited)
(In millions)
Three Months Ended
March 31
-------------------
1997 1996
-------- ---------
Sales
Performance Chemicals $ 297.4 $ 304.1
Industrial Chemicals 235.5 241.9
Machinery and Equipment 467.0 322.9
Defense Systems 287.5 233.1
Eliminations (7.0) (7.7)
-------- --------
$1,280.4 $1,094.3
======== ========
Income from continuing
operations before income taxes (1)
Performance Chemicals $ 29.9 $ 38.9
Industrial Chemicals 35.2 38.4
Machinery and Equipment 16.5 13.5
Defense Systems 31.0 36.9
-------- --------
Operating profit 112.6 127.7
Corporate (23.3) (23.5)
Net interest expense (30.1) (22.6)
Other income and (expense), net (2.9) (1.6)
-------- --------
$ 56.3 $ 80.0
======== ========
Business segment results are presented net of minority interest, reflecting only
FMC's share of earnings. The corporate line primarily includes staff expenses,
and other income and expense consists of all other corporate items.
(1) Results for all segments are net of minority interests in 1997 and 1996 of
$19.1 million and $23.5 million, respectively, of which $17.1 million and
$22.1 million, respectively, pertain to Defense Systems.
General
- -------
Sales of $1.3 billion increased 17 percent from last year's quarter, driven by
growth in Machinery and Equipment (primarily due to higher sales of petroleum
equipment and to the acquisition of Frigoscandia Equipment Holding AB) and in
Defense. Operating profit from segment operations (net of minority interests)
totaled $113 million, compared with $128 million in last year's quarter,
reflecting lower dividend income from the company's joint venture in Turkey,
weakness in certain industrial chemical markets, a decline in sales of
agricultural products and higher pre-launch costs associated with Authority. Net
interest expense of $30 million increased from $23 million in last year's
period, reflecting higher debt levels associated with recent acquisitions and
capital expenditures, as well as working capital requirements related to
increased sales. Income from continuing operations decreased from $57 million,
or $1.49 per share, in the first quarter of 1996 to $40 million, or $1.05 per
share, in the first quarter of 1997. In the first quarter of 1997, net income
was $40 million and earnings per share were $1.05, compared with $55 million and
$1.45, respectively, in last year's period.
Performance Chemicals
- ---------------------
Performance Chemicals sales of $297 million decreased 2 percent compared with
sales of $304 million in last year's period. Agricultural products sales were
down in 1997 due to unusually high early purchases of product in North America
in the 1996 first quarter. Earnings also decreased from $39 million in last
year's period to $30 million in the 1997 quarter. The lower results were due
primarily to the decline in sales and higher pre-launch costs associated with
Authority. At the new Authority plant, major corrosion problems have been
resolved, and production rates continue to improve.
Sales of food ingredients, lithium, and bioproducts increased in the first
quarter 1997 due to higher volumes in North America, Europe and Asia. Earnings
of food ingredients increased due to higher sales, lower-cost product
introductions and moderating seaweed costs. Lithium profits were also ahead of
last year when weather-related manufacturing difficulties slowed production. The
company expects the initial start-up of the new lithium carbonate plant to begin
in the third quarter of 1997. The company expects the new plant technology to
result in cost reduction; however, the recent market price decline for lithium
carbonate, which was driven by increased foreign competition, will continue to
adversely affect FMC's upstream business for at least the short term.
Sales of pharmaceutical products increased in first quarter 1997 due to higher
volumes offset slightly by decreases related to foreign currency factors due to
the strengthening dollar impact on foreign sales. However, earnings decreased
slightly from the first quarter 1996 primarily due to costs associated with
implementing the SAP software system.
Industrial Chemicals
- --------------------
During the first quarter of 1997, Industrial Chemicals sales of $236 million
decreased 3 percent compared with 1996 sales of $242 million, primarily
reflecting lower sales volume of phosphorus products, as well as pricing
pressures on peroxygen products due to continuing weakness in the pulp and paper
market and overcapacity in the industry. The decline in earnings (net of
minority interest) from $38 million in the first quarter of 1996 to $35 million
in the 1997 quarter reflects lower sales of hydrogen peroxide partially offset
by improved earnings from the company's phosphorus products.
First quarter 1997 sales of alkali products increased over first quarter 1996
sales due to an increase in domestic and foreign soda ash volumes, partly offset
by lower prices. Soda ash earnings were down from the first quarter of 1996,
reflecting competitive pressure from low caustic soda prices, partially offset
by higher volumes from FMC's new capacity.
Phosphorus sales decreased in the first quarter of 1997 compared with the 1996
period due to lower volumes. However, earnings increased from last year's
quarter due to sales mix and favorable raw material supply conditions.
Peroxygen sales and earnings decreased from the year-ago period due to lower
prices reflecting continuing weakness in the pulp and paper market. The company
will continue its efforts to improve its cost structure and increase
profitability in the hydrogen peroxide business.
FMC Foret sales were up slightly in the 1997 first quarter and earnings were
substantially unchanged.
Machinery and Equipment
- -----------------------
Machinery and Equipment sales of $467 million increased from $323 million in the
1996 first quarter, and profits of $17 million increased compared with $14
million in the prior-year period. These results reflect improvements in the
petroleum equipment business and the addition of Frigoscandia, which was
acquired at the end of the 1996 second quarter. Partially offsetting these
increases was the absence of sales of FMC's Automotive Service Equipment
Division, the sale of which resulted in a minor gain in the first quarter of
1996.
Petroleum equipment sales increased in the first quarter of 1997 primarily due
to increased sales to Statoil, Norway's state-owned oil company. Earnings also
increased as a result of the higher sales.
Sales of airline products increased in the first quarter of 1997 on continued
market strength. Earnings from airline products decreased from the 1996 first
quarter primarily as a result of lower margins on Jetway projects and also one-
time higher manufacturing costs from using a subcontractor to support increased
shipments of deicers.
Sales of energy and transportation measurement equipment in the first quarter of
1997 also increased from the 1996 period due to the timing of several large
orders; however, earnings decreased slightly due to costs associated with the
commercialization of technology acquired in late 1996.
Food processing systems sales decreased slightly from the year-ago period due to
the non-recurrence of certain large 1996 European equipment deliveries; however,
results increased slightly in the first quarter of 1997 due to improved sales
margins.
Defense Systems
- ---------------
Defense Systems sales of $288 million were up 23 percent from the first quarter
of 1996, driven primarily by higher vehicle sales, higher shipments on the
Paladin program and increased sales volumes for certain other products.
Operating profits (net of minority interest) of $31 million declined from $37
million in the prior year. The decrease in operating profits reflects an $11
million (net of minority interest) reduction in the dividend from the company's
joint venture in Turkey due to delayed sales caused by a plant fire in 1996,
partially offset by increased sales in other areas. Income from the Turkish
joint venture is recognized as dividends and royalties are received.
Ground Systems sales for the first quarter of 1997 remained relatively flat with
sales in the year-ago period. Earnings decreased in the first quarter of 1997
primarily due to contract settlements which benefited the first quarter of 1996.
Armament sales increased significantly during the first quarter of 1997 compared
to 1996. This increase was driven by higher sales volumes as well as higher
Crusader program revenues, which also positively impacted earnings during the
quarter.
The Paladin production operation experienced a rise in sales reflecting higher
vehicle deliveries in the first quarter of 1997 compared with the same period in
1996. Earnings also increased during 1997 on the strength of higher sales.
First quarter 1997 sales of steel products increased significantly from 1996 due
to increased vehicle sales. Earnings decreased slightly in 1997 as a result of
higher manufacturing expenses related to vehicle rebuilds.
For the year ended December 31, 1997, sales in the defense segment are expected
to increase modestly compared with 1996 sales, and 1997 earnings are expected to
decline from 1996 as a result of lower margins and reduced dividends from the
company's Turkish joint venture.
Corporate and Other
- -------------------
Certain corporate income and expense items are not allocated to specific
business segments due to their nature. During the 1997 quarter, corporate
expenses remained flat at $23 million compared with the 1996 period. Net
interest expense increased due to higher debt levels associated with recent
acquisitions and capital expenditures, as well as higher working capital
requirements supporting increased sales. Additionally, the increase in interest
expense reflects reduced capitalization of interest in 1997 as a number of the
company's capital projects were completed.
The effective tax rate for the quarters ended March 31, 1997 and 1996 was 29
percent.
Order Backlog
- -------------
FMC's backlog of unfilled orders as of March 31, 1997 and December 31, 1996 was
$2.5 billion.
Machinery and Equipment backlog of $982 million increased from $923 million at
the end of 1996. The increase in backlog reflects the recognition of a portion
of the previously announced subsea order from Statoil, Norway's state-owned oil
company, and seasonal strength in the agricultural machinery and food
businesses. Defense backlog was $1.5 billion at the end of the quarter, slightly
down from $1.6 billion at December 31, 1996. Backlogs are not reported for
Industrial Chemicals or Performance Chemicals due to the nature of these
businesses.
Forward Looking Statements - Safe Harbor Provisions
- ---------------------------------------------------
This report contains certain forward looking statements which are based on
management's current views and assumptions regarding future events and financial
performance. 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, 1996, which lists
important factors, including risks associated with significant price
competition, higher ingredient and raw material prices or shortages of such
commodities, risks associated with new product introductions, including the
development of new manufacturing processes, and risks relating to general
economic conditions, that could cause actual results to differ materially from
those discussed in this report.
INDEPENDENT ACCOUNTANTS' REPORTS
--------------------------------
A report by KPMG Peat Marwick LLP, FMC's independent accountants, on the
financial statements included in Form 10-Q for the quarter ended March 31, 1997
is included on page 16.
A report by Ernst and Young LLP, UDLP's independent accountants, on the
financial statements referred to by KPMG Peat Marwick LLP in its report noted
above is included on page 17.
Independent Accountants' Report
-------------------------------
The Board of Directors
FMC Corporation:
We have reviewed the accompanying consolidated balance sheet of FMC Corporation
and consolidated subsidiaries as of March 31, 1997, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
1997 and 1996. These consolidated financial statements are the responsibility of
the company's management.
We were furnished with the report of other accountants on their review of the
interim financial information of United Defense, L.P., whose total assets as of
March 31, 1997 and December 31, 1996 constituted 13% and whose total revenues
for the three month periods ended March 31, 1997 and 1996 constituted 23% of the
related consolidated totals.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not aware of any
material modifications that should be made to the accompanying financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of FMC Corporation and consolidated
subsidiaries as of December 31, 1996 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 January 17, 1997, 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, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
April 16, 1997
Independent Accountants' Review Report
--------------------------------------
Partners
United Defense, L.P.
Arlington, Virginia
We have reviewed the balance sheet of United Defense, L.P., as of March 31,
1997, and the related statements of income and cash flows for the three-month
periods ended March 31, 1997 and 1996, and the statement of partners' equity for
the three-month period ended March 31, 1997. These financial statements (not
presented separately in the FMC Corporation Form 10-Q for the quarter ended
March 31, 1997) are the responsibility of the Partnership'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 generally accepted auditing standards, which will be performed
for the full year with the objective of expressing 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 Partnership's financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
/s/ Ernst and Young LLP
Washington, D.C.
April 14, 1997
Part II - Other Information
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits
Number in
Exhibit Table Description
- ------------- -----------
10.1 FMC 1997 Compensation Plan for
Non-Employee Directors, as amended
April 18, 1997
10.3.a Amendment dated April 18, 1997 to
FMC 1990 Incentive Plan
10.10 FMC 1995 Stock Option Plan, as
amended April 18, 1997
11 Statement re: computation
of per share earnings
assuming full dilution
12 Statement re: computation of
ratios of earnings to fixed
charges
15 Letters re: unaudited
interim financial information
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Form 8-K dated January 21, 1997 describing the company's results for the
fourth quarter of 1996 and the year ended December 31, 1996.
Form 8-K dated January 24, 1997 to file conformed copies of a U.S.
Distribution Agreement executed in connection with the proposed issuance
of Medium-Term Notes, Series A, together with a conformed copy of an
executed Indenture, a conformed copy of an executed Officers'
Certificate, forms of the Notes, the Opinion of Winston & Strawn and the
consent of Winston & Strawn for incorporation into the Registration
Statement.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FMC CORPORATION
---------------
(Registrant)
Date: May 15, 1997 /s/ Ronald D. Mambu
------------ ---------------------------------
Vice President, Controller and
duly authorized officer
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
- ------------- -----------
10.1 FMC 1997 Compensation Plan for
Non-Employee Directors, as amended
April 18, 1997
10.3.a Amendment dated April 18, 1997 to
FMC 1990 Incentive Plan
10.10 FMC 1995 Stock Option Plan, as
amended April 18, 1997
11 Statement re: computation
of per share earnings
assuming full dilution
12 Statement re: computation of
ratios of earnings to fixed
charges
15.1 Letter re: unaudited
interim financial
information (KPMG Peat Marwick LLP)
15.2 Letter re: unaudited
interim financial
information (Ernst & Young LLP)
27 Financial Data Schedule