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 March 31, 1998
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 March 31, 1998
- ------------------------------------ -------------------------------------
Common Stock, par value $0.10 per share 34,674,094
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
Ended March 31
------------------
1998 1997
-------- -------
Revenue:
Sales $1,022.4 $ 992.9
Other revenue 16.6 9.5
-------- --------
Total revenue 1,039.0 1,002.4
-------- --------
Costs and expenses:
Cost of sales 773.9 753.2
Selling, general and
administrative expenses 165.3 147.8
Research and development 38.1 41.1
-------- --------
Total costs and expenses 977.3 942.1
-------- --------
Income from continuing operations
before minority interests, net
interest expense, income taxes and
cumulative effect of change in accounting
principle 61.7 60.3
Minority interests 0.9 2.4
Interest expense (net) 24.6 30.1
-------- --------
Income from continuing operations
before income taxes and cumulative
effect of change in accounting
principle 36.2 27.8
Provision for income taxes 9.4 6.6
-------- --------
Income from continuing operations
before cumulative effect of change
in accounting principle 26.8 21.2
Discontinued operation, net of
income taxes (Note 4) - 18.8
-------- --------
Income before cumulative effect of change
in accounting principle 26.8 40.0
Cumulative effect of change in
accounting principle, net of income
taxes (Note 3) (36.1) -
-------- --------
Net income (loss) $ (9.3) $ 40.0
======== ========
PAGE 3
FMC Corporation and Consolidated Subsidiaries
- -----------------------------------------------------------
Consolidated Statements of Income (Unaudited) (Continued)
- -----------------------------------------------------------
(In millions, except per share data)
Three Months
Ended March 31
-----------------
1998 1997
------- -------
Basic earnings (loss) per common share:
Continuing operations $ 0.77 $ 0.57
Discontinued operation - 0.50
Cumulative effect of change in
accounting principle (1.04) -
------ ------
Net income (loss) per common share $(0.27) $ 1.07
====== ======
Average number of shares used in basic
earnings (loss) per share computations 34.8 37.2
====== ======
Diluted earnings (loss) per common share:
Continuing operations $ 0.75 $ 0.56
Discontinued operation - 0.49
Cumulative effect of change in
accounting principle (1.01) -
------ ------
Net income (loss) per common share $(0.26) $ 1.05
====== ======
Average number of shares used in
diluted earnings (loss) per share
computations 35.8 38.1
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 4
FMC Corporation and Consolidated Subsidiaries
- ----------------------------------------------------------
Consolidated Balance Sheets
- ----------------------------------------------------------
(In millions, except share and per share data)
March 31
1998 December 31
(Unaudited) 1997
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $ 58.2 $ 62.7
Trade receivables, net of allowances
of $17.3 in 1998 and $10.4 in 1997 874.7 834.2
Inventories 572.8 524.1
Other current assets 234.4 210.4
Deferred income taxes 75.7 84.2
-------- --------
Total current assets 1,815.8 1,715.6
Investments 38.2 35.9
Property, plant and equipment at cost 3,736.8 3,655.2
Less -- accumulated depreciation 2,047.4 1,975.9
-------- --------
Net property, plant and equipment 1,689.4 1,679.3
Goodwill and intangible assets 408.4 420.4
Other assets 123.8 174.1
Deferred income taxes 96.0 87.8
-------- --------
Total assets $4,171.6 $4,113.1
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt (Note 2) $ 241.7 $ 186.4
Accounts payable, trade and other 643.0 663.5
Accrued and other current liabilities 441.9 477.8
Current portion of long-term debt (Note 2) 3.3 14.0
Current portion of accrued pension
and other postretirement benefits 16.7 17.0
Income taxes payable 57.2 105.8
-------- --------
Total current liabilities 1,403.8 1,464.5
Long-term debt, less current portion (Note 2) 1,309.7 1,140.2
Accrued pension and other postretirement
benefits, less current portion 243.8 246.5
Reserve for discontinued operations (Note 4) 214.2 231.3
Other liabilities 218.7 212.0
Minority interests in consolidated companies 55.4 58.0
Stockholders' equity:
Preferred stock, no par value, authorized
5,000,000 shares; no shares issued in
1998 or 1997 - -
Common stock, $0.10 par value, authorized
130,000,000 shares; issued 38,046,171
shares in 1998 and 37,875,549 shares
in 1997 (Note 7) 3.8 3.8
Capital in excess of par value 150.4 141.0
Retained earnings 959.9 969.2
Foreign currency translation adjustment (141.0) (135.7)
Treasury stock, common, at cost;
3,372,077 shares in 1998 and 2,951,573
shares in 1997 (247.1) (217.7)
-------- --------
Total stockholders' equity 726.0 760.6
-------- --------
Total liabilities and stockholders' equity $4,171.6 $4,113.1
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 5
FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
(In millions)
Three Months
Ended March 31
-----------------
1998 1997
------ ------
Reconciliation from income from continuing
operations before cumulative effect of change
in accounting principle to cash provided
(required) by operating activities of
continuing operations:
Income from continuing operations before
cumulative effect of change in accounting
principle $ 26.8 $ 21.2
Adjustments for non-cash components of
income from continuing operations:
Depreciation and amortization 53.2 56.2
Deferred income taxes 0.3 8.1
Minority interests 0.9 2.3
Other (13.7) (12.0)
(Increase) decrease in assets:
Trade receivables (40.5) (23.6)
Inventories (48.7) (13.0)
Other current assets and other assets (12.6) 32.4
(Decrease) increase in liabilities:
Accounts payable, accrued and other
current liabilities and other liabilities (37.7) (12.6)
Income taxes payable (38.3) 6.5
Restructuring reserve (11.9) (0.9)
Accrued pension and other
postretirement benefits, net (3.2) (4.7)
------- ------
Cash provided (required) by operating
activities of continuing operations $(125.4) $ 59.9
======= ======
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Cash Flows (Unaudited) (Continued)
- -------------------------------------------------------------
(In millions)
Three Months
Ended March 31
-----------------------
1998 1997
-------- -------
Cash provided (required) by operating
activities of continuing operations $ (125.4) $ 59.9
-------- -------
Cash provided (required) by discontinued
operations (17.1) 27.2
-------- -------
Cash provided (required) by investing
activities:
Capital spending (64.5) (74.1)
Disposal of property, plant and
equipment 15.3 19.3
Decrease in investments 0.5 10.0
-------- -------
(48.7) (44.8)
-------- -------
Cash provided (required) by financing
activities:
Net repayments of commercial paper (107.3) (176.4)
Net increase (decrease) in other
short-term debt 55.3 (92.8)
Proceeds from issuance of
long-term debt - 44.7
Repayment of long-term debt (16.4) (8.5)
Net borrowings under credit facilities 280.0 170.8
Distributions to limited partner (2.8) (4.4)
Repurchases of common stock (29.4) (0.2)
Issuance of common stock 9.5 4.3
-------- -------
188.9 (62.5)
-------- -------
Effect of exchange rate changes on cash
and cash equivalents (2.2) (2.6)
-------- -------
Decrease in cash and cash equivalents (4.5) (22.8)
Cash and cash equivalents, beginning
of year 62.7 74.8
-------- -------
Cash and cash equivalents, end
of period $ 58.2 $ 52.0
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized, was $28.6 million and $34.0
million, and net cash (received) paid for income taxes (including taxes paid
related to Defense Systems operations) was $48.0 million and $(9.0) million for
the three-month periods ended March 31, 1998 and 1997, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 7
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
March 31, 1998, and the related consolidated statements of income and cash flows
for the interim periods ended March 31, 1998 and 1997 have been reviewed by
FMC's independent accountants. The review is discussed more fully in their
report included herein. In the opinion of management, such financial statements
have been prepared in conformity with generally accepted accounting principles
and reflect all adjustments necessary for a fair statement of the results of
operations for the interim periods. All such adjustments are of a normal
recurring nature. The results of operations for the three-month periods ended
March 31, 1998 and 1997 are not necessarily indicative of the results of
operations for the full year.
Prior period balances have been reclassified to conform with the current
period's presentation, including the reclassification of operations constituting
the Defense Systems segment as a discontinued operation (Note 4).
The company's accounting policies, except as described in the remainder of this
paragraph, are set forth in Note 1 to the company's 1997 financial statements,
which are incorporated by reference in the company's 1997 Annual Report on Form
10-K. As more fully discussed in Note 3, the company adopted AICPA Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities,"
effective January 1, 1998. In conjunction with the adoption the company began
expensing all start-up costs as incurred.
Note 2: Debt
- -------------
The company has $750 million in committed credit facilities consisting of a $300
million, 364-day non-amortizing revolving credit agreement due in December 1998
and a $450 million, five-year non-amortizing revolving credit agreement due in
December 2001. As of March 31, 1998, the company had advances under the five-
year revolving credit agreement of $93.0 million. No amounts were outstanding
under these facilities at December 31, 1997.
In November 1995, the company commenced a short-term commercial paper program
supported by the committed facilities. Outstanding commercial paper borrowings
totaled $50.0 million at March 31, 1998 ($155.0 million at December 31, 1997).
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, $50.0 million of outstanding
commercial paper and $307.0 million of borrowings under uncommitted U.S. credit
facilities have been classified as long-term debt at March 31, 1998. At
December 31, 1997, $155.0 million of outstanding commercial paper and $120.0
million of borrowings under uncommitted U.S. credit facilities were classified
as long-term debt.
PAGE 8
In January 1997, the company registered $400 million of medium-term debt
securities pursuant to a $500 million universal shelf registration filed in
1995. Between January 1997 and May 1997, the company issued $70 million of
medium-term notes and used the net proceeds to retire short-term borrowings. In
addition, the company issued $70 million of medium-term notes on May 5, 1998
(Note 7).
Note 3: Recent Accounting Pronouncements
- -----------------------------------------
AICPA Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-
Up Activities," was adopted by the company effective January 1, 1998. SOP 98-5
requires costs of start-up activities, including organizational costs, be
expensed as incurred. In conjunction with the adoption, the company charged
$46.5 million ($36.1 million after tax, or $1.01 per share on a diluted basis)
to expense, which was reported as the cumulative effect of a change in
accounting principle. The expense represented the write-off of costs related to
the start-up of manufacturing at the Salar del Hombre Muerto lithium facility in
Argentina, the Baltimore sulfentrazone facility, and the Bayport, Texas hydrogen
peroxide plant expansion.
During the quarter ended March 31, 1998, the company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." 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, and requires a total for
comprehensive income to be provided in condensed financial statements of interim
periods. Comprehensive income includes all changes in stockholders' equity
during the period except those resulting from investments by owners and
distributions to owners. Comprehensive income (loss) for the quarters ended
March 31, 1998 and 1997 consisted of the following:
1998 1997
------ ------
Net income (loss) $ (9.3) $ 40.0
Other comprehensive income (loss):
Foreign currency translation adjustment, net
of tax of $(1.9) and $(11.0), respectively (5.3) (35.5)
------ -----
Comprehensive income (loss) $(14.6) $ 4.5
====== =====
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997 but is not required to be reported in interim financial
statements in the first year of application. 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 and will adopt SFAS No. 131, as
required, in the fourth quarter of 1998.
PAGE 9
Note 4: Discontinued Operations
- --------------------------------
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 to the U.S. and military
customers around the world.
The gross sale proceeds to FMC and Harsco consisted of $800 million cash, to be
adjusted based on certain closing balance sheet items as of October 6, 1997, and
a $50 million note payable to FMC by Carlyle upon finalization of certain
international joint-venture agreements. Of the estimated proceeds, FMC received
$460 million cash (subject to adjustment) and expects to collect the $50 million
note, which bears interest at 8.75%, in 1998. FMC recognized a gain on the
transaction of $318.4 million ($179.7 million after tax) during the fourth
quarter of 1997. The reported gain is subject to resolution of closing issues in
accordance with the sale contract. FMC used cash received to retire variable
rate debt and commercial paper and contribute towards its common stock
repurchase program.
In addition to its interest in the UDLP partnership, FMC 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 transferred
92 of its CTC, legal and defense audit staff to UDLP in conjunction with the
disposition of UDLP. These staff primarily performed defense-related duties
while at FMC.
Sales and net income of the discontinued operation were $287.5 million and $18.7
million, respectively, for the quarter ended March 31, 1997.
Reserves for discontinued operations at March 31, 1998 and December 31, 1997,
respectively, were $214.2 million and $231.3 million. At March 31, 1998, $30.2
million of the reserves related to liabilities associated with the sale of UDLP,
and the remainder is related to operations discontinued between 1976 and 1996.
See Note 3 to the company's December 31, 1997 financial statements and Note 5
below.
Note 5: Environmental Contingencies
- ------------------------------------
FMC is subject to various federal, state and local environmental laws and
regulations that govern emissions of air pollutants, discharges of water
pollutants, and the manufacture, storage, handling and disposal of hazardous
substances, hazardous wastes and other toxic materials. The most significant
environmental liabilities of the company consist of obligations relating to the
remediation and/or study of sites at which the company is alleged to have
disposed of hazardous substances. In particular, the company is subject to
liabilities arising under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws that impose responsibility
on persons who arranged for the disposal of hazardous substances and on current
and previous owners and operators of a facility for the clean up of the
hazardous substances released from the facility into the environment. In
addition, the company is subject to liabilities under the corrective
PAGE 10
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 $252.8 million and $263.8
million, before recoveries, have been provided at March 31, 1998 and December
31, 1997, respectively, of which $125.0 million and $132.7 million are included
in the reserve for discontinued operations at March 31, 1998 and December 31,
1997, respectively. The company's total environmental reserves include
approximately $242.1 million and $247.4 million for remediation activities and
$10.7 million and $16.4 million for remedial investigation/feasibility study
costs at March 31, 1998 and December 31, 1997, respectively. In addition, the
company has estimated that reasonably possible environmental loss contingencies
may exceed amounts accrued by as much as $150 million at March 31, 1998.
Although potential environmental remediation expenditures in excess of the
current reserves and estimated loss contingencies could be significant, the
impact on the company's future financial results is not subject to reasonable
estimation due to numerous uncertainties concerning the nature and scope of
contamination at many sites, identification of remediation alternatives under
constantly changing requirements, selection of new and diverse clean-up
technologies to meet compliance standards, the timing of potential expenditures,
and the allocation of costs among Potentially Responsible Parties ("PRPs") as
well as other third parties.
The liability arising from potential environmental obligations that have not
been reserved for at this time may be material to any one quarter's or year's
results of operations in the future. Management, however, believes the
liability arising from the potential environmental obligations is not likely to
have a material adverse effect on the company's liquidity or financial condition
and may be satisfied over the next 20 years or longer.
An environmental inspection was conducted in July 1993 at FMC's Phosphorus
Chemicals Division plant in Pocatello, Idaho. In August 1994, the United States
EPA (Region 10) (the "EPA") formally notified FMC of a number of alleged
violations of the RCRA and related environmental regulations governing the
management of hazardous waste generated by the plant, including the operations
of hazardous waste storage and treatment units without interim status, the
failure to submit timely closure plans, the failure to 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.
PAGE 11
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 to the EPA 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 reserve of $64.3 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 contributions from other PRPs, and for a determination of
coverage against its comprehensive general liability insurance carriers.
Recoveries of $104.2 million ($36.2 million as other assets and $68.0 million as
an offset to the reserve for discontinued operations) and $104.9 million ($36.9
million as other assets and $68.0 million as an offset to the reserve for
discontinued operations), have been recorded as probable realization on claims
against third parties at March 31, 1998 and December 31, 1997, respectively.
The majority of recorded assets related to recoveries from PRPs are associated
with insurance companies and with existing contractual arrangements with U.S.
government agencies and amounts due from insurance carriers.
Note 6: 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. During
1997, the company repurchased a total of 2.7 million of its common shares at a
cost of $209 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 company 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
$150 million of the company's common stock during both 1998 and 1999. For the
three months ended March 31, 1998 the company repurchased 419,400 of its common
shares at a cost of $29.4 million.
At March 31, 1998, the company had 34.7 million shares outstanding and 1.1
million additional shares assuming conversion of stock options (calculated under
the treasury stock method).
Note 7: Subsequent Events
- --------------------------
On April 24, 1998 the Restated Certificate of Incorporation of the company was
amended to increase the authorized number of common shares, $0.10 par value, of
FMC to 130 million from 60 million.
On May 5, 1998, the company issued $70 million, of 6.75% notes due May 5, 2005.
The notes were issued under the company's medium-term debt program (Note 2).
The company expects the proceeds of $69.2 million to be used to retire other
borrowings.
PAGE 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
---------------------------------------------------
Item 2 of this report contains certain forward looking statements 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,
1997, 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), freight transportation delays beyond the control of the company,
inability of the company or its suppliers to remedy potential information
systems problems related to the year 2000, risks associated with joint ventures,
partnerships or limited endeavors, future environmental liabilities not covered
by insurance or indemnity and risks relating to general economic conditions,
that could cause actual results to differ materially from those discussed in
this report. In addition, other factors such as unforeseen outcomes of
litigation or other contingencies could cause results to differ materially from
those discussed herein.
LIQUIDITY AND FINANCIAL CONDITION
---------------------------------
Total cash and cash equivalents at March 31, 1998 and December 31, 1997 were
$58.2 million and $62.7 million, respectively. The increase in the allowance for
doubtful accounts to $17.3 million from $10.4 million at the end of 1997
reflects normal adjustments, as well as a $5.3 million provision made primarily
in response to increased international exposures, most notably in Southeast
Asia.
As of March 31, 1998 and December 31, 1997, the company had total borrowings of
$1,554.7 million and $1,340.6 million, respectively. Decreases in commercial
paper borrowings of $105.0 million (net of discount) were offset by $93.0
million of new advances under the five-year revolving credit agreement and a
$187.0 million increase in borrowings under uncommitted U.S. credit facilities.
The company has $750 million in uncommitted credit facilities consisting of a
$300 million, 364-day non-amortizing revolving credit agreement due in December
1998 and a $450 million, five-year non-amortizing revolving credit agreement due
in December 2001. The additional borrowings under the uncommitted credit
facilities were used to make tax payments of $48.0 million, including payments
related to the 1997 sale of UDLP, and to fund operations. As of March 31, 1998,
the company had advances under the five-year revolving credit agreement of $93.0
million, commercial paper borrowings (supported by committed credit facilities)
of $50.0 million and borrowings under uncommitted U.S. credit facilities of
$307.0 million. Management expects an overall cash outflow in the second
quarter, which may cause debt levels to increase slightly.
PAGE 13
In January 1997, the company registered $400 million of medium-term debt
securities pursuant to the universal shelf registration under which, between
January 1997 and May 1997, the company issued $70 million of medium-term notes.
In addition, the company issued $70 million of medium-term notes on May 5, 1998.
See note 7 to the March 31, 1998 consolidated financial statements.
Capital spending of $64.5 million for the three months ended March 31, 1998
decreased $9.6 million versus the first three months of 1997. The decrease was
primarily driven by lower spending in the company's performance chemical
businesses. The first quarter of 1997 included capital expenditures for the
development of a new lithium resource in Argentina and modifications to an
herbicide plant constructed to manufacture a new family of herbicides. Both
projects were substantially completed in 1997. The company continues to
evaluate potential acquisitions on an ongoing basis.
As discussed in Note 4 to the company's March 31, 1998 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 $460
million cash (approximately $375 million after tax) and a $50 million note
payable to FMC by Carlyle which the company expects to collect in 1998 upon
finalization of certain international joint-venture agreements. FMC used 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 March 31, 1998, the company repurchased a total of 419,400 common
shares at a cost of $29 million under this program. The repurchased shares are
recorded as treasury stock at cost in the company's March 31, 1998 consolidated
balance sheet. The company 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 an additional $120 million of the company's common stock
during the remainder of 1998 and $150 million during 1999.
Other expected cash requirements for the remainder of 1998 include approximately
$225 million to $300 million for planned capital expenditures (excluding
potential acquisitions), approximately $30 million for environmental remediation
expenditures and approximately $60 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 and, if
necessary, by existing cash balances and available short- or long-term credit
facilities.
As discussed in Note 3 to the company's March 31, 1998 consolidated financial
statements, the company adopted AICPA Statement of Position ("SOP") No. 98-5,
"Reporting on the Costs of Start-Up Activities," effective January 1, 1998. In
conjunction with the adoption, the company charged $46.5 million ($36.1 million
after tax) of previously capitalized start-up costs to expense.
PAGE 14
The company's ratios of earnings to fixed charges were 2.1x and 1.8x for the
three months ended March 31, 1998 and 1997, respectively. The increase in 1998
resulted primarily from the company's higher 1998 earnings, as well as lower net
interest expense.
PAGE 15
RESULTS OF OPERATIONS
---------------------
First Quarter of 1998 Compared With First Quarter of 1997
---------------------------------------------------------
Industry Segment Data (Unaudited)
--------------------------------------
(In millions)
Three Months Ended
March 31
------------------
1998 1997
---- ----
Sales
- -----
Machinery and Equipment $ 466.2 $467.0
Industrial Chemicals 237.1 235.5
Performance Chemicals 326.4 297.4
Eliminations (7.3) (7.0)
-------- ------
$1,022.4 $992.9
======== ======
Income from continuing
- ----------------------
operations before income taxes
- ------------------------------
and cumulative effect of change
- -------------------------------
in accounting principle
- -----------------------
Machinery and Equipment $ 22.9 $ 16.5
Industrial Chemicals 32.5 35.2
Performance Chemicals 34.4 29.9
-------- ------
Operating profit from
continuing operations 89.8 81.6
Corporate (23.3) (23.3)
Other expense, net (5.7) (0.4)
Net interest expense (24.6) (30.1)
-------- ------
$ 36.2 $ 27.8
======== ======
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests for the three months ended
March 31, 1998 and 1997 were $0.9 million and $2.4 million, respectively, the
majority of which related to the Industrial Chemicals segment. The corporate
line primarily includes staff expenses, and other income and expense consists of
all other corporate items.
As described in Note 4 to the company's March 31, 1998 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.
PAGE 16
General
- -------
Sales from continuing operations of $1.0 billion increased 3 percent from last
year's quarter, driven largely by growth in Performance Chemicals (reflecting
increased sales of Authority and Command herbicides). Operating profit from
continuing operations (net of minority interests) increased to $90 million from
$82 million in the year-ago quarter, reflecting the increased Performance
Chemical sales, lower costs due to restructuring initiatives and higher energy
equipment sales and margins. These increases were partially offset by lower
Industrial Chemical profits due to continued pricing pressures. Income from
continuing operations before the cumulative effect of a change in accounting
principle increased to $27 million, or $0.75 per share on a diluted basis, in
the first quarter of 1998 from $21 million, or $0.56 per share, in the first
quarter of 1997.
As discussed in Note 3 to the company's March 31, 1998 consolidated financial
statements, effective January 1, 1998 the company adopted AICPA Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." In
conjunction with the adoption, the company charged $46.5 million ($36.1 million
after tax or $1.01 per share on a diluted basis) to expense which was reported
as the cumulative effect of a change in accounting principle. The net loss of
$9.3 million, or $0.26 per share on a diluted basis, in the first quarter of
1998 compared with net income of $40.0 million, or $1.05 per share, in the first
quarter of 1997.
Machinery and Equipment
- -----------------------
Machinery and Equipment sales of $466 million were essentially flat compared
with the first quarter of 1997. Profits of $23 million were up 38 percent from
$17 million in last year's quarter, reflecting continued improvements in the
petroleum equipment business.
Petroleum equipment sales increased in the first quarter of 1998 primarily due
to increased Wellhead sales to Indonesia, Malaysia and Saudi Arabia and
increased SOFEC sales to Mexico and Canada. Earnings also increased as a result
of the higher sales.
Sales of airport products decreased in the first quarter of 1998 due to lower
sales of deicers and handling equipment, partially offset by increased sales of
Jetway Systems. Earnings from airport products increased from the first quarter
of 1997 primarily as a result of higher margins on sales of deicers and Jetway
Systems.
FMC FoodTech sales and profits decreased from last year's quarter, reflecting
its reduced backlog position at the beginning of the year and a decline in sales
in Southeast Asia. Management expects the situation in Asia will likely
continue to adversely impact FMC FoodTech's results throughout 1998, and is also
anticipating that lower citrus crop production in Brazil will adversely affect
extractor revenues in the near-term. A surge in backlog in the first quarter of
1998, however, leads management to expect these reduced revenues will be
replaced by other business during the year.
PAGE 17
Industrial Chemicals
- --------------------
Industrial Chemical sales of $237 million in 1998 were essentially even with
first quarter 1997 sales of $236 million, reflecting higher sales volume of
phosphorus products offset by lower soda ash and hydrogen peroxide prices.
Earnings (net of minority interest) decreased to $33 million compared with $35
million in 1997 as a result of lower prices and the strengthening of the U.S.
dollar against the Spanish peseta.
Sales and earnings of alkali products decreased compared to the first quarter of
1997, reflecting lower prices and export volumes of soda ash to Asia. In
addition, soda ash volumes continued to be negatively affected by operating
problems at Union Pacific, a significant transporter of FMC soda ash. The
company is taking actions, as appropriate, in an attempt to recover costs
incurred as a result of these problems.
Phosphorus sales and earnings increased in the first quarter of 1998 compared
with the 1997 quarter, reflecting higher volumes and lower depreciation costs
resulting from a $120 million asset impairment charge recorded in the fourth
quarter of 1997.
Peroxygen sales were lower in the first quarter, but earnings were up slightly
due to improved hydrogen peroxide margins, as cost control efforts offset
continued weak pricing.
Sales and earnings of Spain-based FMC Foret decreased from the first quarter of
1997 as increased volumes were more than offset by the strengthening of the U.S.
dollar against the Spanish peseta.
Performance Chemicals
- ---------------------
Performance Chemicals sales of $326 million increased 10 percent compared with
sales of $297 million in last year's period. Earnings were $34 million in the
first quarter of 1998, up 15 percent compared to $30 million in the year ago
quarter, reflecting strong sales and earnings of agricultural products.
Agricultural products sales and profits were up in 1998, primarily due to
increased sales of Authority and Command herbicides, as well as lower costs due
to restructuring initiatives. Process changes were implemented at the Authority
herbicide plant in January, and during the quarter the plant ran at targeted
production rates.
Lithium sales and earnings deceased in the first quarter as compared to 1997,
due to lower lithium carbonate and hydroxide prices reflecting increased
competition. During early 1998, the company shut down and sold its lithium mine
in North Carolina.
Food ingredients sales were even compared to the same quarter last year and
earnings increased due to improved margins resulting from manufacturing cost
reductions and lower overhead and raw material costs.
Corporate
- ---------
During the 1998 quarter, corporate expenses remained flat at $23 million
compared with the 1997 period.
PAGE 18
Net interest expense
- --------------------
Net interest expense decreased due to lower debt levels resulting from late 1997
operating cash flows and the use of a portion of the proceeds from the sale of
the company's defense operations to reduce outstanding debt. Management expects
an overall cash outflow in the second quarter, which may cause debt levels to
increase slightly.
Other expense, net
- ------------------
Other expense, net increased $5.3 million compared to the same quarter in 1997
largely due to higher LIFO expense and the impact of stock price appreciation on
certain of the company's compensation plans.
Effective tax rates
- -------------------
The effective tax rates applicable to income from continuing operations before
income taxes and the cumulative effect of a change in accounting principle for
the quarters ended March 31, 1998 and 1997 were 26 and 24 percent, respectively.
Order backlog
- -------------
FMC's backlog of unfilled orders for Machinery and Equipment increased to $1,384
million from $989 million at the end of 1997. The increase in backlog reflects
the recognition of the previously announced subsea and floating production
equipment order for the $230 million Terra Nova Project on the Grand Banks of
Newfoundland, as well as large orders from Shell and Statoil. In addition, FMC
FoodTech's backlog increased $56 million from the end of 1997 driven by
increases in most divisions. Backlogs are not reported for Industrial Chemicals
or Performance Chemicals due to the nature of these businesses.
Legal contingencies
- -------------------
On April 14, 1998 a jury returned a verdict against the company in the amount of
$125 million in conjunction with a qui tam lawsuit against the company. (See
Part II, Item 1 of this Form 10-Q for a discussion of the lawsuit.) Although any
legal proceeding is subject to inherent uncertainty, it is the company's
position that the lawsuit is without merit and that the likelihood that any
material adverse judgment in this action will stand against the company is
remote. Accordingly, no provision for this matter has been or is expected to be
made in the company's financial statements.
PAGE 19
INDEPENDENT ACCOUNTANTS' 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 March 31, 1998 is included on page 20.
PAGE 20
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 March 31, 1998, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
1998 and 1997. 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
results of discontinued operations of United Defense, L.P. for the three-month
period ended March 31, 1997.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not aware of any
material modifications that should be made to the 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, 1997 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 20, 1998, 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, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for costs of start-up activities in 1998.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
April 14, 1998
PAGE 21
Part II - Other Information
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
As previously reported, in 1986 a former employee of FMC brought a qui tam
lawsuit against the company in the United States District Court for the Northern
District of California (United States of America, ex rel Henry Boisvert v. FMC
Corporation). The lawsuit alleges that FMC violated the False Claims Act ("FCA")
in connection with the development, testing and manufacture of the Bradley
Fighting Vehicle by the company's Defense Systems Group (which was sold during
1997 and is presently accounted for as a discontinued operation). Following an
investigation of the allegations raised by the lawsuit, the U.S. Department of
Justice declined to intervene in the action. On April 14, 1998 a jury returned a
verdict against the company in the amount of $125 million. No judgment resulting
from the verdict has been entered at this time. The court established a schedule
for post-trial motions and a hearing date of July 9, 1998 on those motions,
after which the court will determine what judgment, if any, to enter. Under the
FCA, any judgment stemming from the verdict may include, based on certain
determinations to be made by the court, a doubling or trebling of part or all of
the damages reflected in the verdict, as well as penalties and costs, including
attorneys' fees.
Management believes the verdict is unjustified and intends to pursue all
available remedies to set aside the jury's decision or reverse any judgment
resulting therefrom. It is the company's position that the lawsuit is without
merit. Although any legal proceeding is subject to inherent uncertainty, based
upon an analysis of relevant factual and legal issues and consultation with
counsel, management believes that the likelihood that any material adverse
judgment in this action will stand against the company is remote. As management
does not believe that this litigation will have a material impact on the
company's earnings, liquidity or financial condition, no provision for this
matter has been or is expected to be made in the company's financial statements.
ITEM 6. EXHIBITS
- ------ --------
Number in
Exhibit Table Description
------------- -----------
11 Statement re: computation of
diluted earnings per share
12 Statement re: computation of
ratios of earnings to fixed
charges
15 Letter re: unaudited
interim financial information
27 Financial Data Schedule
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: May 13, 1998 /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
diluted earnings per share
12 Statement re: computation of
ratios of earnings to fixed
charges
15 Letter re: unaudited
interim financial
information (KPMG Peat Marwick LLP)
27 Financial Data Schedule