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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
-------- --------
Commission File Number 1-2376
FMC Corporation
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-0479804
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Randolph Drive, Chicago, Illinois 60601
--------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(312) 861-6000
------------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1998
- --------------------------------------- ---------------------------------
Common Stock, par value $0.10 per share 33,083,361
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------------------
FMC Corporation and Consolidated Subsidiaries
- -----------------------------------------------
Consolidated Statements of Income (Unaudited)
- -----------------------------------------------
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Sales $1,110.7 $1,059.4 $3,262.5 $3,186.6
Other revenue 18.0 15.3 60.3 43.4
-------- -------- -------- --------
Total revenue 1,128.7 1,074.7 3,322.8 3,230.0
-------- -------- -------- --------
Costs and expenses:
Cost of sales 842.6 779.3 2,462.7 2,363.0
Selling, general and
administrative expenses 143.3 148.4 459.4 465.7
Research and development 37.0 43.8 112.9 126.8
-------- -------- -------- --------
Total costs and expenses 1,022.9 971.5 3,035.0 2,955.5
-------- -------- -------- --------
Income from continuing operations
before minority interests,
net interest expense, income taxes
and cumulative effect of change in
accounting principle 105.8 103.2 287.8 274.5
Minority interests 2.5 2.9 4.3 8.1
Interest expense (net) 28.5 27.8 81.3 86.6
-------- -------- -------- --------
Income from continuing operations
before income taxes and
cumulative effect of change in
accounting principle 74.8 72.5 202.2 179.8
Provision for income taxes 19.4 17.4 52.4 42.9
-------- -------- -------- --------
Income from continuing operations
before cumulative effect of
change in accounting principle 55.4 55.1 149.8 136.9
Discontinued operation, net of
income taxes (Note 4) - 7.8 - 38.7
-------- -------- -------- --------
Income before cumulative effect
of change in accounting
principle 55.4 62.9 149.8 175.6
Cumulative effect of change in
accounting principle, net of
income taxes (Note 3) - - (36.1) -
-------- -------- -------- --------
Net income $ 55.4 $ 62.9 $ 113.7 $ 175.6
======== ======== ======== ========
(continued)
</TABLE>
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FMC Corporation and Consolidated Subsidiaries
- ---------------------------------------------
Consolidated Statements of Income (Unaudited) (Continued)
- ---------------------------------------------------------
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per common share:
Continuing operations $1.64 $1.48 $ 4.36 $3.68
Discontinued operation - 0.21 - 1.04
Cumulative effect of change
in accounting principle - - (1.05) -
-------- -------- -------- --------
Net income per common share $1.64 $1.69 $ 3.31 $4.72
======== ======== ======== ========
Average number of shares used
in basic earnings per share
computations 33.8 37.2 34.4 37.2
======== ======== ======== ========
Diluted earnings per common share:
Continuing operations $1.60 $1.43 $ 4.24 $3.58
Discontinued operation - 0.20 - 1.01
Cumulative effect of change in
accounting principle - - (1.02) -
-------- -------- -------- --------
Net income per common share $1.60 $1.63 $ 3.22 $4.59
======== ======== ======== ========
Average number of shares used in
diluted earnings per share
computations 34.7 38.4 35.3 38.3
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<TABLE>
<CAPTION>
FMC Corporation and Consolidated Subsidiaries
Consolidated Balance Sheets
(In millions, except share and per share data) September 30
1998 December 31
Assets: (Unaudited) 1997
------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 90.9 $ 62.7
Trade receivables, net of allowance for doubtful
accounts of $14.1 in 1998 and $10.4 in 1997 820.8 834.2
Inventories 538.2 524.1
Other current assets 183.2 210.4
Deferred income taxes 71.1 84.2
-------- --------
Total current assets 1,704.2 1,715.6
Investments 162.5 35.9
Property, plant and equipment at cost 3,851.6 3,655.2
Less -- accumulated depreciation 2,150.6 1,975.9
-------- --------
Net property, plant and equipment 1,701.0 1,679.3
Goodwill and intangible assets 397.7 420.4
Other assets 118.9 174.1
Deferred income taxes 79.4 87.8
-------- --------
Total assets $4,163.7 $4,113.1
======== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Short-term debt (Note 2) $ 167.0 $ 186.4
Accounts payable, trade and other 668.8 663.5
Accrued and other current liabilities 504.6 477.8
Current portion of long-term debt (Note 2) 4.7 14.0
Current portion of accrued pensions and
other postretirement benefits 35.5 17.0
Income taxes payable 55.1 105.8
-------- --------
Total current liabilities 1,435.7 1,464.5
Long-term debt, less current portion (Note 2) 1,302.1 1,140.2
Accrued pension and other postretirement
benefits, less current portion 217.2 246.5
Reserve for discontinued operations (Note 4) 181.4 231.3
Other liabilities 194.5 212.0
Minority interests in consolidated companies 73.4 58.0
Stockholders' equity:
Preferred stock, no par value, authorized
5,000,000 shares; no shares issued in 1998 or 1997 - -
Common stock, $0.10 par value, authorized
130,000,000 shares in 1998 and 60,000,000 in 1997;
issued 38,167,938 shares in 1998 and 37,875,549
shares in 1997 (Note 6) 3.8 3.8
Capital in excess of par value of common stock 157.4 141.0
Retained earnings 1,082.9 969.2
Foreign currency translation adjustment (131.9) (135.7)
Treasury stock, common, at cost; 5,084,577
shares in 1998 and 2,951,573 shares in 1997 (352.8) (217.7)
-------- --------
Total stockholders' equity 759.4 760.6
-------- --------
Total liabilities and stockholders' equity $4,163.7 $4,113.1
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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FMC Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
------------------
1998 1997
------ ------
<S> <C> <C>
Reconciliation from income from continuing
operations before cumulative effect of change
in accounting principle to cash provided
by operating activities of continuing
operations:
Income from continuing operations before cumulative
effect of change in accounting principle $149.8 $136.9
Adjustments for non-cash components of
income from continuing operations:
Depreciation and amortization 154.1 180.6
Deferred income taxes 21.5 25.6
Minority interests 4.3 8.1
Other (13.8) (37.1)
(Increase) decrease in assets:
Trade receivables 13.4 76.1
Inventories (14.1) (59.8)
Other current assets and other assets 45.9 16.7
Increase (decrease) in liabilities:
Accounts payable, accrued and other
current liabilities and other liabilities 30.5 55.5
Income taxes payable (40.4) (8.1)
Accrued pension and other
postretirement benefits, net (9.0) (10.8)
------ ------
Cash provided by operating activities
of continuing operations $342.2 $383.7
====== ======
</TABLE>
(continued)
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FMC Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)(Continued)
(In millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
---------------------
1998 1997
------- -------
<S> <C> <C>
Cash provided by operating activities
of continuing operations $ 342.2 $ 383.7
------- -------
Cash provided (required) by discontinued operations (49.9) 3.9
------- -------
Cash provided (required) by investing
activities:
Capital spending (197.7) (227.5)
Disposal of property, plant and equipment 64.5 44.1
(Increase) decrease in investments (133.2) 27.9
------- -------
(266.4) (155.5)
------- -------
Cash provided (required) by financing
activities:
Net repayments of commercial paper (109.4) (333.9)
Net decrease in other short-term debt (19.4) (200.9)
Net borrowings under credit facilities 122.8 319.7
Proceeds from issuance of long-term debt 169.0 69.6
Repayment of long-term debt (34.6) (19.0)
Distributions to limited partner (4.8) (7.9)
Repurchases of common stock (135.1) (59.3)
Issuances of common stock 16.4 17.7
------- -------
4.9 (214.0)
Effect of exchange rate changes on cash
and cash equivalents (2.6) (7.0)
------- -------
Increase in cash and cash equivalents 28.2 11.1
Cash and cash equivalents, beginning
of year 62.7 74.8
------- -------
Cash and cash equivalents, end of period $ 90.9 $ 85.9
======= =======
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized, was $81.5 million and $74.5
million, and net cash paid for income taxes (including taxes paid related to
Defense Systems operations) was $67.9 million and $30.8 million for the nine-
month periods ended September 30, 1998 and 1997, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
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FMC Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Financial Information and Accounting Policies
- ------------------------------------------------------
The consolidated balance sheet of FMC Corporation ("FMC" or "the company") as of
September 30, 1998, and the related consolidated statements of income and of
cash flows for the interim periods ended September 30, 1998 and 1997 have been
reviewed by FMC's independent accountants. The review is discussed more fully
in their report included herein. In the opinion of management, such financial
statements have been prepared in conformity with generally accepted accounting
principles and reflect all adjustments necessary for a fair statement of the
financial position, results of operations and cash flows for the interim
periods. All such adjustments are of a normal recurring nature. The results of
operations for the three-month and nine-month periods ended September 30, 1998
and 1997 are not necessarily indicative of the results of operations for the
full year.
The company's accounting policies, except as described in the remainder of this
paragraph, are set forth in Note 1 to the company's consolidated 1997 financial
statements, which are incorporated by reference in the company's 1997 Annual
Report on Form 10-K. As more fully discussed in Note 3, the company adopted
AICPA Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-
Up Activities," effective January 1, 1998. In conjunction with the adoption,
the company began expensing all start-up costs as incurred.
Note 2: Debt
- -------------
The company has $750 million in available committed credit facilities consisting
of a $300 million, 364-day non-amortizing revolving credit agreement due in
December 1998 and a $450 million, five-year non-amortizing revolving credit
agreement due in December 2001. No amounts were outstanding under these
facilities at either September 30, 1998 or December 31, 1997.
In November 1995, the company commenced a short-term commercial paper program
supported by the committed facilities. Outstanding commercial paper borrowings
totaled $50.0 million at September 30, 1998 and $155.0 million at December 31,
1997, respectively.
Committed credit available under the revolving credit facilities provides
management with the ability to refinance a portion of its debt on a long-term
basis and, as it is management's intent to do so, $50 million of outstanding
commercial paper and $242.8 million of borrowings under uncommitted U.S. credit
facilities have been classified as long-term debt at September 30, 1998. At
December 31, 1997, $155.0 million of outstanding commercial paper and $120.0
million of borrowings under uncommitted U.S. credit facilities were classified
as long-term debt.
In January 1997, the company registered $400 million of medium-term debt
securities pursuant to a $500 million universal shelf registration statement
filed in 1995. During 1997, the company issued $70 million of medium-term notes
and used the net proceeds to retire short-term borrowings.
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On May 5, 1998, the company issued $70 million of 6.75% medium-term notes due
May 5, 2005 and on May 27, 1998, the company issued $100 million of 7.0% medium-
term notes due May 15, 2008. The company used the net proceeds of $169.0 million
to retire other borrowings.
On August 3, 1998, a universal shelf registration statement filed by the
company, under which $500 million of debt and/or equity may be offered, became
effective. This registration statement incorporates $160 million of unused
capacity from the company's 1995 shelf registration statement.
Note 3: Recent Accounting Pronouncements
- -----------------------------------------
SOP No. 98-5 was adopted by the company effective January 1, 1998. SOP No. 98-5
requires costs of start-up activities, including organizational costs, to be
expensed as incurred. In conjunction with the adoption, the company charged
$46.5 million ($36.1 million after tax, or $1.02 per share on a nine-month
diluted basis) to expense, which was reported as the cumulative effect of a
change in accounting principle. The expense represented the write-off of costs
related to the start-up of manufacturing at the Salar del Hombre Muerto lithium
facility in Argentina, the Baltimore sulfentrazone facility, and the Bayport,
Texas hydrogen peroxide plant expansion.
During the quarter ended March 31, 1998, the company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements, and requires a total for
comprehensive income to be provided in condensed financial statements of interim
periods. Comprehensive income includes all changes in stockholders' equity
during the period except those resulting from investments by owners and
distributions to owners. Comprehensive income for the three months and nine
months ended September 30, 1998 and 1997 consisted of the following (in
millions):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ---------------------------
1998 1997 1998 1997
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net income $55.4 $ 62.9 $113.7 $175.6
Other comprehensive income (loss):
Foreign currency translation
adjustment, net of tax expense
(benefit) of $4.6 and $(5.3) for
the three months ended
September 30, 1998 and 1997,
respectively and $1.3 and
$(20.2) for the nine months ended
September 30, 1998 and 1997,
respectively 13.1 (16.8) 3.8 (64.3)
----- ------ ------ ------
Comprehensive income $68.5 $ 46.1 $117.5 $111.3
===== ====== ====== ======
</TABLE>
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997 but is not required to be reported in interim financial
statements in the first year of application. SFAS No. 131 establishes standards
for the way that public business enterprises report financial and descriptive
information about reportable operating segments in annual financial statements
and interim financial reports issued to stockholders. SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report
<PAGE>
PAGE 9
information about major customers. The company is evaluating the new statement's
provisions and will adopt SFAS No. 131, as required, in the fourth quarter of
1998.
SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits" is effective for fiscal years beginning after December 31, 1997. SFAS
No. 132 revises employers' disclosures about pensions and other postretirement
benefit plans. The company is evaluating the new statement's provisions and will
adopt SFAS No. 132, as required, in the fourth quarter of 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" is
effective for financial statements for fiscal years beginning after June 15,
1999, but may be adopted in earlier periods. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging activities. The
company is evaluating the new statement's provisions and has not yet determined
the date on which it will adopt SFAS No. 133.
Note 4: Discontinued Operations
- --------------------------------
On October 6, 1997, FMC, Harsco Corporation and Harsco UDLP Corporation
(together with Harsco Corporation, "Harsco"), sold United Defense, L.P. ("United
Defense" or "UDLP") and certain other assets to an affiliate of The Carlyle
Group ("Carlyle") for approximately $850 million. FMC was the managing general
partner and 60 percent owner of United Defense, and Harsco owned the remaining
40 percent. United Defense supplies ground combat and naval weapons to the U.S.
and military customers around the world.
The gross sale proceeds to FMC and Harsco consisted of $800 million cash and a
$50 million 8.75% note payable to FMC by Carlyle. Of the estimated proceeds, FMC
received $460 million in cash (subject to adjustment based on certain closing
balance sheet items) and recognized a gain on the transaction of $318.4 million
($179.7 million after tax) during the fourth quarter of 1997. During the third
quarter of 1998, all parties to the transaction reached an agreement on closing
balance sheet adjustments. FMC collected the note payable net of an immaterial
cash settlement to reflect final closing statement adjustments. The final
settlement of these issues did not result in any adjustment to FMC's previously
recorded gain. FMC used cash proceeds of the sale to retire variable rate debt
and commercial paper and contribute toward its common stock repurchase program.
Reserves for discontinued operations at September 30, 1998 and December 31,
1997, respectively, were $181.4 million and $231.3 million. At September 30,
1998, $12.2 million of the reserves related to liabilities associated with UDLP,
and the remainder is related to operations discontinued between 1976 and 1996.
See Note 3 to the company's December 31, 1997 consolidated financial statements
and Note 5 below.
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PAGE 10
Note 5: Environmental Contingencies
- ------------------------------------
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 $234.8 million and $263.8
million, before recoveries, have been provided at September 30, 1998 and
December 31, 1997, respectively, of which $115.0 million and $132.7 million are
included in the reserve for discontinued operations at September 30, 1998 and
December 31, 1997, respectively. In addition, the company has estimated that
reasonably possible environmental loss contingencies may exceed amounts accrued
by as much as $150 million at September 30, 1998. 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.
Recoveries of $95.4 million ($29.9 million as other assets and $65.5 million as
an offset to the reserve for discontinued operations) and $104.9 million ($36.9
million as other assets and $68.0 million as an offset to the reserve for
discontinued operations) have been recorded as probable realization on claims
against third parties at September 30, 1998 and December 31, 1997, respectively.
The majority of recorded assets related to recoveries from Potentially
Responsible Parties are associated with existing contractual arrangements with
U.S. government agencies and amounts due from insurance carriers.
A more complete description of the company's environmental contingencies and the
nature of its potential obligations is included in the notes to FMC's December
31, 1997 consolidated financial statements.
FMC has signed a Consent Decree with the United States Environmental Protection
Agency (the "EPA") (Region 10) and the United States Department of Justice to
settle outstanding alleged violations of the Resource Conservation and Recovery
Act ("RCRA") at FMC's Phosphorus Chemicals ("PCD") plant in Pocatello, Idaho.
The RCRA Consent Decree was lodged in the United States District Court for the
District of Idaho on October 16, 1998, and is subject to a 30-day comment period
before it may be entered by the Court. The RCRA Consent Decree provides for
injunctive relief covering remediation expense for closure of existing ponds,
estimated at $50 million, and approximately $43 million of capital costs for
waste treatment and other compliance projects; these amounts will be expended
over four years. The company also will spend approximately $65 million over the
next four years to conduct a number of supplemental environmental projects.
These projects include approximately $63 million in capital costs for air
quality improvements, and an additional $2 million for health studies with the
Shoshone-Bannock Tribes, since the plant is located on tribal land. The company
also will pay a penalty of $11.8 million. As described in Note 4 to the
company's December 31, 1997 consolidated financial statements, the anticipated
increase in capital expenditures for environmental compliance contributed to an
impairment in the value of PCD's assets during the fourth quarter of 1997. In
addition, FMC had previously provided in its remediation reserve for the
estimated costs associated with the pond closures, health studies and the
penalty under the RCRA Consent Decree.
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PAGE 11
In addition, FMC expects to finalize a second Consent Decree with the EPA in the
fourth quarter of 1998. On June 6, 1998 the EPA issued a Record of Decision
(ROD) which addresses previously-closed ponds on the FMC portion of the Eastern
Michaud Flats Superfund site, which includes FMC's Pocatello phosphorus
facility. The remedy the EPA selected in the ROD is a combination of capping,
surface runoff controls and institutional controls for soils, with a contingency
for extraction and recycling for hydraulic control of groundwater. FMC believes
its reserves for current and future environmental costs adequately provide for
the estimated costs of the Superfund remediation plan for the site and the
expenses previously described related to the October 16, 1998 RCRA Consent
Decree.
FMC and the EPA (Region 3) are working together on an agreement regarding
remediation of the discontinued fiber manufacturing site in Front Royal,
Virginia. Discussions are ongoing and could lead to an agreement in the fourth
quarter of 1998 or the first quarter of 1999.
Note 6: Capital Stock
- ----------------------
On August 28, 1997, the Board of Directors authorized a $500 million open-market
stock repurchase program for FMC common stock through the end of 1999. During
1997, the company repurchased a total of 2.7 million of its common shares at a
cost of $209 million, including shares repurchased under the $500 million stock
repurchase program and shares repurchased throughout the first half of 1997
under a smaller, previously announced program. The company plans to continue
purchasing shares of its common stock on the open market from time to time,
depending on market conditions, and expects to repurchase approximately $150
million of the company's common stock during each of 1998 and 1999. For the nine
months ended September 30, 1998, the company repurchased approximately 2,040,000
of its common shares at a cost of $129.7 million as part of the stock repurchase
program and purchased an additional 91,300 shares at a cost of $5.4 million
which it contributed to a Rabbi Trust to provide for a benefit plan.
On April 24, 1998, the Restated Certificate of Incorporation of the company was
amended to increase the authorized number of FMC common shares, $0.10 par value,
to 130 million from 60 million.
At September 30, 1998, the company had 33.1 million shares outstanding and 0.8
million additional shares assuming conversion of stock options and other common
stock equivalents (calculated under the treasury stock method).
Note 7: Dispositions
- ---------------------
On July 31, 1998, the company completed the sale of Crosby Valve to a subsidiary
of Tyco International Ltd. for cash and Tyco International Ltd. preferred stock.
The preferred stock is guaranteed by Tyco International Ltd. and can be put to
either the issuing subsidiary or Tyco International Ltd. three years after
issuance. FMC realized an immaterial gain on the sale. Crosby Valve was included
in the Machinery and Equipment segment.
During the quarter the company also disposed of a small FoodTech product line.
<PAGE>
PAGE 12
Note 8: Acquisition
- --------------------
On August 14, 1998, the company acquired a controlling interest in CBV Industria
Mecanica S.A., the leading wellhead manufacturer in Brazil. With the acquisition
and its previous minority equity position, the company owns 90 percent of CBV's
voting shares. CBV's operations are included in the company's Machinery and
Equipment segment.
The acquisition was accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed based on the estimated fair value of such assets and
liabilities at the date of acquisition. In addition, a portion of the purchase
price was allocated to goodwill.
Note 9: Legal Contingency
- -------------------------
On April 14, 1998, a jury returned a verdict against the company in the amount
of $125 million in conjunction with a qui tam lawsuit against the company. Any
judgment stemming from the verdict may include, based on certain determinations
to be made by the court, a doubling or trebling of part or all of the damages
reflected in the verdict as well as penalties and costs, including attorneys'
fees. (See Part II, Item 1 of this Form 10-Q for a discussion of the lawsuit.)
Although any legal proceeding is subject to inherent uncertainty, it is the
company's position that the lawsuit is without merit and that the likelihood
that any material adverse judgment in this action will stand against the company
is unlikely. Accordingly, no provision for this matter has been made in the
company's consolidated financial statements.
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PAGE 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF CONTINUING OPERATIONS
FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
Item 2 of this report contains certain forward looking statements 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. Wherever possible, the company has identified these "forward-
looking statements" (as defined in Section 27A of the Securities Act and Section
21E of the Exchange Act) by words such as "anticipates", "plans", "believes",
"estimates", "forecasts", "will continue to", "will likely result", "projects",
"expects" and similar expressions. Readers are cautioned not to place undue
reliance on these forward looking statements. These forward-looking statements
are subject to risks and uncertainties and future events, some of which cannot
be predicted or quantified, and all of which speak only as of the date hereof.
These risks and uncertainties and future events could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by, these statements. These statements are qualified by reference
to the section "Forward Looking Statements - Safe Harbor Provisions" in Item 1
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, which lists important factors, including risks associated with
significant price competition, higher ingredient and raw material prices or
shortages of such commodities, risks associated with new product introductions
(including the potential for unanticipated delays or cost overruns in connection
with introductions of new products and the development of new manufacturing
processes), freight transportation delays beyond the control of the Company,
inability of the Company or its suppliers to remedy potential information
systems problems related to the year 2000, weather patterns, risks associated
with joint ventures, partnerships or limited endeavors, and future environmental
liabilities not covered by insurance or indemnity. Other important factors
include the company's ability to enforce patents, inventory risks, the
regulatory and trade environment, product demand and industry capacity, stock
market conditions, manufacturing inefficiencies, environmental liabilities in
excess of current reserves and estimated loss contingencies, unforeseen outcomes
of litigation or other contingencies, risks relating to general economic
conditions (including continued weakened market conditions in Asia) and the
impact of unforeseen economic and political changes in the international markets
where the company competes (including currency exchange rates, recessions,
foreign ownership restrictions and other external factors over which the company
has no control). The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
LIQUIDITY AND FINANCIAL CONDITION
Total cash and cash equivalents at September 30, 1998 and December 31, 1997 were
$90.9 million and $62.7 million, respectively.
<PAGE>
PAGE 14
As of September 30, 1998 and December 31, 1997, respectively, the company had
total borrowings of $1,473.8 million and $1,340.6 million. Decreases in
commercial paper borrowings of $105.0 million (net of discount) were offset by
$170.0 million of medium-term notes issued under the universal shelf
registration statement discussed below and a $122.8 million increase in
borrowings under uncommitted U.S. credit facilities. Increased borrowings
primarily funded repurchases of FMC common stock.
The company has $750 million in available committed credit facilities consisting
of a $300 million, 364-day non-amortizing revolving credit agreement due in
December 1998 and a $450 million, five-year non-amortizing revolving credit
agreement due in December 2001. No amounts were outstanding under these
facilities at September 30, 1998 or December 31, 1997.
In January 1997, the company registered $400 million of medium-term debt
securities pursuant to its 1995 universal shelf registration statement under
which the company issued $70 million and $100 million of medium-term notes on
May 5, 1998 and May 27, 1998, respectively. See Note 2 to the September 30, 1998
consolidated financial statements.
On August 3, 1998, a universal shelf registration statement filed by the
company, under which $500 million of debt and/or equity may be offered, became
effective. This registration statement incorporates $160 million of unused
capacity from the company's 1995 shelf registration statement.
Capital and acquisition spending of $197.7 million for the nine months ended
September 30, 1998 decreased $29.8 million versus the first three quarters of
1997. The decrease is primarily driven by lower capital spending in the
company's chemical businesses. The first three quarters of 1997 included capital
expenditures for the development of a new lithium production facility in
Argentina and modifications to a Baltimore, Maryland plant constructed to
manufacture a new family of herbicides. Both projects were substantially
completed in 1997. As discussed in Note 8 to the consolidated financial
statements, on August 14, 1998, the company acquired a controlling interest in
CBV Industria Mecanica S.A. The acquisition price was funded by short-term
borrowings. The company continues to evaluate potential acquisitions on an
ongoing basis.
As discussed in Note 4 to the company's September 30, 1998 consolidated
financial statements, the company sold its defense operations to The Carlyle
Group on October 6, 1997 (the closing date). On the closing date, the company
received its share of the net proceeds (subject to adjustment based on certain
closing balance sheet items) from the sale, which included $460 million in cash
(approximately $375 million after tax) and a $50 million note payable to FMC by
The Carlyle Group. During the third quarter of 1998, FMC collected the note
payable, net of an immaterial cash settlement to reflect final closing balance
sheet adjustments.
<PAGE>
PAGE 15
On August 28, 1997, the Board of Directors authorized a $500 million open-market
stock repurchase program for FMC common stock through the end of 1999. In the
nine months ended September 30, 1998, the company repurchased a total of
2,040,000 common shares at a cost of $129.7 million under this program, and an
additional 91,300 shares at a cost of $5.4 million which it contributed to a
Rabbi Trust to provide for a benefit plan. The repurchased shares are recorded
as treasury stock at cost in the company's September 30, 1998 consolidated
balance sheet. The company plans to continue purchasing shares of its common
stock on the open market from time to time, depending on market conditions, and
expects to purchase an additional $20 million of the company's common stock
during the remainder of 1998 and $150 million during 1999.
Other expected cash requirements for the remainder of 1998 include up to $75
million for planned capital expenditures (excluding potential acquisitions),
approximately $25 million for environmental remediation expenditures and
approximately $20 million for net after-tax interest payments based on current
debt levels and interest rates. Cash to meet these requirements will be provided
primarily by the company's operations and, if necessary, by existing cash
balances and available short- or long-term credit facilities.
The increase in investments from $35.9 at December 31, 1997 to $162.5 at
September 30, 1998 primarily represents the receipt of Tyco International Ltd.
preferred stock as proceeds of the company's sale of Crosby Valve to a
subsidiary of Tyco International Ltd. (See Note 7 to the September 30, 1998
consolidated financial statements.)
As discussed in Note 3 to the company's September 30, 1998 consolidated
financial statements, the company adopted AICPA Statement of Position ("SOP")
No. 98-5, "Reporting on the Costs of Start-Up Activities," effective January 1,
1998. In conjunction with the adoption, the company charged $46.5 million ($36.1
million after tax) of previously capitalized start-up costs (recorded as other
assets) to expense.
The company's ratios of earnings to fixed charges were 2.9x and 2.7x for the
nine months ended September 30, 1998 and 1997, respectively. The increase in
1998 resulted primarily from lower net interest expense and the company's higher
1998 earnings from continuing operations before income taxes and a cumulative
effect of a change in accounting principle.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements that will affect the company are discussed in Note
3 to the September 30, 1998 consolidated financial statements.
<PAGE>
PAGE 16
RESULTS OF OPERATIONS
Third Quarter of 1998 Compared with Third Quarter of 1997
Industry Segment Data (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------
1998 1997
-------- --------
<S> <C> <C>
Sales
- -----
Machinery and Equipment $ 553.7 $ 495.6
Industrial Chemicals 238.9 252.0
Performance Chemicals 325.9 315.2
Eliminations (7.8) (3.4)
-------- --------
$1,110.7 $1,059.4
======== ========
Income from continuing operations
- ---------------------------------
before income taxes
- -------------------
Machinery and Equipment $ 49.5 $ 42.5
Industrial Chemicals 23.6 33.9
Performance Chemicals 43.9 41.0
-------- --------
Operating profit from
continuing operations 117.0 117.4
Corporate (19.0) (20.5)
Other income, net 5.3 3.4
Net interest expense (28.5) (27.8)
-------- --------
$ 74.8 $ 72.5
======== ========
</TABLE>
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests for the three months ended
September 30, 1998 and 1997 were $2.5 million and $2.9 million, respectively,
the majority of which related to the Industrial Chemicals segment. The corporate
line primarily includes corporate staff expenses, and other income (net)
consists of all other corporate items, including LIFO inventory adjustments and
pension income or expense.
<PAGE>
PAGE 17
General
- -------
Sales of $1.1 billion for the quarter ended September 30, 1998 were up slightly
from last year's third quarter. Operating profit from continuing operations of
$117 million and after-tax income from continuing operations of $55 million were
essentially even with the third quarter last year reflecting higher Machinery
and Equipment performance offset by declines in Industrial Chemicals and a
higher tax rate. Earnings per share from continuing operations were $1.60 per
share on a diluted basis in the third quarter of 1998, up from $1.43 in last
year's quarter, reflecting the impact of the company's previously announced
ongoing share repurchase program.
Earnings from discontinued operations, net of income taxes, representing the
company's defense systems operations which were sold in October 1997, were $8
million, or $0.20 per share on a diluted basis, in the third quarter of 1997.
Net income of $55 million, or $1.60 per share on a diluted basis, in the third
quarter of 1998 compared with net income of $63 million, or $1.63 per share, in
the third quarter of 1997.
Machinery and Equipment
- -----------------------
Machinery and Equipment sales of $554 million increased 12 percent from $496
million due to the increased sales of subsea systems that were only partly
offset by a decline in FMC FoodTech sales. Profits of $50 million increased 16
percent from $43 million in the third quarter of 1997 due to higher energy
systems sales and cost reductions in FMC FoodTech.
Energy systems sales and earnings increased in the third quarter of 1998
primarily due to the continued strength of subsea system sales which include two
months of the recent acquisition of CBV, the leading wellhead manufacturer in
Brazil. Higher sales to Statoil, Shell and Elf Aquitaine also contributed to the
increase.
Sales and earnings of airport products were essentially even with the third
quarter of 1997, as increased sales of Jetway Systems and automated guidance
vehicles were offset by a decline in sales of deicers.
FMC FoodTech sales were down from last year's quarter, due to continuing
weakness in the Asian economies that was only partially offset by increased food
processing sales. Earnings were up compared to the prior year, primarily as a
result of restructuring and cost savings measures implemented in the first
quarter of 1998.
<PAGE>
PAGE 18
Industrial Chemicals
- --------------------
Industrial Chemicals sales of $239 million for the third quarter of 1998
decreased $13 million from $252 million in last year's period, and earnings (net
of minority interests) decreased to $24 million from $34 million in 1997,
reflecting lower soda ash and hydrogen peroxide prices and reduced phosphorus
volumes.
Sales and earnings of alkali products decreased compared to the third quarter of
1997, reflecting lower prices and export volumes of soda ash to Asia; lower
sodium cyanide sales due to reduced gold mining activity; and timing of the
annual longwall maintenance shutdown in the soda ash mine. A 10 percent
reduction in workforce at the company's Green River facility being implemented
in the third and fourth quarters of 1998 is expected to further reduce the
company's cost position.
Phosphorus sales decreased compared with the same quarter in the prior year due
to reduced volumes. Earnings were up, however, primarily as a result of lower
depreciation costs resulting from an asset impairment charge recorded in the
fourth quarter of 1997.
Peroxygen sales and earnings were lower in the third quarter as continued weak
pricing more than offset increased volumes and reduced costs. The company shut
down an older production line at its Bayport facility on August 15, 1998 and a
competitor also shut down a portion of its production facilities. The combined
effect of these actions reduced excess U.S. production capacity by approximately
45 percent. The company expects to meet current demand levels from its remaining
production facilities.
Sales and earnings of Spain-based FMC Foret were even with the third quarter of
1997 as improved operational results were offset by the continued strengthening
of the U.S. dollar against the Spanish peseta.
Performance Chemicals
- ---------------------
Performance Chemicals sales of $326 million in the third quarter of 1998
increased $11 million from $315 million in last year's quarter, and earnings of
$44 million in 1998 increased from $41 million in 1997. Agricultural Products
sales and margins were up, primarily due to improved performance in U.S.
insecticide markets and the company's Authority herbicide line. In addition, the
continuing impact of cost reductions announced and implemented earlier in the
year also improved earnings.
During the quarter, the company entered into an agreement with DuPont whereby
DuPont will have exclusive use of sulfentrazone, which is marketed as Authority
herbicide and Canopy XL herbicide, in the U.S. soybean markets. This long-term
agreement, under which DuPont and the company agree to specific supply, price
and volume requirements, takes effect for the 1999 growing season. In addition,
during the third quarter of 1998, the company's new herbicide, Aim, received
registration from the Environmental Protection Agency for use on corn in the
U.S.
Specialty chemical sales were also up slightly reflecting increased sales of
pharmaceutical and food ingredient products offset by a decrease in lithium
prices and volumes. Earnings were down as a result of lower lithium carbonate
and lithium hydroxide prices, higher operating costs associated with the start
up of the Argentine production facility and the need for a temporary shutdown to
complete a butyllithium expansion in the United Kingdom.
<PAGE>
PAGE 19
Corporate
- ---------
Corporate expenses of $19 million in the third quarter of 1998 were 7 percent
lower compared to $21 million in the third quarter of 1997, reflecting timing of
expenses.
Net interest expense
- --------------------
Net interest expense of $29 million was up slightly in the third quarter of 1998
compared to the same quarter last year due to increased borrowing related to the
CBV acquisition and the continuing common stock repurchase program.
Effective tax rates
- -------------------
The effective tax rates applicable to income from continuing operations before
income taxes for the quarters ended September 30, 1998 and 1997 were 26 and 24
percent, respectively.
Order backlog
- -------------
FMC's backlog of unfilled orders for Machinery and Equipment increased to $1,336
million at September 30, 1998 from $989 million at December 31, 1997 and $991
million at September 30, 1997. The increase in backlog reflects the recognition
of the subsea and floating production equipment order for the $230 million Terra
Nova Project on the Grand Banks of Newfoundland, an order from Elf Aquitaine for
approximately $200 million of subsea equipment for the Girassol project offshore
Angola, large orders from Shell and Statoil and the acquisition of CBV. In
addition, FMC FoodTech's backlog increased $26 million from the end of 1997,
driven by increases in most businesses. Backlogs are not reported for Industrial
Chemicals or Performance Chemicals due to the nature of these businesses.
<PAGE>
PAGE 20
RESULTS OF OPERATIONS
First Nine Months of 1998 Compared with First Nine Months of 1997
Industry Segment Data (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Sales
- -----
Machinery and Equipment $1,578.7 $1,467.3
Industrial Chemicals 717.2 750.2
Performance Chemicals 988.8 986.7
Eliminations (22.2) (17.6)
-------- --------
$3,262.5 $3,186.6
======== ========
Income from continuing operations
- ---------------------------------
before income taxes and cumulative
- ----------------------------------
effect of change in accounting
- ------------------------------
principle
- ---------
Machinery and Equipment $ 114.7 $ 90.3
Industrial Chemicals 88.4 110.5
Performance Chemicals 139.1 128.5
-------- --------
Operating profit from
continuing operations 342.2 329.3
Corporate (62.3) (66.7)
Other income, net 3.6 3.8
Net interest expense (81.3) (86.6)
-------- --------
$ 202.2 $ 179.8
======== ========
</TABLE>
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. Minority interests for the nine months ended
September 30, 1998 and 1997 were $4.3 million and $8.1 million, respectively,
the majority of which related to the Industrial Chemicals segment. The
corporate line primarily includes staff expenses, and other income (net)
consists of all other corporate items, including LIFO inventory adjustments and
pension income or expense.
Sales of $3,263 million for the first nine months of 1998 increased $76 million
from sales of $3,187 million for the first nine months of 1997. Increases in
energy systems sales offset declines in Industrial Chemical sales due
to lower pricing, and Performance Chemicals sales remained even with last year.
Segment operating profits increased to $342 million for the first nine months of
1998 from $329 million in 1997, primarily as a result of increased petroleum
equipment sales; lower performance chemical costs due to restructuring
initiatives in agricultural products; and manufacturing process changes
implemented at the Authority herbicide plant, all of which more than offset
lower lithium, soda ash and hydrogen peroxide prices.
<PAGE>
PAGE 21
Corporate expenses of $62 million for the first nine months of 1998 decreased $5
million from $67 million in the prior year reflecting ongoing cost control
efforts, lower incentive compensation accruals and timing of expenses. Net
interest expense decreased to $81 million from $87 million due to lower average
debt levels resulting from late 1997 operating cash flows and the use of a
portion of the proceeds from the sale of the company's defense system operations
to reduce outstanding debt.
Income from continuing operations before the cumulative effect of a change in
accounting principle increased to $202 million, or $4.24 per share on a diluted
basis, for the first nine months of 1998 from $180 million, or $3.58 per share
for the first nine months of 1997. Earnings from discontinued operations, net
of income taxes, representing the Defense Systems segment, were $39 million, or
$1.01 per share on a diluted basis, for the first nine months of 1997. As
discussed in Note 3 to the company's September 30, 1998 consolidated financial
statements, the company adopted AICPA Statement of Position ("SOP") No. 98-5,
"Reporting on the Costs of Start-Up Activities," effective January 1, 1998. In
conjunction with the adoption, the company charged $46.5 million ($36.1 million
after tax, or $1.02 per share on a nine-month diluted basis) of previously
capitalized start-up costs to expense. This change was recorded as a cumulative
effect of a change in accounting principle. For the first nine months of 1998,
net income was $114 million, or $3.22 per share on a diluted basis, compared to
$176 million, or $4.59 per share on a diluted basis, for the first nine months
of 1997.
Machinery and Equipment sales of $1,579 million in 1998 increased from $1,467
million in 1997 and profits of $115 million in 1998 increased from $90 million
in 1997, reflecting increased sales of energy equipment driven by higher SOFEC
sales and higher sales to Statoil, Shell and Elf Aquitaine. Increased sales of
Jetway Systems also contributed to the increase. Energy systems earnings were
also favorable compared to last year due to restructuring and cost saving
efforts implemented during 1998, including the elimination of a total of 400
positions during 1998.
Industrial Chemical sales decreased to $717 million for the first nine months of
1998 from $750 million in 1997 and earnings decreased to $88 million in 1998
from $111 million in 1997. Lower soda ash and hydrogen peroxide prices, lower
phosphorus volumes and the impact of the strengthening of the U.S. dollar
against the Spanish peseta on FMC Foret sales and earnings had a negative impact
during the 1998 period. These factors were partially offset by lower
depreciation costs in the phosphorus division resulting from an asset impairment
charge recorded in the fourth quarter of 1997.
Performance Chemical sales of $989 million in 1998 were up slightly from sales
of $987 million in 1997 due to increased sales of agricultural products that
offset declines in specialty chemical sales. Year-to-date 1998 earnings of $139
million increased from $129 million in 1997 as a result of cost reductions
initiated at the beginning of 1998 throughout the agricultural products business
and improved manufacturing performance at the Authority plant.
The effective tax rates applicable to income from continuing operations before
income taxes and the cumulative effect of a change in accounting principle for
the nine-month periods ended September 30, 1998 and 1997 were 26 percent and 24
percent, respectively.
<PAGE>
PAGE 22
IMPACT OF THE YEAR 2000 ISSUE
Introduction
This section contains certain forward-looking statements 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. Wherever possible, the company has identified these "forward-
looking statements" (as defined in Section 27A of the Securities Act and Section
21E of the Exchange Act) by words such as "anticipates," "plans," "believes,"
"estimates," "forecasts," "will continue to," "will likely result," "projects,"
"expects" and similar expressions. Readers are cautioned not to place undue
reliance on these forward looking statements. These forward-looking statements
are subject to risks and uncertainties and future events, some of which cannot
be predicted or quantified. All forward-looking statements therefore speak only
as of the date hereof. These risks and uncertainties and future events could
cause the company's actual results, performance or achievements to differ
materially from those expressed in, or implied by, these statements. These
statements are qualified by reference to the section "Forward Looking Statements
- - Safe Harbor Provisions" herein and the section "Forward Looking Statements -
Safe Harbor Provisions" in Item 1 of the company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997. The company assumes no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
The Year 2000 ("Y2K") issue refers to the risk that systems, products and
equipment using date-sensitive software or computer chips with two digit date
fields will recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failures, miscalculations and business
interruptions that could have a materially adverse impact on the company.
Governance
The company is a diversified manufacturing concern and has over 20 divisions
operating at over 200 locations worldwide. Division management have primary
responsibility for achieving Y2K compliance, and have appointed Y2K Project
Coordinators ("Project Coordinators") for each site within their divisions.
These Project Coordinators report both to the management of the applicable
division and the company's Chief Information Officer ("CIO"), the overall
coordinator of the company's Y2K compliance effort. The CIO reports the
company's progress to a Year 2000 Steering Committee, chaired by FMC's
President, and formed to oversee the company's Y2K compliance program. The CIO
also periodically reports to the company's Board of Directors and its Audit
Committee.
The company retained expert outside consultants to provide technical, operating
and staff support to the company's Y2K Program Office. In addition, individual
Project Coordinators retained specialized technology assistance to assess the
Y2K compliance of their site's systems and reprogram and replace those systems
that might negatively impact the company's operations in the event of non-
compliance.
<PAGE>
PAGE 23
Methodology
The company has assessed its Y2K risks and established its priorities in
addressing these risks. Of the systems the company identified as critical, 10
percent were information technology ("IT") systems, such as desktop PCs and
telecommunications systems. The remaining 90 percent of these systems consist
of manufacturing and facilities systems, including embedded technologies,
process controls and programmable logic devices.
To achieve Y2K compliance for its critical systems, the company is employing the
following six-step process: (1) assessing the scope and extent of Y2K issues;
(2) preparing for date correction, system enhancement or replacement; (3)
renovating non-Y2K-ready equipment and systems; (4) testing to verify Y2K
compliance has been achieved; (5) deploying of Y2K compliant solutions; and (6)
post-rollover contamination control and date incident correction.
In addition, the company has developed a protocol to specifically focus these
steps on the special requirements of manufacturing systems to more effectively
manage its Y2K compliance process. As part of this process, auditing of Y2K-
affected systems is conducted by outside experts and additional work is planned
as appropriate. The company has also organized teams of specialists to follow-
up completed compliance programs in its business units and to identify any
remaining Y2K issues in its divisions.
IT Systems
The majority of the company's IT business applications are already Y2K-
compliant. The company's chemical business began installing SAP R/3 (which is
Y2K compliant) in 1994 as its enterprise resource planning system, and upgraded
other business applications systems to Y2K-compliant versions. The machinery
businesses' IT system renovations are substantially on track for completion
early in 1999.
The company outsources most of its critical computing operations, including its
network operations, to professional outsource service providers. The company is
confirming that each of its outsourcers is Y2K compliant or has a detailed
program in place to achieve compliance in an acceptable time frame and, where
appropriate, has participated in joint planning and coordination to migrate its
processing to compliant platforms.
Manufacturing and Facilities Systems
The company completed its assessment of manufacturing and facilities systems in
April 1998. Modifications to approximately 70 percent of the company's critical
systems are in the preparation phase, and the remaining systems are being
renovated or tested or have been substantially completed. Although the
divisions of the company may progress toward Y2K compliance for manufacturing
and facilities systems at different rates, the company expects to have the
majority of these systems Y2K-compliant by June 30, 1999. An outside
engineering consulting firm is providing technical assistance in conducting
remediation of these systems.
<PAGE>
PAGE 24
Costs of Y2K Compliance
The company is separately tracking costs for Y2K compliance. Much of the cost
for Y2K compliance was originally included as part of normal operating budgets.
Therefore, the company expects that some funds budgeted for other IT projects
will be spent on Y2K compliance, and some previously planned non-critical
projects may be deferred to future years. In addition, the company has
accelerated certain wholesale system changes that might have otherwise been made
at a later date in order to address Y2K issues. Through the end of 1998, the
company will have spent about $10 million on Y2K compliance, of which
approximately $6 million will be expensed and $4 million will be capitalized and
will be amortized over three years. The company is currently in the process of
estimating its future Y2K costs.
Third Party Compliance
The ability of any organization to adequately address Y2K compliance is partly
dependent on third parties. As part of its compliance program, the company has
established guidelines for its divisions to follow to address Y2K compliance by
third parties. Each division, with the coordination of the company's CIO, is
responsible for ascertaining the compliance status and/or compliance plans from
their key suppliers, identifying key materials, levels of dependence, existence
of backup sources or safety stock requirements and responding to specific vendor
issues. Each division is also contacting key customers to ascertain their
compliance status and, if necessary, developing programs of collaboration,
information sharing or other support to promote continued commercial operations.
The company monitors or plans to monitor in a timely fashion the Y2K compliance
of the third parties on which the company may rely.
The company believes that its key IT and manufacturing and facilities systems
will be able to operate into the Year 2000. However, no organization, including
the company, can control all aspects of achieving and maintaining Year 2000
compliance. For example, the company cannot guarantee that electronic data
transmissions from third parties will not cause instances of data contamination
that will need to be addressed to minimize errors that could occur even in an
environment that was previously compliant. There can be no guarantee that the
systems of other companies on which the company and its systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the company's systems, would not have a
materially adverse effect on the company's business, results of operations or
financial condition.
Contingency Plans
Because not all instances of date failure can be anticipated or controlled, the
company is developing contingency plans that enable critical operations to
continue to operate if significant Y2K issues persist into the year 2000.
The company has required its divisions to prepare these plans by March 31, 1999.
In addition, each division is considering the need to increase inventories of
key supplies and products through the fourth quarter of 1999 to minimize any
shortfall that might result from suppliers' inability to provide products and
services as a result of Y2K non-compliance.
<PAGE>
PAGE 25
Company's Inability to Ensure Y2K Compliance
The costs of the project and the date on which the company plans to complete the
Y2K modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, the company's
ability to implement compliance in certain critical areas such as process
safety, availability of Y2K compliant replacement equipment from suppliers and
other factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
The severity of problems to be confronted by the company for partial or complete
non-compliance will depend on a variety of factors (such as the nature of the
resulting problem and the speed with which it could be corrected or an
alternative implemented) which are currently unknown. In the extreme, such
problems might have a materially adverse impact on the company's operations and
financial condition.
CONVERSION TO THE EURO
On January 1, 1999, eleven European Union member states will adopt the euro as
their common national currency. Thereafter, until January 1, 2002 (the
transition period), either the euro or a participating country's present
currency will be accepted as legal tender. Beginning on January 1, 2002, euro-
denominated bills and coins will be issued, and by July 1, 2002, only the euro
will be used.
FMC management is addressing the strategic, financial, legal and systems issues
related to the conversion process. While the company does not believe the
ultimate costs of conversion will be material to its earnings, cash flow or
financial position, every effort is being made to address customer and business
needs on a timely basis and anticipate and prevent any complications related to
the conversion.
LEGAL CONTINGENCIES
On April 14, 1998, a jury returned a verdict against the company in the amount
of $125 million in conjunction with a qui tam lawsuit against the company. (See
Part II, Item 1 of this Form 10-Q for a discussion of the lawsuit.) Although any
legal proceeding is subject to inherent uncertainty, it is the company's
position that the lawsuit is without merit and that the likelihood that any
material adverse judgment in this action will stand against the company is
unlikely. Accordingly, no provision for this matter has been made in the
company's consolidated financial statements.
On October 8, 1998, a jury in West Virginia awarded 10 representative plaintiffs
an average of $8,300 each in compensatory damages and awarded the class $38.8
million in punitive damages in a class action lawsuit against FMC. The lawsuit
followed a chemical release in December, 1995 at FMC's plant in Nitro, West
Virginia. When a judgment is entered in the case, FMC believes that under West
Virginia law the award should, if upheld at all, be substantially reduced.
<PAGE>
PAGE 26
INDEPENDENT ACCOUNTANTS' REPORT
A report by KPMG Peat Marwick LLP, FMC's independent accountants, on
the financial statements included in Form 10-Q for the quarter
ended September 30, 1998 is included on page 27.
<PAGE>
PAGE 27
Independent Accountants' Report
The Board of Directors
FMC Corporation:
We have reviewed the accompanying consolidated balance sheet of FMC Corporation
and consolidated subsidiaries as of September 30, 1998, and the related
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1998 and 1997 and the consolidated statements of cash flows
for the nine-month periods ended September 30, 1998 and 1997. These
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 generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of FMC Corporation and consolidated
subsidiaries as of December 31, 1997 and the related consolidated statements of
income, cash flows and changes in stockholders' equity for the year then ended
(not presented herein); and in our report dated January 20, 1998, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for costs of start-up activities in 1998.
KPMG Peat Marwick LLP
Chicago, Illinois
October 20, 1998
<PAGE>
PAGE 28
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
As previously reported, in 1986 a former employee of FMC brought a qui tam
lawsuit against the company in the United States District Court for the Northern
District of California (United States of America, ex rel Henry Boisvert v. FMC
Corporation). The lawsuit alleges that FMC violated the False Claims Act
("FCA") in connection with the development, testing and manufacture of the
Bradley Fighting Vehicle by the company's Defense Systems Group (which was sold
during 1997 and is presently accounted for as a discontinued operation).
Following an investigation of the allegations raised by the lawsuit, the U.S.
Department of Justice declined to intervene in the action. On April 14, 1998, a
jury returned a verdict against the company in the amount of $125 million. No
judgment resulting from the verdict has been entered at this time. The hearing
for post-trial motions and arguments took place on September 8 and 9, 1998.
After the court rules on the motions, the court will determine what judgment, if
any, to enter. Under the FCA, any judgment stemming from the verdict may
include, based on certain determinations to be made by the court, a doubling or
trebling of part or all of the damages reflected in the verdict, as well as
penalties and costs, including attorneys' fees.
Management believes the verdict is unjustified and intends to pursue all
available remedies to set aside the jury's decision or reverse any judgment
resulting therefrom. It is the company's position that the lawsuit is without
merit. Although any legal proceeding is subject to inherent uncertainty, based
upon an analysis of relevant factual and legal issues and consultation with
counsel, management believes that the likelihood that any material adverse
judgment in this action will stand against the company is unlikely. As
management does not believe that this litigation will have a material impact on
the company's earnings, liquidity or financial condition, no provision for this
matter has been made in the company's consolidated financial statements.
On October 8, 1998, a jury in West Virginia awarded 10 representative plantiffs
an average of $8,300 each in compensatory damages and awarded the class $38.8
million in punitive damages in a class action lawsuit against FMC. The lawsuit
followed a chemical release in December, 1995 at FMC's plant in Nitro, West
Virginia. When a judgment is entered in the case, FMC will evaluate its options.
FMC believes that under West Virginia law the award should, if upheld at all, be
substantially reduced.
<PAGE>
PAGE 29
PART II - OTHER INFORMATION (Continued)
ITEM 6. EXHIBITS
(a) The following exhibits are included in this Report on Form 10-Q:
Number in
Exhibit Table Description
------------- -----------
11 Statement re: computation of diluted
earnings per share
12 Statement re: computation of ratios of
earnings to fixed charges
15 Letter re: unaudited interim financial
information
27 Financial data schedule
(b) The company did not file any reports on Form 8-K during the three months
ended September 30, 1998.
<PAGE>
PAGE 30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FMC CORPORATION
---------------
(Registrant)
Date: October 30, 1998 /s/ Ronald D. Mambu
------------------- ------------------------------------
Vice President, Controller and duly
authorized officer
<PAGE>
PAGE 1
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
------------- -----------
11 Statement re: computation of diluted
earnings per share
12 Statement re: computation of ratios of
earnings to fixed charges
15 Letter re: unaudited interim financial
information
27 Financial data schedule
<PAGE>
PAGE 2
FMC Corporation
Quarterly Report
on Form 10-Q for
September 30, 1998
Exhibit 11 Statement re:
Computation of Diluted Earnings Per Share (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- ----------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Earnings:
Net income $55,384 $62,905 $113,685 $175,602
======= ======= ======== ========
Shares:
Average number of shares of
common stock outstanding 33,817 37,151 34,375 37,190
Additional shares assuming
conversion of stock
options 868 1,251 970 1,073
------- ------- -------- --------
Pro forma shares 34,685 38,402 35,345 38,263
======= ======= ======== ========
Diluted earnings per share $ 1.60 $ 1.63 $ 3.22 $ 4.59
======= ======= ======== ========
</TABLE>
<PAGE>
PAGE 3
FMC Corporation
Quarterly Report
on Form 10-Q for
September 30, 1998
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges
(In millions, except ratio data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Earnings:
Income from continuing operations
before income taxes and cumulative
effect of change in accounting
principle $202.2 $179.8
Minority interests 4.3 8.1
Undistributed earnings of
affiliates (6.6) (4.8)
Interest expense and amortization
of debt discount, fees and expenses 88.3 92.1
Amortization of capitalized interest 2.6 5.4
Interest included in rental expense 10.7 11.4
------ ------
Total earnings $301.5 $292.0
====== ======
Fixed charges:
Interest expense and amortization
of debt discount, fees and expenses $ 88.3 $ 92.1
Interest capitalized as part of
fixed assets 4.6 5.5
Interest included in rental expense 10.7 11.4
------ ------
Total fixed charges $103.6 $109.0
====== ======
Ratio of earnings to fixed charges 2.9x 2.7x
====== ======
</TABLE>
<PAGE>
PAGE 4
FMC Corporation
SIGNATURE Quarterly Report
on Form 10-Q for
September 30, 1998
Exhibit 15 Letter re: Unaudited Interim Financial Information
FMC Corporation
Chicago, Illinois
Ladies and Gentlemen:
Re: Registration Statements No. 33-10661, No. 33-7749, No. 33-41745, No.
33-48984, No. 333-18383 and No. 333-24039 on Form S-8 and Registration
Statements No. 33-62415, No. 33-45648 and No. 333-59543 on Form S-3.
With respect to the subject registration statements, we acknowledge our
awareness of the incorporation by reference therein of our report dated October
20, 1998 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Chicago, Illinois
October 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from FMC
Corporation Form 10-Q for the quarter ended September 30, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 835
<ALLOWANCES> 14
<INVENTORY> 538
<CURRENT-ASSETS> 1704
<PP&E> 3852
<DEPRECIATION> 2151
<TOTAL-ASSETS> 4164
<CURRENT-LIABILITIES> 1436
<BONDS> 1302
0
0
<COMMON> 4
<OTHER-SE> 755
<TOTAL-LIABILITY-AND-EQUITY> 4164
<SALES> 3263
<TOTAL-REVENUES> 3323
<CGS> 2463
<TOTAL-COSTS> 3035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 202
<INCOME-TAX> 52
<INCOME-CONTINUING> 150<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (36)
<NET-INCOME> 114
<EPS-PRIMARY> 3.31
<EPS-DILUTED> 3.22
<FN>
<F1> Income from continuing operations before accounting change is net of
minority interests of $4 for September 30, 1998. Minority interests are
primarily limited partners share of partnership profits for which tax has
not been provided.
</FN>
</TABLE>
