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 September 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 September 30, 1997
- ---------------------------------------- ---------------------------------
Common Stock, par value $0.10 per share 36,797,851
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Income (Unaudited)
- ---------------------------------------------
(In millions, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
Sales $1,059.4 $1,023.8 $3,186.6 $2,858.7
Other revenue 15.3 10.0 43.4 34.6
-------- -------- -------- --------
Total revenue 1,074.7 1,033.8 3,230.0 2,893.3
-------- -------- -------- --------
Costs and expenses:
Cost of sales 779.3 744.4 2,363.0 2,087.7
Selling, general and
administrative expenses 148.4 145.4 465.7 420.0
Research and development 43.8 45.1 126.8 128.4
-------- -------- -------- --------
Total costs and expenses 971.5 934.9 2,955.5 2,636.1
-------- -------- -------- --------
Income from continuing operations
before net interest expense,
minority interests and income
taxes 103.2 98.9 274.5 257.2
Minority interests 2.9 3.7 8.1 7.9
Net interest expense 27.8 25.6 86.6 70.9
-------- -------- -------- --------
Income from continuing operations
before income taxes 72.5 69.6 179.8 178.4
Provision for income taxes 17.4 18.2 42.9 46.7
-------- -------- -------- --------
Income from continuing operations 55.1 51.4 136.9 131.7
Discontinued operations, net of
income taxes (Note 4) 7.8 3.2 38.7 34.4
-------- -------- -------- --------
Net income $ 62.9 $ 54.6 $ 175.6 $ 166.1
======== ======== ======== ========
Earnings per common share:
Continuing operations $ 1.43 $ 1.35 $ 3.58 $ 3.46
Discontinued operations 0.20 0.09 1.01 0.91
-------- -------- -------- --------
Net income per common share $ 1.63 $ 1.44 $ 4.59 $ 4.37
======== ======== ======== ========
Average number of shares 38.4 38.1 38.3 38.0
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Balance Sheets
- ---------------------------
(In millions, except share and per share data) September 30
1997 December 31
(Unaudited) 1996
------------- -----------
Assets:
Current assets:
Cash and cash equivalents $ 85.9 $ 74.8
Trade receivables, net of allowance
for doubtful accounts of $11.2 in
1997 and $10.8 in 1996 837.6 913.7
Inventories 557.1 497.3
Other current assets 153.3 190.2
Deferred income taxes 58.8 86.8
-------- --------
Total current assets 1,692.7 1,762.8
Investments 31.5 54.5
Net assets of discontinued operations (Note 4) 117.4 113.5
Property, plant and equipment at cost 3,842.0 3,766.8
Less -- accumulated depreciation 2,001.8 1,932.3
-------- --------
Net property, plant and equipment 1,840.2 1,834.5
Goodwill and intangible assets 441.1 471.7
Other assets 191.0 155.2
Deferred income taxes 72.6 75.2
-------- --------
Total assets $4,386.5 $4,467.4
======== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Short-term debt (Note 2) $ 354.7 $ 555.6
Accounts payable, trade and other 569.5 538.7
Accrued and other current liabilities 500.6 435.1
Current portion of long-term debt (Note 2) 3.6 10.4
Income taxes payable 38.0 51.0
-------- --------
Total current liabilities 1,466.4 1,590.8
Long-term debt, less current portion (Note 2) 1,325.8 1,268.4
Accrued pension and other postretirement
benefits, less current portion 233.4 266.6
Reserve for discontinued operations (Note 4) 160.4 191.4
Other liabilities 216.8 236.9
Minority interests in consolidated companies 58.1 57.5
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 37,822,942
shares in 1997 and 37,480,854 shares in 1996 3.8 3.7
Capital in excess of par value of common stock 137.8 120.1
Retained earnings 982.4 806.8
Foreign currency translation adjustment (129.8) (65.5)
Treasury stock, common, at cost; 1,025,091
shares in 1997 and 300,427 shares in 1996 (68.6) (9.3)
-------- --------
Total stockholders' equity 925.6 855.8
-------- --------
Total liabilities and stockholders' equity $4,386.5 $4,467.4
======== ========
See accompanying notes to consolidated financial statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Nine Months
Ended September 30
------------------
1997 1996
---- ----
Reconciliation from income from continuing
operations to cash provided (required) by
operating activities of continuing operations:
Income from continuing operations $136.9 $131.7
Adjustments for non-cash components of
income from continuing operations:
Depreciation and amortization 180.6 163.9
Deferred income taxes 25.6 (19.4)
Equity in net earnings of affiliates (4.8) (5.3)
Minority interests 8.1 7.9
Other (32.3) 4.3
(Increase) decrease in assets:
Trade receivables 76.1 (72.7)
Inventories (59.8) (141.5)
Other current assets, intangible and other assets 16.7 (228.2)
(Decrease) increase in liabilities:
Accounts payable, accrued and other
current liabilities and other liabilities 55.5 83.8
Income taxes payable (8.1) 8.5
Accrued pension and other
postretirement benefits, net (10.8) (19.2)
------ ------
Cash provided (required) by operating activities
of continuing operations $383.7 $(86.2)
====== ======
See accompanying notes to consolidated financial statements.
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Nine Months
Ended September 30
-----------------------
1997 1996
-------- --------
Cash provided (required) by operating activities
of continuing operations $ 383.7 $ (86.2)
------- -------
Cash provided by discontinued operations 3.9 125.5
------- -------
Cash provided (required) by investing
activities:
Capital spending (227.5) (378.1)
Disposal of property, plant and
equipment 44.1 33.7
Decrease in investments 27.9 7.3
------- -------
(155.5) (337.1)
------- -------
Cash provided (required) by financing
activities:
Net (reduction) increase in commercial paper
borrowings (333.9) 280.2
Decrease in other short-term debt (200.9) (55.6)
Net borrowings under credit facilities 319.7 40.2
Repayment of long-term debt (19.0) (31.0)
Net proceeds from issuance of long-term debt 69.6 99.0
Distributions to limited partners (7.9) (7.0)
Repurchases of common stock (59.3) (0.1)
Exercises of common stock options and other, net 17.7 18.7
------- -------
(214.0) 344.4
------- -------
Effect of exchange rate changes on cash
and cash equivalents (7.0) (0.9)
------- -------
Increase in cash and cash equivalents 11.1 45.7
Cash and cash equivalents, beginning
of year 74.8 70.9
------- -------
Cash and cash equivalents, end of period $ 85.9 $ 116.6
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized, was $74.5 million and $68.5
million, and cash paid for income taxes, net of refunds, was $30.8 million and
$35.3 million for the nine-month periods ended September 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
September 30, 1997, and the related consolidated statements of income and of
cash flows for the interim periods ended September 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 nine-
month periods ended September 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, including the reclassification of operations constituting the
Defense Systems segment as a discontinued operation (Note 4).
The company's accounting policies are set forth in Note 1 to the company's
financial statements for June 30, 1997 which are included in the company's June
30, 1997 Form 10-Q and 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 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 September 30, 1997, the company had advances of $133
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 $70.9 million at September 30, 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, $70.9 million of outstanding
commercial paper and $246.1 million of borrowings under uncommitted U.S. credit
facilities have been classified as long-term debt at September 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 September 30, 1997 and December 31, 1996 includes $122.8
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.
PAGE 7
Note 3: Recent Accounting Pronouncements
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:
Quarter ended Nine-month period
September 30, ended September 30, Year ended
-------------- ------------------- December 31,
1997 1996 1997 1996 1996
---- ---- ---- ---- ------------
Earnings from
continuing
operations:
Basic EPS $1.48 $1.39 $3.68 $3.56 $4.40
===== ===== ===== ===== =====
Diluted EPS $1.43 $1.35 $3.58 $3.46 $4.28
===== ===== ===== ===== =====
Net income:
Basic EPS $1.69 $1.47 $4.72 $4.49 $5.69
===== ===== ===== ===== =====
Diluted EPS $1.63 $1.44 $4.59 $4.37 $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 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. FMC will adopt SFAS No. 131
effective January 1, 1998.
Note 4: Discontinued Operations and Subsequent Event
Sale of Precious Metals 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.
The collection of installment payments was completed by Bank of Nova Scotia
during the third quarter of 1997, and FMC is no longer subject to recourse with
respect thereto. Amounts owing to FMC Gold Company totaling $79.2 million, and
transaction
PAGE 8
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.
Sales of the Precious Metals segment for the one-month and seven-month periods
ended July 31, 1996 were $5.2 million and $41.3 million, respectively.
Sale of Defense Operations (Subsequent Event). On August 25, 1997, FMC, Harsco
Corporation, Harsco UDLP Corporation (together with Harsco Corporation,
"Harsco"), and Iron Horse Acquisition Corp., an affiliate of The Carlyle Group
("Carlyle"), signed a definitive agreement for the sale of United Defense, L.P.
("United Defense" or "UDLP") and certain other assets to Carlyle for
approximately $850 million. The transaction closed on October 6, 1997.
FMC was the managing general partner and 60 percent owner of United Defense,
which was formed in 1994 by combining FMC's Defense Systems Group with Harsco's
BMY Combat Systems Division. Harsco owned the remaining 40 percent of UDLP.
United Defense supplies ground combat and naval weapons systems for the U.S. and
military customers around the world.
The gross sale proceeds to FMC and Harsco consist of approximately $800 million
cash, to be adjusted based on certain audited closing balance sheet items as of
October 6, 1997, and a $50 million note payable to FMC by Carlyle after
finalizing certain international joint-venture agreements. Of the estimated
proceeds, FMC will receive $460 million cash (subject to adjustment) and the
note, which FMC expects to collect in 1998.
In addition to its interest in the UDLP joint-venture, FMC also sold to Carlyle
as part of UDLP its wholly owned Corporate Technology Center ("CTC"). FMC also
agreed to contract for certain research services with CTC in the future. FMC
also transferred approximately 94 of its CTC, corporate legal and defense audit
staff to UDLP in conjunction with the disposition of UDLP. These staff primarily
performed defense-related duties while at FMC.
After deducting its investment in UDLP and providing for transaction costs,
results reported by UDLP during the period subsequent to August 25, 1997
(measurement date), valuation reserves against certain retained properties, and
other costs, FMC estimates it will recognize a gain of approximately $300
million ($170 million after tax) during the fourth quarter of 1997. As
previously discussed, such estimates are subject to final audits and resolution
of closing issues in accordance with the sales contract. FMC has used cash
received to retire variable rate debt and commercial paper and contribute
towards a recently announced common stock repurchase program.
Sales and net income of discontinued operations were $310.3 million and $7.8
million, respectively, and $918.9 million and $38.7 million, respectively, for
the quarter and year-to-date periods ended August 25, 1997.
At September 30, 1997, the net assets of discontinued operations were comprised
of:
Assets:
Current assets $417.3
Property, plant and equipment, net 117.3
Other assets 73.0
------
Total assets 607.6
------
Liabilities:
Accounts payable and other current liabilities 421.6
Long-term liabilities 68.6
------
Net assets $117.4
======
PAGE 9
The company's results of discontinued operations for the nine months ended
September 30, 1997 and 1996 comprised the following, in millions:
1997 1996
---- ----
Income from operations of Defense Systems
segment through August 25, 1997 and
September 30, 1996 (net of income taxes of
$25.5 in 1997 and $21.8 in 1996) $38.7 $41.8
Provision for liabilities related to
previously discontinued operations (net of
income tax benefit of $15.6) - (23.4)
Loss from operations of Precious Metals
segment through July 31, 1996 (less income
tax benefit of $1.8) - (3.7)
Gain on disposal of FMC Gold Company
(including income tax benefit of $10.3) - 19.7
----- -----
Discontinued operations, net of income taxes $38.7 $34.4
===== =====
Reserves for discontinued operations at September 30, 1997 and December 31,
1996, respectively, were $160 million and $191 million, substantially all of
which were associated with liabilities 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
Frigoscandia Equipment Holding AB. In June 1996, FMC acquired all of the common
shares of Frigoscandia Equipment Holding AB ("Frigoscandia Equipment"), a wholly
owned subsidiary of ASG AB, for approximately $165 million plus transaction
costs and debt assumed. Frigoscandia Equipment is a leading worldwide
manufacturer of freezers, ovens, fryers and other equipment for the food
processing industry. Frigoscandia Equipment's operations are included in FMC's
Machinery and Equipment segment.
The company also completed other smaller acquisitions during 1996. The purchase
prices for Frigoscandia Equipment and the other acquisitions were satisfied from
cash flow from operations and short-term and long-term financing. The company's
1996 acquisitions did not have a material pro forma effect on the company's
consolidated results of operations.
Results of operations of the acquired companies have been included in the
company's consolidated statements of income from the respective dates of
acquisition.
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
PAGE 10
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 that
management considers probable and for which a reasonable estimate of the
obligation could be made. Accordingly, reserves of $235 million and $264
million, before recoveries, have been provided at September 30, 1997 and
December 31, 1996, respectively, of which $97 million and $117 million are
included in the reserve for discontinued operations at September 30, 1997 and
December 31, 1996, respectively. The company's total environmental reserves
include approximately $220 million and $242 million for remediation activities
and $15 million and $22 million for remedial investigation/feasibility study
costs at September 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 September
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.
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 has had
extensive discussions with the Department of Justice and the EPA concerning
substantial proposed environmental projects involving remediation of soil and
groundwater and additional air control in an effort to settle this matter in
advance of litigation.
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 $71 million for future
environmental costs at the Eastern Michaud Flats site adequately provides for
the estimated costs of the proposed Superfund remediation plan for the site.
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
PAGE 11
contributions from other PRPs, and for a determination of coverage against its
comprehensive general liability insurance carriers. Approximately $104 million
of recoveries ($36 million as other assets and $68 million as an offset to the
reserve for discontinued operations) and approximately $107 million of
recoveries ($37 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 insurance companies and other third parties at September 30,
1997 and December 31, 1996, respectively. The majority of recorded assets
related to recoveries from PRPs are associated with existing contractual
arrangements with U.S. government agencies.
Note 7: Capital Stock
On August 28, 1997, the Board of Directors authorized a $500 million open-market
stock repurchase program for FMC common stock through the end of 1999. In the
quarter ended September 30, 1997, the company repurchased a total of 572,200
common shares at a cost of $49 million, all of which were acquired under this
program. For the nine months ended September 30, 1997, FMC repurchased 724,664
shares of its common stock at a cost of $59.3 million, including shares
repurchased under the $500 million stock repurchase program as well as shares
repurchased throughout the first half of 1997 under a smaller, previously
announced program. The repurchased shares are recorded at cost in the company's
September 30, 1997 consolidated balance sheet as treasury stock. The company
plans to continue purchasing shares of its common stock on the open market from
time to time, depending on market conditions.
At September 30, 1997, the company had 36.8 million shares outstanding and 1.3
million additional common stock equivalents (calculated under the treasury stock
method), primarily related to its stock option programs.
PAGE 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL CONDITION
Total cash and cash equivalents at September 30, 1997 and December 31, 1996 were
$85.9 million and $74.8 million, respectively. As of September 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 cash generated by
continuing operations. Decreases in commercial paper borrowings of $320 million
(net of discount) were partially offset by $133 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 September
30, 1997, the company had advances under the five-year revolving credit
agreement of $133 million and commercial paper borrowings (supported by
committed credit facilities) of $71 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. The net proceeds of $98.2
million 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 27, 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 $228 million for the nine months ended
September 30, 1997 decreased $150 million versus the first nine months 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, Wyoming soda ash facility and the
Bayport, Texas hydrogen peroxide plant and substantially completed construction
of a plant in Baltimore, Maryland 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 nine months of
1997. The company continues to evaluate potential acquisitions on an ongoing
basis.
As discussed in Note 4 to the company's September 30, 1997 consolidated
financial statements, the company sold its defense operations to The Carlyle
Group on October 6, 1997 (the closing date). As a result of the transaction, all
financial disclosures included in Management's Discussion and Analysis and
elsewhere in this Form 10-Q have been restated to present FMC's Defense Systems
segment as a discontinued operation. On the closing date, the company received
its share of the net proceeds (to be adjusted based on certain audited closing
balance sheet items as of the closing date) from the sale, which included
approximately $460 million cash (approximately $375 million after tax). FMC
expects to use the proceeds to reduce its outstanding debt and to fund its stock
repurchase program.
On August 28, 1997, the Board of Directors authorized a $500 million open-market
stock repurchase program for FMC common stock through the end of 1999. In the
quarter ended September 30, 1997, the company repurchased a total of 572,200
common shares at a cost of $49 million, all of which were acquired under this
program. For the nine months ended September 30, 1997, FMC repurchased 724,664
shares of its common stock at a cost of $59.3 million, including shares
repurchased under the $500 million stock repurchase program as well as shares
repurchased throughout the first half of 1997 under a smaller, previously
announced program. The repurchased shares are recorded at cost in the company's
September 30, 1997 consolidated balance sheet as treasury stock. The company
PAGE 13
plans to continue purchasing shares of its common stock on the open market from
time to time, depending on market conditions, and expects to repurchase
approximately $140 million of the company's common stock during the fourth
quarter of 1997.
Expected cash requirements for the fourth quarter of 1997 include approximately
$75 million to $100 million for planned capital expenditures (excluding
potential acquisitions) and approximately $15 million for net after-tax interest
payments based on current debt levels and interest rates. Cash to meet these
requirements will be provided primarily by the company's operations, the
proceeds from the sale of the company's defense operations and, if necessary, by
existing cash balances and available short- or long-term credit facilities.
The company's ratios of earnings to fixed charges were 2.7x and 2.8x for the
nine months ended September 30, 1997 and 1996, respectively.
The company's foreign currency translation adjustment increased from $65.5
million at December 31, 1996 to $129.9 million at September 30, 1997, primarily
as a result of the weakening of the Spanish peseta, Belgian franc and Norwegian
krone.
PAGE 14
RESULTS OF CONTINUING OPERATIONS
--------------------------------
Third Quarter of 1997 Compared With Third Quarter of 1996
---------------------------------------------------------
Industry Segment Data (Unaudited)
---------------------------------
(In millions)
Three Months Ended
September 30
----------------------
1997 1996
-------- --------
Sales
Performance Chemicals $ 315.2 $ 332.6
Industrial Chemicals 252.0 262.6
Machinery and Equipment 495.6 434.2
Eliminations (3.4) (5.6)
-------- --------
$1,059.4 $1,023.8
======== ========
Income from continuing operations
before income taxes
Performance Chemicals $ 41.0 $ 46.7
Industrial Chemicals 33.9 45.4
Machinery and Equipment 42.5 22.6
-------- --------
Operating profit from continuing
operations 117.4 114.7
Corporate (20.5) (22.0)
Net interest expense (27.8) (25.6)
Other income, net 3.4 2.5
-------- --------
$ 72.5 $ 69.6
======== ========
Business segment results are presented net of minority interest, reflecting only
FMC's share of earnings. Minority interests for the three months ended September
30, 1997 and 1996 were $2.9 million and $3.7 million, respectively, the majority
of which relates to the Industrial Chemicals segment. The corporate line
primarily includes staff expenses, and other income, net consists of all other
corporate items.
As described in Note 4 to the company's September 30, 1997 consolidated
financial statements, the operations constituting FMC's Defense Systems segment
have been reclassified as a discontinued operation and results of prior periods
have been restated for comparative purposes.
General
Sales from continuing operations of $1.1 billion in the quarter ended September
30, 1997 increased 3 percent from $1 billion in the 1996 quarter, as strong
Machinery and Equipment sales (reflecting higher sales of airport products,
petroleum equipment and Frigoscandia Equipment's food machinery) more than
offset lower sales in Performance Chemicals and Industrial Chemicals. Third
quarter 1997 operating profits from continuing operations (net of minority
interests) increased to $117.4 million from $114.7 million in the year ago
quarter. Higher earnings resulting from increased sales were partially offset by
short-term market, operational, and foreign exchange problems in the company's
chemical businesses. Net interest expense of $28 million in the 1997 quarter
increased by $2 million from the prior year quarter. Income from continuing
operations increased to $55 million, or $1.43 per share, in the third quarter of
1997 from $51 million, or $1.35 per share, in the third quarter of 1996. In the
third quarter of 1997, net income and earnings per share were $63 million and
$1.63, respectively, as compared to $55 million and $1.44, respectively, in the
third quarter of 1996.
Performance Chemicals
Performance Chemicals sales of $315 million decreased 5 percent from $333
million in last year's period, primarily as a result of reduced sales of
agricultural products resulting from lower pest pressures. Earnings of $41
million in 1997 decreased from $47 million in last year's third quarter,
reflecting lower earnings on agricultural products and lithium products,
partially offset by increased earnings from food ingredients.
PAGE 15
Sales and earnings of agricultural products decreased in 1997 as reduced
insecticide sales resulting from lower pest pressures in the North American
cotton and corn markets more than offset higher herbicide sales, primarily in
Latin America. The company continues to address start-up problems in certain
phases of its sulfentrazone manufacturing process. Management anticipates that
further capital expenditures will be made to modify its new plant, and
anticipates that the plant's capacity will be raised to design levels.
Lithium sales and earnings decreased in the third quarter of 1997 due to lower
lithium carbonate prices and higher costs related to the new lithium facility in
Argentina at which production of lithium carbonate began in September 1997 and
where the company anticipates lithium chloride production will begin at the end
of 1997. The company anticipates that the new plant technology will result in
cost reduction; however, the market price decline for lithium carbonate, which
continues to be driven by increased foreign competition, may continue to
significantly depress lithium carbonate operating results. In addition, the
company has significantly increased its estimate of the final capital cost of
developing the Argentine resource, due to higher infrastructure costs driven by
logistical and other construction difficulties. The combined effects of price
declines and increased capital costs may substantially reduce long-term expected
returns on the company's lithium carbonate investment.
Sales of food ingredients decreased in the third quarter of 1997, but earnings
were higher than the third quarter of 1996 as the decline in sales was more than
offset by lower costs resulting from improved operating efficiencies and reduced
raw material costs.
Industrial Chemicals
Industrial Chemicals sales of $252 million in 1997 decreased 4 percent from $263
million in the third quarter of last year, and earnings (net of minority
interest) decreased to $34 million from $45 million in 1996, 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
across all businesses, partially offset by higher phosphorus, peroxygen and soda
ash volumes.
Sales and earnings of alkali products decreased from the third quarter of 1996
as lower soda ash prices were only partially offset by increased soda ash
volumes from the continuing utilization of FMC's recent expansion. Soda ash
volumes were negatively affected by the lack of available railcars resulting
from operating problems at Union Pacific. Earnings of alkali products in the
third quarter of 1997 were favorably impacted by lower costs at the company's
Green River, Wyoming operation.
Phosphorus sales increased in the third quarter of 1997, reflecting higher
volumes, but earnings were lower as a result of lower prices and unfavorable
product mix, partially offset by improved operating performance. The company is
currently evaluating alternatives to restructure its phosphorus business due to
projected long-term market conditions and forecasted capital spending
requirements.
Sales of peroxygen were lower in the third quarter of 1997 due to lower hydrogen
peroxide prices which were partially offset by increased domestic hydrogen
peroxide shipments. Peroxygen earnings for the third quarter 1997 were up
slightly as lower sales were offset by reduced costs.
FMC Foret's sales decreased from the third quarter of 1996 as increased volumes
were more than offset by the strengthening of the U.S. dollar against most
European currencies, including Foret's functional currency, the Spanish peseta,
and lower hydrogen peroxide prices resulting from weakness in demand from the
pulp and paper industry and cyclical overcapacity. Earnings also decreased from
the prior year's quarter due primarily to the decrease in sales and the
strengthening of the U.S. dollar against the Spanish peseta.
Machinery and Equipment
Machinery and Equipment sales of $496 million increased 14 percent from $434
million in 1996, and earnings of $43 million increased significantly from $23
million in the prior-year quarter. Sales and earnings increased across all major
business areas.
PAGE 16
Petroleum equipment sales and earnings increased compared with 1996 primarily
due to higher sales to Statoil and strong flowline sales.
Sales of airport products increased in the third quarter of 1997 due to
increased sales of loaders and deicers. Earnings increased as well, primarily
reflecting the higher sales volumes.
FMC FoodTech (formerly the food machinery group) sales and earnings were higher
in the 1997 quarter due primarily to increased Frigoscandia Equipment sales
resulting from higher poultry demand worldwide.
Corporate
Corporate expenses in the third quarter 1997 were down slightly from the prior
year's quarter.
Net Interest Expense
Net interest expense in the quarter increased to $28 million from $26 million in
last year's third quarter.
Other Income, net
Other income, net, for the three-month period ended September 30, 1997 remained
substantially unchanged from 1996.
Effective Tax Rates
The effective tax rates related to earnings from continuing operations for the
quarters ended September 30, 1997 and 1996 were 24 percent and 26 percent,
respectively. The decrease from last year results primarily from a change in mix
of foreign and domestic earnings.
Order Backlog
FMC's backlog of unfilled orders for Machinery and Equipment as of September 30,
1997 was $993 million versus $923 million at December 31, 1996. The increase in
backlog is due primarily to stronger orders in the energy transportation and
measurement business. Backlogs are not reported for Industrial Chemicals or
Performance Chemicals due to the nature of these businesses.
PAGE 17
RESULTS OF CONTINUING OPERATIONS
--------------------------------
Nine Months of 1997 Compared With Nine Months of 1996
-----------------------------------------------------
Industry Segment Data (Unaudited)
---------------------------------------
(In millions)
Nine Months Ended
September 30
-------------------
1997 1996
-------- --------
Sales
Performance Chemicals $ 986.7 $ 982.0
Industrial Chemicals 750.2 768.8
Machinery and Equipment 1,467.3 1,128.5
Eliminations (17.6) (20.6)
-------- --------
$3,186.6 $2,858.7
======== ========
Income from continuing operations
before income taxes
Performance Chemicals $ 128.5 $ 146.8
Industrial Chemicals 110.5 116.4
Machinery and Equipment 90.3 54.4
-------- --------
Operating profit from continuing
operations 329.3 317.6
Corporate (66.7) (67.7)
Net interest expense (86.6) (70.9)
Other income and (expense), net 3.8 (0.6)
-------- --------
$ 179.8 $ 178.4
======== ========
Business segment results are presented net of minority interest, reflecting only
FMC's share of earnings. Minority interests for the nine months ended September
30, 1997 and 1996 were $8.1 million and $7.9 million, respectively, the majority
of which relates to the Industrial Chemicals segment. The corporate line
primarily includes staff expenses, and other income and expense, net consists of
all other corporate items.
As described in Note 4 to the company's September 30, 1997 consolidated
financial statements, the operations constituting FMC's Defense Systems segment
have been reclassified as a discontinued operation and results of prior periods
have been restated for comparative purposes.
Sales from continuing operations of $3.2 billion in the first nine months of
1997 increased 11 percent from the 1996 period primarily as a result of
increased sales of airport products and petroleum equipment, and the addition of
Frigoscandia Equipment which was acquired at the end of the 1996 second quarter.
Operating profit from continuing operations increased to $329 million in the
first nine months of 1997 from $318 million during the comparable period in
1996, primarily as a result of increased sales, partially offset by lower
earnings from agricultural products reflecting lower insecticide sales and
manufacturing and marketing costs associated with new products. Corporate
expenses of $67 million were in line with the first nine months of 1996. Net
interest expense increased to $87 million from $71 million in 1996, reflecting
higher debt levels associated with previous acquisitions and capital
expenditures. Other income and expense, net, improved by $4 million primarily as
a result of lower LIFO, pension and FMC Foundation expenses.
Income from continuing operations before income taxes increased slightly in the
first nine months of 1997 to $180 million from $178 million in 1996. Income from
continuing operations of $137 million, or $3.58 per share, in the first nine
months of 1997 increased from $132 million, or $3.46 per share, in the 1996
period. In the first nine months of 1997, net income was $176 million and
earnings per share were $4.59, compared with $166 million and $4.37 per share,
respectively, in the prior year period.
Performance Chemicals sales of $987 million for the first nine months of 1997
increased from $982 for the year ago period. However, profits declined to $129
million from $147 million, reflecting manufacturing and marketing costs
associated
PAGE 18
with new products, costs associated with the Argentine lithium operations, and
weaker process additives results.
Industrial Chemicals sales decreased 2 percent to $750 million for the first
nine months of 1997, and earnings decreased to $111 million from $116 million
for the year ago period. The decreases in both sales and earnings were due
primarily to the negative impact of the strengthening of the U.S. dollar against
the Spanish peseta on FMC Foret's performance and lower hydrogen peroxide and
soda ash prices, partially offset by an increase in phosphate shipments from FMC
Foret and higher phosphate, soda ash and hydrogen peroxide shipments.
Machinery and Equipment sales of $1.5 billion rose 30 percent from $1.1 billion,
and profits increased to $90 million from $54 million. These results reflect
increased sales of airport products and petroleum equipment, the addition of
Frigoscandia Equipment which was acquired at the end of the 1996 second quarter,
and improvements in other energy and transportation equipment operations.
The effective tax rates related to earnings from continuing operations for the
nine-month periods ended September 30, 1997 and 1996 were 24 percent and 26
percent, respectively. The decline from 26 percent for the same period last year
is primarily a result of a change in mix of foreign and domestic earnings.
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' REVIEW REPORT
--------------------------------------
A report by KPMG Peat Marwick LLP, FMC's independent accountants, on the
financial statements included in Form 10-Q for the quarter ended September 30,
1997 is included on page 19.
PAGE 19
Independent Accountants' Review Report
--------------------------------------
The Board of Directors
FMC Corporation:
We have reviewed the accompanying consolidated balance sheet of FMC Corporation
and consolidated subsidiaries as of September 30, 1997, and the related
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1997 and 1996, and the consolidated statements of cash flows
for the nine-month periods ended September 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 review of the
interim financial information of United Defense, L.P. for the three and nine
months ended September 30, 1996. Net income of United Defense, L.P. for the
three and nine months ended September 30, 1996, included in net income from
discontinued operations, constituted 14% and 25% of consolidated net income,
respectively.
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 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.
KPMG Peat Marwick LLP
Chicago, Illinois
October 15, 1997
PAGE 20
Part II - Other Information
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
A former employee of FMC brought a qui tam lawsuit in 1986 in federal district
-------
court in San Jose, California, claiming that FMC had not produced the Bradley
Fighting Vehicle in accordance with Government specifications. The Department of
Justice declined to intervene in the case, in which the plaintiff has alleged
substantial monetary damages. FMC management believes that the claims in this
case are without merit and the company continues to defend this matter
vigorously. The case is scheduled for trial in December 1997.
PAGE 21
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 Letter re: unaudited interim financial
information
27 Financial data schedule
(b) Reports on Form 8-K
-------------------
Form 8-K dated August 28, 1997 describing FMC's signing of a definitive
agreement to sell United Defense, L.P. to The Carlyle Group.
Form 8-K dated August 28, 1997 announcing the company's program to
repurchase $500 million of its common stock in the open market.
PAGE 22
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: November 14, 1997 /s/ Ronald D. Mambu
------------------ -----------------------------
Vice President, Controller
and duly authorized officer
PAGE 1
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
- ------------- -----------
11 Statement re: computation of per share earnings
assuming full dilution
12 Statement re: computation of ratios of earnings
to fixed charges
15 Letter re: unaudited interim financial
information
27 Financial data schedule