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, 2002
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.)
1735 Market Street
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215/299-6000
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 SEPTEMBER 30, 2002.
35,086,303 shares of Common Stock, par value $0.10 per share
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FMC Corporation and Consolidated Subsidiaries Condensed Consolidated Statements
of Income (in millions, except per share data)
(unaudited) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $476.6 $482.8 $1,393.2 $1,453.2
- ----------------------------------------------------------------------------------------------------------------------------
Cost of sales or services 350.1 367.4 1,030.2 1,058.1
Selling, general and administrative expenses 55.7 55.8 171.2 181.4
Research and development expenses 19.4 25.0 60.4 73.9
Asset impairments (Note 7) -- -- -- 323.1
Restructuring and other charges (Note 8) -- 8.5 14.4 184.5
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 425.2 456.7 1,276.2 1,821.0
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 51.4 26.1 117.0 (367.8)
Equity in earnings of affiliates (3.6) (4.7) (4.6) (4.9)
Minority interests 1.0 0.9 2.1 1.5
Interest expense, net 15.7 14.4 48.1 44.2
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes and cumulative
effect of a change in accounting principle 38.3 15.5 71.4 (408.6)
Provision (benefit) for income taxes 10.1 1.6 15.0 (138.0)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before cumulative effect of
change in accounting principle 28.2 13.9 56.4 (270.6)
Discontinued operations, net of income taxes (Note 2) -- 7.4 -- (33.5)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of change in accounting principle 28.2 21.3 56.4 (304.1)
Cumulative effect of change in accounting principle, net of income taxes (Note 3) -- -- -- (0.9)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 28.2 $ 21.3 $ 56.4 $ (305.0)
============================================================================================================================
Basic earnings (loss) per common share (Note 13)
Continuing operations $ 0.80 $ 0.44 $ 1.71 $ (8.72)
Discontinued operations (Note 2) -- 0.24 -- (1.08)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.80 $ 0.68 $ 1.71 $ (9.83)
============================================================================================================================
Diluted earnings (loss) per common share (Note 13)
Continuing operations $ 0.79 $ 0.43 $ 1.66 $ (8.72)
Discontinued operations (Note 2) -- 0.23 -- (1.08)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.79 $ 0.66 $ 1.66 $ (9.83)
============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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September, 30 December 31,
FMC Corporation and Consolidated Subsidiaries 2002 2001
Condensed Consolidated Balance Sheets (in millions, except per share data) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 37.3 $ 23.4
Trade receivables, net of allowance of $11.0 in 2002 and $8.4 in 2001 (Note 16) 367.5 441.7
Inventories 167.5 207.2
Other current assets 116.2 99.6
Deferred income taxes 46.1 48.4
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 734.6 820.3
Investments 32.1 25.2
Property, plant and equipment, net (Note 6) 1,058.7 1,087.8
Goodwill (Note 3) 124.3 113.5
Other assets 138.1 135.6
Deferred income taxes 280.1 294.8
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $2,367.9 $2,477.2
============================================================================================================================
Liabilities and stockholders' equity
Current liabilities:
Short-term debt (Note 9) $ 60.3 $ 136.5
Accounts payable, trade and other 212.3 327.7
Accrued and other liabilities 289.2 337.0
Guarantees of vendor financing (Note 17) 19.7 56.0
Current portion of long-term debt (Note 9) 260.8 135.2
Current portion of accrued pensions and other postretirement benefits 14.8 18.2
Income taxes payable 27.6 27.8
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 884.7 1,038.4
Long-term debt, less current portion (Note 9) 568.8 651.8
Accrued pension and other postretirement benefits, less current portion 107.2 109.2
Environmental reserves, continuing and discontinued (Note 12) 173.3 203.5
Reserves for discontinued operations (Note 10) 73.9 86.3
Other long-term liabilities (Note 11) 94.9 124.4
Minority interests in consolidated companies 43.2 44.8
Commitments and contingent liabilities (Notes 10, 11, 12, 14 and 16)
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, no par value, authorized 5,000,000 shares; no shares issued in 2002 or 2001 -- --
Common stock, $0.10 par value, authorized 130,000,000 shares in 2002 and 2001; issued
43,001,994 shares in 2002 and 39,234,578 shares in 2001 4.3 3.9
Capital in excess of par value of common stock 334.1 217.5
Retained earnings 738.6 691.8
Accumulated other comprehensive loss (Note 14) (147.8) (186.8)
Treasury stock, common, at cost; 7,915,691 shares in 2002 and 7,929,281 shares in 2001 (507.3) (507.6)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 421.9 218.8
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,367.9 $2,477.2
============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
(in millions) September
- ----------------------------------------------------------------------------------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------
Cash provided (required) by operating activities of continuing operations:
Income (loss) from continuing operations before cumulative effect of change in
accounting principle $ 56.4 $(270.6)
Adjustments to reconcile income (loss) from continuing operations before cumulative
effect of change in accounting principle to cash provided (required) by
operating activities of continuing operations:
Depreciation and amortization 89.0 95.3
Asset impairments (Note 7) -- 323.1
Restructuring and other charges (Note 8) 14.4 184.5
Deferred income taxes 17.0 (153.2)
Minority interests 2.1 5.8
Other (1.1) 7.0
Changes in operating assets and liabilities, excluding the effect of acquisitions and
divestitures of businesses:
Trade receivables, net 88.2 29.2
Inventories 34.9 (25.9)
Other current and long term assets (47.4) (49.4)
Accounts payable (115.4) (94.4)
Accrued and other liabilities and other long-term liabilities 0.6 31.6
Reserves for restructuring and other charges (49.7) (39.9)
Environmental reserves, continuing operations (5.8) (11.9)
Income taxes payable (0.3) (33.7)
Accrued pension and other postretirement benefits, net (6.4) (22.2)
- ----------------------------------------------------------------------------------------------------------
Cash provided (required) by operating activities: 76.5 (24.7)
Cash required by discontinued operations:
Environmental reserves discontinued, net of recoveries (Note 12) (10.2) (14.1)
Other reserves (Note 10) (13.6) (80.4)
- ----------------------------------------------------------------------------------------------------------
Cash required by discontinued operations $ (23.8) $ (94.5)
- ----------------------------------------------------------------------------------------------------------
-4-
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
(in millions)
Cash provided (required) by investing activities:
Capital expenditures $(50.9) $(119.2)
Proceeds from disposal of property, plant and equipment 8.5 12.9
Financing commitments to Astaris (Notes 8 and 17) (27.8) (31.3)
Decrease (increase) in investments (1.3) 2.1
- -----------------------------------------------------------------------------------------------
Cash required by investing activities $(71.5) $(135.5)
- -----------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net proceeds from issuance of commercial paper $(29.2) $ 45.1
Net increase under committed credit facilities 38.0 1.9
Accounts receivable sold (Note 16) (14.0) (1.0)
Guarantees of vendor financing (Note 17) (36.3) (14.8)
Net increase (decrease) in other short-term debt 25.2 (56.2)
Increase in long-term debt -- 107.7
Contribution from Technologies, net of funding to Technologies (Note 2) -- 385.4
Repayment of long-term debt (67.9) (216.0)
Distributions to minority partners (2.8) (3.2)
Net proceeds from issuance of common stock from equity offering (Note 12) 101.3 --
Issuances of common stock related to compensation programs 16.0 33.5
- -----------------------------------------------------------------------------------------------
Cash provided by financing activities $ 30.3 $ 282.4
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents $ 2.4 $ (0.4)
===============================================================================================
Increase in cash and cash equivalents 13.9 27.3
Cash and cash equivalents, beginning of period 23.4 7.3
===============================================================================================
Cash and cash equivalents, end of period $ 37.3 $ 34.6
===============================================================================================
Supplemental disclosure of cash flow information: Cash paid for interest
was $44.4 million and $68.3 million for the nine months ended September 30,
2002 and 2001, respectively, and cash paid for income taxes, net of
refunds, was $15.3 million and $18.6 million for the nine months ended
September 30, 2002 and 2001, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
FMC Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Financial Information and Accounting Policies
The condensed consolidated balance sheet as of September 30, 2002, and the
related condensed consolidated statements of income and cash flows for the
interim periods ended September 30, 2002 and 2001 have been reviewed by our
independent auditors. The review is described more fully in their report
included herein. In the opinion of management the condensed consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States applicable to interim period financial
statements and reflect all adjustments necessary for a fair statement of the
company's results of operations and cash flows for the interim periods ended
September 30, 2002 and 2001 and of its financial position as of September 30,
2002. All such adjustments are of a normal recurring nature. The results of
operations for the interim periods ended September 30, 2002 and 2001 are not
necessarily indicative of the results of operations for the full year.
The December 31, 2001 balance sheet has been reclassified to conform to the
September 30, 2002 presentation. Amounts previously reported in reserves for
discontinued operations and other liabilities have been reclassified into one of
three line items: environmental reserves, continuing and discontinued; reserves
for discontinued operations or other long-term liabilities. The prior period's
cash flow has also been reclassified to conform to the September 30, 2002
presentation.
Effective January 1, 2002, FMC adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets. " In the
second quarter of 2002 the company elected to early adopt SFAS No. 145,
"Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB No. 14, and
Technical Corrections." (See Note 3.)
During the third quarter the company expanded several of its principal
accounting policy descriptions as noted below:
The company's accounting policies are set forth in detail in Note 1 to the 2001
consolidated financial statements contained in the company's Annual Report on
Form 10-K for the period ended December 31, 2001.
Investments. Investments in companies in which FMC's ownership interest is 50%
or less and in which FMC exercises significant influence over operating and
financial policies, are accounted for using the equity method. In addition
majority owned investments in which FMC's control is restricted or temporary in
nature also are accounted for using this method. All other investments are
carried at their fair values or at cost, as appropriate.
Revenue recognition. Revenue is recognized when the earnings process is
complete, which is generally upon transfer of title, which typically occurs upon
shipment to the customer. In all cases, the following criteria are in effect for
the recognition of revenue: persuasive evidence of an arrangement exists,
delivery has occurred, the selling price is fixed or determinable and collection
is reasonably assured.
Environmental reserves, net of recoveries. In calculating and evaluating the
adequacy of its environmental reserves, the company has taken into account the
joint and several liabilities imposed by the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and the analogous state laws
on all Potentially Responsible Parties ("PRPs") and has considered the identity
and financial condition of each of the other PRPs at each site to the extent
possible. The company has also considered the identity and financial condition
of other third parties from whom recovery is anticipated, as well as the status
of the company's claims against such parties. In general, the company is aware
of a certain degree of uncertainty in disputes regarding the financial
contribution by certain named PRPs which is common to most multiparty sites.
Although the company is unable to forecast the ultimate contributions of PRPs
and other third parties with absolute certainty, the degree of uncertainty with
respect to each party was taken into account when determining the environmental
reserve by adjusting the reserve to reflect the facts and circumstances on a
site-by-site basis.
Note 2: FMC's Reorganization
In October 2000, the company announced it was initiating a strategic
reorganization (the "reorganization" or "separation") that ultimately would
split the company into two independent publicly held companies - a chemical
company and a machinery company. The remaining chemical company, which continues
to operate as FMC Corporation, includes the Agricultural Products, Specialty
Chemicals and Industrial Chemicals business segments. The new machinery company,
FMC Technologies, Inc.
-6-
("Technologies") includes FMC's former Energy Systems and Food and
Transportation Systems business segments. On June 1, 2001, in accordance with
the Separation and Distribution Agreement (the "Agreement") between the two
companies, FMC distributed substantially all of the net assets comprising the
businesses of Technologies. On June 19, 2001, Technologies completed an initial
public offering ("IPO") of 17% of its equity through the issuance of common
stock. FMC continued to own the remaining 83% of Technologies through December
31, 2001. (See Notes 2 and 3 to our 2001 consolidated financial statements.)
Subsequent to the IPO, Technologies made payments of $385.4 million to FMC, net
of contributions from FMC, in exchange for the net assets distributed to
Technologies on June 1, 2001. Under the terms of the Agreement, Technologies
remitted $480.1 million to FMC in June 2001. The cash payment consisted of
$280.9 million of proceeds from Technologies' borrowings and $207.2 million of
proceeds from Technologies' initial public offering, less an agreed-upon sum of
$8.0 million retained by Technologies to cover certain costs incurred by
Technologies in conjunction with the initial public offering. The payments
contributed to Technologies by FMC were to supplement Technologies' operating
cash needs prior to the spin-off. The payments received by FMC were used to
retire short-term and long-term debt. During the second quarter of 2001, FMC
recognized a $140.0 million gain in stockholders' equity on the sale of
Technologies' stock.
On November 29, 2001, FMC's Board of Directors approved the spin-off of the
company's remaining 83 percent ownership in Technologies through a tax-free
distribution to FMC's stockholders ("the spin off"). Effective December 31,
2001, the company distributed approximately 1.72 shares of Technologies common
stock for every share of FMC common stock based on the number of FMC shares
outstanding on the record date, December 12, 2001. The distribution resulted in
a reduction of stockholders' equity of $509.5 million.
The company recorded an after-tax gain from discontinued operations of $7.4
million and an after-tax loss from discontinued operations of $33.5 million,
respectively, for the three and nine months ended September 30, 2001 related to
the spun-off Technologies business, including after-tax interest expense of $3.2
million and $11.8 million, respectively, which was allocated to discontinued
operations in accordance with Accounting Principles Board Opinion No. 30 and
later relevant accounting guidance, and an additional income tax provision of
$28.8 million related to the reorganization of FMC's worldwide entities in
anticipation of the separation of Technologies from FMC.
Note 3: Recently Adopted Accounting Pronouncements
On January 1, 2002, the company adopted Statement of Financial Accounting
Standards (" SFAS") No. 142, "Goodwill and Other Intangible Assets." With the
adoption of SFAS No. 142, goodwill and other indefinite intangible assets
("intangibles") are no longer subject to amortization, rather they are subject
to at least an annual assessment for impairment by applying a fair value based
test. Prior to January 1, 2002 the company amortized goodwill and identifiable
intangible assets (such as trademarks) on a straight-line basis over their
estimated useful lives not to exceed 40 years.In the second quarter, FMC
completed its transitional goodwill impairment tests required by SFAS No. 142.
FMC recorded no impairments of its goodwill and indefinite life intangibles
based on these tests. The company will continue its goodwill impairment tests,
annually, beginning in the fourth quarter of 2002, in accordance with the
requirements of SFAS No. 142.
Goodwill amortization was $4.2 million, or $0.14 per diluted share in 2001.
Goodwill amortization for the three and nine months ended September 30, 2001 was
$1.1 million or $0.03 per diluted share and $3.2 million or $0.09 per diluted
share, respectively. Goodwill amortization for the three and nine months ended
September 30, 2002 would have been approximately $1.1 million and $3.2 million,
respectively. Goodwill at September 30, 2002 and December 31, 2001 was $124.3
million and $113.5 million, respectively. The majority of FMC's goodwill is
attributed to an acquisition in the Specialty Chemicals segment. There are no
other material indefinite life intangibles at September 30, 2002. FMC's definite
life intangibles totaled $7.1 million at September 30, 2002. These definite life
intangibles are allocated among FMC's segments as follows: $3.2 million in
Agricultural Products, $2.5 million in Specialty Chemicals and $1.4 million in
Industrial Chemicals. All definite life intangible assets are amortizable and
consist primarily of patents, industry licenses and other intangibles.
On January 1, 2002, the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and establishes a single accounting model, based on
the framework established in SFAS No. 121, for long-lived assets to be disposed
of by sale. The Statement retains most of the requirements of SFAS No. 121
related to the recognition of the impairment of long-lived assets to be held and
used. There was no impact of adopting SFAS No. 144 in the first nine months of
2002.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145 "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB No. 14,
and Technical Corrections." The Statement rescinds or amends a number of
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. In
the second quarter of 2002, with the retirement of its 6.75% exchangeable senior
subordinated debentures (as discussed in Note 9 below), FMC elected early
adoption of SFAS No. 145. FMC recorded a $3.1 million loss ($1.9 million
after-tax) in restructuring and other charges in the second quarter of 2002
related to the early retirement of these debentures in its total costs and
expenses in accordance with this statement.
-7-
On January 1, 2001, the company implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138 (collectively, the "Statement"). The Statement requires the company
to recognize all derivatives in the consolidated balance sheets at fair value,
with changes in the fair value of derivative instruments to be recorded in
current earnings or deferred in other comprehensive income, depending on the
type of hedging transaction and whether a derivative is designated as an
effective hedge. In accordance with the provisions of the Statement, the company
recorded a first-quarter 2001 loss from the cumulative effect of a change in
accounting principle of $0.9 million after-tax in the company's consolidated
statement of earnings, and a deferred gain of $16.4 million after-tax in
accumulated other comprehensive loss.
Note 4: New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. FMC is required to adopt the provisions of
this pronouncement no later than the beginning of 2003 and is evaluating the
potential impact of adopting SFAS No. 143.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard addresses the accounting and
reporting for costs of so-called exit activities (including restructuring) and
for the disposal of long-lived assets. The standard changes some of the criteria
for recognizing a liability for these activities. It is effective beginning in
2003 with the liability recognition criteria under the standard applied
prospectively. The company will adopt SFAS No. 146 when required and is
currently evaluating the potential affects of adoption on its accounting
policies regarding exit and disposal activities.
Note 5: Financial Instruments and Risk Management
Hedge ineffectiveness and the portion of derivative gains or losses excluded
from assessments of hedge effectiveness, related to the company's outstanding
cash flow hedges and which were recorded to earnings during the three and nine
months ended September 30, 2002, were less than $0.1 million. For the three
months ended September 30, 2002 and September 30, 2001, the net deferred hedging
loss in accumulated other comprehensive loss was $1.5 million and $19.6 million,
respectively, of which approximately $0.4 million of net losses are expected to
be recognized in earnings during the twelve months ended September 30, 2003, at
the time the underlying hedged transactions are realized, and of which net
losses of $1.1 million are expected to be recognized at various times subsequent
to September 30, 2003 and continuing through November 30, 2005.
Note 6: Property, Plant and Equipment
Property, plant and equipment consisted of the following, in millions:
September 30,
2002 December 31,
(unaudited) 2001
------------- ------------
Property, plant and equipment, at cost $ 2,591.9 $ 2,538.2
Accumulated depreciation (1,533.2) (1,450.4)
--------- ---------
Property, plant and equipment, net $ 1,058.7 $ 1,087.8
========= =========
Note 7: Asset Impairments
Asset impairments totaling $323.1 million ($233.8 million after-tax) were
recorded in the second quarter of 2001. Based upon a comprehensive review of
FMC's long-lived assets the company recorded asset impairment charges of $211.9
million related to its U.S.-based phosphorus business. The components of asset
impairments related to this business included a $171.0 million impairment of
environmental assets built to comply with a RCRA Consent Decree ("Consent
Decree") at the Pocatello, Idaho facility and a $36.5 million impairment charge
for the company's investment in Astaris LLC ("Astaris"), the company's 50%-owned
phosphorus joint venture with Solutia, Inc. Driving these charges were a decline
in market conditions, the loss of a potential site on which to develop an
economically viable second purified phosphoric acid plant and FMC's agreement to
pay into a fund for
-8-
the Shoshone-Bannock Tribes as a result of an agreement to support a proposal to
amend the Consent Decree to permit the earlier closure of the largest remaining
waste disposal pond at Pocatello. In addition, FMC recorded an impairment charge
of $98.9 million related to its Specialty Chemicals segment's lithium operations
in Argentina. The company established this operation, which includes a lithium
mine and processing facilities, approximately five years ago in a remote area of
the Andes Mountains. With the entry of a South American manufacturer into this
business resulting in decreased revenues and following the continuation of other
unfavorable market conditions, the company's lithium assets in Argentina became
impaired, as the total capital invested is not expected to be recovered. An
additional $12.3 million of charges related to the impairment of assets in FMC's
cyanide operations as a result of weakening economic conditions affecting this
business.
Note 8: Restructuring and other charges
The company recorded restructuring and other before tax charges of $14.4 million
and $184.5 million, respectively, for the nine months ended September 30, 2002
and 2001.
Restructuring and other charges for the nine months ended September 30, 2002
Restructuring and other charges of $7.4 million before tax in the second quarter
of 2002 included $2.2 million before tax for restructuring activities related to
severance and other restructuring costs in the Industrial Chemicals segment and
a $2.1 million before tax charge for other costs including expenses related to a
change in benefits provider, which was a direct result of the company's spin-off
of Technologies. Also recorded as other charges in the second quarter 2002 were
premiums of $3.1 million before tax attributed to the redemption of 6.75%
exchangeable senior subordinated debentures completed on June 3, 2002 (see Note
9.)
In the first quarter of 2002 the company recorded $7.0 million before tax of
restructuring and other charges. Of these charges $2.4 million before tax
related to severance and costs of idling the Agricultural Product's
sulfentrazone plant. In the Industrial Chemicals segment, the mothballing of the
Granger caustic facility in Green River, Wyoming resulted in a $3.4 million
before tax charge primarily for severance and other costs. The remaining other
charges resulted from reorganization costs of $1.2 million before tax related to
the spin-off and distribution of Technologies.
Of approximately 200 severances in 2002 related to the company's restructuring
activities 185 occurred prior to September 30, 2002.
Restructuring and other charges for the nine months ended September 30, 2001
During the third quarter of 2001, the company recorded restructuring charges of
$8.5 million. These charges were largely for reorganization costs and corporate
restructuring activities including severance, facility exit costs and contract
commitment costs.
During the second quarter of 2001, FMC recorded $175.0 million in restructuring
and other charges including $160.0 million related to its Industrial Chemicals
segment's U.S.-based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes and $8.6 million of other related
charges. In addition, restructuring charges for the quarter included $8.0
million related to FMC's corporate reorganization. The remaining charges of $7.0
million were for the restructuring of two smaller chemical facilities. These
activities resulted in 135 severances the majority of which occurred in 2001.
The restructuring charges in the first quarter of 2001 related to corporate
reorganization costs and several minor restructuring activities within the
Industrial Chemicals segment.
In the fourth quarter of 2001 the company reached an agreement to shutdown
Pocatello. At this time approximately half of the $68.7 million Consent Decree
reserve recorded in the second quarter of 2001 was spent in the second and third
quarters of 2001. The shutdown of this facility eliminated the need for Consent
Decree spending for continuing operations. The shutdown allowed the company to
reverse the remaining Consent Decree reserve of $34.5 million through
restructuring and other charges. This amount was more than offset by the
company's fourth quarter 2001 restructuring and other charges related to the
shutdown of Pocatello.
Reserves for restructuring and other charges were $71.0 million and $119.2
million at September 30, 2002 and December 31, 2001, respectively. Restructuring
spending in 2002 of $9.6 million related to the 2002 programs and $67.9 million
related to programs initiated in the prior year. Spending during the nine months
ended September 30, 2002 was primarily for workforce
-9-
reductions, reorganization costs, financing commitments to Astaris and shutdown
costs at Pocatello.
The following table shows a rollforward of restructuring and other reserves for
the quarter ended September 30, 2002 and the related spending and other changes:
Phosphorus Related
----------------------------------
Pocatello
Shutdown,
Remediation Financing Workforce-related and
and Other Tribal Commitments Facility Shutdown FMC's
Costs/(3)/ Fund to Astaris Costs Reorganization Total
----------- ------ ----------- --------------------- -------------- ------
2002 2001 2002 2001
----- ----- ----- -----
Reserve at 12/31/2001 $ 58.9 $10.0 $ 28.0 $ -- $13.7 $ -- $ 8.6 $119.2
Increase in reserves -- -- -- 8.0 -- 3.3 -- 11.3
Cash payments (25.3) -- (27.8) (8.4) (9.6) (1.2) (5.2) (77.5)
Recoveries /(1)/ 3.7 -- -- -- -- -- -- 3.7
Reclasses and other /(2)/ 16.7 -- -- 0.4 -- -- -- 17.1
Non-cash changes (1.0) -- -- -- (1.8) -- -- (2.8)
------ ----- ------ ----- ----- ----- ----- ------
Reserve at 9/30/2002 $ 53.0 $10.0 $ 0.2 $ -- $ 2.3 $ 2.1 $ 3.4 $ 71.0
====== ===== ====== ===== ===== ===== ===== ======
(1) Recoveries are amounts received from Astaris for its commitments related to
the shutdown of Pocatello. Recoveries have been recorded as offsets to the
company's reserves and are reduced upon receipt of payment.
(2) Balance classified as current liabilities at December 31, 2001 reclassified
to restructuring reserves in 2002.
(3) Pocatello Shutdown, Remediation and Other Costs reserve at September 30,
2002 includes environmental costs of $46.0 million recorded in the fourth
quarter of 2001 related to the shutdown of Pocatello (see Note 11). This
amount is also included in FMC's environmental/remediation rollforward in
Note 12.
Note 9: Debt
Refinancing
Subsequent to the end of the third quarter of 2002, the company completed its
previously announced refinancing. The company reflected its refinancing in its
Condensed Consolidated Balance Sheet by reclassifying its $240.0 million
revolving credit facility from short-term debt to long-term debt.
On October 21, 2002, the Company issued $355.0 million aggregate principal
amount of its 10.25% Senior Secured Notes due 2009 (the "Notes").
Simultaneously, the company executed a new $500.0 million senior secured credit
agreement (the "Credit Agreement"), which provides for a $250.0 million
revolving credit facility and a $250.0 million term loan, and obtained a $40.0
million supplemental secured standby letter of credit facility (the
"Supplemental Letter of Credit Facility" and together with the Credit Agreement,
the "Credit Facilities"). The net proceeds from the sale of the Notes and the
initial borrowings under the Credit Agreement were or will be used to:
.. Fund into a debt reserve account (the "Debt Reserve Account") an amount
sufficient to repay $99.5 million aggregate principal amount of its 7.125%
medium-term notes due November 2002 and $160.5 million aggregate principal
amount of 6.375% debentures due September 2003;
.. Repay all borrowings under and terminate the former revolving credit
facility and accounts receivable securitization facility, which had
outstanding amounts of approximately $106.0 million and $65.0 million,
respectively at September 30, 2002;
.. Fund into a restricted cash account (the "Restricted Cash Collateral
Account") $130.8 million to refinance and replace with cash collateral
certain surety bonds and letters of credit currently supporting
self-insurance programs, environmental obligations and future business
commitments and cash collateralize letters of credit supporting
approximately $44.0 million of outstanding variable rate industrial and
pollution control revenue bonds; and
.. Pay fees and expenses of approximately $29.0 million, which included bank
fees, printing and distribution costs, attorneys' fees, accountants' fees
and other miscellaneous costs.
-10-
Summary of Terms of the Notes
The Notes bear interest at the rate of 10.25% per year. Interest on the Notes is
payable on May 1 and November 1 of each year, beginning on May 1, 2003. The
Notes mature on November 1, 2009.
The company may redeem all or part of the Notes on or prior to November 1, 2006
at a price of 100% of their principal amount, plus a make-whole premium, plus
accrued and unpaid interest, if any. At any time after November 1, 2006, the
company may redeem all or part of the Notes at fixed redemption prices plus
accrued and unpaid interest, if any. At any time on or prior to November 1,
2005, the company may redeem up to 35% of the Notes from the proceeds of one or
more public equity offerings by the company at a fixed redemption price plus
accrued and unpaid interest, if any.
The Notes are senior obligations and are guaranteed on a senior basis by its
wholly-owned domestic subsidiaries, that guarantee indebtedness under the Credit
Facilities its new $500.0 million Credit Agreement and the $40.0 million
Supplemental Letter of Credit Facility which were entered into concurrently with
the issuance of the Notes. As of September 30, 2002, FMC's subsidiaries that are
not guarantors had approximately $211.3 million of liabilities to which the
Notes are structurally subordinated.
The Notes are secured on a second-priority basis by collateral consisting of
certain of the company's domestic manufacturing or processing facilities and its
shares of FMC Wyoming Corporation, its non-wholly-owned principal domestic
subsidiary. The second-priority liens are shared on an equal and ratable basis
with the holders of indebtedness ("Existing Public Debt") issued under the
company's existing indentures dated April, 1992 and July 1, 1996 (the "Existing
Public Indentures") and with (i) the lenders and other credit providers under
the Credit Facilities, (ii) certain other lenders and credit providers to the
company and its foreign subsidiaries and (iii) lenders to Astaris LLC as
beneficiaries of its obligations under the support agreement relating to
Astaris. This lien is subject and subordinate to the first-priority lien granted
to such lenders and other credit providers in an amount not exceeding 10.0% of
the company's consolidated net tangible assets (as defined in the Existing
Public Indentures) from time to time. In addition, those lenders and credit
providers are secured by liens on substantially all of the company's other
domestic assets that are not included in the collateral securing the notes and
on 65.0% of the stock of certain of our foreign subsidiaries.
Summary Terms of the Credit Facility
The Credit Facilities replaced the company's $240.0 million 364-day
non-amortizing revolving credit facility which was due to expire in December of
this year and a $25.0 million supplemental revolving credit facility due to
expire on October 31, 2002. Under the Credit Agreement, 0.25% of the original
principal amount of the $250.0 million term loan is due and payable at the end
of each quarter, commencing March 31, 2003, with the balance maturing on October
21, 2007. Amounts under the $250.0 million revolving credit facility may be
borrowed, repaid and reborrowed from time to time until the maturity of the
revolving credit facility on October 21, 2005. Up to $50.0 million of the
revolving credit facility is available for issuance of letters of credit on the
company's behalf. Voluntary prepayments and commitment reductions under the
Credit Facilities are permitted at any time without fee upon proper notice and
subject to minimum dollar amounts. Subject to certain exceptions, mandatory
prepayments are required with cash proceeds of asset sales, casualty events and
condemnation proceeds, equity issuances and excess cash flow.
Subject to the availability of additional commitments by lenders, the aggregate
commitment under the revolving credit facility can be increased by up to $90.0
million to a total of $340.0 million. To the extent the commitments are
increased to an amount in excess of $300.0 million, the excess is required to
reduce the Supplemental Letter of Credit Facility, and the amount available for
letters of credit under the revolving credit facility will increase from $50.0
million to $75.0 million.
The Supplemental Letter of Credit Facility makes available prior to its maturity
on October 21, 2005 up to $40.0 million for the issuance of standby letters of
credit. The company intends to use the letters of credit to support its
obligations with respect to environmental remediation and other obligations for
which such credit enhancement is often required.
-11-
Obligations under the Credit Agreement bear interest at a floating rate, which
are, at the company's option, either a base rate or a London InterBank Offered
Rate ("LIBOR"), in each case plus an applicable margin. The base rate is
Citibank N.A.'s base rate. The applicable margin for the term loan are 3.75% per
annum over the base rate and 4.75% per annum over LIBOR. The initial applicable
margin for borrowings under the revolving credit facility is 2.50% over the base
rate and 3.50% over LIBOR. After March 31, 2003 the applicable margins under our
revolving credit facility are subject to adjustment based on the company's
leverage ratio.
Under the Credit Agreement, FMC is required to pay a commitment fee on the
difference between the total amount of the revolving credit facility and the
amount borrowed by the company, or for which letters of credit were issued on
its behalf, under the Credit Agreement. The initial commitment fee is .50% per
year. The commitment fee is subject to adjustment based on the company's
leverage ratio.
The company pays fees under the Supplemental Letter of Credit Facility on the
face amount of letters of credit issued thereunder at a rate per year equal to
the applicable margin for LIBOR loans under the revolving credit facility under
the Credit Agreement, plus 0.25%. The company also pays a commitment fee on the
unused portion of the Supplemental Letter of Credit Facility at the same rate
applicable to its revolving credit facility.
The obligations of FMC under these facilities are guaranteed by each of its
existing and subsequently acquired direct and indirect material wholly-owned
domestic subsidiaries subject to certain exceptions for subsidiaries that are
insignificant to the company's operations. The obligations of FMC under the
Credit Facilities are secured on a first-priority basis by substantially all of
the domestic tangible and intangible assets of the company and its domestic
wholly-owned subsidiaries, including a pledge of 100.0% of the stock of domestic
subsidiaries and at least 65.0% of the stock of first-tier foreign subsidiaries.
The company's pledge of the collateral that secures the Notes and the Existing
Public Debt is limited on a first-lien basis to an aggregate amount not to
exceed 10.0% of consolidated net tangible assets as noted above and thereafter
is shared on an equal ratable basis with the Existing Public debt and Notes. The
Credit Facilities are also secured by all of the cash of the company including
cash held in the Debt Reserve Account and the Restricted Cash Collateral Account
to the extent the latter is available. The Credit Facilities are secured equally
and ratably with the company's obligations owed to certain other lenders to the
company and its foreign subsidiaries and under the company's support agreement
with respect to Astaris.
Other Indebtedness
Short-term debt decreased to $60.3 million at September 30, 2002 compared to
$136.5 million at December 31, 2001. Short-term debt can consist of commercial
paper, borrowings under committed credit facilities and foreign bank borrowings.
Upon the completion of the refinancing on October 21, 2002 the company
reclassified at September 30, 2002 the outstanding amount under its former
$240.0 million revolving credit facility due in December of 2002 to long-term
debt to reflect the completion of its refinancing subsequent to the end of third
quarter of 2002. Since the lowering of FMC's short-term credit rating by Moody's
Investor's Service, Inc. on June 13, 2002, FMC ceased offerings under its
commercial paper program and repaid maturities by borrowing under its former
$240.0 million revolving credit facility. At September 30, 2002, no commercial
paper was outstanding compared to $33.0 million at December 31, 2001.
During the nine months ended September 30, 2002, the company made payments of
$10.4 million and $25.0 million, in the first and second quarter, respectively,
for scheduled maturities of long-term debt.
The current portion of long-term debt was $260.8 million at September 30, 2002
compared to $135.2 at December 31, 2001. This increase can be attributed to the
November 2002 maturity of the company's $99.5 million 7.125% medium-term notes
and $160.5 million 6.375% debentures due September 2003. An amount sufficient to
repay these maturities has been paid into the Debt Reserve Account with proceeds
from the new financing program.
At September 30, 2002 there was $40.0 million principal amount outstanding of
variable rate industrial and pollution control
-12-
revenue bonds supported by approximately $44 million in bank letters of credit.
On May 3, 2002, FMC published notice of a mandatory call for redemption on June
3, 2002 of its 6.75% exchangeable senior subordinated debentures, outstanding in
the principal amount of $28.8 million. From May 21, 2002 to May 31, 2002,
holders of $26.0 million of these debentures exercised their right to forgo
accrued but unpaid interest and exchange their debentures for common shares of
Meridian Gold, Inc., a Canadian company trading on the New York Stock Exchange
(NYSE: MDG) and successor to our former subsidiary, at a price of $15.125 per
share, subject to certain adjustments. Because FMC does not hold any shares of
Meridian Gold, Inc. it exercised its right to pay the fair market value, subject
to certain adjustments, of the Meridian Gold common shares in cash. Because the
price of Meridian Gold common shares rose substantially above the exchange price
of $15.125, FMC was required to pay an amount above the principal amount of the
debentures exchanged, which has resulted in a net charge of approximately $3.1
million ($1.9 million after-tax) in the second quarter of 2002. The remaining
$2.8 million of debentures were redeemed on June 3, 2002 at the principal amount
thereof plus accrued interest.
The company's long-term debt maturities subsequent to the completion of its
refinancing were $100.0 million in 2002, $184.9 million in 2003, $1.1 million in
2004, $63.2 million in 2005 and $977.5 million in 2006 the period therafter.
Note 10: Reserves for Discontinued Operations
Reserves for discontinued operations (excluding those related to environmental
liabilities), at September 30, 2002 and December 31, 2001 were $73.9 million and
$86.3 million, respectively. At September 30, 2002, substantially all
discontinued operations reserves were related to post-employment benefits,
self-insurance and other long-term obligations associated with operations
discontinued between 1976 and 1997.
Included in the reserve for discontinued operations is a reserve established for
asbestos-related personal injury litigation. Management believes that the claims
against FMC are without merit and considers the company a peripheral overall
defendant in these matters. The vast majority of the claims to date have been
dismissed without payment of any kind. The outcome of the remaining cases is not
expected to have a material adverse effect on the company's consolidated results
of operations, cash flows or financial condition.
In the first quarter of 2001 FMC paid an $80.0 million settlement of litigation
related to its discontinued defense systems business.
Note 11: Other Long-Term Liabilities
Other long-term liabilities at September 30, 2002 and December 31, 2001 were
$94.9 million and $124.4 million, respectively, and included reserves for
restructuring and for compensation and benefits. (See Note 3 to the company's
2001 consolidated financial statements and Note 8 above.)
Note 12: Environmental Obligations
The company has provided reserves for potential environmental obligations, which
management considers probable and for which a reasonable estimate of the
obligation could be made. Accordingly, reserves of $225.7 million and $260.4
million, before recoveries, have been provided at September 30, 2002 and
December 31, 2001, respectively. The long-term portions of these reserves before
recoveries, totaled $204.2 million and $244.1 million at September 30, 2002 and
December 31, 2001, respectively. The short-term portion of these obligations are
recorded in accrued and other liabilities.
Cash recoveries of $14.4 million have been recorded as realized claims against
third parties in 2002. Total cash recoveries recorded for the year ended
December 31, 2001 were $12.5 million. At September 30, 2002 and December 31,
2001 reserves for recoveries were $30.3 million and $41.5 million, respectively,
the majority of which relate to existing contractual arrangements with U.S.
government agencies and insurance carriers. These reserves are recorded as an
offset to the environmental reserve, continuing and discontinued.
-13-
The table below is a rollforward of the company's environmental reserves,
continuing and discontinued from December 31, 2001 to September 30, 2002.
($ in millions)
Operating and
Discontinued Sites(1) Pocatello Total
------------------ --------- ------
Environmental reserves current, net of recoveries $ 5.9 $ 9.5 $ 15.4
Environmental reserves long term, net of recoveries 132.0 71.5 203.5
------ ----- ------
Total environmental reserve, net of recoveries at December 31, 2001 137.9 81.0 218.9
2002 provisions:
Continuing -- -- --
Discontinued -- -- --
Spending, net of cash recoveries: (14.0) (9.5) (23.5)
------ ----- ------
Environmental reserve current, net of recoveries: 6.4 15.7 22.1
Environmental reserve, long-term, net of recoveries: 117.5 55.8 173.3
------ ----- ------
Total environmental reserve, net of recoveries at September 30, 2002 /(2)/ $123.9 $71.5/(1)/ $195.4
====== ===== ======
/(1)/"Current" includes only those reserves related to continuing operations.
/(2)/Balance includes environmental remediation reserves of $46.0 million
related to the shutdown of Pocatello recorded as part of Pocatello
shutdown, remediation and other costs reserve in 2001. (See rollforward of
restructuring and other charges table in Note 8.)
The company has estimated that reasonably possible contingent environmental
losses may exceed amounts accrued by as much as $70.0 million at September 30,
2002. Obligations that have not been reserved for 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 materially adverse effect on the company's liquidity or
financial condition and may be satisfied over the next twenty years or longer.
A more complete description of the company's environmental contingencies and the
nature of its potential obligations are included in Notes 1 and 13 to FMC's
2001 consolidated financial statements.
Note 13: Capital Stock
On June 6, 2002 the company issued 3,250,000 shares of common stock at a net
price per share of $31.25. Net proceeds from the issuance were approximately
$101.3 million. The proceeds were used to reduce outstanding borrowings under
the company's former $240.0 revolving credit facility.
For the three and nine months ended September 30, 2002, the company had
35,085,556 and 32,984,590, respectively, of average shares outstanding. In
addition, for the three and nine months ended September 30, 2002 FMC had 853,594
and 914,335 of additional shares assuming conversion of stock options and other
dilutive potential common shares (calculated under the treasury stock method).
On August 27, 1999, the Board of Directors authorized $50.0 million of
open-market repurchases of FMC common stock. The implementation of the company's
new financing program which was completed subsequent to September 30, 2002,
brought into effect provisions restricting significantly open-market repurchases
of FMC common stock.
Note 14: Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders' equity during
the period except those resulting from investments by owners and distributions
to owners. The company's comprehensive income (loss) for the three and nine
months ended September 30, 2002 and 2001 consisted of the following:
-14-
(in millions)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
2002 2001 2002 2001
----- ------ ----- -------
Net income (loss) $28.2 $ 21.3 $56.4 $(305.0)
Other comprehensive earnings (loss):
Foreign currency translation adjustment 7.4 (37.1) 19.8 (38.5)
Net deferral of hedging gains (losses) 2.7 (10.3) 15.1 (32.7)
Cumulative effect of a change in accounting
principle (Note 3) -- -- -- 16.4
----- ------ ----- -------
Comprehensive income (loss) $38.3 $(26.1) $91.3 $(359.8)
===== ====== ===== =======
Note 15: Related-Party Transactions
FMC's chemical and machinery businesses became two independent companies in 2001
through the spin-off of Technologies (see Note 2 for a discussion of FMC's
reorganization). Prior to the IPO of Technologies, FMC and Technologies entered
into certain agreements for the purpose of governing the ongoing relationship
between the two companies (see Note 18 to the 2001 consolidated financial
statements). FMC and Technologies continue to engage in transition services for
areas such as benefits, insurance administration and other administrative
services. The cost of these activities were not material as of September 30,
2002.
A guaranty agreement, executed on December 31, 2001, provides for the
performance by Technologies of certain obligations under several contracts, debt
instruments and reimbursement agreements. Prior to the spin-off, these
obligations related to the businesses of Technologies. As of September 30, 2002,
this guarantee agreement covered obligations totaling approximately $88 million
compared to $289.0 million at December 31, 2001. Under the Separation and
Distribution Agreement and guaranty agreement, Technologies has indemnified FMC
for these obligations and any related legal fees and FMC does not expect to make
any unreimbursed payments for any of these obligations.
Note 16: Accounts Receivable Financing
Prior to the completion of its refinancing on October 21, 2002 the company sold
trade receivables without recourse through its wholly owned, bankruptcy-remote
subsidiary, FMC Funding Corporation. This subsidiary then sold the receivables
to a financing company under an accounts receivable financing facility on an
ongoing basis. Availability under the program was reduced upon the lowering of
FMC's credit rating and would of terminated upon a rating of Ba3 by Moody's or
BB- by S&P. The financing from this facility totaled $65.0 million at September
30, 2002 and $79.0 million at December 31, 2001. Subsequent to September 30,
2002 the company terminated this securitization program as part of its new
financing program (see Note 9). Subsequent to September 30, 2002, using proceeds
from the refinancing the company made a final payment of $65.2 million to
terminate its account receivable financing facility.
Note 17: Commitments and Contingencies
During the third quarter of 2000, in connection with the finalization of an
external financing agreement with Astaris, the company provided an agreement to
lenders of Astaris under which FMC agreed to make equity contributions to
Astaris sufficient to make up one half of any short-fall in Astaris' earnings
below certain levels. Astaris' earnings did not meet the agreed levels for the
first nine months of 2002. FMC does not expect that such earnings will meet the
levels agreed for the remainder of 2002. The company contributed $31.3 million
to Astaris under this arrangement in 2001 and $27.8 million through September
30, 2002, and expects the full-year amount to be at approximately the same level
as 2001. FMC's estimates of future contributions are based on Astaris' forecasts
and are subject to some uncertainty. The proportional amount of Astaris'
indebtedness subject to this lending agreement from FMC was approximately $86
million at September 30, 2002. Subsequent to September 30, 2002, certain
amendments to the agreement under which FMC makes equity contributions to
Astaris that were necessary to complete FMC's refinancing (see Note 9) were
obtained from Astaris' lenders.
-15-
The company provides guarantees to financial institutions on behalf of certain
Agricultural Products customers in Brazil for their seasonal borrowings. The
customers' obligations to FMC are largely secured by liens on their crops.
Losses under these programs have been minimal. The total of these guarantees,
which are recorded on the company's balance sheet at September 30, 2002 and
December 31, 2001 was $19.7 million and $56.0 million, respectively.
The company also provides guarantees to financial institutions on behalf of
certain Agricultural Products customers in Brazil to support their importation
of third-party agricultural products. This guarantee program was implemented in
2001. Guarantees totaled $4.3 million and $10.0 million at September 30, 2002
and at December 31, 2001, respectively.
On June 30, 1999, FMC acquired Tg Soda Ash, Inc. from Elf Atochem North America,
Inc. for approximately $51.0 million in cash and contingent payment due at
year-end 2003. The contingent payment amount, which will be based on the
financial performance of the combined soda ash operations between 2001 and 2003,
cannot currently be determined precisely but is expected to be in the range of
$40.0 million to $45.0 million.
During the second quarter of 2002, FMC reached a settlement with the Idaho
Public Utility Commission and Idaho Power Company. Under this settlement, Idaho
Power will reduce its payments under the resale contract, and as a partial
offset, Astaris will avoid certain costs associated with the cancellation of the
power purchase contract with Idaho Power.
In the ordinary course of business, FMC provides credit support to governmental
agencies, insurance companies, and others for its environmental obligations,
self-insurance programs and other future business commitments. At September 30,
2002, banks had provided letters of credit totaling $161.6 million and insurance
companies had provided surety bonds totaling $69.4 million in support of these
obligations. Subsequent to September 30, 2002, as part of the refinancing
program, the company funded $130.8 million into an account to provide for future
cash collateralization of a portion of these obligations. (See Note 9.)
The company also has certain other contingent liabilities arising from
litigation, claims, performance guarantees, and other commitments arising in the
ordinary course of business. Management believes that the ultimate resolution of
its known contingencies will not materially affect the consolidated financial
position, results of operations or cash flows of FMC.
(See Notes 10, 11 and 12 for further discussion on contingencies.)
Note 18: Segment Information
Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------
(in millions) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Revenue
- ----------------------------------------------------------------------------------------------------------------------
Agricultural Products $169.1 $156.9 $ 474.0 $ 497.3
Specialty Chemicals 123.1 115.2 363.5 351.0
Industrial Chemicals 184.0 211.0 559.1 609.9
Eliminations 0.4 (0.3) (3.4) (5.0)
- ----------------------------------------------------------------------------------------------------------------------
Total $476.6 $482.8 $1,393.2 $1,453.2
=======================================================================================================================
Income (loss) from continuing operations before income taxes and cumulative
effect of change in accounting principle
Agricultural Products $ 20.8 $ 9.8 $ 50.8 $ 65.0
Specialty Chemicals 23.6 20.1 66.0 61.1
Industrial Chemicals 20.3 20.4 55.6 53.0
- ----------------------------------------------------------------------------------------------------------------------
Segment operating profit 64.7 50.3 172.4 179.1
Corporate (8.6) (9.0) (27.9) (26.4)
Other expense, net (0.2) (1.7) (5.6) (5.7)
- ----------------------------------------------------------------------------------------------------------------------
Operating profit before restructuring and other charges, and net
interest expense 55.9 39.6 138.9 147.0
Asset impairments (1) -- -- -- (323.1)
Restructuring and other charges (2) -- (8.5) (14.4) (184.5)
Interest expense, net (3) (17.6) (15.6) (53.1) (48.0)
- ----------------------------------------------------------------------------------------------------------------------
Total $ 38.3 $ 15.5 $ 71.4 $ (408.6)
======================================================================================================================
-16-
(1) Asset Impairment for the nine months ended September 30, 2001 related to
Industrial Chemicals ($224.2 million) and Specialty Chemicals ($98.9 million).
(2) Restructuring and other charges for the nine months ended September 30, 2002
related to Industrial Chemicals, ($5.6 million), Agricultural Products ($2.4
million) and Corporate ($6.4 million). Restructuring charges for the three
months ended September 30, 2001 related to Specialty Chemicals ($0.7 million)
and Corporate ($7.8 million). Restructuring and other charges for the nine
months ended September 30, 2001 related to Industrial Chemicals ($166.8
million), Specialty Chemicals ($1.6 million) and Corporate ($16.1 million).
(3) Net interest expense includes the company's share of interest expense of the
phosphorous joint venture (Astaris) for the three months ($1.9 million) and nine
months ($5.0 million) ended September 30, 2002 and for the three months ($1.2
million) and nine months ($3.8 million) ended September 30, 2001. The equity in
earnings (loss) of the joint venture, excluding restructuring charges, is
Fincluded in Industrial Chemicals.
Note 19: Subsequent Event
In accordance with the company's completion of its refinancing on October
21, 2002, condensed consolidated financial statements are being disclosed. The
following entites: InterMountain Research and Development Corporation, FMC
Asia-Pacific, Inc., FMC Overseas, Ltd., FMC WFC I, Inc., FMC WFC II, Inc., FMC
WFC I NL, L.L.C., FMC Defense Corp., FMC Defense NL, L.L.C., FMC Properties,
LLC, FMC Funding Corporation, FMC Idaho, LLC, wholly-owned direct and indirect
domestic subsidiaries of the company ("Guarantors"), fully and unconditionally
guarantee the obligations under the refinancing program on a joint and several
basis. The following consolidating condensed financial statements present, in
separate columns, financial information for: FMC Corporation on a parent-only
basis carrying its investment in subsidiaries under the equity method;
Guarantors on a combined, or where appropriate, consolidated basis, carrying
investments in subsidiaries which do not guarantee the debt (the
"Non-Guarantors") under the equity method; Non-Guarantors on a combined, or
where appropriate, consolidated basis; eliminating adjustments; and consolidated
totals as of September 30, 2002 and December 31, 2001, and for the three and
nine months ended September 30, 2002 and 2001. The eliminating adjustments
primarily reflect inter-company transactions, such as interest income and
expense, accounts receivable and payable, advances, short- and long-term debt,
royalties and profit in inventory eliminations. The company has not presented
separate notes and other disclosures concerning the Guarantors as management has
determined that such material information is available in the notes to FMC's
condensed consolidated financial statements.
-17-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ---------------------------------------------------------------------------------------------------------------------
Revenue $269.2 $ 94.9 $215.5 $(103.0) $476.6
Cost of sales and services 185.0 78.0 184.5 (97.4) 350.1
Selling, general and administrative expenses 39.2 6.2 10.3 -- 55.7
Research and development expenses 17.0 1.2 1.2 -- 19.4
- ---------------------------------------------------------------------------------------------------------------------
Income(loss) from operations 28.0 9.5 19.5 (5.6) 51.4
Equity in earnings of affiliates (2.9) -- (0.7) -- (3.6)
Minority interests (0.1) 0.5 0.6 -- 1.0
Interest expense (income), net 25.8 (10.4) 0.3 -- 15.7
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes 5.2 19.4 19.3 (5.6) 38.3
Income taxes 1.3 5.6 3.2 -- 10.1
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3.9 $ 13.8 $ 16.1 $ (5.6) $ 28.2
=====================================================================================================================
-18-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------
Revenue $274.0 $113.9 $194.2 $ (99.3) $482.8
Cost of sales and services 191.2 93.5 199.6 (116.9) 367.4
Selling, general and administrative expenses 35.8 10.2 9.8 -- 55.8
Research and development expenses 21.5 1.2 2.3 -- 25.0
Restructuring and other charges 7.8 -- 0.7 -- 8.5
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 17.7 9.0 (18.2) 17.6 26.1
Equity in (earnings) loss of affiliates (4.2) 0.1 (0.5) (0.1) (4.7)
Minority interests 0.8 -- -- 0.1 0.9
Interest expense (income), net 22.2 (7.8) -- -- 14.4
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes (1.1) 16.7 (17.7) 17.6 15.5
Income taxes (benefit) 35.3 2.1 (35.4) (0.4) 1.6
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (36.4) 14.6 17.7 18.0 13.9
Discontinued operations 7.4 -- -- -- 7.4
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $(29.0) $ 14.6 $ 17.7 $ 18.0 $ 21.3
==================================================================================================================
-19-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------
Revenue $822.1 $215.5 $646.9 $(291.3) $1,393.2
Cost of sales and services 548.8 182.9 555.2 (256.7) 1,030.2
Selling, general and administrative expenses 122.6 18.4 30.2 -- 171.2
Research and development expenses 53.6 3.1 3.7 -- 60.4
Restructuring and other charges 13.8 -- 0.6 -- 14.4
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations 83.3 11.1 57.2 (34.6) 117.0
Equity in (earnings) loss of affiliates (3.4) -- (1.3) 0.1 (4.6)
Minority interests 0.1 0.1 2.0 (0.1) 2.1
Interest expense (income), net 79.1 (32.4) 1.4 -- 48.1
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 7.5 43.4 55.1 (34.6) 71.4
Income taxes (benefit) (12.4) 19.8 5.6 -- 15.0
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 19.9 $ 23.6 $ 47.5 $ (34.6) $ 56.4
==================================================================================================================
-20-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- --------------------------------------------------------------------------------------------------------------------------------
Revenue $916.7 $ 248.5 $622.5 $(334.5) $1,453.2
Cost of sales and services 574.4 214.3 557.5 (288.1) 1058.1
Selling, general and administrative expenses 121.8 30.8 28.8 -- 181.4
Research and development expenses 63.5 4.2 6.2 -- 73.9
Restructuring, asset impairments, and other charges 119.0 288.2 100.4 -- 507.6
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 38.0 (289.0) (70.4) (46.4) (367.8)
Equity in (earnings) loss of affiliates (3.5) 0.3 (1.4) (0.3) (4.9)
Minority interests 1.9 -- (0.7) 0.3 1.5
Interest (income) expense 67.4 (21.7) (1.5) -- 44.2
- --------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes
and cumulative effect of change in accounting principle (27.8) (267.6) (66.8) (46.4) (408.6)
Income taxes (benefit) 4.2 (111.0) (26.4) (4.8) (138.0)
- --------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before cumulative effect
of change in accounting principle (32.0) (156.6) (40.4) (41.6) (270.6)
Discontinued operations (33.5) -- -- -- (33.5)
- --------------------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in
accounting principle (65.5) (156.6) (40.4) (41.6) (304.1)
Cumulative effect of change in accounting principle (0.9) -- -- -- (0.9)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss $(66.4) $(156.6) $(40.4) $ (41.6) $(305.0)
================================================================================================================================
-21-
FMC Corporation
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2.1 $ 2.1 $ 33.1 $ -- $ 37.3
Trade receivables, net 50.9 229.0 87.6 -- 367.5
Inventories 57.8 62.6 91.1 (44.0) 167.5
Inter-company receivables 196.6 16.9 82.6 (296.1) --
Other current assets 53.1 26.2 36.9 -- 116.2
Deferred income taxes 46.1 -- -- -- 46.1
- ------------------------------------------------------------------------------------------------------------------------
Total current assets $ 406.6 $ 336.8 $331.3 $ (340.1) $ 734.6
Investments in affiliates 1,573.2 11.5 14.1 (1,566.7) 32.1
Property, plant and equipment, net 591.9 81.3 385.5 -- 1,058.7
Goodwill, net 4.6 115.3 4.4 -- 124.3
Other assets 117.5 (0.4) 21.0 -- 138.1
Deferred income taxes 280.1 -- -- -- 280.1
- ------------------------------------------------------------------------------------------------------------------------
Total assets $2,973.9 $ 544.5 $756.3 $(1,906.8) $2,367.9
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt $ (0.3) $ 39.0 $ 21.6 $ -- $ 60.3
Accounts payable, trade and other 90.9 31.4 90.0 -- 212.3
Inter-company payable 49.2 182.4 64.5 (296.1) --
Accrued and other liabilities 202.1 64.7 42.1 -- 308.9
Current portion of long-term debt 260.8 -- -- -- 260.8
Current portion of accrued pension and
postretirement benefits 14.8 -- -- -- 14.8
Income taxes payable (103.1) 115.1 15.6 -- 27.6
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 514.4 432.6 233.8 (296.1) 884.7
Long-term debt 568.8 -- -- -- 568.8
Pension and postretirement liabilities 107.2 -- -- -- 107.2
Inter-company long-term debt 1,034.3 (1,026.0) (8.3) -- --
Investment in subsidiaries (640.2) -- -- 640.2 --
Reserve for discontinued operations, environmental
reserves and other long-term liabilities 272.4 69.0 0.7 -- 342.1
Minority interests in consolidated companies 10.8 0.6 41.3 (9.5) 43.2
Stockholders' Equity (deficit):
Common stock & retained earnings 1,761.3 1,068.3 488.8 (2,241.4) 1,077.0
Accumulated other comprehensive loss (147.8) -- -- -- (147.8)
Treasury stock, common, at cost (507.3) -- -- -- (507.3)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,106.2 1,068.3 488.8 (2,241.4) 421.9
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,973.9 $ 544.5 $756.3 $(1,906.8) $2,367.9
========================================================================================================================
-22-
FMC Corporation
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
Parent
FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
($ in millions)
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7.9 $ 1.3 $ 14.2 $ -- $ 23.4
Trade receivables, net 127.4 213.7 100.6 -- 441.7
Inventories 90.1 61.4 86.3 (30.6) 207.2
Intercompany receivables 135.4 20.2 67.8 (223.4) --
Other current assets 44.3 23.8 31.5 -- 99.6
Deferred income taxes 48.4 -- -- -- 48.4
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 453.5 320.4 300.4 (254.0) 820.3
Investments in affiliates 1,752.9 11.5 14.0 (1,753.2) 25.2
Property, plant and equipment, net 523.9 73.4 490.5 -- 1,087.8
Goodwill, net 4.0 105.1 4.4 -- 113.5
Other assets 115.4 3.2 17.0 -- 135.6
Deferred income taxes 294.8 -- -- -- 294.8
- -----------------------------------------------------------------------------------------------------------------------
Total assets $3,144.5 $ 513.6 $ 826.3 $ (2,007.2) $2,477.2
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt $ 103.5 $ 13.5 $ 19.5 $ -- $ 136.5
Accounts payable, trade and other 177.8 32.7 117.2 -- 327.7
Intercompany payable (39.0) 198.9 59.6 (219.5) --
Accrued and other liabilities 216.0 140.4 36.6 -- 393.0
Current portion of long-term debt 135.2 -- -- -- 135.2
Current portion of accrued pension and
postretirement benefits 18.2 -- -- -- 18.2
Income taxes payable (80.0) 94.3 13.5 -- 27.8
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 531.7 479.8 246.4 (219.5) 1,038.4
Long-term debt 651.8 -- -- -- 651.8
Pension and Postretirement Liabilities 109.2 -- -- -- 109.2
Intercompany long-term debt 1,052.2 (1,039.4) (10.3) (2.5) --
Intercompany investments (188.9) -- (159.5) 348.4 --
Reserves for discontinued operations,
environmental reserves and other long-term
liabilities 343.2 70.7 0.3 -- 414.2
Minority interest in consolidated companies 46.1 -- 8.1 (9.4) 44.8
Stockholders' Equity (deficit):
Common stock and retained earnings 1,293.6 1,002.5 741.3 (2,124.2) 913.2
Accumulated other comprehensive loss (186.8) -- -- -- (186.8)
Treasury stock, common, at cost (507.6) -- -- -- (507.6)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 599.2 1,002.5 741.3 (2,124.2) 218.8
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'equity $3,144.5 $ 513.6 $ 826.3 $ (2,007.2) $2,477.2
=======================================================================================================================
-23-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Nine Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
Cash provided (required) by operating activities $(422.8) $(72.4) $ 210.6 $ 363.5 $ 78.9
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by discontinued operations (23.8) -- -- -- (23.8)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities:
Capital expenditures (21.9) (14.7) (14.3) -- (50.9)
Other investing activities 104.9 6.7 119.2 (251.4) (20.6)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities 83.0 (8.0) 104.9 (251.4) (71.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net change in short-term debt obligations 21.8 25.5 2.1 (54.0) (4.6)
Repayment of long-term debt net of increased borrowings (63.7) -- -- -- (63.7)
Equity offering proceeds 101.3 -- -- -- 101.3
Other financing activities 298.4 55.7 (298.7) (58.1) (2.7)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities 357.8 81.2 (296.6) (112.1) 30.3
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5.8) 0.8 18.9 -- 13.9
Cash and cash equivalents, beginning of the period 7.9 1.3 14.2 -- 23.4
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 2.1 $ 2.1 $ 33.1 $ -- $ 37.3
=============================================================================================================================
-24-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Nine Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
Cash provided (required) by operating activities $(150.8) $(382.9) 93.4 $ 415.2 $ (25.1)
- -----------------------------------------------------------------------------------------------------------------------------
Cash required by discontinued operations (94.5) -- -- -- (94.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities:
Capital expenditures (51.2) (34.5) (33.5) -- (119.2)
Other investing activities 274.8 207.9 179.2 (678.2) (16.3)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities 223.6 173.4 145.7 (678.2) (135.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net change in short-term debt obligations 19.6 2.4 (11.5) 36.5 47.0
Repayment of long-term debt net of increased borrowings (108.3) -- -- -- (108.3)
Contribution to Technologies 385.4 -- -- -- 385.4
Other financing activities (262.1) 204.0 (210.1) 226.5 (41.7)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities 34.6 206.4 (221.6) 263.0 282.4
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 12.9 (3.1) 17.5 -- 27.3
Cash and cash equivalents, beginning of period (1.1) 3.3 5.1 -- 7.3
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 11.8 $ 0.2 $ 22.6 $ -- $ 34.6
=============================================================================================================================
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 2 of this report contains certain forward-looking statements, including
statements regarding the outlook of our segments for the fourth quarter of 2002,
that are based on management's current views and assumptions regarding future
events, future business conditions and the outlook for the company based on
currently available information.
Whenever possible, we have identified these forward-looking statements by such
words or phrases as "will likely result", "is confident that", "expects",
"should", "could", "may", "will continue to", "believes", "anticipates",
"predicts", "forecasts", "estimates", "projects", "potential", "intends" or
similar expressions identifying "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, including the negative
of those words or phrases. Such forward-looking statements are based on our
current views and assumptions regarding future events, future business
conditions and the outlook for our company based on currently available
information. The forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in, or implied by, these statements. Certain of these risks and
uncertainties are set forth in the sections entitled "Forward-Looking
Information" in Item 6 of our Annual Report on Form 10K for the year ended
December 31, 2001 and in Exhibit 99.3 of the company's Current Report on Form
8-K dated September 20, 2002. We wish to caution readers not to place undue
reliance on forward-looking statements, which speak only as of the date made.
We further caution that the list of important factors in the above referenced
section and in our Annual Report on our Form 10-K for 2001 factors may not be
all-inclusive, and we specifically decline to undertake any obligation to
publicly revise any forward-looking statements that have been made to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
During the first three quarters of 2002 significant events affecting our
liquidity included:
Spending against restructuring and other reserves of $77.5 million, including
$25.3 million to shutdown our Pocatello plant; paying $35.4 million for
scheduled maturities of long-term debt; redeeming all of the $28.8 million
principal amount outstanding of our 6.75% exchangeable senior subordinated
debentures; and issuing 3.25 million shares of common stock with net proceeds of
$101.3 million. Subsequent to the third quarter of 2002 we completed our
refinancing , discussed below, which addresses our projected liquidity needs for
the next five years.
Liquidity
Cash and cash equivalents at September 30, 2002 and December 31, 2001 were $37.3
million and $23.4 million, respectively.
Cash provided by operating activities was $76.5 million for the nine months
ended September 30, 2002 compared to cash required by operating activities of
$24.7 million for the first nine months of 2001. Historically, cash flow from
operating activities has funded a substantial portion of FMC's cash
requirements. However in the first nine months of 2002 and 2001 cash from
operating activities has been reduced by the net cash impact of spending related
to our restructuring and other charges (see "Restructuring and other charges"
and Note 7 of our condensed consolidated financial statements. Included in our
cash used in operations in 2002 is $49.7 million for spending, on restructuring
activities, including $25.3 million for the shutdown of Pocatello (see Note 8 of
our condensed consolidated financial statements). The future spending against
restructuring reserves of $53.0 million at September 30, 2002 for the shutdown
and remediation of Pocatello and other related activities is expected to
continue through 2007 with progressively less spent in each of the future years.
Accounts payable decreased by $115.4 million and $94.4 million in the first nine
months of 2002 and 2001, respectively, reflecting the paydown of higher yearend
2001 and 2000 balances due to seasonal needs in our Agricultural Products
segment. Also favorably affecting our 2002 cash provided by operating activities
were improved collections of account receivable especially within Agricultural
Products regions such as Asia and South America.
Cash required by discontinued operations for the nine months ended September 30,
2002 and 2001 was $23.8 million and $94.5 million, respectively. The majority of
the spending for our discontinued operations is for environmental remediation on
discontinued sites and post-employment benefits for former employees of
discontinued businesses. The first nine months of 2001 also included an $80.0
million payment in the settlement of litigation related to our discontinued
defense systems business.
Cash required by investing activities was $71.5 million for the nine months
ended September 30, 2002 compared to $135.5 million
-26-
for the nine months ended September 30, 2001. The majority of this spending
related to capital additions to our property, plant and equipment to maintain
operating standards and comply with environment, health and safety regulations.
Also included in investing activities are Astaris LLC ("Astaris") keepwell (see
Note 17 of our condensed consolidated financial statements) payments of $27.8
million and $31.3 million for 2002 and 2001, respectively. Lower capital
spending in 2002 compared to 2001 contributed to the decline in cash required by
investing activities. Additionally, 2001 included $63.2 million for spending on
environmental remediation assets at Pocatello. The fourth quarter 2001 decision
to shutdown Pocatello enabled us to curtail this spending.
Cash provided by financing activities for the first nine months of 2002 of $30.3
million decreased by $252.1 million when compared to cash provided by financing
activities of $282.4 million for the first nine months of 2001. Our 2001
financing activities included $385.4 million from the initial public offering
("IPO") of Technologies, net of contributions to Technologies to support their
operating cash needs. The current year's activity reflects a $63.7 million
paydown of our long-term debt, a $36.3 million decrease in our vendor financing
in Brazil and a $14.0 million decrease in amounts received under our former
accounts receivable securitization program. This includes payments of $10.4
million and $25.0 million in the first and second quarters of 2002,
respectively, for scheduled maturities of long-term debt. We also made
before-tax payments of $32.5 million to redeem all outstanding 6.75%
exchangeable senior subordinated debentures (see Note 9 of our condensed
consolidated financial statements). Financing sources from short-term borrowings
were supplemented by proceeds of $101.3 million (net of issuance costs) from the
issuance of 3.25 million shares of common stock in the second quarter of 2002.
Proceeds from this offering were used to reduce outstanding borrowings under our
former $240.0 million revolving credit facility which has subsequently been
terminated.
Refinancing
On October 21, 2002, we completed our previously announced refinancing.
We issued $355.0 million aggregate principal amount of our 10.25% Senior Secured
Notes due 2009 (the "Notes"). Simultaneously, we executed a new $500.0 million
senior secured credit agreement (the "Credit Agreement"), which provides for a
$250.0 million revolving credit facility and a $250.0 million term loan, and
obtained a $40.0 million supplemental secured standby letter of credit facility
(the "Supplemental Letter of Credit Facility" and together with the Credit
Agreement, the "Credit Facilities"). The net proceeds from the sale of the Notes
and the initial borrowings under the Credit Agreement were or will be used to:
.. Fund into a debt reserve account (the "Debt Reserve Account") an amount
sufficient to repay $99.5 million aggregate principal amount of our 7.125%
medium-term notes due November 2002 and $160.5 million aggregate principal
amount of our 6.375% debentures due September 2003;
.. Repay all borrowings under and terminate our former revolving credit
facility and accounts receivable securitization facility, which had
outstanding amounts of approximately $106.0 million and $65.0 million,
respectively at September 30, 2002;
.. Fund into a restricted cash account (the "Restricted Cash Collateral
Account") $130.8 million to refinance and replace with cash collateral
certain surety bonds and letters of credit currently supporting
self-insurance programs, environmental obligations and future business
commitments and cash collateralize letters of credit supporting
approximately $44.0 million of outstanding variable rate industrial and
pollution control revenue bonds; and
.. Pay fees and expenses of approximately $29.0 million, which included bank
fees, printing and distribution costs, attorneys' fees, accountants' fees
and other miscellaneous costs.
See Note 9 of our condensed consolidated financial statements for a summary of
the terms for both the Notes and the new Credit Facilities.
-27-
Capital Resources
Below is a table that summarizes the effect of the completion of our refinancing
on our condensed consolidated balance sheet as if the refinancing had been
completed on September 30, 2002:
As Reported Pro Forma
September 30, September 30,
2002 2002 /(1)/
(unaudited) (unaudited)
------------- -------------
Cash and cash equivalents $ 37.3 $ 42.0
Restricted cash collateral account 130.8
Debt reserve account 260.0
------ --------
$ 37.3 $ 432.8
====== ========
Balance sheet debt:
Existing revolving credit facility $ 106.0
New revolving credit facility $ --
New credit facility term loan 250.0
Foreign Debt 60.3 60.3
------ --------
Total bank debt 166.3 310.3
------ --------
7.125% medium term notes due November 2002 99.5 99.5
6.375% debentures due September 2003 160.5 160.5
New senior notes due September 2009 355.0
Other existing indebtedness /2/ 464.9 464.9
------ --------
Total other debt 724.9 1,079.9
------ --------
Unamortized fees and discounts (1.3) (30.3)
Bond discount (9.6)
------ --------
Total debt $ 889.9 $ 1,350.3
====== ========
/(1)/ A portion of the proceeds was used to terminate our accounts
receivable securitization program. At September 30, 2002, the
accounts receivable securitization was $65.0 million.
-28-
/(2)/ Other indebtedness includes $45.5 million of 7.75%
debentures due July 2011, $197.5 million Medium term notes due
2003-2008 and $221.9 million of Industrial revenue bonds due
2003-2032.
Prior to the completion of our refinancing, one of our sources of funds
was through an accounts receivable securitization program. We sold receivables,
without recourse, through our wholly owned bankruptcy-remote subsidiary, FMC
Funding Corporation, which formerly sold the receivables to an unrelated finance
company. The sold receivables and repurchase obligations related to the
financing were not recorded on our consolidated balance sheets. A downgrade of
our long-term debt rating by Moody's on June 13, 2002 reduced the funds
available to us from this program. Funds from the accounts receivable financing
totaled $65.0 million at September 30, 2002 and $79.0 million at December 31,
2001. Subsequent to September 30, 2002 we terminated our accounts receivable
financing program with proceeds from our new financing.
At September 30, 2002, we had total debt of $889.9 million compared to debt of
$923.5 million as of December 31, 2001.
We maintained a 364-day $240.0 million committed revolving credit facility that
was scheduled to expire in December 2002. The total amount outstanding under
this facility at September 30, 2002 was $106.0 million compared to $68.0 million
at December 31, 2001. In January 2002, we obtained a supplemental $50.0 million
committed credit facility to meet short-term seasonal financing needs. This
credit facility had been amended to reduce availability to $25.0 million and to
extend its maturity to October 31, 2002. As of September 30, 2002, we were in
compliance with all financial covenants of our outstanding facilities.
Subsequent to September 30, 2002 we repaid all amounts outstanding and
terminated the $240 million revolving credit facility with the proceeds from our
refinancing. We also terminated the supplemental credit facility, under which
there were no outstanding borrowings during the quarter ended September 30, 2002
and when terminated.
Our future cash needs include operating cash requirements, restructuring and
other charge spending, capital expenditures and an expected contingent payment,
due at year-end 2003 related to our acquisition of Tg Soda Ash (see Note 17 to
our condensed consolidated financial statements). We plan to meet these
liquidity needs through cash generated from operations and borrowings under the
new Credit Agreement.
Other commitments that could affect our liquidity include the following:
In connection with the spin-off of Technologies, we retained liability for
various contingent obligations totaling $289.0 million at December 31, 2001.
Contractual releases obtained by FMC have reduced this amount to approximately
$88 million at September 30, 2002. We expect this amount to decline further in
the fourth quarter of 2002. Contingent obligations include guarantees of the
performance of Technologies under various customer contracts, reimbursements on
behalf of Technologies under letters of credit, and guarantees of indebtedness
of Technologies. We have a guaranty agreement from Technologies providing for
reimbursement to us if we are ever called upon to satisfy these obligations.
Because of our expectation that the underlying obligations will be met and the
existence of the guarantee from Technologies, we believe it is unlikely that we
would have to pay any of these contingent obligations. We expect these
contingent liabilities to continue to be reduced, with the majority of the
obligations expected to expire before the end of 2003.
We have provided an agreement to lenders of Astaris under which we have agreed
to make equity contributions to Astaris sufficient to make up one half of any
shortfall in Astaris' earnings below certain levels. Astaris' earnings did not
meet the agreed levels for 2001 and we do not expect that such earnings will
meet the levels agreed for 2002. We contributed $31.3 million to Astaris under
this arrangement in 2001 and an additional $27.8 million through the first nine
months of 2002. We expect our total 2002 contributions to be an amount similar
to the 2001 payments, but our estimates of future contributions are subject to
some uncertainty. The proportional amount of Astaris' indebtedness subject to
this agreement from FMC was approximately $86 million at September 30, 2002.
Subsequent to September 30, 2002, certain amendments to the agreement under
which FMC makes equity contributions to Astaris that were necessary to complete
FMC's new financing program (see Note 9 and 17 to the condensed consolidated
financial statements) were obtained from Astaris' lenders.
In the ordinary course of business, we provide credit support to governmental
agencies, insurance companies, and others for our environmental obligations,
self-insurance programs and other future business commitments. At September 30,
2002, banks had provided letters of credit totaling $161.6 million and insurance
companies had provided surety bonds totaling $69.4 million. Subsequent to
September 30, 2002, as part of our refinancing, we funded $130.8 million into
the Restricted Cash Collateral Account, described above, to provide for future
cash collateralization of a portion of these obligations, (see "New Financing
-29-
Program").
At September 30, 2002 there was approximately $40 million principal amount
outstanding of variable rate industrial and pollution control revenue bonds
supported by approximately $44 million in bank letters of credit. Subsequent to
September 30, 2002, as part of our new financing program, we obtained sufficient
cash to collateralize these letters of credit.
We provide guarantees to financial institutions on behalf of certain
Agricultural Products customers in Brazil for their seasonal borrowing. The
customers' obligations to us are largely secured by liens on their crops. The
total of these guarantees at September 30, 2002 decreased to $19.7 million from
$56.0 million at December 31, 2001. We also provide guarantees to financial
institutions on behalf of certain Agricultural Products customers in Brazil to
support their importation of third-party agricultural products. These guarantees
totaled $4.3 million and $10.0 million at September 30, 2002 and at December 31,
2001, respectively (see Note 17 to the condensed consolidated financial
statements).
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS
Our earnings, cash flows, and financial position are exposed to market risks
relating to fluctuations in commodity prices and foreign currency exchange
rates. It is our policy to minimize cash flow exposure to changes in currency
and exchange rates through a controlled program of risk management that includes
the use of derivative financial instruments. Also, we minimize the risk of
credit losses by entering into derivative contracts with major financial
institutions.
In the future, in connection with our recent financing we will also be exposed
to fluctuations in interest rates as we swap our fixed rates for floating rates.
Currently we are not engaged in any such swap contracts.
The analysis below presents the sensitivity of the market value of our financial
instruments to selected changes in market rates and prices. The range of changes
chosen reflects our view of changes which are reasonably possible over a
one-year period. Market values are the present value of projected future cash
flows based on the market rates and prices chosen. The market value foreign
currency risk is calculated by us, using a third-party software model which uses
standard pricing models to determine the present value of the instruments based
on market conditions (spot and forward exchange rates) as of the valuation date.
The market value energy price risk is calculated by a third party.
Our derivative and other financial instruments consist of energy and foreign
exchange forward contracts. The net market value of these financial instruments
combined is referred to below as the net financial instrument position.
At September 30, 2002 and December 31, 2001, the net financial instrument
position was a net asset of $1.6 million and net liability of $25.9 million. The
increase in the net financial instrument position was due to favorable positions
in our natural gas forward contracts due to increased energy prices as well as
favorable foreign currency forward contracts against a strengthening euro.
Interest Rate Risk
We have primarily fixed-rate debt. A change in interest rates does not affect
our fixed rate debt at September 30, 2002 and December 31, 2001 as there were no
relevant outstanding financial instruments related to debt at September 30, 2002
and December 31, 2001. Our variable rate debt was not significant at September
30, 2002 and at December 31, 2001.
Commodity Price Risk
Energy costs are approximately 6% of our total revenues. The majority of our
energy costs are from natural gas usage. We attempt to mitigate our exposure to
increasing energy costs by hedging the cost of natural gas. Below is a
sensitivity analysis reflecting the effect of changing energy prices.
The sensitivity analysis assumes an instantaneous 10% change in natural gas
prices from their levels at September 30, 2002 and December 31 2001 with all
other variables (including interest rates) held constant. A 10% increase in New
York Mercantile Exchange ("NYMX") prices would result in a decrease of $6.6
million and $5.2 million in the net liability position of the relevant financial
instruments at September 30, 2002 and December 31, 2001, respectively. A 10%
weakening of NYMX prices would result in an increase of $4.4 million and $7.5
million in the net liability position of the relevant financial instruments at
September 30, 2002 and December 31, 2001, respectively.
Foreign Currency Exchange Rate Risk
The primary currencies for which we have exchange rate exposure are the U.S.
dollar versus the euro, the euro versus the Norwegian krone, the U.S. dollar
versus the U.K. pound sterling, and the U.S. dollar versus the Brazilian real.
Foreign currency debt and foreign exchange-forward contracts are used in
countries where we do business, thereby reducing our net asset exposure. Foreign
exchange forward contracts are also used to hedge firm and highly anticipated
foreign currency cash flows, along with foreign exchange option contracts. Thus,
there is either an asset or cash flow exposure related to all the financial
instruments in the sensitivity analysis below for which the impact of a movement
in exchange rates would be in the opposite direction and materially equal (or
more favorable in the case of purchased foreign exchange option contracts) to
the impact on the instruments in the analysis. Below ia a sensitivity analysis
reflecting the effect of changing foreign currency rates.
The sensitivity analysis assumes an instantaneous 10% change in the foreign
currency exchange rates from their levels at September 30, 2002 and December 31
2001, with all other variables (including interest rates) held constant. A 10%
strengthening of our functional currencies versus all other currencies would
result in a increase of $3.5 million and a decrease of $7.5 million in the net
asset position of the relevant financial instruments at September 30, 2002 and
December 31, 2001, respectively. A 10% weakening of our functional currencies
versus all other currencies would result in a decrease of $2.6 million and an
increase of $8.0 million in the net asset position of the relevant financial
instruments at September 30, 2002 and December 31, 2001.
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Recently Adopted Accounting Pronouncements
On January 1, 2002 we adopted Statement of Financial Account Standards (" SFAS")
No. 142, "Goodwill and Other Intangible Assets." With the adoption of SFAS No.
142, goodwill and other indefinite intangible assets ("intangibles") are no
longer subject to amortization, rather they are subject to at least an annual
assessment for impairment by applying a fair value based test. Prior to January
1, 2002 we amortized goodwill and identifiable intangible assets (such as
trademarks) on a straight-line basis over their estimated useful lives not to
exceed 40 years. In the second quarter we completed the transitional goodwill
and indefinite life intangibles impairment tests required by SFAS No. 142. FMC
recorded no impairments of our goodwill and indefinite life intangibles based on
the fair value test conducted in the second quarter of 2002. We will continue
our impairment tests on goodwill based on fair value each year, beginning in the
fourth quarter of 2002, in accordance with the requirements of SFAS No. 142.
Goodwill amortization was $4.2 million, or $0.14 per diluted share in 2001.
Goodwill amortization for the three and nine months ended September 30, 2001 was
$1.1 million or $0.03 per diluted share and $3.2 million or $0.09 per diluted
share, respectively. Goodwill amortization for the three and nine months ended
September 30, 2002 would have been approximately $1.1 million and $3.2 million,
respectively. Goodwill at September 30, 2002 and December 31, 2001 was $124.3
million and $113.5 million, respectively. The majority of our goodwill is
attributed to an acquisition in the Specialty Chemicals segment. There are no
other material indefinite life intangibles, other than goodwill, at September
30, 2002.
FMC's definite life intangibles totaled $7.1 million as of September 30, 2002.
At September 30, 2002 these definite life intangibles are allocated among our
business segments as follows: $3.2 million in Agricultural Products, $2.5
million in Specialty Chemicals and $1.4 million in Industrial Chemicals. All
definite life intangible assets are amortizable and consist primarily of
patents, industry licenses and other intangibles.
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and establishes a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale. The Statement retains most of the requirements of SFAS No. 121 related
to the recognition of the impairment of long-lived assets to be held and used.
There was no impact of adopting SFAS No. 144 in the first nine months of 2002.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145 "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB No. 14,
and Technical Corrections." The Statement rescinds or amends a number of
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. In
the second quarter of 2002, with the retirement of its Meridian Gold debentures,
we elected to early adopt SFAS No. 145. We recorded a $3.1 million loss ($1.9
million after-tax) in the second quarter of 2002 related to the early retirement
of these debentures in our total costs and expenses from operations in
accordance with this statement.
On January 1, 2001, we implemented SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138
(collectively, the "Statement"). The Statement requires FMC to recognize all
derivatives in the consolidated balance sheets at fair value, with changes in
the fair value of derivative instruments to be recorded in current earnings or
deferred in other comprehensive income, depending on the type of hedging
transaction and whether a derivative is designated as an effective hedge. In
accordance with the provisions of the Statement, we recorded a first-quarter
2001 loss from the cumulative effect of a change in accounting principle of $0.9
million after-tax in our consolidated statement of earnings, and a deferred gain
of $16.4 million after-tax in accumulated other comprehensive loss.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. We are required to adopt the provisions of
this pronouncement no later than the beginning of 2003 and are evaluating the
potential impact of adopting SFAS No. 143.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard addresses the accounting and
reporting for costs of so-called exit activities (including restructuring) and
for the disposal of long-lived assets. The standard changes some of the criteria
for recognizing a liability for these activities. It is effective beginning in
2003 with the liability recognition criteria under the standard applied
prospectively. We will adopt SFAS No. 146 when required and are currently
evaluating the potential impact of adoption on our accounting policies regarding
exit and disposal activities.
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RESULTS OF OPERATIONS
General
All results discussed in this analysis address the continuing results of our
chemical businesses. The results of Technologies, which was spun-off on December
31, 2001, have been reclassified to discontinued operations within our
consolidated statement of income for the three and nine months ended September
30, 2001 and consolidated statement of cash flow for the nine months ended
September 30, 2001. See Note 2 to our condensed consolidated financial
statements for an overview of our reorganization and spin-off of Technologies.
Net income (loss) for the three and nine months ended September 30, 2002 were
$28.2 million and $56.4 million, respectively, compared to earnings of $21.3
million and loss of $305.0 million for the three and nine months ended September
30, 2001. Income from continuing operations excluding special items for the
three and nine months ended September 30, 2002 was $28.2 million and $65.2
million, or $0.79 and $1.92 per share, respectively, on a diluted basis. This is
compared to $18.2 million and $75.5 million for the three and nine months ended
September 30, 2001 or $0.57 per share and $2.35 per share. Special items include
restructuring and other charges for 2002 and restructuring and other charges and
asset impairments for 2001. Restructuring and other charges totaled $8.5 million
in the prior year's third quarter. Restructuring and other charges for the nine
months ended September 30, 2002 were $14.4 million compared to $184.5 million
for the same period in 2001. Asset impairments for the nine months ended
September 30, 2001 were $323.1 million. (See below and Notes 7 and 8 to our
condensed consolidated financial statements for further discussion of these
charges.)
RESULTS OF OPERATIONS - Quarter ended September 30, 2002 compared to quarter
ended September 30, 2001
Revenue. Third quarter 2002 revenue was down slightly to $476.6 million as
compared to $482.8 million in the prior year's third quarter. Lower third
quarter revenue was due to decreased sales particularly in alkali and, at Foret,
as a result of lower phosphate volumes and selling prices in the detergent
market in our Industrial Chemicals segment. This was partially offset by
stronger insecticide sales in our Agricultural Products business segment as well
as a strong performance from our Specialty Chemicals segment. (See "Segment
Results" for further details.)
Selling, general and administrative expenses of $55.7 million for the third
quarter of 2002 were relatively flat compared to $55.8 million in the third
quarter of 2001.
Research and development costs of $19.4 million in the third quarter of 2002
decreased by over 20% compared to third quarter 2001 costs of $25.0 million. Our
refocusing within Agricultural Products to eliminate herbicide research resulted
in reduced costs for 2002.
Income from continuing operations, before the cumulative effect of a change in
accounting principle was $28.2 million in the third quarter of 2002 compared to
a loss of $13.9 million in the third quarter of 2001. The majority of this
increase is attributed to restructuring and other charges in 2001 compared to
2002 along with the favorable effect of savings in 2002 related to our
restructuring activities. (See "Segment Results" for further detail.)
Restructuring and other charges totaled $8.5 million in the prior year's third
quarter. These charges were largely for reorganization costs and restructuring
activities including contract commitment costs, facility exit costs and
severance.
Corporate expenses (excluding restructuring and other charges) were $8.6 million
in the third quarter of 2002 compared to an allocated $9.0 million in the third
quarter of 2001.
Interest expense, net for the third quarter of 2002 was $15.7 million compared
to $14.4 million allocated in the prior year's quarter (See Note 2 to our
condensed consolidated financial statements.) Interest expense was higher in the
quarter primarily because the average daily debt levels were higher in the third
quarter of 2002 compared to 2001. We expect interest expenses to be higher in
2003 due to higher interest rates from our recent refinancing.
Provision for income taxes was $10.1 million in the third quarter of 2002
compared to $1.6 million in the prior year resulting in effective tax rates of
26.4% and 10.3%, respectively. The higher effective rates in the quarter
included a provision to adjust our tax rate due to lower profits from foreign
operations in lower tax rate jurisdictions. The low 2001 rate results largely
from the effect of restructuring charges.
Discontinued operations. We recorded income from discontinued operations of $7.4
million in the third quarter of 2001 related to our spun-off Technologies
business.
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Net income (loss). We recorded net income of $28.2 million for the third quarter
of 2002 compared to $21.3 million in the third quarter of 2001. This increase
reflects the impact of several special items discussed above under restructuring
and other charges and asset impairments as well as improved sales mix in
Agricultural Products and Specialty Chemicals.
Average shares outstanding used in the quarter's diluted earnings (loss) per
common share calculations were 35.1 million in 2002 compared with 31.2 million
in the prior year's quarter.
SEGMENT RESULTS - Quarter ended September 30, 2002 compared to quarter ended
September 30, 2001
Segment operating profit is presented before taxes and restructuring and other
charges. Information about how each of these items relates to our businesses at
the segment level is discussed below, in Note 18 of our condensed consolidated
financial statement filed in this 10-Q and Note 20 of our consolidated financial
statements on Form 10-K for the year ended December 31, 2001.
Agricultural Products
Strong insecticide sales highlighted Agricultural Products' third quarter
revenue increase of $12.2 million or 7.8% to $169.1 million from $156.9 million
in third quarter of 2001. Higher insecticide sales were somewhat offset by a
decline in herbicide sales. Higher insecticide sales resulted from new labels
expansions, a demand shift from the second to the third quarter and higher pest
infestation levels in the North American cotton, corn and household and
professional pest control markets. Lower herbicide sales reflected a lower
demand for carfentrazone in the cotton defoliation market due to adverse weather
conditions in the southern U.S. Also contributing to the decline in herbicides
were decreased sulfentrazone sales in Brazil as part of our ongoing strategy to
refocus on higher value crops while de-emphasizing soybeans.
Earnings improved to $20.8 million, or 112.2% in the third quarter of 2002, more
than twice the $9.8 million earned in the third quarter of 2001. Increased
earnings on higher sales were also favorably impacted by lower costs. Selling,
administrative and research expenses were reduced by approximately $5 million in
the quarter reflecting our continuing efforts to reduce costs.
Specialty Chemicals
Specialty Chemicals' revenues increased to $123.1 million in the third quarter
of 2002 up 6.9% from $115.2 million in the third quarter of 2001, reflecting
higher sales in both BioPolymer and lithium products. In BioPolymer the
increased sales reflected stronger microcystalline cellulose sales in health and
convenience food and pharmaceutical markets and stronger carrageenan volumes in
the food ingredients market. Somewhat reducing revenue growth were lower
alginate sales in certain industrial markets. Lithium's sales increase was
highlighted by stronger organolithium sales in pharmaceutical synthesis and
Asian specialty polymers as well as increased demand in lithium battery markets.
Earnings for the quarter increased by 17.4% to $23.6 million from $20.1 million
in the third quarter of 2001. Higher earnings can be attributed to an overall
improvement in BioPolymer's performance, increased lithium sales and a reduction
in lithium manufacturing costs. Additionally, the required change in accounting
for goodwill amortization had a $1.0 million favorable impact on the quarter.
Industrial Chemicals
Industrial Chemicals' third quarter 2002 revenue was $184.0 million down 12.8%
compared to $211.0 million in the third quarter of 2001. Most of the change was
due to a sales decline in our alkali business. Among the factors contributing to
alkali's third quarter results in 2002 were weaker soda ash volumes primarily
resulting from caustic soda substitution, lower soda ash selling prices in the
export market and a decline in downstream markets. At Foret, lower selling
prices and volumes, especially in phosphates and peroxygens, were somewhat
offset by a stronger euro in the third quarter. Peroxygens revenue was
relatively flat in the third quarter of 2002 compared to the third quarter of
2001 with stronger hydrogen peroxide volumes offset by lower hydrogen peroxide
selling prices and weaker specialty peroxygen sales into the printed circuit
board market.
Overall, segment operating profit in the third quarter of 2002 remained
relatively flat at $20.3 million compared to $20.4 million in the third quarter
of 2001. Cost savings related to our 2002 restructuring activities, lower raw
material costs at Foret and lower FMC consent decree spending at Pocatello,
Astaris' former elemental phosphorus facility, offset the impact of lower
segment sales and lower selling prices. At
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Astaris, equity earnings were down slightly versus 2001 as lower average selling
prices and a lower benefit from power resales were partially offset by strong
fire safety sales and improved sourcing costs from its purified phosphoric acid
("PPA") plant.
RESULTS OF OPERATION - Nine months ended September 30, 2002 compared to nine
months ended September 30, 2001
Revenue for the nine months ended September 30, 2002 decreased to $1,393.2
million, or 4.1 %, compared to $1,453.2 million in the prior year's period.
Lower revenue in 2002 when compared with 2001 was principally attributable to
low phosphate sales due to the loss of a major European detergent customer at
Foret and lower alkali sales within our Industrial Chemicals segment. Also
contributing to the decline were lower Agricultural Products revenues primarily
due to our planned lower sulfentrazone sales. (See "Segment Results" for further
details.)
Selling, general and administrative expenses were $171.2 million for the first
nine months of 2002 compared to $181.4 million in first nine months of 2001.
Lower expenses can be attributed to our strategy in the Agricultural Products
segment to focus on key crops in the Americas.
Research and development costs of $60.4 million in the first nine months of 2002
decreased by 18.3% compared to 2001 costs of $73.9 million. Our refocusing
within Agricultural Products to eliminate herbicide research resulted in reduced
costs for 2002.
Income from continuing operations, before the cumulative effect of a change in
accounting principle was $56.4 million for the nine months ended September 30,
2002 compared to a loss of $270.6 million for the nine months ended September
30, 2001. The majority of this increase can be attributed to higher
restructuring and other charges and asset impairments in 2001 compared to 2002,
somewhat offset by weaker sales in 2002. In addition, the lack of a $20 million
profit protection payment from Dupont has been offset by continued savings in
selling administrative and research costs throughout the Agricultural Products
segment. (See "Segment Results" for further detail.)
Asset impairments totaled $323.1 million for the first nine months of 2001. In
the second quarter of 2001 based upon a comprehensive review of our long-lived
assets, we recorded asset impairment charges of $211.9 million related to our
U.S.-based phosphorus business. The components of asset impairments related to
this business, included a $171.0 million impairment of environmental assets
built to comply with a Resource Conservation and Recovery Act, Consent Decree at
the Pocatello, Idaho facility and a $36.5 million impairment charge for our
investment in Astaris, our phosphorus joint venture with Solutia. (See Notes 4
and 13 to our 2001 consolidated financial statements). Driving these charges
were a decline in market conditions, the loss of a potential site on which to
develop an economically viable second PPA plant and our agreement to pay into a
fund for the Shoshone-Bannock Tribes resulting from an agreement to support a
proposal to amend the Consent Decree, which permitted the earlier closure of the
largest remaining waste disposal pond at Pocatello. In addition, we recorded an
impairment charge of $98.9 million related to our Specialty Chemicals segment's
lithium operations in Argentina. We established this operation, which includes a
lithium mine and processing facilities, approximately five years ago in a remote
area of the Andes Mountains. The entry of a South American manufacturer into
this business resulted in decreased revenues. In addition, market conditions
continued to be unfavorable. As a result, our lithium assets in Argentina became
impaired, as the total capital invested is not expected to be recovered. An
additional $12.3 million of charges is related to the impairment of assets in
our cyanide operations.
Restructuring and other charges totaled $14.4 million in the first nine months
of compared to $184.5 million in the first nine months of the prior year.
Of these 2002 charges $2.4 million related to severance and other costs of
idling our Agricultural Product's Baltimore sulfentrazone plant. In the
Industrial Chemicals segment, the mothballing of the Granger caustic facility in
Green River and other restructuring activities resulted in $5.6 million of
severance and other costs. Corporate transition costs related to the spin-off of
Technologies and other restructuring resulted in $3.3 million of charges. The
remaining balance can be attributed to a $3.1 million premium payment for the
redemption of our 6.75% of Senior Subordinate Debentures announced on May 3,
2002. (See Note 9 to our condensed consolidated financial statements and
"Liquidity and Capital Resources" above.)
During the third quarter of 2001 we recorded $8.5 million of restructuring and
other charges. These charges were largely for reorganization costs and
restructuring activities related to the anticipated spin-off of Technologies,
including contract commitment costs, facility exit costs and severance.
During the second quarter of 2001, we recorded $175.0 million in restructuring
and other charges including $160.0 million related to our Industrial Chemicals
segment's U.S.-based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes; and $8.6 million of other related
charges. In addition, restructuring
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charges for the quarter included $8.0 million related to our corporate
reorganization. The remaining charges of $7.0 million were for the restructuring
of two smaller chemical facilities.
The restructuring charges in the first quarter of 2001 related to corporate
reorganization costs and several minor restructuring activities within the
Industrial Chemicals segment.
In the fourth quarter of 2001 the we reached an agreement to shutdown operations
at Pocatello. At this time approximately half of the $68.7 million Consent
Decree reserve recorded in the second quarter of 2001 was spent in the second
and third quarters of 2001. The shutdown of this facility eliminated the need
for Consent Decree spending for continuing operations. The shutdown allowed us
to reverse the remaining Consent Decree reserve of $34.5 million through
restructuring and other charges. This amount was more than offset by our fourth
quarter 2001 restructuring and other charges related to the shutdown of
Pocatello.
Corporate expenses (excluding restructuring and other charges) were $27.9
million compared to an allocated $26.4 million in the same period for 2001. The
majority of this increase reflects certain transition service costs associated
with the spin-off of Technologies.
Interest expense, net for the 2002 period was $48.1 million compared to an
allocated $44.2 million in the prior year's period. Higher average debt levels
and higher borrowing costs due to the Moody's downgrade (See "Liquidity and
Capital Resources") resulted in an increased interest expense in 2002 compared
to 2001.
Provision for income taxes was $15.0 million for the nine months ended September
30, 2002 compared to a benefit of $138.0 million in the prior year's period
resulting in effective tax rates of 21.0% and 33.8%, respectively. The 2002 and
2001 rates result largely from the effect of restructuring charges.
Discontinued operations. We recorded a loss from discontinued operations of
$33.5 million in the first nine months of 2001 primarily related to the spin-off
of Technologies. Included in this amount are losses of our spun-off Technologies
business, including after-tax interest expense of $11.8 million, which was
allocated to discontinued operations in accordance with Accounting Principles
Board Statement No. 30 and later relevant accounting guidance.
Net Income (loss). We recorded net income of $56.4 million for the first nine
months of 2002 compared to a net loss of $305.0 million for the first nine
months of 2001. This variance reflects the affects of restructuring and other
charges asset impairments in 2001.
Average shares outstanding used in the period's diluted earnings (loss) per
common share calculations were 33.9 million in 2002 compared with 31.0 million
in the prior year's period. Additional weighted average shares of 1.1 million,
assuming conversion of stock awards, for the nine months ended September 30,
2001 were not included in the computation of diluted earnings per share as their
effect would be antidilutive.
SEGMENT RESULTS - Nine months ended September 30, 2002 compared to nine months
ended September 30, 2001
Segment operating profit is presented before taxes and restructuring and other
charges. Information about how each of these items relates to our businesses at
the segment level is discussed below, in Note 17 of our consolidated financial
statements filed in this 10-Q and Note 20 of our consolidated financial
statements on Form 10-K for the year ended December 31, 2001.
Agricultural Products
Agricultural Products revenue for the nine months ended September 30, 2002 was
$474.0 million, down 4.7%, as compared to $497.3 million for the nine months
ended September 30, 2001. Lower herbicide sales were somewhat offset by higher
insecticide sales in our newer chemistries. Herbicide sales decreased mainly due
to a planned reduction in sulfentrazone sales as we shift our focus from
soybeans to higher value crops. Insecticide sales increased due to new labels
and higher pest infestation levels on cotton in North America despite channel
inventory reductions and strong demand in our non-agricultural markets such as
turf ornamental and household pests.
Earnings for the nine months ended September 30, 2002 were $50.8 million, down
21.8%, compared to $65.0 million for the nine months ended September 30, 2001.
Lower sales and the absence of a $20.0 million profit protection payment from
DuPont were partially offset by lower selling, administrative and research
costs. Lower costs reflected our restructuring activities and overall efforts to
reduce costs which have resulted in approximately $10 million in savings in
2002. We expect to achieve annual savings related to our restructuring
activities of approximately $20 million.
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We believe the Agricultural Products segment will show an improvement in the
fourth quarter of 2002 versus the prior year due to continued cost savings and
an improved sales mix from a continuing shift to new insecticides.
Specialty Chemicals
Specialty Chemicals' revenue for the nine months ended September 30, 2002 was
$363.5 million, up 3.6% from $351.0 million in the prior year's period. Revenue
reflected an increase in BioPolymer sales from strong pharmaceutical demand for
microcrystalline cellulose and steady demand for carrageenan and
microcrystalline cellulose in the food ingredients market, particularly in
beverage products. Partially offsetting these increased revenues were lower
alginate sales in industrial markets, an area where management will focus its
efforts on improving profitability in the future. Stronger organolithium
performance in the pharmaceutical synthesis and specialty polymer markets and
stronger demand for chargeable and non-rechargeable batteries were partially
offset by lower exports to Japan due to a weaker economy.
Earnings of $66.0 million for the nine months ended September 30, 2002 were 8.0%
higher compared to $61.1 million for the nine months ended September 30, 2001.
Higher earnings can be attributed to overall BioPolymer growth, a decrease in
manufacturing costs in lithium due largely to the devaluation of the Argentine
peso and a favorable $3.2 million impact for the required change in accounting
for goodwill amortization related to BioPolymer. In BioPolymer, an unfavorable
sales mix, and higher operating costs somewhat offset the benefits of the sales
growth.
Although we expect continued strong growth in our specialty markets in the
fourth quarter, a large one-time sale of high margin pharmaceutical product in
our lithium business in the fourth quarter of 2001 is not expected to repeat
this year.
Industrial Chemicals
Industrial Chemicals' revenue was $559.1 million through the first nine months
of 2002, down 8.3%, compared to $609.9 million through the first nine months of
2001. Alkali sales decreased due to lower soda ash prices and volumes resulting
from caustic soda substitution and weaker sales in downstream markets for sodium
bicarbonate and caustic soda and the first quarter 2002 sale of our sodium
cyanide business. Foret saw a decrease in revenue year-to-date compared to the
same period in 2001 reflecting lower phosphate sales due in part to the loss of
a major European customer and generally lower volumes and lower prices.
Peroxygens revenue decreased due to generally lower selling prices and lower
persulfate volumes offset by higher hydrogen peroxide volumes.
Earnings for the nine months ended September 30, 2002 were $55.6 million, up
4.9%, as compared to $53.0 million in the prior year's period. Higher earnings
despite lower sales can be attributed primarily to lower operating costs related
to environmental management spending at Pocatello. Also affecting earnings were
continued cost savings from our 2002 restructuring efforts. Somewhat offsetting
year-to-year earnings were lower selling prices and volumes throughout much of
the segment.
We do not foresee any improvements in economic or competitive conditions in
those markets served by our Industrial Chemicals segment until late in 2003, as
a result, we expect our performance in the fourth quarter will reflect flat
earnings due to a variety of on going cost savings efforts in our industrial
chemicals business, including the announced plan to mothball capacity at the
Spring Hill, West Virginia facility.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item is provided in "Derivative Financial
Instruments and Market Risks," under ITEM 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The company evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures as of a date within 90 days of the filing date of this quarterly
report. The company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the company in the reports that are
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Based on this evaluation,
the company's Chief Executive Officer and Chief Financial Officer have concluded
that these controls and procedures are effective.
(b) Change in Internal Controls. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of the companys's most recent evaluation,
including any corrective actions with regard to significant deficiencies or
material weakness.
-37-
INDEPENDENT ACCOUNTANTS' REPORT
A report by KPMG LLP, FMC's independent accountants, on the financial statements
included in Form 10-Q for the three and nine months ended September 30, 2002 is
included on page 39.
-38-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
FMC Corporation:
We have reviewed the condensed consolidated balance sheet of FMC Corporation and
consolidated subsidiaries as of September 30, 2002, and the related condensed
consolidated statements of income and cash flows for the three and nine-month
periods ended September 30, 2002 and 2001. These condensed consolidated
financial statements are the responsibility of the Company's management.
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 auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America. We have previously audited, in accordance with
auditing standards generally accepted in the United States of America, the
consolidated balance sheet of FMC Corporation and consolidated subsidiaries as
of December 31, 2001, and the related consolidated statements of income, cash
flows and changes in stockholders' equity for the year then ended not presented
herein; and in our report dated February 14, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2001, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Our report dated February 14, 2002, on the consolidated financial statements of
FMC Corporation and consolidated subsidiaries as of and for the year ended
December 31, 2001, contains an explanatory paragraph that states as discussed in
Note 1 to the consolidated financial statements, the company changed its method
of accounting for derivative instruments and hedging activities in 2001.
KPMG LLP
Philadelphia, Pennsylvania
November 14, 2002
-39-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change in the company's significant legal proceedings
from the information reported in Part I, Item 3 of the company's 2001 Annual
Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See attached Index of Exhibits
(b) Reports on Form 8-K
During the period beginning July 1, 2002 and ending September 30, 2002, the
registrant filed the following reports on Form 8-K or Form 8-K/A.
i. Filed September 20, 2002 - Item 5 and Item 7 Discussion of new financing plan
and related information
-40-
INDEX OF EXHIBITS FILED WITH OR
INCORPORATED BY REFERENCE INTO
FORM 10-Q OF FMC CORPORATION
FOR THE QUARTER ENDED
SEPTEMBER 30, 2002
Exhibit
No. Exhibit Description
- ------- --------------------
10.1 Succession Agreement, dated as of August 6, 2002, among FMC
Corporation, BNY Midwest Trust Company as Trustee, and Wachovia Bank,
National Association as Successor Trustee
10.2 Second Amendment to the Bridge Credit Agreement, dated as of August
30, 2002, among FMC Corporation, the Lenders party thereto and
Citibank, N.A., and Administrative Agent
10.3 Agreement of Amendment, dated as of September 11, 2002, to the
Receivables Purchase Agreement
10.4 Credit Agreement, dated as of October 21, 2002, among FMC Corporation,
Citicorp USA, Inc., as Administrative Agent, ABN AMRO N.V. as
Documentation Agent, Bank of America N.A. and Wachovia Bank, National
Association as Co-Syndication Agents and Salomon Smith Barney Inc.,
Banc of America Securities LLC and Wachovia Securities Inc. as Co-Lead
arrangers and Co-Bank Managers
10.5 Pledge and Security Agreement, dated as of October 21, 2002, by FMC
Corporation in favor of Citicorp USA, Inc., as Bank Administrative
Agent
10.6 Shared Collateral Pledge and Security Agreement, dated as of October
21, 2002, by FMC Corporation in favor of Citibank N.A., as Collateral
Trustee
10.7 Collateral Trust Agreement, dated as of October 21, 2002, among FMC
Corporation Citicorp USA, Inc., as the Bank Administrative Agent,
Wachovia Bank, National Association, as Indenture Trustee, and
Citibank, N.A. as Collateral Trustee
10.8 Purchase Agreement dated October 9, 2002 between FMC Corporation and
the Initial Purchases relating to $355,000,000 10.25% Senior Secured
Notes due 2009
10.9 Registration Rights Agreement, dated October 21, 2002 of FMC
Corporation and the Initial Purchasers relating to 10.25% Senior
Secured Notes due 2009
10.10 Indenture, dated as of October 21, 2002, among FMC Corporation, the
Subsidiary Guarantors and Wachovia Bank, National Association, as
Trustee
11 Statement regarding Computation of Per Share Earnings
12 Statement regarding Computation of Ratios of Earnings to Fixed Charges
15 Management Awareness Letter of KPMG LLP
99.1 CEO Certification of Periodic Report (906)
99.2 CFO Certification of Periodic Report (906)
-41-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, as a duly authorized officer of the Registrant and as
its chief financial officer.
FMC CORPORATION
(Registrant)
By: /s/ W. KIM FOSTER
-----------------------------
W. Kim Foster
Senior Vice President and
Chief Financial Officer
Date: November 14, 2002
-42-
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, William G. Walter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FMC Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ William G. Walter
-----------------------------
William G. Walter
President and Chief Executive
Officer
-43-
CHIEF FINANCIAL OFFICER CERTIFICATION
I, W. Kim Foster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FMC Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ W. Kim Foster
-------------------------
W. Kim Foster
Senior Vice President and
Chief Financial Officer
-44-