PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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
- --------------------------------------------------------
(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 June 30, 1997
- ---------------------------------------- -----------------------------
Common Stock, par value $0.10 per share 37,211,651
PAGE 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Income (Unaudited)
- ---------------------------------------------
(In millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
Sales $1,455.4 $1,250.7 $2,735.8 $2,345.0
Other revenue 22.7 16.1 40.0 54.9
-------- -------- -------- --------
Total revenue 1,478.1 1,266.8 2,775.8 2,399.9
-------- -------- -------- --------
Costs and expenses:
Cost of sales 1,087.1 944.5 2,065.1 1,744.8
Selling, general and
administrative expenses 192.7 162.9 363.3 325.7
Research and development 45.7 45.4 89.3 89.3
-------- -------- -------- --------
Total costs and expenses 1,325.5 1,152.8 2,517.7 2,159.8
-------- -------- -------- --------
Income from continuing operations
before minority interests,
net interest expense and
income taxes 152.6 114.0 258.1 240.1
Minority interests 21.5 12.0 40.6 35.5
Net interest expense 28.7 22.7 58.8 45.3
-------- -------- -------- --------
Income from continuing operations
before income taxes 102.4 79.3 158.7 159.3
Provision for income taxes 29.6 21.9 46.0 45.1
-------- -------- -------- --------
Income from continuing
operations 72.8 57.4 112.7 114.2
Discontinued operation, net of
income taxes (Note 4) - (1.1) - (2.7)
-------- -------- -------- --------
Net income $ 72.8 $ 56.3 $ 112.7 $ 111.5
======== ======== ======== ========
Earnings (loss) per common share:
Continuing operations $ 1.90 $ 1.51 $ 2.95 $ 3.00
Discontinued operation - (0.03) - (0.07)
-------- -------- -------- --------
Net income per common share $ 1.90 $ 1.48 $ 2.95 $ 2.93
======== ======== ======== ========
Average number of shares 38.3 38.1 38.2 38.0
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
PAGE 3
FMC Corporation and Consolidated Subsidiaries
- -------------------------------------------------
Consolidated Balance Sheets
- -------------------------------------------------
(In millions, except share and per share data) June 30
1997 December 31
Assets: (Unaudited) 1996
---------- -----------
Current assets:
Cash and cash equivalents $ 105.6 $ 74.8
Trade receivables, net of allowance
for doubtful accounts of $11.7 and
$10.9 in 1997 and 1996, respectively 985.2 1,001.9
Inventories 893.4 835.3
Other current assets 159.2 194.3
Deferred income taxes 80.5 86.8
-------- ----------
Total current assets 2,223.9 2,193.1
Investments 52.5 59.4
Property, plant and equipment at cost 4,328.1 4,284.2
Less accumulated depreciation 2,370.0 2,324.9
-------- ----------
Net property, plant and equipment 1,958.1 1,959.3
Goodwill and intangible assets 470.1 498.8
Other assets 217.8 204.0
Deferred income taxes 70.5 75.2
-------- ----------
Total assets $4,992.9 $ 4,989.8
======== ==========
Liabilities and Stockholders' Equity:
Current liabilities:
Short-term debt (Note 2) $ 366.9 $ 555.6
Accounts payable, trade and other 945.7 886.0
Accrued and other current liabilities 556.7 518.4
Current portion of long-term debt (Note 2) 21.0 10.4
Income taxes payable 57.8 51.0
-------- ----------
Total current liabilities 1,948.1 2,021.4
Long-term debt, less current portion (Note 2) 1,315.1 1,268.4
Accrued pension and other postretirement
benefits, less current portion 268.7 276.5
Reserve for discontinued operations (Note 4) 174.8 191.4
Other liabilities 222.1 236.9
Minority interests in consolidated companies 144.2 139.4
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 37,664,542
shares in 1997 and 37,480,854 shares
in 1996 3.8 3.7
Capital in excess of par value
of common stock 129.2 120.1
Retained earnings 919.5 806.8
Foreign currency translation adjustment (113.0) (65.5)
Treasury stock, common, at cost;
452,891 shares in 1997 and 300,427
shares in 1996 (19.6) (9.3)
-------- ----------
Total stockholders' equity 919.9 855.8
-------- ----------
Total liabilities and stockholders' equity $4,992.9 $ 4,989.8
======== ==========
See accompanying notes to consolidated financial statements.
PAGE 4
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Six Months
Ended June 30
------------------
1997 1996
------ ------
Reconciliation from income from continuing
operations to cash provided (required) by
operating activities of continuing operations:
Income from continuing operations $112.7 $ 114.2
Adjustments for non-cash components of
income from continuing operations:
Depreciation and amortization 134.6 122.5
Deferred income taxes 11.0 14.5
Minority interests 40.6 35.5
Other (26.7) 16.3
(Increase) decrease in assets:
Trade receivables, net 16.7 (92.4)
Inventories (54.0) (147.0)
Other current assets and other assets 38.6 (193.6)
(Decrease) increase in liabilities:
Accounts payable, accrued and other
current liabilities and other liabilities 82.3 8.8
Income taxes payable 6.8 (1.8)
Accrued pension and other
postretirement benefits, net (11.9) (11.5)
------ -------
Cash provided (required) by operating
activities of continuing operations $350.7 $(134.5)
====== =======
See accompanying notes to consolidated financial statements.
PAGE 5
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Six Months
Ended June 30
----------------------
1997 1996
------- -------
Cash provided (required) by operating activities
of continuing operations $ 350.7 $(134.5)
------- -------
Cash required by discontinued operations (16.6) (17.7)
------- -------
Cash provided (required) by investing
activities:
Capital spending (168.0) (268.0)
Disposal of property, plant and equipment 31.9 24.7
Decrease in investments 17.7 6.0
------- -------
(118.4) (237.3)
------- -------
Cash provided (required) by financing
activities:
Net (redemption of) proceeds from issuance
of commercial paper (281.2) 109.1
(Decrease) increase in other short-term debt (188.7) 480.3
Net borrowings under credit facilities 270.8 (119.4)
Proceeds from issuance of long-term debt 69.6 -
Repayment of long-term debt (12.5) (31.8)
Distributions to limited partner (36.0) (15.9)
Exercises of common stock options,
(repurchases), and other, net (1.2) 16.6
------- -------
(179.2) 438.9
------- -------
Effect of exchange rate changes on cash
and cash equivalents (5.7) (0.5)
------- -------
Increase in cash and cash equivalents 30.8 48.9
Cash and cash equivalents, beginning
of year 74.8 70.9
------- -------
Cash and cash equivalents, end
of period $ 105.6 $ 119.8
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized, was $55.0 million and $42.1
million, and cash paid for income taxes, net of refunds, was $9.3 million and
$13.1 million for the six-month periods ended June 30, 1997 and 1996,
respectively.
See accompanying notes to consolidated financial statements.
PAGE 6
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
June 30, 1997, and the related consolidated statements of income and of cash
flows for the interim periods ended June 30, 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 and six-month
periods ended June 30, 1997 and 1996 are not necessarily indicative of the
results of operations for the full year.
Prior period amounts have been reclassified to conform with the current period's
presentation. The consolidated statement of cash flows for the six months ended
June 30, 1996 also reflects the completion of purchase accounting related to the
acquisition of Frigoscandia Equipment Holding AB (Note 5).
The company's accounting policies are set forth below and 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.
Derivative financial instruments - accounting policy
- ----------------------------------------------------
The company uses derivative financial instruments selectively to offset exposure
to market risks arising from changes in foreign exchange rates and interest
rates. Derivative financial instruments currently utilized by the company
primarily include foreign currency forward contracts. Hedges are executed
centrally to minimize transaction costs on currency conversions and minimize
losses due to adverse changes in foreign currency markets. The company
evaluates and monitors consolidated net exposures by currency and maturity, and
external derivative financial instruments correlate with that net exposure in
all material respects.
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains or losses related
to hedges of firm commitments are also deferred and included in the basis of the
transaction when it is completed. Gains and losses on unhedged foreign currency
transactions are included in income as part of cost of sales. Gains and losses
on derivative financial instruments which protect the company from exposure in a
particular currency, but do not currently have a designated underlying
transaction, are also included in income as part of cost of sales. If a hedged
item matures, or is sold, extinguished, terminated, or, if related to an
anticipated transaction, is no longer likely to take place, the derivative
financial instrument is closed out and the related gain or loss is included in
income as part of cost of sales.
Note 2: Debt
- -------------
The company has $750 million in committed 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 June 30, 1997, the company had advances of $145 million
under the five-year revolving credit agreement and no borrowings under the 364-
day revolving credit agreement. 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 $119.9 million at June 30, 1997 ($390.6 million at December 31, 1996).
PAGE 7
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, $119.9 million of outstanding
commercial paper and $185.1 million of borrowings under uncommitted U.S. credit
facilities have been classified as long-term debt at June 30, 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 June 30, 1997 and December 31, 1996 includes $139.6 million
and $300.2 million, respectively, 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
- -----------------------------------------
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 from 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 as follows:
1996 Earnings from
1997 Net Income Continuing Operations 1996 Net Income
-------------------------- ------------------------- ---------------------
Basic Diluted Basic Diluted Basic Diluted
EPS EPS EPS EPS EPS EPS
------------- ----------- ----------- ------------ --------- ----------
Quarter ended June 30 $1.95 $1.90 $1.55 $1.51 $1.52 $1.48
===== ===== ===== ===== ===== =====
Six-month period ended
June 30 $3.03 $2.95 $3.09 $3.00 $3.02 $2.93
===== ===== ===== ===== ===== =====
Year ended December 31,
1996 $5.89 $5.73 $5.69 $5.54
===== ===== ===== =====
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The company is evaluating the Statement's
PAGE 8
provisions to conclude how it will present comprehensive income in its financial
statements, and has not yet determined the amounts to be disclosed. FMC will
adopt SFAS No. 130 effective January 1, 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to stockholders. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", but retains the
requirement to report information about major customers. The company is
evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any. FMC will adopt SFAS
No. 131 effective January 1, 1998.
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 under the name
Meridian Gold Inc. 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.
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 ("Bank") 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 July 31, 1997 was Cdn$6.04. As a result,
the company does not expect the Bank to seek significant recourse from FMC.
Sales of the Precious Metals segment for the three-month and six-month periods
ended June 30, 1996 were $18.3 million and $36.1 million, respectively.
Reserves for discontinued operations at June 30, 1997 and December 31, 1996,
respectively, were $175 million and $191 million. At June 30, 1997 and December
31, 1996, $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
- -----------------------------------------------
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
transaction 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.
PAGE 9
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 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 $247 million and $264
million, before recoveries, have been provided at June 30, 1997 and December 31,
1996, respectively, of which $106 million and $117 million are included in the
reserve for discontinued operations at June 30, 1997 and December 31, 1996,
respectively. The company's total environmental reserves include approximately
$228 million and $242 million for remediation activities and $19 million and $22
million for remedial investigation/feasibility study costs at June 30, 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 June 30, 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 has 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.
PAGE 10
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 storage and treatment units without interim
status, the failure to submit timely closure plans, the 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 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 $72 million for future
environmental costs at the Eastern Michaud Flats site adequately provides for
the estimated costs of known site remediation 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 $113 million of recoveries ($44 million as other assets and $69
million as an offset to the reserve for discontinued operations) and
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 June 30,
1997 and December 31, 1996, respectively. The majority of recorded assets
related to recoveries from PRPs are associated with insurance companies and
existing contractual arrangements with U.S. government agencies.
PAGE 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF CONTINUING OPERATIONS
---------------------------------------------------------------
LIQUIDITY AND FINANCIAL CONDITION
---------------------------------
Total cash and cash equivalents at June 30, 1997 and December 31, 1996 were
$105.6 million and $74.8 million, respectively. As of June 30, 1997, the company
had total borrowings of $1.7 billion, down from $1.8 billion at December 31,
1996. The decrease in debt resulted primarily from lower capital and acquisition
spending. Decreases in commercial paper borrowings of $271 million (net of
discount) were partially offset by $145 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 June 30, 1997,
the company had advances under the five-year revolving credit agreement of $145
million and commercial paper borrowings (supported by committed credit
facilities) of $120 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
to the consolidated financial statements, 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 and acquisition spending of $168 million for the six months ended June
30, 1997 decreased $241 million versus the first half of 1996. The decrease is
primarily driven by lower capital spending in the company's chemical businesses
and the absence of acquisition spending. During 1996, FMC completed expansions
of the Green River soda ash facility and the Bayport, Texas hydrogen peroxide
plant and substantially completed construction of a plant to manufacture a new
family of herbicides. Development of a new lithium resource in Argentina is
expected to continue through late 1997. In addition, in June 1996 FMC acquired
Frigoscandia Equipment Holding AB. There were no acquisitions in the first half
of 1997. The company continues to evaluate potential acquisitions on an ongoing
basis.
Expected cash requirements for the remainder of 1997 include approximately $150
million to $200 million for planned capital expenditures, excluding potential
acquisitions, and net after-tax interest payments of approximately $35 million
based on current debt levels and interest rates. The company may also from time
to time reacquire shares of its own stock. 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 sources.
The company's ratios of earnings to fixed charges were 3.5x and 4.0x for the six
months ended June 30, 1997 and 1996, respectively. The decrease in the six-month
ratio from 1996 to 1997 primarily reflects the higher interest charges resulting
from increased borrowings.
The company's foreign currency translation adjustment increased from $65.5
million at December 31, 1996 to $113.0 million at June 30, 1997 primarily as a
result of the weakening of the Spanish peseta, Belgian franc and Norwegian
krone.
PAGE 12
RESULTS OF OPERATIONS
---------------------
Second Quarter 1997 Compared to Second Quarter 1996
---------------------------------------------------
Industry Segment Data (Unaudited)
---------------------------------
(In millions)
Three Months Ended
June 30
------------------
1997 1996
---- ----
Sales
- -----
Performance Chemicals $ 374.1 $ 345.2
Industrial Chemicals 262.6 264.4
Machinery and Equipment 504.8 371.4
Defense Systems 321.1 277.0
Eliminations (7.2) (7.3)
-------- --------
$1,455.4 $1,250.7
======== ========
Income from continuing operations
- ---------------------------------
before income taxes
- -------------------
Performance Chemicals $ 57.6 $ 61.3
Industrial Chemicals 41.4 32.5
Machinery and Equipment 31.2 18.4
Defense Systems 25.6 18.3
-------- --------
Operating profit 155.8 130.5
Corporate (22.8) (22.3)
Net interest expense (28.7) (22.7)
Other income and (expense), net (1.9) (6.2)
-------- --------
$ 102.4 $ 79.3
======== ========
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests in 1997 and 1996 were $21.5
million and $12.0 million, respectively, of which $18.6 million and $9.3
million, respectively, pertain to Defense Systems. The corporate line primarily
includes staff expenses, and other income and expense consists of all other
corporate items.
PAGE 13
General
- -------
Sales of $1.5 billion increased 16 percent from last year's quarter, driven
primarily by strong growth in Machinery and Equipment (primarily due to higher
sales of petroleum equipment and the acquisition of Frigoscandia Equipment
Holding AB) and Defense Systems. Second quarter 1997 segment earnings (net of
minority interests) were $156 million, compared with $131 million (net of
minority interests) in the 1996 quarter. Earnings increased primarily as a
result of the increase in sales, partially offset by higher manufacturing costs
associated with the start-up process at the sulfentrazone plant. Net interest
expense of $29 million increased from $23 million in last year's period due to
higher debt levels associated with previous acquisitions and capital
expenditures. Income from continuing operations increased to $73 million, or
$1.90 per share, in the second quarter of 1997 from $57 million, or $1.51 per
share, in the second quarter of 1996. In the second quarter of 1997, net income
was $73 million and earnings per share were $1.90, compared with $56 million and
$1.48, respectively, in last year's period.
Performance Chemicals
- ---------------------
Performance Chemicals sales of $374 million increased 8 percent from $345
million in last year's period, driven primarily by higher volumes of
agricultural products in North America and Europe. Earnings of $58 million
decreased from $61 million in last year's second quarter, primarily as a result
of lower earnings on agricultural products, partially offset by increases in
earnings from food ingredients and pharmaceutical products.
Sales of agricultural products increased in 1997 primarily due to the new
microencapsulated Command herbicide in North America and Europe, the initial
introduction of Authority herbicide in the North American market, and the
introduction of FMC's second new herbicide, carfentrazone-ethyl, in Europe.
However, earnings from agricultural products decreased, reflecting manufacturing
costs associated with the start-up process at the sulfentrazone plant and price
weakness in the specialty termiticide markets. The company continues to resolve
the production issues at the new sulfentrazone plant and expects increased
production during 1998.
Sales and earnings of food ingredients increased in the second quarter of 1997.
The introduction of new products remains ahead of schedule.
Sales and earnings of lithium products increased slightly in second quarter
1997. The company has experienced construction-related difficulties at the new
lithium carbonate plant in Argentina which have delayed the plant start-up and
increased capital spending. The company expects initial production at the new
lithium carbonate plant to begin in the fourth quarter of 1997. The company
anticipates that the new plant technology will result in cost reduction;
however, the market price decline for lithium carbonate, which was driven by
increased foreign competition, will continue to depress prices for at least the
short term.
Sales of pharmaceutical products during the second quarter of 1997 remained
substantially unchanged from the second quarter of 1996. However, earnings
increased primarily due to a reduction in raw material prices.
Industrial Chemicals
- --------------------
Industrial Chemicals sales of $263 million remained substantially unchanged from
$264 million in last year's period, primarily reflecting the decrease in FMC
Foret translated sales as a result of the strengthening of the U.S. dollar
against the Spanish peseta and lower prices on peroxygen products, partially
offset by higher phosphorus, peroxygen and soda ash volumes. Earnings of $41
million increased 27 percent from $33 million in the 1996 quarter due to
increases in earnings across all product lines except at FMC Foret, which was
affected by the strengthening of the U.S. dollar against the Spanish peseta.
Second quarter 1997 sales of alkali products increased slightly over second
quarter 1996 sales due to an increase in domestic and foreign soda ash
PAGE 14
volumes from the continuing fill-out of FMC's recent expansion, partly offset by
lower prices. Earnings of alkali products in the second quarter of 1997 also
increased over second quarter 1996. Earnings were favorably affected by lower
costs at the company's Green River, Wyoming, operation. Management is
optimistic that 1998 domestic soda ash prices will be favorably impacted by
expected increases in demand for U.S. soda ash.
Phosphorus sales and earnings increased in the second quarter of 1997 due to
higher volumes and improved operating performance.
Peroxygen sales increased slightly from the year-ago period. Earnings also
increased compared with the 1996 second quarter due to higher hydrogen peroxide
volumes and the absence in 1997 of expenses associated with new plant
construction, partially offset by lower prices on peroxygen products.
FMC Foret's sales volumes increased from the prior year; however, sales
decreased from second quarter 1996 primarily as a result of the strengthening of
the U.S. dollar against the Spanish peseta. Earnings also decreased from second
quarter 1996 due to the strengthening of the U.S. dollar against the Spanish
peseta, partially offset by improved manufacturing performance.
Machinery and Equipment
- -----------------------
Machinery and Equipment sales of $505 million increased 36 percent from $371
million in the 1996 quarter, and profits of $31 million increased 70 percent
from $18 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.
Petroleum equipment sales increased significantly in second quarter 1997,
primarily due to increased sales of wellhead equipment and subsea systems.
Earnings also increased significantly as a result of higher sales and improved
margins. The company and Shell Offshore recently announced that they have begun
production from an FMC subsea tree at a world record water depth of 5,300 feet
as part of the Mensa project in the Gulf of Mexico. Additionally, sales and
earnings of energy transportation and measurement equipment in the second
quarter of 1997 also increased from the 1996 period due to the timing of several
large orders.
Sales and earnings of airport products increased in second quarter 1997 from
second quarter 1996 due to continued market strength.
Food machinery sales and earnings increased significantly from second quarter
1996 as a result of the acquisition of Frigoscandia, which was acquired at the
end of the 1996 second quarter, as well as improvements at other food processing
equipment operations.
Defense Systems
- ---------------
Defense Systems sales of $321 million increased 16 percent from $277 million in
the year-ago period. Profits of $26 million, net of minority interest,
increased compared with $18 million, net of minority interest, in the prior-year
period. Increased international sales of ground systems was the primary source
of the increased sales and profits.
The Paladin production operation experienced a rise in sales reflecting higher
vehicle deliveries in the second quarter of 1997 compared with the same period
in 1996. Earnings also increased in 1997 on the strength of higher sales.
Corporate
- ---------
Corporate expenses in the second quarter 1997 remained substantially unchanged
from last year's quarter.
PAGE 15
Net Interest Expense
- --------------------
Net interest expense in the quarter increased to $29 million from $23 million in
last year's period, reflecting higher debt levels associated with previous
acquisitions and capital expenditures.
Other Income and Expense
- ------------------------
Other expenses decreased $4 million from 1996's quarter, largely due to lower
LIFO expense and FMC Foundation expenses.
Effective Tax Rates
- -------------------
The effective tax rates for the quarters ended June 30, 1997 and 1996 were 29
percent and 28 percent, respectively. The increase in 1997 is primarily due to
a change in business mix.
Order Backlog
- -------------
FMC's backlog of unfilled orders as of June 30, 1997 and December 31, 1996 was
$2.5 billion. Machinery and Equipment backlog of $1.0 billion increased from
$923 million at the end of 1996. Most product lines showed an increase in
backlog, the largest increase as a result of the strengthening of the airport
products market. Defense backlog was $1.5 billion at the end of the quarter,
down from $1.6 billion at December 31, 1996. The decrease in backlog reflects
the completion of vehicle sales. Backlogs are not reported for Industrial
Chemicals or Performance Chemicals due to the nature of these businesses.
PAGE 16
RESULTS OF OPERATIONS
---------------------
Six Months 1997 Compared to Six Months 1996
-------------------------------------------
Industry Segment Data (Unaudited)
---------------------------------
(In millions)
Six Months Ended
June 30
-------------------
1997 1996
---- ----
Sales
- -----
Performance Chemicals $ 671.5 $ 649.3
Industrial Chemicals 498.1 506.3
Machinery and Equipment 971.8 694.3
Defense Systems 608.6 510.1
Eliminations (14.2) (15.0)
-------- --------
$2,735.8 $2,345.0
======== ========
Income from continuing operations
- ---------------------------------
before income taxes
- -------------------
Performance Chemicals $ 87.5 $ 100.2
Industrial Chemicals 76.6 71.0
Machinery and Equipment 47.7 31.8
Defense Systems 56.6 55.2
-------- --------
Operating profit 268.4 258.2
Corporate (46.1) (45.8)
Net interest expense (58.8) (45.3)
Other income and (expense), net (4.8) (7.8)
-------- --------
$ 158.7 $ 159.3
======== ========
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests in 1997 and 1996 were $40.6
million and $35.5 million, respectively, of which $35.4 million and $31.4
million, respectively, pertain to Defense Systems. The corporate line primarily
includes staff expenses, and other income and expense consists of all other
corporate items.
Sales of $2.7 billion in the first half of 1997 increased 17 percent from the
1996 period primarily as a result of increases in petroleum equipment sales,
defense products sales, and the addition of Frigoscandia Equipment, which was
acquired at the end of the 1996 second quarter. Segment earnings increased to
$268 million in the first half of 1997 from $258 million in 1996, primarily as a
result of increased sales, partially offset by lower earnings from agricultural
products reflecting manufacturing and marketing costs associated with the new
Authority herbicide, and lower dividend income from the company's joint venture
in Turkey. Corporate expenses of $46 million were in line with the first half of
1996. Net interest expense increased to $59 million from $45 million in 1996,
reflecting higher debt levels associated with previous acquisitions and capital
expenditures. Other expenses decreased primarily as a result of lower LIFO
expense and FMC Foundation expenses.
Income from continuing operations before income taxes remained substantially
unchanged from $159 million in the first half of 1996. Income from continuing
operations decreased to $113 million, or $2.95 per share, in the first half of
1997 from $114 million, or $3.00 per share, in the 1996 period. In the first
half of 1997, net income was $113 million and earnings per share were $2.95,
compared with $112 million and $2.93, respectively, in last year's period.
PAGE 17
Performance Chemicals sales of $671 million rose 3 percent compared with $649
million in last year's period and profits of $88 million declined compared with
$100 million in the first half of 1996. Although sales increased along most
product lines, profits declined, reflecting higher marketing and manufacturing
costs associated with the start-up process at the sulfentrazone plant.
Industrial Chemicals sales decreased 2 percent to $498 million while profits
increased 8 percent to $77 million versus last year's first half. The decrease
in sales was due to lower sales volumes of phosphorus products, lower prices for
peroxygen products and the negative impact of the strengthening of the U.S.
dollar against the Spanish peseta on FMC Foret sales, partially offset by an
increase in shipments of FMC Foret and alkali products. However, the increase
in earnings was due to improved operating performance on phosphorus and alkali
products, partially offset by lower sales and the negative impact of the
strengthening of the U.S. dollar against the Spanish peseta on FMC Foret's
performance.
Machinery and Equipment sales of $972 million rose 40 percent from $694 million,
and profits increased 50 percent to $48 million from $32 million. These results
reflect improvements in the petroleum equipment and airport products businesses,
the addition of Frigoscandia Equipment, which was acquired at the end of the
1996 second quarter, and improvements at other food processing equipment
operations.
Defense Systems sales were $609 million for the first half of 1997 compared with
$510 million for the same period last year, reflecting higher volumes. Profits,
net of minority interest, totaled $57 million in the first half of 1997 compared
to profits of $55 million, net of minority interest, for the same period in
1996. The increase in profits reflects the increase in sales, partially offset
by the reduction in the dividend from the company's joint venture in Turkey due
to delayed sales caused by a plant fire in 1996. Income from the Turkish joint
venture is recognized as dividends and royalties are received.
The effective tax rates for the six-month periods ended June 30, 1997 and 1996
were 29 percent and 28 percent, respectively. The increase in 1997 is primarily
the result of a change in business mix.
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
potential for unanticipated delays or cost overruns in connection with
introductions of new products and 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 June 30, 1997 is included on page 18.
A report by Ernst and Young LLP, United Defense Limited Partnership's
independent accountants, on the financial statements referred to by KPMG Peat
Marwick LLP in its report noted above is included on page 19.
PAGE 18
SIGNATURE
Independent Accountants' Report
-------------------------------
The Board of Directors
FMC Corporation:
We have reviewed the accompanying consolidated balance sheet of FMC Corporation
and consolidated subsidiaries as of June 30, 1997, and the related consolidated
statements of income for the three-month and six-month periods ended June 30,
1997 and 1996 and the consolidated statements of cash flows for the six-month
periods ended June 30, 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 reviews of the
interim financial information of United Defense, L.P., whose total assets as of
June 30, 1997 and December 31, 1996 constituted 13 percent and whose revenues
for the three-month and six-month periods ended June 30, 1997 and 1996
constituted 22 percent of the related consolidated totals.
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, 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 and the report of other accountants, we are not aware of
any material modifications that should be made to the accompanying consolidated
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
July 16, 1997
PAGE 19
SIGNATURE
Independent Accountants' Review Report
--------------------------------------
Partners
United Defense, L. P.
Arlington, Virginia
We have reviewed the balance sheet of United Defense, L.P. as of June 30, 1997,
and the related statements of income for the three-month and six-month periods
ended June 30, 1997 and 1996, the statements of cash flows for the six-month
periods ended June 30, 1997 and 1996 and the statement of partners' capital for
the six-month period ended June 30, 1997. These financial statements (not
presented separately in the FMC Corporation Form 10-Q for the quarter ended June
30, 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.
July 15, 1997
PAGE 20
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Registrant's Annual Meeting of Stockholders was held on April 18, 1997. At the
meeting, stockholders voted on (i) the election of four directors; and (ii)
ratification of the appointment of KPMG Peat Marwick LLP as the Registrant's
independent auditors for 1997. Voting on each such matter was as follows:
Votes Votes Withheld/ Broker
For Against Abstentions Non-Votes
----- ------- ----------- ---------
1. Election of Directors:
L. D. Brady 33,791,458 - 565,151 -
P. A. Buffler 33,817,491 - 538,818 -
A. J. Costello 33,811,776 - 544,833 -
C. Yeutter 33,811,833 - 544,776 -
2. Ratification of Auditors 34,208,444 85,025 - -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits
--------
Number in
Exhibit Table Description
------------- -----------
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 April 17, 1997 describing the company's results
for the first quarter of 1997.
PAGE 21
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FMC CORPORATION
---------------
(Registrant)
Date: August 5, 1997 /s/ Ronald D. Mambu
---------------- -----------------------------------------------
Vice President, Controller and duly authorized
officer
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
- ------------- -----------
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