<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________ Commission file
number 1-2376
FMC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0479804
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Randolph Drive,
Chicago, Illinois 60601
- ------------------ ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/861-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $0.10 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
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Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [_]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF FEBRUARY 28, 1999, WAS $1,643,639,941. THE NUMBER OF SHARES OF
REGISTRANT'S COMMON STOCK, $0.10 PAR VALUE, OUTSTANDING AS OF THAT DATE WAS
32,110,182.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
DOCUMENT FORM 10-K REFERENCE
- -------- -------------------
Portions of 1998 Annual Report Part I, Item 1; Part
to Stockholders II; and Part IV, Items
14(a)(1) and (2)
Portions of Proxy Statement for Part III
1999 Annual Meeting of Stockholders
Page 2
<PAGE>
PART I
FMC Corporation was incorporated in 1928 under Delaware law and has its
principal executive offices at 200 East Randolph Drive, Chicago, Illinois 60601.
As used in this report, except where otherwise stated or indicated by the
context, "FMC", "the Company" or "the Registrant" means FMC Corporation and its
consolidated subsidiaries and their predecessors.
The Company is one of the world's leading producers of chemicals and machinery
for industry and agriculture. The Company employs 16,216 people at 107
manufacturing facilities and mines in 25 countries. The Company divides its
businesses into five segments: Energy Systems; Food and Transportation Systems;
Agricultural Products; Specialty Chemicals and Industrial Chemicals. The Energy
Systems businesses supply subsea products system and related services, drilling,
engineering and metering to the oil and gas exploration industry. Food and
Transportation Systems businesses provide automated processing and handling
equipment to consumer-based industries. Agricultural Products produces crop
protection and pest control chemicals for worldwide markets. The Specialty
Chemicals businesses develop, manufacture and market specialty chemicals for the
food, consumer product and pharmaceutical industries. The Industrial Chemicals
businesses manufacture a wide variety of commodity chemicals including soda ash,
phosphates and hydrogen peroxide. Major customers for those businesses include
detergent, glass and paper producers, as well as other chemical companies.
ITEM 1. BUSINESS
Incorporated by Reference From:
(a) General Development - 1998 Annual Report to Stockholders,
of Business pages 2-4 and 53, Management's
Discussion and Analysis on pages 22-31,
and Notes 2, 3 and 4 to the
consolidated financial statements on
pages 41-42
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(b) Financial Information - 1998 Annual Report to Stockholders,
About Industry Segments pages 16-17 and page 36
(c) Narrative Description - 1998 Annual Report to Stockholders,
of Business pages 18-21 and 22-31
Source and Availability of Raw Materials
- ----------------------------------------
FMC's natural resource requirements are primarily mineral-oriented. Substantial
portions of requirements for ores and other raw materials, especially trona and
phosphate rock, are produced from mines in the United States on property held by
FMC under long-term leases which are subject to periodic adjustments of royalty
rates. The Company also owns land, including mineral rights, relating to an
Argentine salar from which it produces lithium. Machinery operations obtain raw
materials, principally steel and castings, from many foreign and domestic
sources. No one source is considered essential to any of the machinery
operations. The Company uses oil, gas, coal, coke, hydroelectric power and
nuclear power to meet its energy needs.
Patents
- -------
Although FMC's patents, trademarks and licenses are cumulatively important to
its business, FMC does not believe that the loss of any one or group of related
patents, trademarks or licenses would have a material adverse effect on the
overall business of FMC or on any of its business segments.
Seasonality
- -----------
FMC's businesses are not generally considered to be seasonal, except for the
Agricultural Products segment, which tends towards lower profitability in the
fourth quarter primarily due to seasonality in worldwide agricultural markets.
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Competitive Conditions
- ----------------------
The industries in which FMC competes are highly competitive. FMC competes on
the basis of product performance, service and price and is among the market
leaders with respect to most products it manufactures. FMC is the world's
largest producer of natural soda ash, a leading North American producer of
hydrogen peroxide, a leading North American producer of industrial phosphorus
chemicals and a world leader in the mining and processing of lithium products.
FMC manufactures Furadan, one of the largest selling insecticides in the world.
FMC is also the largest worldwide producer of carrageenan, microcrystalline
cellulose, and phosphate ester flame retardants. FMC also participates in many
machinery businesses, including food processing, material handling and energy
production equipment, where FMC has a significant market share.
Research and Development Expenses
- ---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
In Millions 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Energy Systems $ 24.7 $ 20.0 $ 17.4
Food & Transportation Systems 26.0 26.7 24.1
Agricultural Products 60.2 73.9 78.3
Specialty Chemicals 28.0 35.2 34.8
Industrial Chemicals 18.6 18.2 20.4
Corporate 0.2 - 1.5
------ ------ ------
Total $157.7 $174.0 $176.5
====== ====== ======
</TABLE>
In 1998, the reduction in research and development ("R&D") expenses in the
Agricultural Products segment results from the completion, in late 1997 and
early 1998, of product development cycles related to the Authority and Aim
herbicides. The decrease in R&D expenses in the Specialty Chemicals segment
from 1997 to 1998 reflects the Company's reallocation of certain R&D resources
toward customer-focused technical support (which is included in Selling and
Administrative Expenses), as well as workforce reductions in some R&D areas.
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Environmental
- -------------
Incorporated by Reference From:
Compliance with environmental - 1998 Annual Report to Stockholders,
laws and regulations Note 14 to the consolidated financial
statements on pages 49-50
Employees
- ---------
FMC employs 16,216 people in its domestic and foreign operations. Approximately
2,400 such employees are represented by collective bargaining agreements in the
United States. In 1999, three of the Company's 16 collective bargaining
agreements will expire, covering approximately 123 employees. Certain of those
contracts are currently under negotiation. FMC maintains good employee relations
and has successfully concluded virtually all of its recent negotiations without
a work stoppage. In those rare instances where a work stoppage has occurred,
there has been no material effect on consolidated sales and earnings. FMC,
however, cannot predict the outcome of future contract negotiations.
Incorporated by Reference From:
(d) Financial Information - 1998 Annual Report to Stockholders, page 36
About Foreign and
Domestic Operations and
Export Sales
Forward Looking Statements - Safe Harbor Provisions
- ---------------------------------------------------
The Company and its representatives may from time to time make written or oral
statements that are forward-looking and provide other than historical
information, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
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<PAGE>
Whenever possible, FMC has identified these forward-looking statements by such
words or phrases such as "will likely result", "are expected to", "will
continue", "is anticipated", "is predicted", "forecast", "estimate", "project",
or similar expressions identifying "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements reflect the Company's best judgment based on current
information and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in, or implied by,
these statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying important
factors that could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
Among the factors that could have an impact on the Company's ability to achieve
its operating results and growth plan goals are:
. Significant price competition, particularly among the Company's competitors
in chemical businesses
. The impact of unforeseen economic and political changes in the international
markets where the Company competes, including currency exchange rates, war,
civil unrest, inflation rates, recessions, trade restrictions, foreign
ownership restrictions and economic embargos imposed by any of 24 foreign
countries in which FMC does business or the United States, and other external
factors over which the Company has no control
. The impact of significant changes in domestic interest rates or taxation
rates
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. Increases in ingredient or raw material prices compared to historical levels,
or shortages of ingredients or raw materials
. Inherent risks in the marketplace associated with new product introductions
and technologies, particularly in agricultural and specialty chemicals
. Changes in capital spending by customers in the petroleum exploration service
and airline industries
. Risks associated with developing new manufacturing processes, particularly
with respect to complex chemical products
. The ability of the Company to integrate possible future acquisitions into its
existing operations
. The impact of freight transportation delays beyond the control of the Company
. The inability of governmental entities or the Company or its suppliers,
service providers or customers to remedy potential problems with information
systems related to the arrival of the year 2000
. Risks associated with joint venture, partnership or limited endeavors in
which the Company may be responsible at least in part for the acts or
omissions of its partners
. Stock market conditions
. Risks derived from unforeseen developments in industries served by the
Company such as weather patterns in the agricultural sector, political or
economic changes in the energy industries, and other external factors over
which the Company has no control
. Environmental liabilities that may exceed current reserves and estimated loss
contingencies that may arise in the future and that are not covered by
insurance or indemnity
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. Increased competition in the hiring and retention of employees
The Company cautions that the foregoing list of important factors may not be
all-inclusive, and it specifically declines 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.
With respect to forward-looking statements set forth in the "Legal Proceedings"
section, some of the factors that could affect the ultimate disposition of those
contingencies are changes in applicable laws, the development of facts in
individual cases, settlement opportunities and the actions of plaintiffs, judges
and juries.
ITEM 2. PROPERTIES
FMC leases executive offices in Chicago and administrative offices in
Philadelphia. The Company operates 107 manufacturing facilities and mines in 25
countries. Its major research facility is in Princeton, NJ. FMC holds mining
leases on shale and ore deposits in Idaho to supply its phosphorus plant in
Pocatello, and owns substantial phosphatic ore deposits in Rich County, Utah.
Trona ore, used for soda ash production in Green River, WY, is mined primarily
from property held under long-term leases. FMC owns the land and mineral rights
to the Salar del Hombre Muerto lithium reserves in Argentina. Many of FMC's
chemical plants require the basic raw materials which are provided by these FMC-
owned or leased mines, without which other sources would have to be obtained.
With regard to FMC's mining properties operated under long-term leases, no
single lease or related group of leases is material to the businesses of the
Company as a whole.
Most of FMC's plant sites are owned, with an immaterial number of them being
leased. FMC believes its properties and facilities meet present requirements
and are in good
Page 9
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operating condition and that each of its significant manufacturing facilities is
operating at a level consistent with the industry in which it operates. FMC's
production properties for continuing operations are:
<TABLE>
<CAPTION>
Latin
America
United and Western
States Canada Europe Other Total
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Energy Systems 8 4 7 3 22
Food & Transporta-
tion Systems 11 2 5 2 20
Agricultural Products 6 1 - 3 10
Specialty Chemicals 6 4 6 1 17
Industrial Chemicals 12 2 14 - 28
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Environmental Proceedings
- -------------------------
FMC has signed a Consent Decree with the EPA (Region 10) and the United States
Department of Justice ("DOJ") to settle outstanding alleged violations of the
Resource Conservation 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
the public comment period closed on December 18, 1998. Public comments were
received, and the DOJ and the EPA must respond to the public comments before the
RCRA Consent Decree can 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 approximately four (4) years. FMC also will spend
approximately $65 million over the next four (4) 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. FMC has also paid a penalty of $11.8 million. As
described in Note 4 to the
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consolidated financial statements (page 42 of the 1998 Annual Report to
Stockholders), an expected increase in capital costs for environmental
compliance contributed to impairment in the value of PCD's assets during the
fourth quarter of 1997.
In addition, FMC has signed a second Consent Decree with the EPA, which has yet
to be lodged in court. 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 PCD Pocatello, Idaho,
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 related to the October 16, 1998 RCRA Consent Decree described above.
In a separate matter, FMC has reached an agreement in principle with the EPA and
the DOJ regarding settlement of past costs and future clean-up work at the
discontinued fiber manufacturing site in Front Royal, Virginia. The parties are
currently negotiating the specific terms of the agreement in principal and the
final Consent Decree. The anticipated costs associated with this agreement in
principle are the largest component of the fourth quarter 1998 environmental
charge to discontinued operations of $70.0 million, net of contractual
recoveries as described in Note 3 to the consolidated financial statements
(pages 41-42 of the 1998 Annual Report to Stockholders).
See Note 14 to the consolidated financial statements (pages 49-50 of the
1998 Annual Report to Stockholders) for a discussion of legal proceedings
against other Potentially Responsible Parties and insurers for contribution
and/or coverage with respect to environmental remediation costs.
Other
- -----
On April 14, 1998 a jury returned a verdict against the Company in the amount of
$125.0 million in conjunction with a federal False Claims Act action, in which
Mr. Henry
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Boisvert filed and ultimately took to trial allegations that the Company had
filed false claims for payment in connection with its contract to provide
Bradley Fighting Vehicles to the United States Army between 1981 and 1996. Under
law, portions of the jury verdict were subject to doubling or trebling. On
December 24, 1998, the U.S. District Court for the Northern District of
California entered judgment for Mr. Boisvert in the amount of approximately $87
million, or approximately $300 million less than the maximum judgment possible
under the jury verdict. The reduction resulted from several rulings by the
District Court in favor of the Company in post-trial motions. Cross-appeals to
the U.S. Court of Appeals for the Ninth Circuit are now pending. Both sides are
asserting arguments on appeal, and a number of those arguments, if successful,
would alter or eliminate the amount of the existing judgment. Any legal
proceeding is subject to inherent uncertainty, and it is not possible to predict
how the appellate court will rule. Therefore, it is the position of the
Company's management based on a review, including a review by outside counsel,
that it is not possible to estimate the amount of a probable loss, if any, to
the Company that might result from some adverse aspects of the judgment in this
action ultimately standing against the Company. Accordingly, no provision for
this matter has been made in the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of FMC Corporation, together with the offices in FMC
Corporation currently held by them, their business experience since January 1,
1994, and their ages as of March 1, 1999, are as follows:
<TABLE>
<CAPTION>
Age Office, year of election and other
Name 3/1/99 information for past 5 years
- -----------------------------------------------------------------------------------
<S> <C> <C>
Robert N. Burt 61 Chairman of the Board and
Chief Executive Officer
(91); President (90-93)
Larry D. Brady 56 President (93) and Director (89);
Executive Vice President (89-93)
Joseph H. Netherland 52 Executive Vice President (98);
Vice President (87) and General
Manager-Energy Systems Group (93)
Michael J. Callahan 60 Executive Vice President and Chief
Financial Officer (94); Executive
Vice President and Chief
Financial Officer, Whirlpool
Corporation (91-94)
William J. Kirby 61 Senior Vice President (94); Vice
President-Administration (85)
J. Paul McGrath 58 Senior Vice President (96), General
Counsel (96) and Corporate Secretary
(97); Associate General Counsel-
Litigation, Allied Signal Inc. (92-
96)
Charles H. Cannon, Jr. 46 Vice President and General Manager-
FMC Food Tech (94) and Jetway
Systems (98); Manager, Food
Processing Systems Division (92-94)
W. Kim Foster 50 Vice President and General Manager-
Agricultural Products Group (98);
Director, International, Agri-
cultural Products Group (97-98);
Division Manager, Airport Products
and Systems Division (91-97)
W. Reginald Hall 62 Vice President (91) and President,
FMC Asia-Pacific (97); General
Manager-Specialty Chemicals Group
(92)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Robert I. Harries 55 Vice President (92) and General
Manager-Chemical Products Group (94)
Stephanie K. Kushner 43 Vice President and Treasurer (99);
Director of Financial Planning (97);
Controller, Process Additives Division
(92)
Ronald D. Mambu 49 Vice President and Controller (95);
Director, Financial Planning (94-
95); Director, Strategic Planning
(93-94); Director, Financial Control
(87-93)
James A. McClung 61 Vice President-Worldwide Marketing
(91)
William H. Schumann 48 Vice President, Corporate
Development (98); Vice President and
General Manager-Agricultural
Products Group (95); Director, North
American Operations, Agricultural
Products Group (93-95); Executive
Director, Corporate Development (91-93)
William J. Wheeler 56 Vice President Chemical Development
and Shared Services (97); Vice President, FMC
Asia-Pacific (91-97); Division Manager,
Phosphorous Chemical Division (86-91)
</TABLE>
Each of the Company's executive officers has been employed by the Company in a
managerial capacity for the past five (5) years except for Messrs. Callahan and
McGrath. No family relationships exist among any of the above-listed officers,
and there are no arrangements or understandings between any of them and any
other person pursuant to which they are serving as an officer. All officers are
elected to hold office for one (1) year and until their successors are elected
and qualified.
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PART II
Incorporated by Reference From:
ITEM 5. MARKET FOR - 1998 Annual Report to Stockholders, pages
REGISTRANT'S COMMON 29, 37 and 53, and Notes 11 and 12 to
EQUITY AND RELATED the consolidated financial statements
STOCKHOLDER MATTERS on pages 46-48
ITEM 6. SELECTED FINANCIAL - 1998 Annual Report to Stockholders, pages
DATA 54-55
ITEM 7. MANAGEMENT'S - 1998 Annual Report to Stockholders, pages
DISCUSSION AND 22-31
ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND - 1998 Annual Report to Stockholders, pages
QUALITATIVE 29-31
DISCLOSURES ABOUT
MARKET RISK
ITEM 8. FINANCIAL - 1998 Annual Report to Stockholders, pages
STATEMENTS AND 16-17 and 32-51
SUPPLEMENTARY DATA
(INCLUDING ALL
SCHEDULES REQUIRED
UNDER ITEM 14 OF
PART IV)
ITEM 9. CHANGES IN AND - None
DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL
DISCLOSURE
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PART III
Incorporated by Reference From:
ITEM 10. DIRECTORS AND - Part I; Proxy Statement for 1999 Annual
EXECUTIVE OFFICERS Meeting of Stockholders, pages 2-8
OF THE REGISTRANT
ITEM 11. EXECUTIVE - Proxy Statement for 1999 Annual Meeting of
COMPENSATION Stockholders, pages 15-22
ITEM 12. SECURITY OWNERSHIP - Proxy Statement for 1999 Annual Meeting of
OF CERTAIN Stockholders, pages 12-13
BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATION- - Proxy Statement for 1999 Annual Meeting of
SHIPS AND RELATED Stockholders, pages 11-12
TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed with this Report
1. Consolidated financial statements of FMC Corporation and its
subsidiaries are incorporated under Item 8 of this Form 10-K.
2. All required financial statement schedules are included in the
consolidated financial statements or notes thereto as
incorporated under Item 8 of this Form 10-K.
3. Exhibits: See attached Index of Exhibits
(b) Reports on Form 8-K
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<PAGE>
During the quarter ended December 31, 1998, Registrant filed reports
on Form 8-K as follows:
Date Subject
---- -------
December 16, 1998 Reduction of verdict in Boisvert Case
(c) Exhibits
See Index of Exhibits.
Page 17
<PAGE>
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, thereunto duly authorized.
FMC CORPORATION
(Registrant)
By: /s/ Michael J. Callahan
------------------------
Michael J. Callahan
Executive Vice President and
Chief Financial Officer
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
Michael J. Callahan Executive Vice President and /s/ Michael J. Callahan
Chief Financial Officer ---------------------------
Michael J. Callahan
March 25, 1999
Ronald D. Mambu Vice President, Controller and
Principal Accounting Officer
Robert N. Burt Chairman of the Board and
Chief Executive Officer
Larry D. Brady Director
B.A. Bridgewater, Jr. Director
Patricia A. Buffler Director
Albert J. Costello Director
Paul L. Davies, Jr. Director
Jean A. Francois-Poncet Director
Asbjorn Larsen Director
Edward C. Meyer Director
Edward J. Mooney Director
William F. Reilly Director
James R. Thompson Director
Clayton Yeutter Director
</TABLE>
Page 18
<PAGE>
INDEX OF EXHIBITS FILED WITH OR
INCORPORATED BY REFERENCE INTO
FORM 10-K OF FMC CORPORATION
FOR YEAR ENDED DECEMBER 31, 1998
EXHIBIT NO.
THIS 10-K EXHIBIT DESCRIPTION
- --------- -------------------
2.1 Purchase Agreement, dated as of August 25, 1997, by and among FMC
Corporation, Harsco Corporation, Harsco UDLP Corporation and Iron
Horse Acquisition Corp. (incorporated by reference from Exhibit 2.1 to
the Form 8-K/A filed on October 16, 1997)
3.1 Restated Certificate of Incorporation, as filed on June 23, 1998
(incorporated by reference from Exhibit 4.1 to the Form S-3 filed on
July 21, 1998)
3.2 Restated By-Laws of the Company, amended as of February 20, 1998
(incorporated by reference from Exhibit 3.3 to the Annual Report on
Form 10-K filed on March 17, 1998)
4.1 Amended and Restated Rights Agreement, dated as of February 19, 1988,
between Registrant and Harris Trust and Savings Bank (incorporated by
reference from Exhibit 4 to the Form SE filed on March 25, 1993)
4.2 Amendment to Amended and Restated Rights Agreement, dated February 9,
1996 (incorporated by reference from Exhibit 1 to the Form 8-K filed
on February 9, 1996)
4.3 $450,000,000 Five-Year Credit Agreement, dated as of December 6, 1996,
among FMC Corporation, the Lenders Party thereto and Morgan Guaranty
Trust Company of New York as Agent, J.P. Morgan Securities Inc.,
Arranger
4(iii)(A) Registrant undertakes to furnish to the Commission upon request, a
copy of any instrument defining the rights of holders of long-term
debt of the
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<PAGE>
Registrant and its-consolidated subsidiaries and for any of its
unconsolidated subsidiaries for which financial statements are
required to be filed
10.1* FMC 1997 Compensation Plan for Non-Employee Directors, as amended
April 18, 1997 (incorporated by reference from Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed May 15, 1997)
10.2* FMC 1981 Incentive Share Plan, as amended, effective May 28, 1986
(incorporated by reference from Exhibit 10.1 to the Form SE filed on
March 25, 1993)
10.3* FMC 1990 Incentive Share Plan (incorporated by reference from Exhibit
10.1 to the Form SE filed on March 26, 1991)
10.3.a* Amendment dated April 18, 1997 to FMC 1990 Incentive Share Plan
(incorporated by reference from Exhibit 10.3.a to the Quarterly Report
on Form 10-Q filed on May 15, 1997)
10.4* FMC Corporation Salaried Employees' Retirement Plan, as amended and
restated effective January 1, 1995 (incorporated by reference from
Exhibit 10.4 to the Annual Report on Form 10-K for 1994)
10.4.a* Amendment dated March 3, 1998 to FMC Corporation Salaried Employees'
Retirement Plan (incorporated by reference from Exhibit 10.4.a to the
Annual Report on Form 10-K filed on March 17, 1998)
10.4.b* Amendment dated March 28, 1996 to FMC Corporation Salaried Employees'
Retirement Plan (incorporated by reference from Exhibit 10.4.b to the
Annual Report on Form 10-K filed on March 17, 1998)
10.5* FMC Employees' Thrift and Stock Purchase Plan, as revised and restated
as of April 1, 1991 (incorporated by reference from Exhibit 10.3 to
the Form SE filed on March 7, 1992)
__________________
* Indicates a management contract or compensatory plan or agreement.
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10.6* Amendments to the FMC Employees' Thrift and Stock Purchase Plan
through December 31, 1994 (incorporated by reference from Exhibit 10.6
to the Annual Report on Form 10-K filed on March 29, 1995)
10.6.a* Amendment dated March 28, 1996 to FMC Employees' Thrift and Stock
Purchase Plan (incorporated by reference from Exhibit 10.6.a to the
Annual Report on Form 10-K filed on March 17, 1998)
10.6.b* Amendments effective April 1 and June 1, 1995 to FMC Employees' Thrift
and Stock Purchase Plan (incorporated by reference from Exhibit 10.6.b
to the Annual Report on Form 10-K filed on March 17, 1998)
10.6.c* Amendment dated October 1, 1997 to the FMC Employees' Thrift and Stock
Purchase Plan (incorporated by reference from Exhibit 10.6.c to the
Annual Report on Form 10-K filed on March 17, 1998)
10.7* FMC Salaried Employees' Equivalent Retirement Plan (incorporated by
reference from Exhibit 10.4 to the Form SE filed on March 27, 1992)
10.8* FMC Corporation Non-Qualified Retirement and Thrift Plan (incorporated
by reference from Exhibit 10.8 to the Annual Report on Form 10-K filed
on March 17, 1998)
10.9* FMC 1995 Management Incentive Plan, as amended as of October 17, 1997
(incorporated by reference from Exhibit 10.9 to the Annual Report on
Form 10-K filed on March 17, 1998)
10.10* FMC 1995 Stock Option Plan, as amended April 18, 1997 (incorporated by
reference from Exhibit 10.10 to the Form 10-Q filed on May 15, 1997)
10.11* FMC Corporation Executive Severance Plan, as amended as of April 18,
1997 (incorporated by reference from Exhibit 10.11 to the Annual
Report on Form 10-K filed on March 17, 1998)
Page 21
<PAGE>
10.12* Master Trust Agreement between FMC Corporation and Fidelity Management
Trust Company, dated June 1, 1997 (incorporated by reference from
Exhibit 10.12 to the Annual Report on Form 10-K filed on March 17,
1998)
10.14* FMC Master Trust Agreement between FMC and Bankers Trust Company
(incorporated by reference from Exhibit 10.9 to the Form SE filed on
March 27, 1992)
10.15 Fiscal Agency Agreement between FMC Corporation and Union Bank of
Switzerland, Fiscal Agent, dated as of January 16, 1990 (incorporated
by reference from Exhibit 10.4 to the Form SE filed on March 28, 1990)
10.17* Consulting Agreement dated as of September 1, 1990 between the Company
and Edward C. Meyer (incorporated by reference from Exhibit 10.16 to
Form 10-K/A filed on April 5, 1994)
10.18 Supplemental Agreement No. 1 to Purchase Agreement, dated as of August
25, 1997, by and among FMC Corporation, Harsco Corporation, Harsco
UDLP Corporation and Iron Horse Acquisition Corp. (incorporated by
reference from Exhibit 16.1 to the Form 8-K/A filed on December 23,
1997)
10.19 Allocation and Contribution Agreement, by and among FMC Corporation,
Harsco Corporation and Harsco UDLP Corporation (incorporated by
reference from Exhibit 10.1 to the Form 8-K/A filed on December 23,
1997)
12 Statement re Computation of Ratios of Earnings to Fixed Charges
13 Annual Report to Stockholders for the year ended December 31, 1998, is
included as an Exhibit to this report for the information of the
Securities and Exchange Commission and, except for those portions
thereof specifically incorporated by
_________________
* Indicates a management contract or compensatory plan or arrangement.
Page 22
<PAGE>
reference elsewhere herein, such Annual Report should not be deemed
filed as a part of this report.
21 List of Significant Subsidiaries of Registrant
23 Consent of KPMG LLP
27 Financial Data Schedule
Page 23
<PAGE>
EXHIBIT 4.3
$450,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
December 6, 1996
among
FMC CORPORATION,
THE LENDERS PARTY HERETO
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent
J.P. MORGAN SECURITIES INC.,
Arranger
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TABLE OF CONTENTS/1/
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions................................................ 1
SECTION 1.02. Accounting Terms and Determinations........................ 15
SECTION 1.03. Types of Borrowings........................................ 15
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend........................................ 15
SECTION 2.02. Notice of Committed Borrowings............................. 15
SECTION 2.03. Money Market Borrowings.................................... 16
SECTION 2.04. Notice to Lenders; Funding of Loans........................ 20
SECTION 2.05. Notes...................................................... 21
SECTION 2.06. Maturity of Loans.......................................... 22
SECTION 2.07. Interest Rates............................................. 22
SECTION 2.08. Fees....................................................... 26
SECTION 2.09. Scheduled Termination...................................... 26
SECTION 2.10. Optional Reduction of Commitments.......................... 26
SECTION 2.11. Optional Prepayments....................................... 27
SECTION 2.12. Payments................................................... 27
SECTION 2.13. Funding Losses............................................. 28
SECTION 2.14. Computation of Interest and Fees........................... 28
SECTION 2.15. Regulation D Compensation.................................. 29
SECTION 2.16. Withholding Tax Exemption.................................. 29
SECTION 2.17 Increased Commitments; Additional Lenders.................. 30
ARTICLE III
CONDITIONS
SECTION 3.01. Conditions to Borrowing.................................... 31
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/1/The Table of Contents is not a part of this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate or Partnership Existence and Power............... 32
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention............................................. 32
SECTION 4.03. Binding Effect............................................. 32
SECTION 4.04. Financial Information...................................... 32
SECTION 4.05. Litigation................................................. 33
SECTION 4.06. Compliance with ERISA...................................... 33
SECTION 4.07. Environmental Matters...................................... 33
SECTION 4.08. Taxes...................................................... 34
SECTION 4.09. Full Disclosure............................................ 34
SECTION 4.10. Compliance with Laws....................................... 34
ARTICLE V
COVENANTS
SECTION 5.01. Information................................................ 35
SECTION 5.02. Payment of Tax Obligations................................. 38
SECTION 5.03. Maintenance of Property; Insurance......................... 38
SECTION 5.04. Inspection of Property, Books and Records.................. 38
SECTION 5.05. Maintenance of Existence, Rights, Etc...................... 39
SECTION 5.06. Liens...................................................... 39
SECTION 5.07. Consolidations, Mergers and Sales of Assets................ 41
SECTION 5.08. Cash Flow Coverage......................................... 41
SECTION 5.09. Minimum Net Worth.......................................... 41
SECTION 5.10. Use of Proceeds............................................ 41
ARTICLE VI
DEFAULTS
SECTION 6.01. Defaults................................................... 42
SECTION 6.02. Notice of Default.......................................... 45
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ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization.............................. 45
SECTION 7.02. Agent and Affiliates....................................... 45
SECTION 7.03. Action by Agent............................................ 45
SECTION 7.04. Consultation with Experts.................................. 46
SECTION 7.05. Liability of Agent......................................... 46
SECTION 7.06. Indemnification............................................ 46
SECTION 7.07. Credit Decision............................................ 46
SECTION 7.08. Agent's Fees............................................... 47
SECTION 7.09. Successor Agent............................................ 47
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate
or Unfair................................................. 47
SECTION 8.02. Illegality................................................. 48
SECTION 8.03. Increased Cost and Reduced Return.......................... 49
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed
Rate Loans................................................ 51
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices.................................................... 51
SECTION 9.02. No Waivers................................................. 52
SECTION 9.03. Expenses; Documentary Taxes; Indemnification
for Litigation............................................ 52
SECTION 9.04. Amendments and Waivers..................................... 52
SECTION 9.05. Sharing of Set-Offs........................................ 53
SECTION 9.06. Governing Law; Submission to Jurisdiction.................. 53
SECTION 9.07. Successors and Assigns..................................... 54
SECTION 9.08. Collateral................................................. 56
SECTION 9.09. Counterparts; Integration.................................. 56
SECTION 9.10. WAIVER OF JURY TRIAL....................................... 56
SECTION 9.11. Confidentiality............................................ 57
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ARTICLE X
EFFECTIVENESS
SECTION 10.01. Effectiveness............................................. 57
SECTION 10.02. Termination of Existing Credit Agreement;
Outstanding Money Market Loans........................... 58
</TABLE>
SCHEDULES AND EXHIBITS
Pricing Schedule
Exhibit A - Note
Exhibit B - Money Market Quote
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Davis Polk & Wardwell, Special
Counsel for the Agent
Exhibit F - Opinion of Counsel for the Borrower
Exhibit G - Assignment and Assumption Agreement
iv
<PAGE>
FIVE-YEAR
CREDIT AGREEMENT
----------------
AGREEMENT dated as of December 6, 1996 among FMC CORPORATION, the
LENDERS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
-----------
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Additional Lender" has the meaning set forth in Section 2.17(b).
"Adjusted Net Income" means, for any period, Consolidated Net Income
for such period, excluding the effect of Non-Recurring Items; provided that the
--------
aggregate amount so excluded on account of Non-Recurring Items for all periods
commencing after September 30, 1996 shall not exceed $300,000,000 minus the
aggregate amount of any write-downs in or write-offs of any Investment of the
Borrower or any Restricted Subsidiary in any Unrestricted Subsidiary (other than
FMC Nurol Savunma Sanayii A.S.) that would be taken after September 30, 1996 if
such Investments were accounted for under the cost method of accounting under
generally accepted accounting principles.
"Adjusted Total Debt" means at any date the Debt of the Borrower and
its Consolidated Restricted Subsidiaries, determined on a consolidated basis as
of such date.
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Lender.
<PAGE>
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Lenders hereunder, and its successors in such
capacity.
"Applicable Lending Office" means, with respect to any Lender, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of
its Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 9.07(c).
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan made or to be made by a Lender
as a Base Rate Loan in accordance with the applicable Notice of Borrowing or
pursuant to Article VIII.
"Borrower" means FMC Corporation, a Delaware corporation, and its
successors.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan made or to be made by a Lender as a
CD Loan in accordance with the applicable Notice of Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Reference Lenders" means Canadian Imperial Bank of Commerce, The
Chase Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Committed Loan" means a loan made or to be made by a Lender pursuant
to Section 2.01.
"Commitment" means, (i) with respect to each Lender, the amount set
forth opposite the name of such
2
<PAGE>
Lender on the signature pages hereof and (ii) with respect to each Additional
Lender which becomes a Lender pursuant to Section 2.17, the amount of commitment
thereby assumed by it, in each case as such amount may be reduced from time to
time pursuant to Section 2.10, increased pursuant to Section 2.17 or increased
or reduced by reason of an assignment to or by such Lender in accordance with
Section 9.07(c).
"Commitment Termination Date" means December 6, 2001 or, if such day
is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Common Stock" means all capital stock of an issuer except capital
stock as to which both the entitlement to dividends and the participation in
assets upon liquidation are by the terms of such capital stock limited to a
fixed or determinable amount.
"Consolidated Adjusted Net Worth" means, at any date, the sum of (i)
the consolidated stockholders' equity of the Borrower and its Consolidated
Subsidiaries as of September 30, 1996, plus (ii) the cumulative Adjusted Net
----
Income for the period since September 30, 1996 through the end of the then most
recently ended fiscal quarter of the Borrower, treated for this purpose as a
single accounting period, plus or minus (iii) the net amount by which the
---- -----
consolidated stockholders' equity of the Borrower and its Consolidated
Restricted Subsidiaries has been increased or decreased since September 30, 1996
on account of items not reflected in Adjusted Net Income (other than items
specifically excluded from Adjusted Net Income pursuant to the terms of this
Agreement).
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all capital expenditures by the Borrower and its Subsidiaries that
are reflected in the consolidated statement of cash flows of the Borrower and
its Consolidated Subsidiaries for such period.
"Consolidated Cash Flow" means for any period Consolidated Net Income
for such period, plus (i) the aggregate pre-tax amounts deducted in determining
----
such Consolidated Net Income in respect of depreciation and amortization and
other similar non-cash charges (other than Non-Recurring Items) plus (ii) the
----
amount of any increase (or minus the amount of any decrease) in the consolidated
-----
deferred tax or general tax reserves of the Borrower and its Consolidated
Restricted Subsidiaries during such period plus (iii)Non-Recurring Items
----
deducted in determining Consolidated Net Income for such period minus (iv) cash
-----
outlays (net of cash inflows) in such period with respect to
3
<PAGE>
Non-Recurring Items incurred after September 30, 1996 (such cash outlays to be
included in this calculation only to the extent they cumulatively exceed
$150,000,000 after September 30, 1996.)
"Consolidated Net Income" means for any period the net income (or
loss) of the Borrower and its Consolidated Restricted Subsidiaries for such
period before extraordinary items, exclusive of any income (or loss) of any
Unrestricted Subsidiary during such period except to the extent of dividends
received during such period by the Borrower or a Consolidated Restricted
Subsidiary.
"Consolidated Restricted Subsidiary" means at any date any Restricted
Subsidiary the accounts of which would be consolidated with those of the
Borrower in its consolidated financial statements as of such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements as of such date.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments (other
than the non-negotiable notes of the Borrower issued to its insurance carriers
in lieu of maintenance of policy reserves in connection with its workers'
compensation and auto liability insurance program), (iii) all obligations of
such Person to pay the deferred purchase price of property or services, except
trade accounts payable, expense accruals and deferred employee compensation
items arising in the ordinary course of business, (iv) all non-contingent
obligations (and, for purposes of Section 5.06 and the definition of Material
Financial Obligations, all contingent obligations) of such Person to reimburse
any Bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (v) all obligations of such Person as lessee under capital
leases, (vi) all Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person, and (vii) all Debt of others
Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
4
<PAGE>
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or other similar transaction (including any option with respect to any of the
foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"Domestic Lending Office" means, as to each Lender, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent; provided that any Lender may so designate
--------
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Lender shall be deemed to refer to either or
both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate
Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.07(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 10.01.
"Enforceable Judgment" means a judgment or order of a court or
arbitral or regulatory authority as to which the period, if any, during which
the enforcement of such judgment or order is stayed shall have expired. A
judgment or order which is under appeal or as to which the time in which to
perfect an appeal has not expired shall not be deemed an Enforceable Judgment so
long as enforcement thereof is effectively stayed pending the outcome of such
appeal or the expiration of such period, as the case may be.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits,
5
<PAGE>
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges or releases
of pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Restricted Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Restricted Subsidiary, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan made or to be made by a
Lender as a Euro-Dollar Loan in accordance with the applicable Notice of
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Reference Lenders" means the principal London offices of
Canadian Imperial Bank of Commerce, The Chase Manhattan Bank and Morgan Guaranty
Trust Company of New York.
6
<PAGE>
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.15.
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Credit Agreements" means, (i) the 364-Day Credit Agreement
dated as of December 16, 1994 among the Borrower, the lenders listed therein and
Morgan Guaranty Trust Company of New York, as agent, and (ii) the 5-Year Credit
Agreement dated as of December 16, 1994 among the Borrower, the lenders listed
therein and Morgan Guaranty Trust Company of New York, as agent, in each case as
amended to the Effective Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Prime Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"Increased Commitments" has the meaning set forth in Section 2.17(a).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Euro-Dollar Borrowing and
ending one, two, three or six months thereafter, as the Borrower may elect in
the applicable Notice of Borrowing; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar
7
<PAGE>
month, in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of the calendar month at the end of such Interest Period; and
(c) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(2) with respect to each CD Borrowing, the period commencing on the date of such
Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may
elect in the applicable Notice of Borrowing; provided that:
--------
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(3) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days thereafter; provided that:
--------
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(4) with respect to each Money Market LIBOR Borrowing, the period commencing on
the date of such Borrowing and ending such whole number of months thereafter
(but not to exceed
8
<PAGE>
six months), as the Borrower may elect in accordance with Section 2.03; provided
--------
that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(5) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 7 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment by any Person (the "Investor") in
any other Person (the "Investee"), whether by means of share purchase, capital
contribution, loan, time deposit or otherwise. It is understood that neither
(i) an item reflected in the financial statements of the Investor as an expense
nor (ii) an adjustment to the carrying value of the Investee in the financial
statements of the Investor (such as by reason of increased retained earnings of
the Investee) constitutes the making or acquisition of an Investment for
purposes hereof.
9
<PAGE>
"Lender" means each financial institution listed on the signature
pages hereof, each Additional Lender which becomes a Lender pursuant to Section
2.17, each Assignee which becomes a Lender pursuant to Section 9.07(c), and
their respective successors.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purpose of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset that it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).
"Material Adverse Effect" means a material adverse effect on the
business, financial position or operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
"Material Financial Obligations" means a principal or face amount of
Debt (other than Debt under this Agreement) and/or payment in respect of
Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries,
arising in one or more related or unrelated transactions, exceeding in the
aggregate $50,000,000.
"Material Plan" means any Plan or Plans having aggregate Unfunded
Liabilities in excess of $50,000,000.
"Material Subsidiary" means any Restricted Subsidiary in which the
Borrower has an Investment, direct or indirect, of at least $15,000,000.
"Money Market Absolute Rate" has the meaning set forth in Section
2.03(d).
10
<PAGE>
"Money Market Absolute Rate Loan" means a Loan made or to be made by a
Lender pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Lender, its Domestic
Lending Office or such other office, branch or affiliate of such Lender as it
may hereafter designate as its Money Market Lending Office by notice to the
Borrower and the Agent; provided that any Lender may from time to time by notice
--------
to the Borrower and the Agent designate separate Money Market Lending Offices
for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute
Rate Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Lender shall be deemed to refer to either or both
of such offices, as the context may require.
"Money Market LIBOR Loan" means a Loan made or to be made by a Lender
pursuant to a LIBOR Auction (including such a Loan bearing interest at the Prime
Rate pursuant to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.03(d).
"Money Market Quote" means an offer by a Lender to make a Money Market
Loan in accordance with Section 2.03.
"Moody's" has the meaning set forth in the Pricing Schedule.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Non-Recurring Items" means, to the extent reflected in the
determination of Consolidated Net Income for any period, provisions for
restructuring, discontinued operations, special reserves or other similar
charges including write-downs or write-offs of assets (other than write-downs
resulting from foreign currency translations).
11
<PAGE>
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans made to it, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in
Section 2.03(f)).
"Parent" means with respect to any Lender, any Person controlling such
Lender.
"Participant" has the meaning set forth in Section 9.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Pricing Schedule" means the schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Principal Officer" means any of the following officers of the
Borrower: Chairman of the Board, President, Secretary, Treasurer, or any Vice
President. If any of the titles of the preceding officers are changed after the
date hereof, the term "Principal Officer" shall thereafter mean any officer
performing substantially the same functions as
12
<PAGE>
are presently performed by one or more of the officers listed in the first
sentence of this definition.
"Qualification" means, with respect to any certificate covering
financial statements, a qualification to such certificate (such as a "subject
to" or "except for" statement therein) (i) resulting from a limitation on the
scope of examination of such financial statements or the underlying data, (ii)
as to the capability of the Person whose financial statements are certified to
continue operations as a going concern or (iii) which could be eliminated by
changes in financial statements or notes thereto covered by such certificate
(such as by the creation of or increase in a reserve or a decrease in the
carrying value of assets) and which if so eliminated by the making of any such
change and after giving effect thereto would occasion a Default, provided that
--------
neither of the following shall constitute a Qualification: (a) a consistency
exception relating to a change in accounting principles with which the
independent public accountants for the Person whose financial statements are
being certified have concurred or (b) a qualification relating to the outcome or
disposition of threatened litigation, pending litigation being contested in good
faith, pending or threatened claims or other contingencies, the impact of which
litigation, claims or contingencies cannot be determined with sufficient
certainty to permit quantification in such financial statements.
"Reference Lenders" means the CD Reference Lenders or the Euro-Dollar
Reference Lenders, as the context may require, and "Reference Lender" means any
one of such Reference Lenders.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Lender to the
Borrower.
"Regulations G, T, X and U" means such Regulations of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Required Lenders" means at any time Lenders having at least 66 2/3%
of the aggregate amount of the Commitments or, if the Commitments have been
terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid
principal amount of the Loans.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
13
<PAGE>
"S&P" has the meaning set forth in the Pricing Schedule.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all benefits under such
Plan exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the ERISA Group to
the PBGC or any other Person under Title IV of ERISA.
"Unrestricted Subsidiary" means (i) FMC Nurol Savunma Sanayii A.S. and
(ii) any other Subsidiary which is declared to be an Unrestricted Subsidiary by
the Borrower by notice to the Lenders; provided that Investments of the Borrower
--------
and its Restricted Subsidiaries made after September 30, 1996 in any Subsidiary
included in clause (i) above and Investments of the Borrower and its Restricted
Subsidiaries in Unrestricted Subsidiaries so declared under clause (ii) above
shall not aggregate more than $200,000,000, increased at the end of each fiscal
quarter of the Borrower, commencing with the fiscal quarter ending on December
31, 1996, by an amount equal to 10% of Consolidated Capital Expenditures of the
Borrower and its Consolidated Subsidiaries for such fiscal quarter.
"Wholly-Owned Subsidiary" means any Subsidiary all of the shares of
capital stock of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with United
States generally accepted accounting principles as in effect from time to time
applied on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated
14
<PAGE>
Subsidiaries delivered to the Lenders; provided that, if the Borrower notifies
--------
the Agent that the Borrower wishes to amend any covenant in Article V to
eliminate the effect of any change in generally accepted accounting principles
on the operation of such covenant (or if the Agent notifies the Borrower that
the Required Lenders wish to amend Article V for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
unless or until either such notice is withdrawn or such covenant is amended in a
manner satisfactory to the Borrower and the Required Lenders. The Agent shall
promptly notify the Lenders of any notice received from the Borrower pursuant to
this Section.
SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the
-------------------
aggregation of Loans of one or more Lenders to be made to a Borrower pursuant to
Article II on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing
----
comprised of Euro-Dollar Loans) or by reference to the provisions of Article II
under which participation therein is determined (i.e., a "Committed Borrowing"
----
is a Borrowing under Section 2.01 in which all Lenders participate in proportion
to their Commitments, while a "Money Market Borrowing" is a Borrowing under
Section 2.03 in which the Lender participants are determined by the Agent in
accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. Subject to the terms and
-------------------
conditions set forth in this Agreement, each Lender severally agrees, during the
period up to but not including the Commitment Termination Date, to lend to the
Borrower in United States Dollars pursuant to this Section from time to time
amounts such that the aggregate principal amount of Committed Loans by such
Lender to the Borrower at any one time outstanding shall not exceed the amount
of its Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $25,000,000 or any larger multiple of $1,000,000 (except
that any such Borrowing may be in the aggregate amount available in accordance
with Section 3.01(b)) and shall be made from the several Lenders ratably in
proportion to their respective Commitments. Within the limits specified in this
Agreement, the Borrower
15
<PAGE>
may borrow pursuant to this Section, repay, or to the extent permitted by
Section 2.11, prepay Loans and reborrow at any time under this Section.
SECTION 2.02. Notice of Committed Borrowings. The Borrower shall
------------------------------
give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30
A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the
second Domestic Business Day before each CD Borrowing and (z) the third Euro-
Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD Loans,
Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Committed Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
Notwithstanding the foregoing, no more than ten Fixed Rate Committed Borrowings
shall be outstanding at any one time, and any Committed Borrowing which would
exceed such limitation shall be made as a Base Rate Borrowing.
SECTION 2.03. Money Market Borrowings. (a) The Money Market Option.
----------------------- -----------------------
In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may,
as set forth in this Section, request the Lenders to make offers to make Money
Market Loans in United States Dollars to the Borrower. The Lenders may, but
shall have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept any such offers in the manner set forth in this
Section.
(b) Money Market Quote Request. When the Borrower wishes to request
--------------------------
offers to make Money Market Loans under this Section, it shall transmit to the
Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a LIBOR Auction
16
<PAGE>
or (y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Agent shall have mutually agreed and shall
have notified to the Lenders not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective), specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$25,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
----------------------------------
Money Market Quote Request, the Agent shall send to the Lenders by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Lender to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Lender
----------------------------------------------
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.01 not later than (x) 9:30 A.M. (New York
City time) on the third Euro-Dollar Business Day preceding the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time)
on the
17
<PAGE>
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Lenders not later than the date
of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided that Money Market
--------
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Lender may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than 15 minutes prior to the deadline for the other Lenders.
Subject to Articles III and VI, any Money Market Quote so made shall be
irrevocable except with the written consent of the Agent given on the
instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater than or
less than the Commitment of the quoting Lender, (x) must be $1,000,000 or a
larger multiple thereof, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested, and (z) may be subject to an
aggregate limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Lender may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Lender.
A Money Market Quote may set forth up to five separate offers by the quoting
Lender with respect to each Interest
18
<PAGE>
Period specified in the related Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or does
not specify all of the information required by subsection (d)(ii);
(B) except as provided in subsection (d)(ii)(B)(z), contains
qualifying, conditional or similar language;
(C) except as provided in subsection (d)(ii)(B)(z), proposes terms
other than or in addition to those set forth in the applicable Invitation
for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to the Borrower. The Agent shall promptly notify the
----------------------
Borrower of the terms (x) of any Money Market Quote submitted by a Lender that
is in accordance with subsection (d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Lender with respect to the same Money Market Quote Request.
Any such subsequent Money Market Quote shall be disregarded by the Agent unless
such subsequent Money Market Quote is submitted solely to correct a manifest
error in such former Money Market Quote. The Agent's notice to the Borrower
shall specify (A) the aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified in the related
Money Market Quote Request, (B) the respective principal amounts and Money
Market Margins or Money Market Absolute Rates, as the case may be, so offered
and (C) if applicable, limitations on the aggregate principal amount of Money
Market Loans for which offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M.
---------------------------------
(New York City time) on (x) the third Euro-Dollar Business Day preceding the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually agreed
and notified to the Lenders not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute
19
<PAGE>
Rate Auction for which such change is to be effective), the Borrower shall
notify the Agent of its acceptance or non-acceptance of the offers so notified
to it pursuant to subsection (e). In the case of acceptance, such notice (a
"Notice of Money Market Borrowing") shall specify the aggregate principal amount
of offers for each Interest Period that are accepted. The Borrower may accept
any Money Market Quote in whole or in part; provided that:
--------
(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money Market
Quote Request,
(ii) the principal amount of each Money Market Borrowing must be
$25,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be,
and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the requirements
of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Lenders
-------------------
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which offers are accepted for the related Interest Period, the principal amount
of Money Market Loans in respect of which such offers are accepted shall be
allocated by the Agent among such Lenders as nearly as possible (in such
multiples of $1,000,000 as the Agent may deem appropriate) in proportion to the
aggregate principal amounts of such offers. Determinations by the Agent of the
amounts of Money Market Loans shall be conclusive in the absence of manifest
error.
SECTION 2.04. Notice to Lenders; Funding of Loans. (a) Upon receipt
-----------------------------------
of a Notice of Borrowing, the Agent shall promptly notify each Lender of the
contents thereof and of such Lender's share (if any) of such Borrowing, and such
Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Lender
20
<PAGE>
participating therein shall (except as provided in subsection (c) of this
Section) make available its share of such Borrowing, in Federal or other funds
immediately available in New York City, to the Agent at its address specified
pursuant to Section 9.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied, the Agent will make
the funds so received from the Lenders promptly available to the Borrower at the
Agent's aforesaid address.
(c) If any Lender makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan to such Borrower
from such Lender, such Lender shall apply the proceeds of its new Loan to make
such repayment and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being repaid shall be made available by
such Lender to the Agent as provided by subsection (b), or remitted by the
Borrower to the Agent as provided in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice from a Lender prior
to the date of any Borrowing that such Lender will not make available to the
Agent such Lender's share of such Borrowing, the Agent may assume that such
Lender has made such share available to the Agent on the date of such Borrowing
in accordance with subsections (b) and (c) of this Section 2.04 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such share available to the Agent, such Lender and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher
of the Federal Funds Rate and the interest rate applicable thereto pursuant to
Section 2.07 and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Loan included in such Borrowing for
purposes of this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Lender to the Borrower
-----
shall be evidenced by a single Note of the Borrower payable to the order of such
Lender for the account of its Applicable Lending Office in an amount equal to
the aggregate unpaid principal amount of such Lender's Loans.
21
<PAGE>
(b) Each Lender may, by notice to the Borrower and the Agent, request
that its Loans to the Borrower of a particular type be evidenced by a separate
Note, in an amount equal to the aggregate unpaid principal amount of such Loans.
Each such Note shall be in substantially the form of Exhibit A hereto, with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such
Lender shall be deemed to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Lender's Note pursuant to Section 10.01(b),
the Agent shall forward such Note to such Lender. Each Lender shall record in
accordance with its usual business practices the date, amount, type and maturity
of each Loan made by it and the date and amount of each payment of principal
made by the Borrower with respect thereto, and may, if such Lender so elects in
connection with any transfer or enforcement of its Note, endorse on the schedule
forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding; provided that
--------
neither the failure of any Lender to make any such recordation or endorsement
nor any error therein shall affect the obligations of the Borrower hereunder or
under the Notes. Each Lender is hereby irrevocably authorized by the Borrower
so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing
-----------------
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
--------------
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the CD Margin for such day plus the Adjusted
CD Rate applicable to such Interest Period;
22
<PAGE>
provided that if any CD Loan or any portion thereof shall, as a result of clause
- --------
(2)(b) of the definition of Interest Period, have an Interest Period of less
than 30 days, such portion shall bear interest during such Interest Period at
the rate applicable to Base Rate Loans during such period. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than 90 days, at intervals of 90 days after the first
day thereof. Any overdue principal of or interest on any CD Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the higher of (i) the sum of the CD Margin for such day
plus the Adjusted CD Rate applicable to the Interest Period for such Loan and
(ii) the rate applicable to Base Rate Loans for such day.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Lender of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Lender to which such
Interest Period applies and having a maturity comparable to such Interest
Period.
23
<PAGE>
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. (S) 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Lenders in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar
24
<PAGE>
Reference Lender to which such Interest Period is to apply and for a period of
time comparable to such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-
Dollar Margin for such day plus the London Interbank Offered Rate applicable to
the Interest Period for such Loan and (ii) the sum of the Euro-Dollar Margin
plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such period of time not longer than three months as the Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Euro-Dollar Reference Lenders are offered to such
Euro-Dollar Reference Lender in the London interbank market for the applicable
period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve
Percentage (or, if the circumstances described in clause (a) or (b) of Section
8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate
applicable to Base Rate Loans for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Euro-
Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Lender
making such Loan in accordance with Section 2.03. Each Money Market Absolute
Rate Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Lender making such Loan in accordance with
Section 2.03. Such interest shall be payable for each Interest Period on the
last day thereof. Any overdue principal of or interest on any Money Market Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2% plus the Prime Rate for such day.
(f) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Lenders
25
<PAGE>
of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(g) Each Reference Lender agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference
Lender does not furnish a timely quotation, the Agent shall determine the
relevant interest rate on the basis of the quotation or quotations furnished by
the remaining Reference Lender or Lenders or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.08. Fees. (a) The Borrower shall pay to the Agent for the
----
account of the Lenders ratably in proportion to their Commitments (or, if the
Commitments shall have been terminated, in proportion to the aggregate principal
amount of their Loans outstanding), a facility fee at the Facility Fee Rate
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue (i) from and including the Effective Date to but excluding the
Commitment Termination Date, on the daily average aggregate amount of the
Commitments (whether used or unused) and (ii) from and including the Commitment
Termination Date to but excluding the date the Loans shall be repaid in their
entirety, on the daily average aggregate outstanding principal amount of the
Loans.
(b) Accrued facility fees under this Section shall be payable
quarterly in arrears on each March 31, June 30, September 30 and December 31 and
upon the date of termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their entirety).
SECTION 2.09. Scheduled Termination. The Commitments shall terminate
----------------------
on the Commitment Termination Date, and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
SECTION 2.10. Optional Reduction of Commitments. The Borrower may,
---------------------------------
upon at least three Domestic Business Days' notice to the Agent, (i) terminate
the Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably and permanently reduce from time to time by an aggregate amount of
$25,000,000 or any larger multiple of $1,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans. Upon receipt of any notice pursuant to this Section, the Agent shall
promptly notify each of the Lenders thereof.
26
<PAGE>
SECTION 2.11. Optional Prepayments. (a) Subject in the case of any
--------------------
Fixed Rate Loans to Section 2.13, the Borrower may, (i) upon notice to the Agent
not later than 10:30 A.M. (New York City time) on the date of prepayment, prepay
any Base Rate Borrowing (or any Money Market Borrowing bearing interest at the
Prime Rate pursuant to Section 8.01(a)), (ii) upon not less than three Euro-
Dollar Business Days' notice to the Agent, prepay any Euro-Dollar Borrowing and
(iii) upon not less than two Domestic Business Days' notice to the Agent, prepay
any CD Borrowing, in each case in whole at any time, or from time to time in
part in amounts aggregating $5,000,000 or any larger multiple of $5,000,000, by
paying the principal amount being prepaid together with interest accrued thereon
to the date of prepayment. Each such optional prepayment shall be applied to
prepay ratably the Loans of the several Lenders included in such Borrowing.
(b) Except as provided in subsection (a) above, the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan prior
to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Lender of the contents thereof and of such
Lender's ratable share (if any) of such prepayment, and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.12. Payments. (a) The Borrower shall make each payment of
--------
principal of, and interest on, the Loans and of fees hereunder not later than
12:00 Noon (New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Agent at its address referred to
in Section 9.01. The Agent will promptly distribute to each Lender in like
funds its ratable share of each such payment received by the Agent for the
account of the Lenders.
(b) Whenever any payment of principal of, or interest on, the
Domestic Loans or of fees hereunder shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans or Money Market LIBOR Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day unless such Euro-
Dollar Business Day falls in another calendar month, in which case the date for
payment thereof shall be the next preceding Euro-Dollar Business Day.
27
<PAGE>
Whenever any payment of principal of, or interest on, the Money Market Absolute
Rate Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(c) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
--------------
principal with respect to any Fixed Rate Loan (pursuant to Article VI or VIII or
otherwise) on any day other than the last day of the Interest Period applicable
thereto, or the end of an applicable period fixed pursuant to Section 2.07(d),
or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice
has been given to any Lender in accordance with Section 2.04(a) or 2.11(c), the
Borrower shall reimburse each Lender on demand for any resulting loss or expense
incurred by it (or by an existing or prospective Participant in the related
Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to borrow, provided that
--------
such Lender shall have delivered to the Borrower a certificate as to the amount
of such loss or expense, which certificate shall be conclusive in the absence of
manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based on
--------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
28
<PAGE>
SECTION 2.15. Regulation D Compensation. Each Lender may require the
-------------------------
Borrower to pay, contemporaneously with each payment of interest on the Euro-
Dollar Loans, additional interest on the related Euro-Dollar Loan of such Lender
at a rate per annum determined by such Lender up to but not exceeding the excess
of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus
-----
the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank
Offered Rate. Any Lender wishing to require payment of such additional interest
(x) shall so notify the Borrower and the Agent, in which case such additional
interest on the Euro-Dollar Loans of such Lender shall be payable to such Lender
at the place indicated in such notice with respect to each Interest Period
commencing at least three Euro-Dollar Business Days after such Lender gives such
notice and (y) shall notify the Borrower at least five Euro-Dollar Business Days
before each date on which interest is payable on the Euro-Dollar Loans of the
amount then due under this Section.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
SECTION 2.16. Withholding Tax Exemption. On the Effective Date, each
-------------------------
Lender that is not incorporated or organized under the laws of the United States
of America or a state thereof agrees that it will deliver to each of the
Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Lender
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or
29
<PAGE>
the Agent, in each case certifying that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding of
any United States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
SECTION 2.17 Increased Commitments; Additional Lenders. (a)
-----------------------------------------
Subsequent to the Effective Date and provided no Default has occurred and is
continuing, the Borrower may, upon at least 30 days' notice to the Agent (which
shall promptly provide a copy of such notice to the Lenders), propose to
increase the aggregate amount of the Commitments by an amount not to exceed
$150,000,000 (the amount of any such increase, the "Increased Commitments").
Each Lender party to this Agreement at such time shall have the right (but no
obligation), for a period of 15 days following receipt of such notice, to elect
by notice to the Borrower and the Agent to increase its Commitment by a
principal amount which bears the same ratio to the Increased Commitments as its
then Commitment bears to the aggregate Commitments then existing.
(b) If any Lender party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may
designate another Lender or other Lenders (which may be, but need not be, one or
more of the existing Lenders) which at the time agree to (i) in the case of any
such Lender that is an existing Lender, increase its Commitment and (ii) in the
case of any other such Lender (an "Additional Lender"), become a party to this
Agreement. The sum of the increases in the Commitments of the existing Lenders
pursuant to this subsection (b) plus the Commitments of the Additional Lenders
shall not in the aggregate exceed the unsubscribed amount of the Increased
Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant
to this Section 2.17 shall become effective upon the receipt by the Agent of an
agreement in form and substance satisfactory to the Agent signed by the
Borrower, by each Additional Lender and by each other Lender whose Commitment is
to be increased, setting forth the new Commitments of such Lenders and setting
forth the agreement of each Additional Lender to become a party to this
30
<PAGE>
Agreement and to be bound by all the terms and provisions hereof, together with
such evidence of appropriate corporate authorization on the part of the Borrower
with respect to the Increased Commitments and such opinions of counsel for the
Borrower with respect to the Increased Commitments as the Agent may reasonably
request.
ARTICLE III
CONDITIONS
SECTION 3.01. Conditions to Borrowing. The obligation of each Lender
-----------------------
to make a Loan on the occasion of each Borrowing is subject to the performance
by the Borrower of all of its obligations under this Agreement and to the
satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;
(c) the fact that, immediately after giving effect to such Borrowing,
no Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
(except, in the case of any Borrowing subsequent to the first Borrowing,
the representations and warranties set forth in Sections 4.04(b) and 4.05)
shall be true and correct in all material respects on and as of the date of
such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate or Partnership Existence and Power. The
--------------------------------------------
Borrower and each Material Subsidiary (i) is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) has all corporate or partnership powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business and (iii) is duly qualified as a foreign
corporation or partnership and in good standing in each jurisdiction where
qualification is required by the nature of its business or the character and
location of its property, business or customers, except, as to clauses (ii) and
(iii), where the failure so to qualify or to have such licenses, authorizations,
consents and approvals, in the aggregate, would not have a Material Adverse
Effect.
SECTION 4.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by the Borrower of this
- -------------
Agreement and the Notes are within the Borrower's corporate power, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in or require the creation or imposition of
any Lien on any asset of the Borrower or any Subsidiary.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
--------------
binding agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrower, in each case enforceable in accordance with their respective
terms.
SECTION 4.04. Financial Information. (a) The consolidated balance
---------------------
sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1995,
and the related consolidated statements of income, cash flows and changes in
stockholders' equity for the fiscal year then ended, reported on by KPMG Peat
Marwick and set forth in the Borrower's Annual Report on Form 10-K for the
fiscal year
32
<PAGE>
ended December 31, 1995, filed with the Securities and Exchange Commission, a
copy of which has been delivered to each of the Lenders, fairly present in all
material respects, in conformity with generally accepted accounting principles,
the consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations, cash
flows and changes in stockholders' equity for such fiscal year.
(b) There has been no change since December 31, 1995 which has a
Material Adverse Effect.
SECTION 4.05. Litigation. There is no action, suit, proceeding or
----------
arbitration pending against, or to the knowledge of the Borrower threatened
against or affecting, the Borrower or any of its Subsidiaries before any court
or arbitrator or any governmental body, agency or official in which there is a
reasonable likelihood of an adverse decision which would have a Material Adverse
Effect or which in any manner questions the validity or enforceability of this
Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
---------------------
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or made any amendment
to any Plan which in either case has resulted or could result in the imposition
of a Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any liability under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of its
---------------------
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a
33
<PAGE>
condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, the Borrower has reasonably concluded that Environmental Laws are
unlikely to have a Material Adverse Effect.
SECTION 4.08. Taxes. United States Federal income tax returns of the
-----
Borrower and its Subsidiaries have been examined and closed through the fiscal
year ended December 31, 1989. The Borrower and each Subsidiary have filed all
United States Federal income tax returns and all other material tax returns that
are required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by any of them, except for any
such taxes being diligently contested in good faith and by appropriate
proceedings. Adequate reserves have been provided on the books of the Borrower
and its Subsidiaries in respect of all taxes or other governmental charges in
accordance with generally accepted accounting principles, and no tax liabilities
in excess of the amount so provided are anticipated that could reasonably be
expected to have a Material Adverse Effect.
SECTION 4.09. Full Disclosure. All information heretofore furnished
---------------
by the Borrower to the Agent or any Lender for purposes of or in connection with
this Agreement or any transaction contemplated hereby was, and all such
information hereafter furnished by the Borrower to the Agent or any Lender will
be, true and accurate in every material respect or based on reasonable estimates
on the date as of which such information is stated or certified.
SECTION 4.10. Compliance with Laws. The Borrower and each Material
--------------------
Subsidiary are in compliance with all applicable laws, rules and regulations,
other than such laws, rules or regulations (i) the validity or applicability of
which the Borrower or such Subsidiary is contesting in good faith or (ii)
failure to comply with which cannot reasonably be expected to have a Material
Adverse Effect.
34
<PAGE>
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
-----------
Lenders:
(a) within 90 days after the end of each fiscal year of the Borrower,
a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal year and the related consolidated
statements of income, of cash flows and of changes in stockholders' equity
for such fiscal year, setting forth in each case in comparative form the
figures as of the end of and for the previous fiscal year, all in
reasonable detail and reported on without Qualification by KPMG Peat
Marwick or other independent public accountants of nationally recognized
standing;
(b) within 45 days after the end of each of the first three quarters
of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such quarter,
and the related consolidated statements of income for such quarter and for
the portion of the Borrower's fiscal year ended at the end of such quarter
and the related consolidated statement of cash flows for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the consolidated balance sheet as of the end
of the previous fiscal year and the consolidated statements of income for
the corresponding quarter and the corresponding portion of the Borrower's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer, the treasurer or the chief accounting officer of the
Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) of this Section, a
certificate of the chief financial officer, the
35
<PAGE>
treasurer, or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail such calculations as are required to establish
whether the Borrower was in compliance with the requirements of Sections
5.06 through 5.10 on the date of such financial statements and (ii) stating
whether there exists on the date of such certificate any Default and, if
any Default then exists, setting forth the details thereof and the action
that the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) of this Section, a
schedule, certified as to its accuracy and completeness by the chief
financial officer, the treasurer or the chief accounting officer of the
Borrower, listing in reasonable detail the Debt balance of each Restricted
Subsidiary where such Debt balance is in excess of $1,000,000, listing only
Debt instruments of $1,000,000 or more; provided that no such schedule need
--------
be furnished if at the date of the related financial statements (i) the
aggregate amount of Debt of domestic Restricted Subsidiaries did not exceed
$100,000,000 and (ii) the aggregate amount of Debt of all Restricted
Subsidiaries did not exceed $200,000,000;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then
continuing, a certificate of the chief financial officer, the treasurer or
the chief accounting officer of the Borrower setting forth the details
thereof and the action that the Borrower is taking or proposes to take with
respect thereto;
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), annual, quarterly or monthly reports and
any reports on Form 8-K (or any successor form) that the Borrower or any
36
<PAGE>
Subsidiary shall have filed with the Securities and Exchange Commission;
(h) within 14 days after any member of the ERISA Group (i) gives or
is required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
which liability exceeds $1,000,000 or notice that any Multiemployer Plan is
in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to administer,
any Plan, a copy of such notice; (iv) applies for a waiver of the minimum
funding standard under Section 412 of the Internal Revenue Code, a copy of
such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed
with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any
payment or contribution to any Plan or Multiemployer Plan or makes any
amendment to any Plan which in either case has resulted or could result in
the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer, the chief accounting officer or
the treasurer of the Borrower setting forth details as to such occurrence
and the action, if any, which the Borrower or applicable member of the
ERISA Group is required or proposes to take;
(i) as soon as practicable after a Principal Officer obtains
knowledge of the commencement of an action, suit or proceeding against the
Borrower or any Subsidiary before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
likelihood of an adverse decision which would have a Material Adverse
Effect or which in any
37
<PAGE>
manner questions the validity or enforceability of this Agreement or any of
the transactions contemplated hereby, information as to the nature of such
pending or threatened action, suit or proceeding; and
(j) from time to time such additional information regarding the
business, properties, financial position, results of operations, or
prospects of the Borrower or any Subsidiary as the Agent, at the request of
any Lender, may reasonably request.
SECTION 5.02. Payment of Tax Obligations. The Borrower will, and
--------------------------
will cause each Restricted Subsidiary to, pay and discharge, as the same shall
become due and payable, all lawful taxes, assessments and governmental charges
or levies upon it or its property or assets, except to the extent that any such
obligation or liability may be diligently contested in good faith by appropriate
proceedings, and the Borrower will maintain, and will cause each Restricted
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any such obligation or
liability.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower
----------------------------------
will keep, and will cause each Restricted Subsidiary to keep, all material
property useful and necessary in its business in good working order and
condition, normal wear and tear excepted.
(b) The Borrower will, and will cause each of its Material
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are usually
maintained in the same general area by companies of established repute engaged
in the same or a similar business; and will furnish to the Lenders, upon request
from the Agent, information presented in reasonable detail as to the insurance
so carried.
SECTION 5.04. Inspection of Property, Books and Records. The
-----------------------------------------
Borrower will keep, and will cause each Restricted Subsidiary to keep, proper
books of record and account in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and
activities. Subject to limitations imposed by law or contract on access to and
dissemination of classified or other confidential information, the Borrower will
permit, and will cause each Restricted Subsidiary to permit,
38
<PAGE>
representatives of any Lender to visit and inspect any of their respective
properties, to examine their respective corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective directors,
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired, upon reasonable advance notice
to the Borrower.
SECTION 5.05. Maintenance of Existence, Rights, Etc. (a) Subject to
-------------------------------------
Section 5.07, the Borrower will preserve, renew and keep in full force and
effect, and will cause each Restricted Subsidiary to preserve, renew and keep in
full force and effect their respective corporate or partnership existence and
their respective rights, privileges and franchises necessary or desirable in the
normal conduct of business, except when failure to do so would not be materially
disadvantageous to the Lenders; provided that nothing in this Section 5.05 shall
--------
prohibit (i) the merger of a Restricted Subsidiary into the Borrower in a
transaction permitted under Section 5.07 or the merger or consolidation of a
Restricted Subsidiary with or into another Person if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing or (ii) the
termination of the corporate or partnership existence of any Restricted
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Lenders.
(b) At no time will any Unrestricted Subsidiary hold, directly or
indirectly, any capital stock of any Restricted Subsidiary.
SECTION 5.06. Liens. The Borrower will not, and will not permit any
-----
Restricted Subsidiary to, create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(a) Liens existing on the date hereof securing Debt outstanding on
the date hereof;
(b) Liens incidental to the conduct of its business or the ownership
of its assets which (i) arise in the ordinary course of business, (ii) do
not secure Debt and (iii) do not in the aggregate materially detract from
the value of its assets or materially impair the use thereof in the
operation of its business;
39
<PAGE>
(c) Liens on property or assets of any Person existing at the time
such Person becomes a Restricted Subsidiary;
(d) Liens on any property or assets existing at the time of
acquisition thereof (including acquisition through merger or consolidation)
or to secure the payment of all or any part of the purchase price or
construction cost thereof or to secure any Debt incurred prior to, at the
time of or within 120 days after the later of the acquisition of such
property or assets or shares of stock or Debt or the completion of any such
construction and the commencement of operation of such property, for the
purpose of financing all or any part of the purchase price or construction
cost thereof;
(e) Liens in favor of a governmental unit to secure payments under any
contract or statute, or to secure any Debt incurred in financing the
acquisition, construction or improvement of property subject thereto,
including Liens on, and created or arising in connection with the financing
of the acquisition, construction or improvement of, any facility used or to
be used in the business of the Borrower or any Subsidiary through the
issuance of obligations, the income from which shall be excludable from
gross income by virtue of Section 103 of the Internal Revenue Code (or any
subsequently adopted provisions thereof providing for a specific exclusion
from gross income);
(f) Liens on assets of Restricted Subsidiaries securing Debt owing to
the Borrower;
(g) any extension, renewal, substitution, or replacement (or
successive extensions, renewals, substitutions or replacements), as a whole
or in part, of any Lien referred to in subparagraphs (a) through (f) above
or the Debt secured thereby; provided that (1) such extension, renewal,
--------
substitution or replacement Lien shall be limited to all or any part of the
same property or assets, shares of stock or Debt that secured the Lien
extended, renewed, substituted or replaced (plus improvements on such
property) and (2) the Debt secured by such Lien at such time is not
increased; and
(h) other Liens securing Debt in an aggregate principal amount at any
time outstanding not to exceed 15% of Consolidated Adjusted Net Worth;
40
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provided that, notwithstanding the foregoing, the Borrower will not, and will
- --------
not permit any Restricted Subsidiary to, create, assume or suffer to exist any
Lien on any stock, indebtedness or other security of any Unrestricted Subsidiary
now owned or hereafter acquired by it.
SECTION 5.07. Consolidations, Mergers and Sales of Assets. The
-------------------------------------------
Borrower will not (i) consolidate with or merge with or into any other Person or
(ii) sell, assign, lease, transfer or otherwise dispose of all or substantially
all of its assets to any other Person; provided that the Borrower may
--------
consolidate or merge with or into another Person if (A) immediately after giving
effect to such consolidation or merger, no Default shall have occurred and be
continuing, (B) the surviving entity is a domestic corporation and its
Consolidated Adjusted Net Worth is at least equal to the Borrower's Consolidated
Adjusted Net Worth immediately prior to such consolidation or merger and (C) the
Person surviving such consolidation or merger, if not the Borrower, executes and
delivers to the Agent and each of the Lenders an instrument satisfactory to the
Required Lenders pursuant to which such Person assumes all of the Borrower's
obligations under this Agreement as theretofore amended or modified, including
the full and punctual payment (whether at stated maturity, upon acceleration or
otherwise) of the principal of and interest on each Loan made to the Borrower
pursuant to this Agreement, the full and punctual payment of all other amounts
payable hereunder and the performance of all of the other covenants and
agreements contained herein.
SECTION 5.08. Cash Flow Coverage. The ratio of Consolidated Cash
------------------
Flow for any period of four consecutive fiscal quarters to Adjusted Total Debt
as of the last day of such period will at no time be less than 0.20.
SECTION 5.09. Minimum Net Worth. Consolidated Adjusted Net Worth
-----------------
will at no time be less than $550,000,000; provided that the amount of
--------
Consolidated Adjusted Net Worth required to be maintained under this Section
shall be increased at the end of each fiscal year of the Borrower, commencing
with the fiscal year ending on December 31, 1996, by an amount equal to 50% of
Adjusted Net Income (if a positive number) for such fiscal year (or in the case
of December 31, 1996, for the three months then ended).
SECTION 5.10. Use of Proceeds. The proceeds of the Borrowings under
---------------
this Agreement will be used by the Borrower for general corporate purposes.
None of such
41
<PAGE>
proceeds will be used, directly or indirectly, in violation of Regulation G, T,
U or X of the Federal Reserve System.
ARTICLE VI
DEFAULTS
SECTION 6.01. Defaults. If one or more of the following events
--------
("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due, or any
interest, any fees or other amount payable hereunder shall not be paid
within five Domestic Business Days of the due date thereof;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.05 (with respect to the Borrower) or 5.06 to 5.10,
inclusive;
(c) the Borrower shall fail to observe or perform any of its
covenants or agreements contained in this Agreement (other than those
covered by paragraph (a) or (b) above), for 30 days after notice thereof
has been given to the Borrower by the Agent at the request of any Lender;
(d) any representation, warranty, certification or statement by the
Borrower made in this Agreement or in any certificate, financial statement
or other document delivered pursuant hereto or deemed to be made pursuant
to Section 3.01 shall have been incorrect in any material respect when made
or deemed to be made;
(e) the Borrower or any Material Subsidiary shall fail to make any
payment in respect of Material Financial Obligations when due after giving
effect to any applicable grace period;
(f) any event or condition shall occur that (i) results in the
acceleration of the maturity of Material Financial Obligations or (ii)
enables the holder or holders of Material Financial Obligations or any
Person acting on behalf of such holder or holders to accelerate the
maturity thereof, provided that no Event of Default under
--------
42
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this clause (ii) shall occur unless and until any required notice has been
given and/or period of time has elapsed with respect to such Material
Financial Obligations so as to perfect such right to accelerate;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Borrower or any Material Subsidiary under the Federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $50,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer,
43
<PAGE>
any Material Plan; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or there shall occur a complete or partial withdrawal
from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause one or more
members of the ERISA Group to incur a current payment obligation in excess
of $50,000,000;
(j) Enforceable Judgments for the payment of money in an aggregate
amount exceeding $50,000,000 shall be rendered against the Borrower or any
Material Subsidiary and shall continue unsatisfied and unstayed for a
period of 30 days; or
(k) (i) any Person or two or more Persons acting in concert (other
than a Plan or Plans) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended) of 20% or more of the
outstanding shares of voting stock of the Borrower; or (ii) during any
period of 12 consecutive months, commencing before or after the date of
this Agreement, individuals who at the beginning of such 12 month period
were directors of the Borrower (together with any new directors whose
election by the Borrower's board of directors or whose nomination for
election by the Borrower's stockholders was approved by a vote of a
majority of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination was previously
so approved) cease for any reason to constitute a majority of the board of
directors of the Borrower;
then, and in every such event, the Agent shall (i) if requested by the Required
Lenders, by notice to the Borrower, terminate the Commitments, and the
Commitments shall thereupon terminate, and (ii) if requested by Lenders holding
Notes evidencing at least 66 2/3% in aggregate principal amount of the Loans, by
notice to the Borrower, declare the Notes (together with accrued interest
thereon) and all other amounts payable by it hereunder to be, and such Notes and
amounts shall thereupon become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, provided that:
--------
44
<PAGE>
(A) in the case of any of the Events of Default specified in paragraph
(g) or (h) of this Section 6.01 with respect to the Borrower, immediately
and without any notice to the Borrower or any other act by the Agent or the
Lenders, and
(B) in the case of any of the Events of Default specified in paragraph
(k) of this Section 6.01, unless the Required Lenders shall have waived
such Event of Default within 30 days of its occurrence, on the 30th day
after such occurrence,
the Commitments shall terminate and the Notes (together with accrued interest
thereon) and all other amounts payable by the Borrower hereunder shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
-----------------
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Lender and shall thereupon notify all the Lenders thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Lender irrevocably
-----------------------------
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of
--------------------
New York shall have the same rights and powers under this Agreement as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates
may accept deposits from, lend money to, and generally engage in any kind of
business with, the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent
---------------
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with
45
<PAGE>
respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may consult with
-------------------------
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
------------------
directors, officers, agents or employees shall be liable to any Lender for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the Required Lenders (or, if specifically required by Section
9.04, all of the Lenders) or (ii) in the absence of its own gross negligence or
willful misconduct. Neither the Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article III or Article X, except
receipt of items required to be delivered to the Agent; or (iv) the validity,
effectiveness or genuineness of this Agreement, the Notes or any other
instrument or writing furnished in connection herewith. The Agent shall not
incur any liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Lender shall, ratably in
---------------
accordance with its Commitment, indemnify the Agent (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful misconduct) that the Agent
may suffer or incur in connection with this Agreement or any action taken or
omitted by the Agent hereunder.
SECTION 7.07. Credit Decision. Each Lender acknowledges that it has,
---------------
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this
46
<PAGE>
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking any action under this Agreement.
SECTION 7.08. Agent's Fees. The Borrower shall pay to the Agent for
------------
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.
SECTION 7.09. Successor Agent. The Agent may resign at any time by
---------------
giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the Lenders, appoint a successor Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
-------------------------------------------------
Unfair. If on or prior to the first day of any Interest Period for any Fixed
- ------
Rate Borrowing:
(a) the Agent is advised by the Reference Lenders that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Lenders in the relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Lenders having 66-2/3% or
more of the aggregate
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<PAGE>
amount of the Commitments advise the Agent that the Adjusted CD Rate or the
London Interbank Offered Rate, as the case may be, as determined by the
Agent will not adequately and fairly reflect the cost to such Lenders of
funding their CD Loans or Euro-Dollar Loans, as the case may be, for such
Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Lenders to make
CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless
the Borrower notifies the Agent at least two Domestic Business Days before the
date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously
been given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Prime Rate for such
day.
SECTION 8.02. Illegality. If, on or after the date of this
----------
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for any
Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-
Dollar Loans to the Borrower and such Lender shall so notify the Agent, the
Agent shall forthwith give notice thereof to the other Lenders and the Borrower,
whereupon until such Lender notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Lender to make Euro-Dollar Loans to the Borrower shall be suspended.
Before giving any notice to the Agent pursuant to this Section, such Lender
shall designate a different Euro-Dollar Lending Office if such designation will
avoid the need for giving such notice and will not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender. If such Lender shall
determine that it may not lawfully
48
<PAGE>
continue to maintain and fund any of its outstanding Euro-Dollar Loans to the
Borrower to maturity and shall so specify in such notice, the Borrower shall
immediately prepay in full the then outstanding principal amount of each such
Euro-Dollar Loan, together with accrued interest thereon. Concurrently with
prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan
in an equal principal amount from such Lender (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Lenders), and such Lender shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after
---------------------------------
(x) the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject any Lender (or its Applicable Lending Office) to
any tax, duty or other charge with respect to its Fixed Rate Loans, its
Note or its obligation to make Fixed Rate Loans, or shall change the basis
of taxation of payments to any Lender (or its Applicable Lending Office) of
the principal of or interest on its Fixed Rate Loans or any other amounts
due under this Agreement in respect of its Fixed Rate Loans or its
obligation to make Fixed Rate Loans (except for changes in the rate of tax
on the overall net income of such Lender or its Applicable Lending Office
imposed by the jurisdiction in which such Lender's principal executive
office or Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the Board
of Governors of the Federal Reserve System, but excluding (A) with respect
to any CD Loan any such requirement included in an applicable Domestic
Reserve Percentage and (B) with respect to any Euro-Dollar Loan any such
requirement with respect to which such Lender is entitled to compensation
during the relevant Interest Period under
49
<PAGE>
Section 2.15), special deposit, insurance assessment (excluding, with
respect to any CD Loan, any such requirement reflected in an applicable
Assessment Rate) or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender (or its Applicable
Lending Office) or shall impose on any Lender (or its Applicable Lending
Office) or on the United States market for certificates of deposit or the
London interbank market any other condition affecting its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan,
or to reduce the amount of any sum received or receivable by such Lender (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Lender to be material, then, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction.
(b) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Lender (or its Parent) as a consequence of such Lender's
obligations hereunder to a level below that which such Lender (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
(or its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Applicable Lending Office if such designation will avoid the need
for, or reduce the amount
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of, such compensation and will not, in the sole judgment of such Lender, be
otherwise disadvantageous to such Lender. The Lender shall deliver a written
statement of such Lender as to the amount due, if any, under this Section 8.03.
Such written statement shall set forth in reasonable detail the calculations
upon which such Lender determined such amount and shall be final, conclusive and
binding on the Borrower in the absence of manifest error. Determination of
amounts payable under this Section 8.03 in connection with a CD Loan, a Euro-
Dollar Loan or a Money Market LIBOR Loan shall be calculated as though such
Lender funded such Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
rate of interest applicable to such Loan whether in fact that is the case or
not. In determining such amount, such Lender may use any reasonable averaging
and attribution methods.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate
---------------------------------------------------
Loans. If (i) the obligation of any Lender to make Euro-Dollar Loans has been
- -----
suspended pursuant to Section 8.02 or (ii) any Lender has demanded compensation
under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Lender through the Agent, have elected that
the provisions of this Section shall apply to such Lender, then, unless and
until such Lender notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Lender as CD
Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans (on which interest and principal shall be payable contemporaneously
with the related Fixed Rate Loans of the other Lenders), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be applied
to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans
instead.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x)
51
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in the case of the Borrower or the Agent, at its address or telex number set
forth on the signature pages hereof, (y) in the case of any Lender, at its
address or telex number set forth in its Administrative Questionnaire or (z) in
the case of any party, such other address or telex number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
--------
to the Agent under Article II or Article VIII shall not be effective until
received.
SECTION 9.02. No Waivers. No failure or delay by the Agent or any
----------
Lender in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes; Indemnification for
------------------------------------------------
Litigation. (a) The Borrower shall pay (i) all reasonable out-of-pocket
- ----------
expenses of the Agent, including fees and disbursements of special counsel for
the Agent, in connection with the preparation and administration of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default and (ii) if an Event of Default occurs, all
reasonable out-of-pocket expenses incurred by the Agent or any Lender, including
fees and disbursements of counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. The Borrower agrees to indemnify each Lender against any transfer
taxes, documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the
Notes.
(b) The Borrower agrees to indemnify each Lender and hold each Lender
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by any Lender (or by the Agent
in connection with its actions as Agent hereunder) in connection with any
investigative, administrative or judicial proceeding (whether or not such
52
<PAGE>
Lender shall be designated a party thereto) relating to or arising out of this
Agreement or any actual or proposed use of proceeds of Loans hereunder; provided
that no Lender shall have the right to be indemnified hereunder for (i) its own
gross negligence or willful misconduct as determined by a court of competent
jurisdiction, (ii) default in its Commitment to make Committed Loans hereunder
as determined by a court of competent jurisdiction or (iii) any settlement of
any investigation, administrative or judicial proceeding entered into without
the consent of the Borrower, which consent shall not be unreasonably withheld.
SECTION 9.04. Amendments and Waivers. Any provision of this
----------------------
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Lenders
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the
- --------
Lenders, (i) except as contemplated by Section 2.17, increase or decrease the
Commitment of any Lender (except for a ratable decrease in the Commitments of
all Lenders) or subject any Lender to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or for termination of any Commitment or (iv) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Lenders, which shall be required for the Lenders or any
of them to take any action under this Section or any other provision of this
Agreement.
SECTION 9.05. Sharing of Set-Offs. Each Lender agrees that if it
-------------------
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Lender in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Lender, the Lender
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Lenders, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes held by the Lenders shall be
shared by the Lenders pro rata; provided that nothing in this Section shall
--------
impair the right of any Lender to exercise any right of set-off or counterclaim
it may have and to apply the amount subject to such exercise to the payment of
indebtedness of the Borrower other than its
53
<PAGE>
indebtedness under the Notes. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.06. Governing Law; Submission to Jurisdiction. This
-----------------------------------------
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Agreement, the Notes or the transactions contemplated hereby. The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 9.07. Successors and Assigns.
----------------------
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations under this Agreement without the consent of all Lenders.
(b) Any Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Lender of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Lender shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement pursuant to which
any Lender may grant such a participating interest shall provide that such
Lender shall retain the sole right and responsibility to enforce the obligations
of the Borrower hereunder including, without limitation, the right to approve
any amendment, modification or waiver of any provision of this Agreement;
provided that such participation agreement may provide that such Lender will not
agree to any modification, amendment or waiver of
54
<PAGE>
this Agreement described in clause (i), (ii) or (iii) of Section 9.04 without
the consent of the Participant. The Borrower agrees that each Participant
shall, to the extent provided in its participation agreement, be entitled to the
benefits of Article VIII with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
original Commitment of at least $10,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit G hereto executed by such Assignee and such
transferor Lender, with (and subject to) the subscribed consent of the Borrower
(the consent of the Borrower not to be unreasonably withheld) and the Agent (the
consent of the Agent not to be unreasonably withheld); provided that (i) if an
--------
Assignee is an affiliate of such transferor Lender, no such consent shall be
required, (ii) such assignment may, but need not, include rights of the
transferor Lender in respect of outstanding Money Market Loans and (iii) the
remaining Commitment (if any) of the assignor Lender is at least $10,000,000.
Upon execution and delivery of such instrument and payment by such Assignee to
such transferor Lender of an amount equal to the purchase price agreed between
such transferor Lender and such Assignee, such Assignee shall be a Lender party
to this Agreement and shall have all the rights and obligations of a Lender with
a Commitment as set forth in such instrument of assumption, and the transferor
Lender shall be released from its obligations hereunder to a corresponding
extent, and no further consent or action by any party shall be required. Upon
the consummation of any assignment pursuant to this subsection (c), the
transferor Lender, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Lender shall pay to the
Agent an administrative fee for processing such assignment in the amount of
$2,000. If the Assignee is not incorporated or organized under the laws of the
United States of America or a state thereof, it shall, prior to the first date
on which interest or fees are payable hereunder for its account, deliver to the
Borrower and the Agent certification as to exemption from deduction or
withholding
55
<PAGE>
of any United States federal income taxes in accordance with Section 2.16.
(d) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each a "Transferee") and any prospective Transferee any
and all financial information in such Lender's possession concerning the
Borrower which has been delivered to such Lender by it pursuant to this
Agreement or which has been delivered to such Lender by it in connection with
such Lender's credit evaluation prior to entering into this Agreement, subject
to Section 10.11.
(e) Any Lender may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Lender from its obligations hereunder.
(f) No Transferee (including for this purpose a different Applicable
Lending Office of a Lender) shall be entitled to receive any greater payment
under Section 8.03 than the transferor Lender would have been entitled to
receive with respect to the rights transferred, unless such transfer is made
with the Borrower's prior written consent or by reason of the provisions of
Section 8.02 or 8.03 requiring such Lender to designate a different Applicable
Lending Office under certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.
SECTION 9.08. Collateral. Each of the Lenders represents to the
----------
Agent and each of the other Lenders that it in good faith is not relying upon
any "margin stock" (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in this Agreement.
SECTION 9.09. Counterparts; Integration. This Agreement may be
-------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement and the Notes constitute the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
SECTION 9.10. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND THE
--------------------
LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
56
<PAGE>
SECTION 9.11. Confidentiality. Each Lender agrees to hold any
---------------
information which it may receive or has received from the Borrower pursuant to
this Agreement, and which has been identified as confidential, in confidence,
except for disclosure (i) to legal counsel, accountants, and other professional
advisors to such Lender, to any actual or prospective Transferee and to any
affiliates of such Lender in each case subject to the receiving party's
undertaking to comply with the restrictions of this Section 9.11, (ii) required
by law, regulation, or legal process, (iii) as requested by regulatory
officials, (iv) in connection with any legal proceeding to enforce this
Agreement and (v) of information which is in the public domain at the time of
such disclosure through no fault of any of the Lenders.
ARTICLE X
EFFECTIVENESS
SECTION 10.01. Effectiveness. This Agreement shall become effective
-------------
on the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.04):
(a) the Agent shall have received counterparts hereof signed by each
of the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) the Agent shall have received for the account of each Lender a
duly executed Note dated on or before the Effective Date complying with the
provisions of Section 2.05;
(c) the Agent shall have received an opinion of Davis Polk &
Wardwell, special counsel for the Agent, substantially in the form of
Exhibit E hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Lenders may reasonably
request;
(d) the Agent shall have received an opinion of J. Paul McGrath,
General Counsel of the Borrower, dated the Effective Date, substantially in
the form of Exhibit F hereto and covering such additional matters relating
to the transactions
57
<PAGE>
contemplated hereby as the Required Lenders may reasonably request;
(e) the Agent shall have received evidence satisfactory to it of (i)
the termination, effective on or before the Effective Date, of the
commitments under each Existing Credit Agreement and (ii) the repayment in
full, not later than the Effective Date, of all loans (if any) outstanding
thereunder (other than any "Money Market Loans" (as defined in either
Existing Credit Agreement) made by any Lender), together with interest
accrued thereon to the Effective Date and all accrued and unpaid facility
fees and all other amounts accrued and unpaid under each Existing Credit
Agreement; and
(f) the Agent shall have received all documents it may reasonably
request relating to the existence of the Borrower, the corporate authority
for and the validity or enforceability of this Agreement and the Notes, and
any other matters relevant hereto, all in form and substance satisfactory
to the Agent;
Provided that this Agreement shall not become effective or be binding on any
- --------
party hereto unless all of the foregoing conditions are satisfied not later than
December 30, 1996. The Agent shall promptly notify the Borrower and the Lenders
of the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 10.02. Termination of Existing Credit Agreement; Outstanding
-----------------------------------------------------
Money Market Loans. (a) The Borrower and each of the Lenders that is also a
- ------------------
party to either Existing Credit Agreement agree that the "Commitments" as
defined in either of such Agreements shall terminate in their entirety on the
Effective Date, unless such Commitments have earlier terminated in accordance
with the terms of either Existing Credit Agreement. Each such Lender waives (i)
any requirement of notice of such termination pursuant to Section 2.10 of either
Existing Credit Agreement and (ii) any claim to any facility fees or other fees
under either Existing Credit Agreement for any day on or after the Effective
Date so long as all such fees then accrued are paid in full on the Effective
Date.
(b) The Borrower and each of the Lenders that is also a party to
either Existing Credit Agreement agree that all Money Market Loans outstanding
under either Existing Credit Agreement from such Lenders (i) will be payable
according to the terms of such Existing Credit Agreement and
58
<PAGE>
(ii) for all other purposes will be deemed Money Market Loans outstanding under
this Agreement.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
FMC CORPORATION
By /s/ Henry Kahn
------------------------------
Title: Vice President and
Treasurer
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kahn
Telephone number: (312) 861-6674
Telecopy number: (312) 861-6148
Telex number: 6715516
60
<PAGE>
Commitments
- -----------
$30,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Glenda L. Irving
---------------------------
Title: Vice President
$27,600,000 BANK OF AMERICA ILLINOIS
By /s/ William F. Sweeney
---------------------------
Title: Vice President
$27,600,000 THE BANK OF NEW YORK
By /s/ R. Westowns
---------------------------
Title: Vice President
$27,600,000 THE CHASE MANHATTAN BANK
By /s/ Karen M. Sharf
---------------------------
Title: Vice President
$27,600,000 CIBC INC.
By /s/ Patrice Wetzel
---------------------------
Title: Director
61
<PAGE>
$27,600,000 COMMERZBANK AKTIENGESELLSCHAFT
CHICAGO BRANCH
By /s/ Mark Monson
---------------------------
Title: Vice President
By /s/ William Binder
---------------------------
Title: Assistant Vice
President
$27,600,000 NATIONSBANK, N.A.
By /s/ Mary Carol Daly
---------------------------
Title: Vice President
$27,600,000 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Elizabeth Colt
---------------------------
Title: Vice President
$21,600,000 ABN AMRO BANK N.V.
By /s/ Frederick P. Engler
---------------------------
Title: Group Vice President
By /s/ Willem P.S. van Beek
---------------------------
Title: Assistant Vice
President
$21,600,000 THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
By /s/ Seiichiro Ino
---------------------------
Title: Vice President
62
<PAGE>
$21,600,000 THE INDUSTRIAL BANK OF
JAPAN, LTD.
By /s/ Hiroaki Nakamura
---------------------------
Title: Joint General
Manager
$21,600,000 SOCIETE GENERALE
By /s/ May I. Mallouh
---------------------------
Title: Vice President
$15,600,000 BARCLAYS BANK PLC
By /s/ Paul Kavanagh
---------------------------
Title: Director
$15,600,000 BANK OF MONTREAL
By /s/ Leon H. Sinclair
---------------------------
Title: Director
$15,600,000 THE BANK OF NOVA SCOTIA
By /s/ F.C.H. Ashby
---------------------------
Title: Senior Manager Loan
Operations
$15,600,000 CITIBANK, N.A.
By /s/ Mary W. Corkran
---------------------------
Title: Vice President
63
<PAGE>
$15,600,000 CORESTATES, N.A.
By /s/ Donna J. Emhart
---------------------------
Title: Vice President
$15,600,000 CREDIT LYONNAIS
CHICAGO BRANCH
By /s/ Michel Buysschaert
---------------------------
Title: Vice President
$15,600,000 THE FUJI BANK, LIMITED
By /s/ Tetsuo Kamatsu
---------------------------
Title: Joint General
Manager
$15,600,000 NATIONAL WESTMINSTER BANK PLC
By /s/ Maria Amaral-LeBlanc
---------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By /s/ Maria Amaral-LeBlanc
---------------------------
Title: Vice President
$15,600,000 THE NORTHERN TRUST COMPANY
By /s/ Sidney Dillard
---------------------------
Title: Vice President
TOTAL COMMITMENTS:
$450,000,000
=============
64
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Glenda L. Irving
---------------------------
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: Charles King
Telecopier number: (212)648-5336
65
<PAGE>
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
=======================================================================
Level Level Level Level Level
Status I II III IV V
=======================================================================
<S> <C> <C> <C> <C> <C>
Euro-Dollar .175% .185% .215% .275% .45%
Margin
- -----------------------------------------------------------------------
CD Margin .30% .31% .34% .40% .575%
- -----------------------------------------------------------------------
Facility Fee .075% .090% .11% .15% .225%
Rate
=======================================================================
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Pricing Schedule:
"Level I Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated A-/A3 or higher.
"Level II Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB+/Baa1.
"Level III Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB/Baa2.
"Level IV Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB-/Baa3.
"Level V Status" exists at any date if, at such date, no other Status
exists.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-
Hill Companies, Inc.
<PAGE>
"Status" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status or Level V Status exists at any
date.
The credit ratings to be utilized for purposes of this Schedule are those
assigned by S&P or Moody's to the senior unsecured long-term debt securities of
the Borrower without third-party credit enhancement, and any rating assigned to
any other debt security of the Borrower shall be disregarded. The rating in
effect at any date is that in effect at the close of business on such date. In
the case of split ratings from S&P and Moody's, the rating to be used to
determine Status is the higher of the two (e.g. BBB+/Baa2 results in Level II
---
Status), provided that in the event the split is more than one full category,
--------
the average (or the higher of two intermediate ratings) shall be used (e.g.,
- -
BBB+/Baa3 results in Level III Status, as does BBB+/Ba1).
2
<PAGE>
EXHIBIT A
NOTE
New York, New York
, 19
For value received, FMC Corporation, a Delaware corporation (the
"Borrower"), promises to pay to the order of ______________ (the "Lender"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Lender to the Borrower pursuant to the Credit Agreement
referred to below on the last day of the Interest Period relating to such Loan.
The Borrower promises to pay interest on the unpaid principal amount of each
such Loan on the dates and at the rate or rates provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New
York, New York.
All Loans made by the Lender, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Lender and, if the Lender so elects in connection with any transfer or
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Lender on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that neither the failure of the Lender to make
--------
any such recordation or endorsement nor any error therein shall affect the
obligations of the Borrower hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit
Agreement dated as of December 6, 1996 among FMC Corporation, the Lenders party
thereto and Morgan Guaranty Trust Company of New York, as Agent (as the same may
be amended from time to time, the "Credit Agreement"). Terms defined in the
Credit Agreement are used herein with the same meanings. Reference is made to
the Credit Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
FMC CORPORATION
By____________________
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- ----------------------------------------------------------------------
Amount Type Amount of
of of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ----------------------------------------------------------------------
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
2
<PAGE>
EXHIBIT B
Form of Money Market Quote Request
----------------------------------
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: FMC Corporation
Re: Five-Year Credit Agreement (as amended, the "Credit Agreement") dated
as of December 6, 1996 among FMC Corporation, the Lenders party
thereto and the Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: _________________________
Principal Amount* Interest Period**
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
FMC CORPORATION
By_______________________
Title:
___________
*Amount must be $25,000,000 or a larger multiple of $1,000,000.
**Not less than one month (LIBOR Auction) or not less than 7 days (Absolute
Rate Auction), subject to the provisions of the definition of Interest Period.
<PAGE>
EXHIBIT C
Form of Invitation for Money Market Quotes
------------------------------------------
To: [Name of Bank]
Re: Invitation for Money Market Quotes to FMC Corporation (the "Borrower")
Pursuant to Section 2.03 of the Five-Year Credit Agreement dated as of
December 6, 1996 among FMC Corporation, the Lenders parties thereto and the
undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to
submit Money Market Quotes to the Borrower for the following proposed Money
Market Borrowing(s):
Date of Borrowing: _________________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than [9:30 A.M.] (New
York City time) on [date].
Terms used herein have the meanings assigned to them in the above
Credit Agreement.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By _________________________
Authorized Officer
<PAGE>
EXHIBIT D
Form of Money Market Quote
--------------------------
To: MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
Re: Money Market Quote to FMC Corporation (the "Borrower")
In response to your invitation on behalf of the Borrower dated
___________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: _______________________________
2. Person to contact at Quoting Bank: ___________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
_____________
*As specified in the related Invitation.
<PAGE>
Principal Interest Money Market
Amount* Period** [Margin***] [Rate****]
--------- ---------- ------------- ------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for which
the above offers may be accepted shall not exceed $_________.]*
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Five-Year Credit
Agreement dated as of December 6, 1996 among FMC Corporation, the Lenders party
thereto and yourselves, as Agent, irrevocably obligates us to make the Money
Market Loan(s) for which any offer(s) are accepted, in whole or in part.
Terms used herein have the meanings assigned to them in the above
Credit Agreement.
Very truly yours,
[NAME OF BANK]
Dated:_____________ By:________________________
Authorized Officer
____________________
* Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitations if the sum of the
individual offers exceeds the amount the Lender is willing to lend. Bids must be
made for [$1,000,000] or a larger multiple thereof.
** Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction) as specified in the related Invitation.
*** Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
**** Specify rate of interest per annum (rounded to the nearest
1/10,000th of 1%).
2
<PAGE>
EXHIBIT E
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
--------------------------------------
December 6, 1996
To the Lenders
and the Agent Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Five-Year Credit
Agreement dated as of December 6, 1996 (the "Agreement") among FMC Corporation,
a Delaware corporation (the "Borrower"), the lenders party thereto (the
"Lenders") and Morgan Guaranty Trust Company of New York, as Agent (the
"Agent"), and have acted as special counsel for the Agent for the purpose of
rendering this opinion pursuant to Section 10.01(c) of the Agreement. Terms
defined in the Agreement and not otherwise defined herein are used herein as
therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Agreement and the Notes are within the Borrower's corporate powers and have been
duly authorized by all necessary corporate action.
<PAGE>
2. The Agreement constitutes a valid and binding agreement of the
Borrower and the Notes constitute valid and binding obligations of the Borrower,
in each case enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Lender is located which limits the rate of interest that such Lender
may charge or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE>
EXHIBIT F
OPINION OF COUNSEL FOR THE BORROWER
-----------------------------------
December 6, 1996
To the Lenders
and the Agent Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of FMC Corporation (the "Borrower") and have
acted as counsel for the Borrower in connection with the Five-Year Credit
Agreement dated as of December 6, 1996 (the "Agreement") among the Borrower, the
lenders party thereto (the "Lenders") and Morgan Guaranty Trust Company of New
York, as Agent (the "Agent"). Terms defined in the Agreement and not otherwise
defined herein are used herein as therein defined.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments, and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
2. The Borrower has all corporate powers and all governmental
licenses, authorization, consents and approvals required to carry on its
business as now conducted and as proposed to be conducted the absence of which,
in the aggregate, could have a Material Adverse Effect. The Borrower is duly
qualified as a foreign corporation,
<PAGE>
licensed and in good standing in each jurisdiction where qualification or
licensing is required by the nature of its business or the character and
location of its property, business or customers and in which the failure so to
qualify or be licensed, as the case may be, in the aggregate, would have a
Material Adverse Effect.
3. The execution, delivery and performance by the Borrower of the
Agreement and the Notes are within the Borrower's corporate power, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or
of any agreement or instrument evidencing or governing Debt or any other
material agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any Subsidiary or result in or require the creation
or imposition of any Lien on any asset of the Borrower or any Subsidiary.
4. The Agreement has been duly executed and delivered and
constitutes a valid and binding agreement of the Borrower, and the Notes have
been duly executed and delivered and constitute valid and binding obligations of
such Borrower, in each case enforceable in accordance with its terms except as
(i) the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
5. To the best of my knowledge, there is no action, suit, proceeding
or arbitration pending or threatened against or affecting the Borrower or any
Subsidiary before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable likelihood of an adverse decision which
would have a Material Adverse Effect or which in any manner questions the
validity or enforceability of the Agreement or the Notes.
In giving the foregoing opinion, I express no opinion as to the effect
(if any) of any law of any jurisdiction in which any Lender is located which
limits the rate of interest that such Lender may charge or collect.
I am admitted to practice in the State of New York and this opinion is
limited to the internal laws of the
2
<PAGE>
State of New York and of the United States of America and the internal corporate
law of the State of Delaware.
This opinion is given as of the date hereof and is limited in all
respects to laws and facts existing as of the date hereof. I assume no
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to my attention or any changes in laws
which may hereafter occur.
This opinion is furnished to you pursuant to Section 10.01(d) of the
Agreement and is not to be used, circulated, quoted or otherwise relied upon for
any other purpose, except that this opinion may be circulated to (but not relied
upon by) any prospective or actual participant in the Commitments or any Loans.
Very truly yours,
3
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"), FMC CORPORATION (the "Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Five-Year Credit Agreement dated as of December 6, 1996 among the
Borrower, the Assignor and the other Lenders party thereto, as Lenders, and the
Agent (as amended, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Committed Loans in an aggregate principal amount at any time
outstanding not to exceed $__________;
WHEREAS, [Committed] Loans made by the Assignor under the Credit
Agreement in the aggregate principal amount of $__________ are outstanding at
the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding [Committed] Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
-----------
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
----------
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the
<PAGE>
obligations of the Assignor under the Credit Agreement to the extent of the
Assigned Amount, including the purchase from the Assignor of the corresponding
portion of the principal amount of the Committed Loans made by the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, the Borrower and the Agent and the payment of the
amounts specified in Section 3 hereof required to be paid on the date hereof (i)
the Assignee shall, as of the date hereof, succeed to the rights and be
obligated to perform the obligations of a Lender under the Credit Agreement with
a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment
of the Assignor shall, as of the date hereof, be reduced by a like amount and
the Assignor released from its obligations under the Credit Agreement to the
extent such obligations have been assumed by the Assignee. The assignment
provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
--------
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds an amount equal to $_________*. It is understood
that facility fees accrued to the date hereof are for the account of the
Assignor and such fees accruing from and including the date hereof with respect
to the Assigned Amount are for the account of the Assignee. Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under the
Credit Agreement which is for the account of the other party hereto, it shall
receive the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. Consent of the Borrower and the Agent. This Agreement is
-------------------------------------
conditioned upon the consent of the Borrower and the Agent pursuant to Section
9.07(c) of the Credit Agreement. The execution of this Agreement by the
Borrower and the Agent is evidence of this consent. Pursuant to said Section
9.07(c) the Borrower agrees to execute and deliver a Note payable to the order
of the Assignee to evidence the assignment and assumption provided for herein.
_____________________
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
------------------------
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number
------------
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By_________________________
Title:
[ASSIGNEE]
By__________________________
Title:
FMC CORPORATION
By__________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By__________________________
Title:
4
<PAGE>
EXHIBIT 12
FMC CORPORATION
---------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
--------------------------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations before income
taxes, extraordinary items and
cumulative effect of changes in
accounting principles $ 249.5 $ (59.7) $ 235.8 $ 152.7 $ 150.9
Minority interests 6.2 8.9 9.6 5.1 1.6
Undistributed (earnings) loss
of affiliates (3.4) (2.0) (6.7) 1.9 4.0
Interest expense and amortization
of debt discount, fees and
expenses 120.3 118.3 103.0 84.0 64.1
Amortization of capitalized interest 3.5 7.0 7.5 7.7 7.5
Interest included in rental expense 21.3 16.6 15.2 16.7 17.8
----------------------------------------------------------------
Total earnings $ 397.4 $ 89.1 $ 364.4 $ 268.1 $ 245.9
================================================================
Fixed charges:
Interest expense and amortization
of debt discount, fees and
expenses $ 120.3 $ 118.3 $ 103.0 $ 84.0 $ 64.1
Interest capitalized as part of
fixed assets 4.4 6.6 15.5 10.2 2.7
Interest included in rental expense 21.3 16.6 15.2 16.7 17.8
----------------------------------------------------------------
Total fixed charges $ 146.0 $ 141.5 $ 133.7 $ 110.9 $ 84.6
================================================================
Ratio of earnings to fixed charges 2.7 0.6 2.7 2.4 2.9
================================================================
(A) (B)
</TABLE>
(A) Earnings did not cover fixed charges by $52.4 million for the year ended
December 31, 1997. The ratio of earnings to fixed charges for the year
ended December 31, 1997 before asset impairments and restructuring and
other charges was 2.5x.
(B) The ratio of earnings to fixed charges for the year ended December 31,
1995 before the gain on the sale of FMC Wyoming stock, asset impairments,
restructuring and other charges, and the write-off of acquired in-process
research and development costs was 2.9x.
<PAGE>
EXHIBIT 13
Attract, develop and retain
more than our fair share
of the best people.
Achieve a 15 percent return
on investment by 2001.
Grow earnings per share
10 percent per year.
Meet or exceed earnings
expectations.
Actively manage
the portfolio.
Aggressively pursue growth
in high-return businesses.
1998 annual report
FMC
<PAGE>
FMC Profile
As one of the world's leading producers
of chemicals and machinery for industry and
agriculture, FMC participates on a worldwide
basis in five broad markets: Energy Systems,
Food and Transportation Systems,
Agricultural Products, Specialty Chemicals,
and Industrial Chemicals. FMC operates
107 manufacturing facilities and
mines in 25 countries.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Summary
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share, common stock, return on investment, employee and stockholder data) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales
In the United States $ 1,909.1 $ 1,823.7
Outside the United States, including exports 2,469.3 2,435.3
- --------------------------------------------------------------------------------------------- --------------- --------------
Total sales $ 4,378.4 $ 4,259.0
- --------------------------------------------------------------------------------------------- --------------- --------------
Income (loss) (after tax)
Income (loss) from continuing operations before
cumulative effect of changes in accounting principles $ 185.3 $ (24.5)
- --------------------------------------------------------------------------------------------- --------------- -------------
Income from continuing operations before asset
impairments, restructuring and other charges and
cumulative effect of changes in accounting principles(1) $ 185.3 $ 156.4
- --------------------------------------------------------------------------------------------- --------------- -------------
Earnings (loss) per share from continuing operations before
cumulative effect of changes in accounting principles:
Basic $ 5.45 $ (0.67)
Diluted $ 5.30 $ (0.67)
- --------------------------------------------------------------------------------------------- --------------- --------------
Earnings per share from continuing operations before
asset impairments, restructuring and other charges
and cumulative effect of changes in accounting principles:(1)
Basic $ 5.45 $ 4.25
Diluted $ 5.30 $ 4.13
- --------------------------------------------------------------------------------------------- --------------- --------------
Financial and other data
Common stock price range $82 3/16-48 1/4 $90 5/8-59 5/8
- --------------------------------------------------------------------------------------------- --------------- --------------
Return on investment based on income from continuing operations (adjusted)(1)(2) 12.1% 9.6%
- --------------------------------------------------------------------------------------------- --------------- --------------
Capital expenditures excluding acquisitions $ 265.9 $ 316.7
- --------------------------------------------------------------------------------------------- --------------- --------------
Research and development expense $ 157.7 $ 174.0
- --------------------------------------------------------------------------------------------- --------------- --------------
At December 31 Working capital $ 269.8 $ 251.1
Operating working capital(3) $ 304.2 $ 410.4
Number of employees 16,216 16,805
Number of stockholders of record 10,036 10,523
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Supplemental financial information. Income from continuing operations
before asset impairments, restructuring and other charges and cumulative
effect of changes in accounting principles; and earnings per share or
return on investment from continuing operations before asset impairments,
restructuring and other charges and cumulative effect of changes in
accounting principles should not be considered in isolation nor as an
alternative for income from continuing operations, net income, earnings per
share or return on investment determined in accordance with generally
accepted accounting principles, nor as the sole measure of the company's
profitability.
(2) Return on investment is calculated as income from continuing operations
before asset impairments, restructuring and other charges and cumulative
effect of changes in accounting principles plus after-tax interest expense
on debt as a percentage of total average debt (includes short-term and
total long-term debt) and equity, as follows, in millions: ($185.3 +
$75.0)/$2,156.2 in 1998 and ($156.4 + $73.7)/$2,395.7 in 1997.
(3) Operating working capital includes trade receivables (net), inventories,
other current assets, accounts payable, accrued payroll, other current
liabilities, and the current portion of accrued pension and other
postretirement benefits.
- --------------------------------------------------------------------------------
FMC Corporation 1
<PAGE>
[PICTURE OF ROBERT N. BURT APPEARS HERE]
[GRAPH OF HISTORICAL SALES GROWTH APPEARS HERE]
MESSAGE TO SHAREHOLDERS
As the result of a major long-term planning process, FMC has committed to
achieving six major corporate goals. They are:
. attracting, developing and retaining more than our fair share of the
best people
. achieving a 15 percent return on investment by 2001
. growing earnings per share 10 percent annually
. meeting or exceeding earnings expectations
. actively managing our portfolio of businesses
. aggressively pursuing growth investments in high-return businesses
I'm pleased to report that our 1998 results showed progress in all these areas
. People--Our employees--and their ability to operate in today's complex
business environment--are the foundation of our business success. We're
sharpening our recruiting efforts and working to retain the best and the
brightest. We're focused on nurturing employees' talents and expanding their
horizons. We're placing more emphasis on leadership training and coaching and
counseling through programs that over the past two years have involved more
than 1100 managers worldwide. We have 31 networks comprising people of color
and women, as well as 29 diversity councils that are helping us create a
supportive work environment that respects different viewpoints, new ideas and
people with diverse backgrounds.
. Increased returns--Return on investment increased to 12.1 percent from 9.6
percent in 1997.
. Actively manage our portfolio--We divested the Crosby Valve operation (at a
small profit) when studies showed it did not have synergies with other FMC
operations and did not have the scale to grow the base business into a
significant contributor to overall results. On the acquisition side, we
purchased the leading wellhead company in Brazil.
. EPS growth--Earnings per share before special charges in 1998 rose 28 percent
--admittedly from a disappointing 1997. Since 1993, earnings per share from
continuing operations have grown 28 percent.
. Earnings expectations--We met or exceeded Wall Street analysts' expectations
for each quarter in 1998. And we're confident that continuing to achieve such
results--not only in 1999 but over a multi-year time frame--will help boost
FMC's stock price from its current depressed levels.
. Growth investments--Most of our current businesses reflect long-term
commitments to internal development that have helped us develop excellent
businesses. As you'll read later in this report, our success stories include
agricultural products, petroleum equipment, soda ash, pharmaceutical, and
airline ground support equipment. We will continue to invest in our businesses
to improve competitive positions and to pursue potential new businesses.
2 FMC Annual Report
<PAGE>
Sales from continuing operations in 1998 were $4.4 billion, up from $4.3
billion in 1997. After-tax income from continuing operations was $185.3 million,
or $5.30 per share on a diluted basis, compared with $156.4 million, or $4.13
per share, before impairment and restructuring charges in 1997.
Our two machinery groups had uniformly outstanding performances, as did our
agricultural specialty and food ingredients businesses. Major accomplishments
included the emergence of FMC Energy Systems as the leader in subsea production
systems, with a resulting strong backlog, and an agreement between DuPont and
our Agricultural Products business on marketing our recently developed
sulfentrazone herbicide in the U.S. soybean market. However, our stock price
failed to respond and is our biggest disappointment. And it is of little comfort
that some of our counterparts in the chemical and petroleum equipment industries
were down more than we were.
Our message to you, our shareholders, is that based on our updated
strategy, we understand what we need to do to increase shareholder value by
achieving both return on investment and earnings growth. Our challenge in 1999
and beyond is to ensure we have the operating strategies and systems, and the
people and products in place to drive performance in businesses we want to be in
and achieve the targets we've set.
MANAGEMENT CHANGES
At our 1999 annual meeting, two of our skilled counselors and good friends leave
FMC's board of directors. Jean Francois-Poncet has expanded our horizons since
1982 with his worldly view of business and politics. Since 1983, General Edward
C. Meyer has served FMC--as he did his country before that--with distinction and
with honor. Thank you both for your wise professional and personal counsel.
In March, we announced the retirement of Bill Beck, whose strategic
insights and leadership served us well for 35 years. Thank you, Bill, for your
many contributions and personal support. Succeeding Bill as executive vice
president is Joe Netherland, whose enthusiasm, team-building skills and no-
nonsense approach to results will complement the talents of our management team.
Bill Schumann returns to Chicago as vice president, corporate development,
with responsibilities also encompassing treasury and investor relations. His
prior experience gives him strong credentials for his new role. Succeeding Bill
as FMC vice president and general manager of Agricultural Products is Kim
Foster, whose management skills and 20 years of FMC experience will help him
address the challenges and opportunities within Ag Products. Stephanie Kushner
has been named vice president and treasurer, bringing strong international
finance and treasury experience to her new position.
[PICTURE OF LARRY D. BRADY APPEARS HERE]
[GRAPH APPEARS HERE]
FMC Corporation 3
<PAGE>
[PIE CHART APPEARS HERE]
OUTLOOK
Our 1999 outlook assumes a general slowdown of the U.S. and European economies.
We believe Asia is roughly at the trough of its economic downturn, but unlikely
to see improvements before 2000. Brazil presents a new problem as its currency
fluctuates. Given that most of our business is dollar-denominated or export-
driven, Brazil's problems shouldn't keep us from achieving our 10 percent
earnings per share growth goal in 1999. We also will complete our $500 million
share buyback program this year.
We have two new herbicides, each with sales potential between $125 million
and $150 million by 2001 to 2002. We see continued potential growth in oil field
subsea systems, even with a slowdown in exploration and production spending by
oil companies. With its existing backlog, our Brazilian acquisition, CBV, will
add significant profits in 1999 and beyond, even with the devaluation of
Brazil's currency. We see continued growth in FMC FoodTech's food processing
equipment businesses. The acquisitions and capital investments that we've made
between 1992 and 1997 are delivering improving returns. And we believe the
industrial chemicals market is approaching a rebound --probably not in 1999, but
within the next two years. Previous recoveries have yielded a trough to peak
improvement of $50 million to $100 million of pre-tax profit.
In summary, we're confident that we know how to increase shareholder value.
We will continue to manage our business portfolio, and we will meet or exceed
earnings expectations. We will continue to value the diversity and skills of our
employees, be involved with the communities in which we operate and provide our
customers with high-quality products and services. Our confidence is based on
outstanding employees who will find ways to help us achieve our financial goals
while fostering the core values that are at the heart of our company.
/s/ Robert N. Burt
Robert N. Burt
Chairman of the Board and
Chief Executive Officer
/s/ Larry D. Brady
Larry D. Brady
President
February 12, 1999
4 FMC Annual Report
<PAGE>
We Know the Way...
Understanding our transformation over the past five years is key to analyzing
the future at FMC. We have developed and demonstrated the ability to grow our
businesses. The business platforms we've created provide the base for investing
in high-return businesses and improving total returns. Our future capital
requirements are less, giving us additional leverage to improve our returns and
greater resources for attractive acquisitions or share buybacks. The following
examples illustrate that we know the way to translate opportunities into
business success and give us confidence that we can turn our current performance
into profitable and attractive share price growth.
FMC Corporation 5
<PAGE>
[PICTURE APPEARS HERE]
Staying Afloat
As part of the Grand Banks alliance, FMC Energy Systems provides subsea and
floating production equipment for Petro-Canada's Terra Nova oil field, located
offshore Newfoundland in Canada.
6 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
PROVIDING TOMORROW'S TECHNOLOGY FOR TODAY'S OIL FIELD
Our most visible transformation is in the oil field--at our Energy Systems
business. Armed with the success of a major product introduction in subsea
wellheads in the late `80s and early `90s, our oil field business embarked on an
aggressive acquisition campaign, adding products that are essential to the
success of our major customers, which are multinational and state-owned oil
companies. Four oil field acquisitions--Kongsberg Offshore in Norway, SOFEC's
floating production and storage systems, National Oil Well's fluid control
business, and Smith Meter--positioned FMC as the key supplier to the deep-water
oil fields and added a profitable revenue base equal in size to our original
business.
In exploration and production equipment, we hold number one or number two market
positions in markets that have annual sales of about $2.3 billion. Our energy
transportation and measurement systems are focused on downstream markets--
totaling between $900 million to $1 billion in annual sales--where our major
products also hold number one or number two positions.
Two factors drive the energy business--total exploration, production and
infrastructure expenditures, as well as technology. Exploration and production
spending is clearly driven by oil prices, and given current oil prices, we're
seeing a continuing slowdown. Some analysts believe deep-water markets will be
less exposed--which helps FMC since our backlog projects in the Gulf of Mexico,
offshore Newfoundland, Brazil and offshore West Africa are primarily deep-water
projects. In the area of deep-water development, FMC supplied equipment to
Petrobras, helping to set the world subsea depth record for the Roncador project
in 6,080 feet of water offshore Brazil, completed on January 25, 1999.
FMC also has the leading position in subsea production technology. Technology
also drives the transportation and measurement area, and we've invested in two
technologies of the future--coriolus--an advanced flow meter that delivers
precise mass measurement of gases--and ultrasonic metering.
We also are at the forefront of the oil company trend to establish alliances
with preferred suppliers. These alliances and other major contracts have
positioned us well in the four major regions of offshore exploration and
production activity around the world. Major projects include: in the Gulf of
Mexico with Shell, Unocal and Oryx; offshore Brazil, where our acquisition of
CBV well-positions us with Petrobras; in the North Sea, where FMC's Kongsberg
Offshore has 100 percent of the business from Statoil; and offshore West Africa,
where we're working with Mobil and have a new contract with Elf Aquitaine.
Our focus for the future is to achieve growth through investments in
technology that increase sales and increase margins. This may be difficult in
the near term as oil prices and exploration and production budgets dropped
significantly in late 1998 and early 1999. During this down cycle, we will
aggressively manage our balance sheet and cost position. And we will continue to
nurture our growth platforms through investments in technology and acquisitions
that extend our existing business base and help us continue to maintain adequate
returns on capital.
FMC Corporation 7
<PAGE>
[PICTURE APPEARS HERE]
TARGETING TECHNOLOGY TO FEED THE WORLD
FMC FoodTech might be our most classic restructuring effort. In 1993, this
collection of food equipment businesses lost money. Since then, we've sold five
of our nine product lines and acquired two high-technology companies that
dramatically improved our critical mass and our customer access, as well as our
technological reputation and expertise. The result is a business that has
doubled in sales and improved annual profits by nearly $50 million over the
five-year period.
Today, FMC FoodTech is one of the top 10 suppliers of food processing systems in
the world, with strong technology and market positions. We are bigger in fewer
segments with more differentiated technology and with more opportunities for
closer relationships with customers.
Frigoscandia Equipment is the clear leader and most technically advanced
competitor in the processed food freezer market, holding 50 percent of the
world's installed base of freezers for the frozen food and fast food industries.
We have strengthened our position in sterilizing systems by dramatically
improving our technology base and improving how we work and how we satisfy our
customers. Adding LogTech predictive modeling software helps customers
significantly increase quality and yield while addressing food safety issues.
We hold an outstanding position in citrus systems and continue to invest in
the business. One area of growth reflects greater investments by Brazilian
processors in the Florida citrus industry. We've had an excellent three-decade
partnership with our Brazilian customers, and we expect to continue to serve
these customers in both Florida and Brazil. FranRica provides another area of
growth in bulk aseptic storage of not-from-concentrate juice.
The North American market for processed poultry continues to grow. With our
leading position in fryers, ovens, battering and breading equipment, we also are
increasing the availability of more fully integrated systems that leverage our
other technologies and products.
We have solid positions on which to build. Our FMC FoodTech name better
describes who we are and where we're going. Our customers think of us more as a
global partner. And we have leadership positions that we can build on for future
growth.
Moving People and Products
Ten years ago, we had a single product line within Airport Products and Systems-
- -airline cargo loaders, which lost money for several years. Since then, we've
grown revenue to more than $300 million from less than $50 million. Our unit
volume today is at least five times larger than our next largest competitor in
each of our three major product lines of airline cargo loaders, deicers and
Jetway passenger boarding bridges.
We have built a business that is the clear market leader in its major product
lines by making acquisitions, creating alliances with key customers, continuing
our ambitious internal development program and emphasizing global expansion.
Favorable conditions in the airline industry also have helped us. Given our
leading positions, we expect to continue to benefit from this trend or maintain
our performance if there is a downturn.
8 FMC Annual Report
<PAGE>
[PICTURES APPEAR HERE]
In Control
To improve food safety, Iceland Seafood in Norfolk, VA, and other major seafood,
meat and poultry processors rely on precise controls technology provided by FMC
FoodTech's Stein equipment.
High Flyer
With expansion into the European market, sales of FMC's revamped pushback
tractor are taking off. The vehicle is used to push aircraft to and from
terminal gates.
FMC Corporation 9
<PAGE>
[PICTURE APPEARS HERE]
PROVIDING INNOVATIVE PRODUCTS FOR A GROWING WORLD
Our Agricultural Products business has been our highest economic-value-added
group over the last five years--cumulatively contributing the greatest after-tax
profit over our cost of capital. The strategy of Ag Products since the early
`80s has been to grow by focusing exclusively on internal research and
development. We demonstrated an ability to turn research dollars into profitable
commercial pesticides, making Agricultural Products a solid contributor to FMC
and a successful mid-sized player in the global crop protection market.
On balance, we're an insecticide company with a growing, exciting herbicide
portfolio. By the year 2000, on the strength of our new herbicides, we will have
a broader product mix that will strengthen our market positions in cotton, corn
and rice.
Today's transformation in agriculture--including biotechnology and the
withdrawal of older chemistries--presents opportunities for our business. The
impact of biotechnology is a key issue today, and we have a two-part strategy.
We already are using biotechnology in our research and development process. And
we're creating alliances that will link our products to companies that are
leveraging their biotechnology initiatives in the marketplace--such as our
sulfentrazone agreement with DuPont. Biotechnology is important, but it
represents only a small percentage of the crop protection market. Synthetic
chemicals are the backbone of our industry, and we'll continue to focus on
insecticides where resistance develops faster and where biotechnology may be
less effective.
Our two new herbicides, each with sales potential between $125 million and
$150 million by 2001 to 2002, are having great success in the field. Our
agreement with DuPont grants exclusive use of sulfentrazone on U.S. soybeans. We
retain the rights in all other global markets, including soybeans in Brazil.
Our second new herbicide, carfentrazone-ethyl, is registered in the United
States, in the major European cereal markets and in other countries around the
world. The herbicide controls weeds at low rates on cereals, corn and rice. And
we've selected DuPont as our distributor in Europe given the synergies we share
on crop and geographic segments, as well as in specific chemistries.
As we face the next five years, FMC Agricultural Products will continue to
provide flexible, cost-effective solutions for our global customers. We will
develop new chemistries by leveraging our current technologies. We'll pursue
alliances to increase the value of our products. We have a strong business
that's growing stronger.
10 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
Taking Aim
FMC protects corn for farmers worldwide with a broad-based portfolio of
products, such as the newly U.S. registered AIM herbicide and an arsenal of
insecticides.
FMC Corporation 11
<PAGE>
[PICTURE APPEARS HERE]
DEVELOPING PRODUCTS AND PARTNERSHIPS
Our pharmaceutical and food ingredients businesses compete based on innovative
applications development, superior customer service and low-cost raw materials
and processes.
Within pharmaceuticals, our focus is on functional excipients--specifically
binders and disintegrants based on microcrystalline cellulose technology. That
technology helps deliver active ingredients by binding ingredients together or
speeding tablet disintegration. We provide superior customer service, leading
applications development and consistent quality with global capabilities,
including a worldwide sales and distribution network. Our strategy is to focus
on the innovators in drug development--which account for 80 percent or more of
all new drug discoveries--and get our products formulated early as part of the
drug development cycle.
We face several challenges in this business. We must maintain our superior
market position. To do that, we intend to invest three times more than our
nearest competitor in sales, marketing, distribution and research and
development. And we will continue to add production capability to meet growing
market demand. Our second challenge is to broaden our involvement to include
other excipients, other fillers, binders and coatings. And finally, we must
fully develop and market our new EnTec drug delivery technology, which was
introduced in mid-1998.
Our pharmaceutical business is attractive, with good growth potential that we
will use as a platform to increase our participation and product offerings in
the growing pharmaceutical industry.
Transforming Business Through Technology
Our food ingredients business is a leading worldwide supplier of carrageenan and
Avicel cellulose gel technologies, providing fat replacement, texture, structure
and stability for food systems. This business recently went through a
significant turnaround--testimony to our ability to transform businesses through
technology.
Significantly improving process technology has helped us lower costs while
increasing the purity of our product and maintaining the way our products work
in customer applications. These improvements also will allow us to commercialize
several new generations of carrageenan currently in the pipeline. We have re-
oriented our product development efforts and sped up commercializing new
applications, resulting in a 20 percent increase in new product sales in each of
the last two years. We also have developed new seaweed sources throughout Asia
and Africa, resulting in significantly lower raw material costs. And we have
reduced administrative overhead by 20 percent over the last two years.
We are earning in excess of our cost of capital, and we're confident we can
continue this successful performance.
12 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
Binding Relationship
For its Pepcid tablet line in Wilson, NC, Merck relies on FMC's Avicel to bind
active ingredients.
FMC Corporation 13
<PAGE>
[PICTURES APPEAR HERE]
Tempered Glass
FMC is the world's largest producer of natural soda ash, a key raw ingredient in
the production of glass, including the fiber glass insulation manufactured by
Certain Teed in Kansas City, Kansas.
Moroccan Leather
Based in Barcelona, Spain, FMC Foret's diverse geographical markets include
North Africa, where customer Agouzzal Tanning Group uses our sodium sulfide to
process hides at Tanneries Mohammedia in Morocco.
14 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
PROVIDING MARKET LEADERSHIP
Soda ash is a key part of our Industrial Chemicals business. Within the
industry, we are the technology leader, as evidenced by our proprietary
positions in trona mining and soda ash processing. We're the leader in dry trona
mining, including the use of longwall technology. Our proprietary solution
mining technology gives us a 30 percent cash cost advantage over dry mining.
We're the only producer of highly absorptive soda ash, which provides distinct
advantages to the detergent industry. Most importantly, we are the low-cost
producer.
Demand for soda ash dropped in 1998, particularly in Asia and more recently in
Latin America. While we expect a recovery to 1997 levels in the next two years,
the U.S. industry is currently capitalizing on its low-cost natural soda ash via
ANSAC, a U.S. export organization, to gain share against higher-cost synthetic
alternatives. With domestic soda ash demand remaining strong, the U.S. industry
operating rates should increase to percentages in the low 90s from the high 80s
over the next three years. FMC's utilization should mirror the industry rates as
we expect to at least maintain our leading market share position. In this
environment, we will continue our focus on cost improvement and capital
efficiency.
Solving the Needs of Our Global Customers
At Fmc Foret, our European-based chemical business, we faced a different kind of
challenge in the early `90s. Spain's entry into the Common Market seriously
changed the nature of our competition. From protected boundaries and local
competitors, competition increased as protective barriers fell. Yet the Foret
management team drove the cost structure to the point of achieving competitive
advantage versus its new international competitors. The result has been a
fourfold improvement in profits in the last five years. The outlook remains good
due to our low costs and strong market positions. FMC Foret should continue
reporting returns well above our cost of capital.
FMC is well-positioned for the future. We can significantly improve our return
on investment. We have demonstrated our capability to grow. We have demonstrated
the improved quality of our business platforms. We have demonstrated market
leadership of our major products. We believe these improvements--and a talented
group of dedicated employees--will help us deliver superior shareholder value.
FMC Corporation 15
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Industry Segment Data
- -------------------------------------------------------------------------------------------------------
(In millions) Year ended December 31
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
Energy Systems $1,320.9 $1,144.3 $ 949.0 $ 769.1 $ 460.1
Food and Transportation Systems 868.2 889.5 738.8 585.4 515.3
Agricultural Products 647.8 637.6 650.2 589.6 517.2
Specialty Chemicals 598.2 604.8 602.0 587.7 544.0
Industrial Chemicals 974.4 1,012.0 1,041.3 976.8 866.8
Eliminations (31.1) (29.2) (30.6) (26.0) (34.0)
- -------------------------------------------------------------------------------------------------------
Total $4,378.4 $4,259.0 $3,950.7 $3,482.6 $2,869.4
- -------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and cumulative
effect of changes in accounting principles
Energy Systems $ 95.2 $ 76.5 $ 33.9 $ 16.1 $ 13.8
Food and Transportation Systems 72.8 63.9 42.0 33.3 17.8
Agricultural Products 76.3 35.1 93.7 96.4 78.6
Specialty Chemicals 77.9 77.2 65.5 67.3 75.6
Industrial Chemicals 117.5 135.7 181.8 153.1 115.2
- -------------------------------------------------------------------------------------------------------
Segment operating profit (1) 439.7 388.4 416.9 366.2 301.0
Corporate (85.1) (86.2) (91.3) (99.0) (105.9)
Other income and expense, net 3.2 11.8 3.2 12.2 15.3
- -------------------------------------------------------------------------------------------------------
Operating profit before asset impairments,
restructuring and other charges, gain on sale
of FMC Wyoming stock and net interest expense 357.8 314.0 328.8 279.4 210.4
Asset impairments (2) -- (224.0) -- (26.4) --
Restructuring and other charges (3) -- (40.9) -- (123.6) --
Gain on sale of FMC Wyoming stock (4) -- -- -- 99.7 --
Net interest expense (108.3) (108.8) (93.0) (76.4) (59.5)
- -------------------------------------------------------------------------------------------------------
Total $ 249.5 $ (59.7) $ 235.8 $ 152.7 $ 150.9
- -------------------------------------------------------------------------------------------------------
</TABLE>
As described in Note 1 to the consolidated financial statements, the company is
reporting results based on five business segments effective December 31, 1998,
and all prior periods have been restated on a comparable basis.
Business segment results are presented net of minority interests, reflecting
only FMC's share of earnings. The corporate line primarily includes staff
expenses, and other income and expense consists of all other corporate items,
including LIFO inventory adjustments and pension income or expense.
(1) Results for all segments are net of minority interests in 1998, 1997, 1996,
1995 and 1994 of $6.2 million, $8.9 million, $9.6 million, $5.1 million and
$1.6 million, respectively, the majority of which pertain to Industrial
Chemicals.
(2) Asset impairments in 1997 (Note 4 to the consolidated financial statements)
are related to Energy Systems ($18.0 million), Food and Transportation
Systems ($9.0 million), Agricultural Products ($9.0 million), Specialty
Chemicals ($62.0 million) and Industrial Chemicals ($126.0 million). Asset
impairments in 1995 are related to Specialty Chemicals ($23.4 million) and
Industrial Chemicals ($3.0 million).
(3) Restructuring and other charges in 1997 (Note 4 to the consolidated
financial statements) are related to Energy Systems ($17.9 million), Food
and Transportation Systems ($10.0 million) and Agricultural Products ($13.0
million). Restructuring and other charges in 1995 are related to Energy
Systems ($15.5 million), Specialty Chemicals ($21.6 million), Industrial
Chemicals ($74.5 million) and Corporate ($12.0 million).
(4) Gain on sale of FMC Wyoming stock (comprising the sale of 20 percent of
FMC's soda ash business to minority partners) is attributable to Industrial
Chemicals.
16 FMC Annual Report
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Industry Segment Data (continued)
- --------------------------------------------------------------------------------------------
(In millions) December 31
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Capital Employed (1)
Energy Systems $ 471.4 $ 550.6 $ 649.5 $ 572.2 $ 203.5
Food and Transportation Systems 384.4 429.3 495.4 279.0 214.4
Agricultural Products 567.3 503.9 546.8 380.8 280.3
Specialty Chemicals 638.8 642.8 630.4 473.4 455.1
Industrial Chemicals 740.8 731.7 920.1 840.4 741.8
- --------------------------------------------------------------------------------------------
Total operating capital employed 2,802.7 2,858.3 3,242.2 2,545.8 1,895.1
Segment liabilities 1,125.0 1,087.0 917.2 808.8 611.7
Corporate and other assets 238.7 167.8 194.5 214.1 245.0
- --------------------------------------------------------------------------------------------
Assets of continuing operations 4,166.4 4,113.1 4,353.9 3,568.7 2,751.8
Net assets of discontinued operations (3) -- -- 113.5 183.1 105.3
- --------------------------------------------------------------------------------------------
Total assets $4,166.4 $4,113.1 $4,467.4 $3,751.8 $2,857.1
- --------------------------------------------------------------------------------------------
Segment Assets (2)
Energy Systems $ 848.1 $ 829.0 $ 874.2 $ 792.9 $ 329.5
Food and Transportation Systems 618.7 654.2 709.4 394.7 336.3
Agricultural Products 702.3 697.0 646.7 478.1 372.9
Specialty Chemicals 722.8 723.6 714.7 566.9 527.0
Industrial Chemicals 1,035.8 1,041.5 1,214.4 1,122.0 941.1
- --------------------------------------------------------------------------------------------
Total segment assets 3,927.7 3,945.3 4,159.4 3,354.6 2,506.8
Corporate and other assets 238.7 167.8 194.5 214.1 245.0
- --------------------------------------------------------------------------------------------
Assets of continuing operations 4,166.4 4,113.1 4,353.9 3,568.7 2,751.8
Net assets of discontinued operations (3) -- -- 113.5 183.1 105.3
- --------------------------------------------------------------------------------------------
Total assets $4,166.4 $4,113.1 $4,467.4 $3,751.8 $2,857.1
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Company management views operating capital employed, which consists of net
assets reported by the company's operations (and excludes corporate items
such as cash equivalents, debt, pension liabilities, income taxes and LIFO
reserves), as its primary measure of segment capital.
(2) Segment assets are assets recorded and reported by the segments, and are
equal to segment operating capital employed plus segment liabilities (Note
1 to the consolidated financial statements).
(3) Net assets of discontinued operations comprise the net assets of FMC's
Defense Systems and Precious Metals operations (Note 3 to the consolidated
financial statements).
FMC Corporation 17
<PAGE>
Products & Markets
[PICTURE APPEARS HERE]
<TABLE>
- --------------------------------------------------------------------------------
Energy Systems Markets Served
- --------------------------------------------------------------------------------
<S> <C>
FMC ENERGY SYSTEMS supplies oil Oil and gas exploration, production,
and gas exploration and production refining and transportation. Power
equipment for land and offshore generation and mining.
applications; engineering,
procurement and construction of
subsea oil fields; fluid control
and metering products and systems;
loading systems; marine terminals
and floating production systems;
conveying and processing systems.
[PICTURE APPEARS HERE]
- --------------------------------------------------------------------------------
Food & Transportation Systems Markets Served
- --------------------------------------------------------------------------------
FMC FOODTECH is a global provider Meat, seafood and poultry processors.
of integrated systems and equipment Fruit and vegetable processors.
for every phase of food harvesting, Convenience food processors,
preparation, processing and including potato and snack food,
preservation. Leader in citrus, soups, sauces and ready meals.
poultry, tomato and vegetable
systems.
AIRLINE PRODUCTS AND SERVICES Airlines, airports, industrial
include loaders, push-back tractors, manufacturing, mining, warehouses,
deicers and Jetway passenger bridges; newsprint, publishing, chemicals,
automated material handling systems. utilities.
[PICTURE APPEARS HERE]
- --------------------------------------------------------------------------------
Agricultural Products Markets Served
- --------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS provides crop Food and fiber growers, pest control
protection and pest control products markets.
for worldwide markets. More than 50
percent of sales derived outside the
United States.
- -------------------------------------------------------------------------------
</TABLE>
18 FMC Annual Report
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Competitive Advantage Market Opportunities Outlook
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FMC Energy Systems provides a broad range Continuing opportunities to build market Strong subsea position and cost reduction
of products and services in subsea/floating position and long-term customer alliances by initiatives should help generate solid
production, measurement and deep-water leveraging subsea technologies and systems performance.
technology. The business is well positioned and integrating recent acquisitions,
in the four major regions of offshore including CBV Industria Mecanica in Brazil.
exploration.
- -----------------------------------------------------------------------------------------------------------------------------------
Competitive Advantage Market Opportunities Outlook
- -----------------------------------------------------------------------------------------------------------------------------------
One of the top 10 suppliers of food Increased demands for food safety allow Continued strong performance expected in
processing systems in the world, with FMC FoodTech to leverage its strong 1999.
strong technology and global support technology, including its LogTech
capability. Market-leading positions in predictive modeling software to help
thermal processing, sterilizing, cooking customers significantly increase quality
frying and freezing systems. Partnerships and yield. Other areas of growth include
with major food processors. poultry processing, bulk aseptic processing
of not-from-concentrate juice, and high-
speed optical sorting and inspection
systems.
Market leader in ground support equipment Strong growth in pre-conditioned air units Strong positions and cost improvements
for the air transport industry and in to airlines and airport authorities. should help maintain profitability.
passenger boarding bridges worldwide. Passenger boarding bridges and the
Strong and active product development Commander loader--the world's top-selling
approach. Sole source alliances with family of aircraft cargo loaders--will
several key airlines. continue to take a leading position in the
marketplace. Positioned for future growth
in automated, laser-guided vehicle systems.
- -----------------------------------------------------------------------------------------------------------------------------------
Competitive Advantage Market Opportunities Outlook
- -----------------------------------------------------------------------------------------------------------------------------------
Solid business presence around the world. Long-term agreement to supply sulfentrazone New herbicide sales and continuing cost
Direct distribution in key markets. Strong herbicide to DuPont for sales to U.S. improvements are key to strong
insecticide and growing herbicide product soybean markets takes effect in 1999. New performance.
portfolio. Productive R&D effort, herbicide carfentrazone-ethyl, registered
generating high profitability. Solid for use in the major European cereal
product stewardship programs. markets and in other countries around the
world, is now registered for use on corn
in the U.S. under the tradename Aim.
Leading position in pyrethroid chemistry
worldwide. Continued investment in R&D.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FMC Corporation 19
<PAGE>
Products & Markets
[PICTURE APPEARS HERE]
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals Markets Served
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
FOOD INGREDIENTS produces carrageenan-based technologies Food processing, personal care products. Global pharmaceuti-
for texture, structure and stability for food systems. cal and nutritional supplement industries. Life science
PHARMACEUTICAL is the world's leading producer of binders research.
and disintegrants, Avicel microcrystalline cellulose and
Ac-Di-Sol croscarmellose sodium, as well as other specialty
excipients. BIOPRODUCTS is the leading supplier of proprietary
DNA and protein products for life science markets.
LITHIUM is one of the world's leading producers of Pharmaceuticals, batteries, air conditioning, rubber and
lithium-based products. plastic, aluminum, ceramics and glass, lubricating greases.
PROCESS ADDITIVES is the world's largest producer of Plastics, hydraulic fluids, lubricant additives, industrial
phosphate ester flame retardants. Leading supplier water treatment and desalination.
of specialty water treatment chemicals.
[PICTURE APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Chemicals Markets Served
- ----------------------------------------------------------------------------------------------------------------------------------
ALKALI CHEMICALS is the world's largest producer of Glass-making, chemicals, detergents, food products, animal
natural soda ash and the market leader in North America. feed additives, mining, air/water treatment, pulp and paper.
Downstream products include sodium bicarbonate, sodium
cyanide, sodium sesquicarbonate, caustic soda.
Major worldwide producer of HYDROGEN PEROXIDE, persulfate, Pulp and paper, textiles, mining, detergents, electronics,
peracetic acid and other specialty peroxygen products. polymers, sanitizers and industrial biocides.
PHOSPHORUS CHEMICALS is a major worldwide supplier Detergents, cleaning compounds, metal treatment, food
and leading North American producer of phosphorus and products and other industrial applications.
its derivatives, phosphates and phosphoric acid.
FORET is a major European chemical producer. Products Detergents, pulp and paper, textiles, chemicals, tanning,
include hydrogen peroxide, perborates, phosphates, silicates, pharmaceuticals, ceramics, food and agriculture.
zeolites, sulfur derivatives.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 FMC Annual Report
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Competitive Advantage Market Opportunities Outlook
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Worldwide brand recognition and Commercializing new food ingredient Good performances of food and
strong market positions. Superior products for dairy, convenience foods pharmaceutical businesses should
product quality, research, applications and meat applications. New opportunities continue. Life science funding
technology, formulation support, global for Avicel cellulose gel technology in remains strong.
customer service and manufacturing nutritional food systems. EnTec
capabilities. technologies providing enhanced
dissolution, higher drug loadings
and taste-masking in pharmaceutical
drug delivery systems. Products for
conducting DNA sequencing, mutation
detection and protein analysis.
Leading market position in diverse, Continued focus on downstream speciality Growth continues in downstream
high-value-added products. Strong markets. Expanded manufacturing in U.K. specialty markets.
manufacturing capabilities. to meet growing demand for butyllithium;
resumed operations at reconstructed
specialty reagents facility in North
Carolina, and expanded capacity for
rechargeable battery applications.
Global manufacturing and technical Continuing R&D investments and new Focus on new products and
sales capabilities, diverse products, application developments. New technology applications and ongoing cost
and applications know-how. driving improved process performance. improvements.
- ---------------------------------------------------------------------------------------------------------------------------------
Competitive Advantage Market Opportunities Outlook
- ---------------------------------------------------------------------------------------------------------------------------------
Mining and production technology Solution mining expansion fully integrated Continuing focus on improving
leader, including proprietary, low- and operating at significant cash cost production efficiencies and cost
cost solution mining technology. savings over dry mining. New products in position.
Excellent distribution and cleaning compounds, feed additives, and
transportation systems. acid waste neutralization.
Capacity share leader with multi- Sales volume increases tied to market Continued focus on cost improvement
plant network. New process technology growth. Improved cost position through and pricing.
has lowered costs. Sole producer in capital-efficient technology.
Mexico. Strong specialty market
positions.
Lowest-cost U.S. producer of Sodium Growing diversity of product uses. Focus on pricing and production
tripolyphosphate--our largest Introduced new high-performance product efficiencies.
downstream product--used in automatic for cleaning compounds industry. Improved
dish detergents. product mix.
Strong market positions. Excellent Continuing focus on current market Continued good performance based
cost positions. Strong manufacturing positions. Export growth. on costs and competitive advantages
and distribution capabilities. Growing of the product portfolio.
export business.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FMC Corporation 21
<PAGE>
Management's Discussion and Analysis
Statement under the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995: The Annual Report contains "forward-looking statements",
which represent management's best judgment as of the date hereof based on
information currently available. Actual results for the company may differ
materially from those contained in the forward-looking statements. Additional
information concerning factors that may cause results to materially differ from
those in the forward-looking statements is contained in the company's periodic
reports filed under the Securities and Exchange Act of 1934, as amended,
including the Form 10-K dated as of December 31, 1998. The company undertakes no
obligation to update or revise these forward-looking statements to reflect new
events or uncertainties.
General
- -------
1998 COMPARED WITH 1997
In 1998, sales were $4.4 billion, up from $4.3 billion in 1997. Sales in the
United States increased 5 percent during the year, while sales outside the
United States increased 1 percent from 1997.
After-tax income from continuing operations before asset impairments,
restructuring and other charges (in 1997) and the cumulative effect of changes
in accounting principles (in 1998 and 1997) was $185.3 million, or $5.30 per
share on a diluted basis, in 1998 compared with $156.4 million, or $4.13 per
share, in 1997.
Net loss from discontinued operations (Note 3 to the consolidated financial
statements) was $42.7 million in 1998, or $1.22 per share on a diluted basis. In
1998, the company recorded a $70.0 million pre-tax charge to increase
environmental reserves related to discontinued operations (Notes 3 and 14 to the
consolidated financial statements). Net income from discontinued operations in
1997, primarily related to the sale of the company's defense operations, was
$191.4 million, or $5.20 per share.
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 $1.03 per share on a diluted basis) of previously capitalized
start-up costs to expense. This charge was recorded as the cumulative effect of
a change in accounting principle.
Net income for 1998 was $106.5 million, or $3.05 per share on a diluted
basis, compared to $162.4 million, or $4.41 per share, in 1997.
1997 COMPARED WITH 1996
Sales from continuing operations of $4.3 billion in 1997 were up 8 percent from
$4.0 billion in 1996. Sales in the United States increased 5 percent during the
year, while sales outside the United States increased 10 percent from 1996.
After-tax income from continuing operations in 1997, before asset
impairments of $154.0 million and restructuring and other charges of $26.9
million (Note 4 to the consolidated financial statements) and the cumulative
effect of a change in accounting principle (Note 1 to the consolidated financial
statements), was $156.4 million ($4.13 per share on a diluted basis) compared
with $162.8 million ($4.28 per share) in 1996. Net income per share decreased to
$4.41 on a diluted basis in 1997 from $5.54 in 1996.
Net income from discontinued operations (Note 3 to the consolidated
financial statements) in 1997 of $191.4 million includes an after-tax gain on
the sale of FMC's Defense Systems operations of $179.7 million and after-tax
income from operations of the Defense Systems segment through August 25, 1997 of
$38.7 million, partially offset by an after-tax increase in environmental
reserves for previously divested operations of $27.0 million.
Industry Segments
- -----------------
Results on a segment basis for the five years ended December 31, 1998 are
presented on pages 16 and 17. As described in Note 1 to the consolidated
financial statements, the company is reporting results based on five segments
effective December 31, 1998, and all prior periods have been restated. Segment
operating profits exclude certain elements of revenue and expense as described
in Note 1. Management's Discussion and Analysis of segment operating performance
appears on pages 23-26.
22 FMC Annual Report
<PAGE>
Energy Systems
- --------------
1998 COMPARED WITH 1997
Energy Systems 1998 sales of $1,320.9 million were up 15 percent from prior-year
sales of $1,144.3 million, and operating profits of $95.2 million were up 24
percent from $76.5 million (before asset impairments, restructuring and other
charges) in 1997.
Demand in the subsea business remained strong, with higher sales to Shell,
Statoil and Elf Aquitaine, among others. The results also reflect the
acquisition of CBV, the leading wellhead manufacturer in Brazil, in August 1998.
Energy Systems earnings were also favorably affected by cost saving efforts
implemented during the year, including the elimination of approximately 250
positions.
During 1998, the company continued to solidify its premier position in
subsea systems, receiving a $230 million order for the Terra Nova project on the
Grand Banks of Newfoundland and a $200 million order for the Elf Girassol
project, offshore Angola. Also during 1998, the company sold Crosby Valve to a
subsidiary of Tyco International Ltd. and realized an immaterial gain on the
disposition.
1997 COMPARED WITH 1996
Energy Systems 1997 sales of $1,144.3 million increased from sales of $949.0
million in 1996, and 1997 operating profits (before asset impairments,
restructuring and other charges) of $76.5 million were up $42.6 million from
$33.9 million in the prior year.
The increased sales reflected strong demand from oil companies in
exploration and production, including Shell, and higher subsea equipment sales
under a contract with Statoil, Norway's state-owned oil company. The company's
market leadership position in the expanding subsea market, coupled with strong
cost control activities, improved 1997's margins and operating profits before
asset impairments, restructuring and other charges.
During the fourth quarter of 1997, the company recorded a charge of $18.0
million for the write-off of certain impaired assets, and restructuring and
other charges of $17.9 million for work force reductions at Crosby Valve and
various one-time write-offs and other costs.
Outlook for 1999
The order backlog for Energy Systems was $877.9 million at December 31, 1998,
compared with $749.6 million at the end of 1997 and $1,053.5 million at
September 30, 1998. The increase in backlog at December 31, 1998, from the prior
year is due to the orders received for the Terra Nova and Elf Girassol projects,
large orders from Shell and Statoil and the acquisition of CBV. The decrease in
backlog versus the third quarter primarily reflects uncertainty in the oil
industry as a result of low oil prices. Although Energy Systems results may be
negatively affected by prolonged low oil prices, the company's strong position
as a subsea equipment supplier to the major oil companies and the company's
long-term strategic alliances with customers make it less sensitive to short-
term oil price fluctuations. In addition, the company is responding to a reduced
energy and petroleum market by implementing additional cost reductions in 1999.
[PICTURE APPEARS HERE]
LESS IS MORE FMC Energy Systems' lightweight, compact manifold systems enable
customers to save weight, space and, in turn, lower costs on offshore
developments.
[PICTURE APPEARS HERE]
WE KNOW THE DRILL FMC Energy Systems produces a complete range of drilling and
completion equipment for surface applications, including an industry-leading
thru-bore wellhead system.
Food & Transportation Systems
- -----------------------------
1998 COMPARED WITH 1997
Food and Transportation Systems 1998 sales of $868.2 million decreased from
$889.5 million in 1997, and 1998 operating profits of $72.8 million increased
from $63.9 million (before asset impairments, restructuring and other charges)
in the prior year.
FMC FoodTech's sales were down from the prior year, as a result of the weak
business climate in Asia and the divestiture of a minor product line, partly
offset by increased food processing sales. Operating profits were up compared
with 1997, reflecting stronger after-market performance and the benefits of cost
reduction activities implemented in 1998.
Sales and operating profits were up in airport products, as increased sales
of Jetway Systems and ground support equipment more than offset lower deicer
sales that resulted from a mild winter in 1997.
FMC Corporation 23
<PAGE>
Management's Discussion and Analysis
1997 COMPARED WITH 1996
Food and Transportation Systems sales increased $150.7 million to $889.5 million
in 1997 from $738.8 million in 1996, and operating profits (before asset
impairments, restructuring and other charges) increased $21.9 million to $63.9
million in 1997 from $42.0 million in the prior year.
FMC FoodTech's sales and operating profits before asset impairments,
restructuring and other charges improved significantly in 1997, primarily from
the inclusion of full-year results for the operations of Frigoscandia Equipment,
which FMC acquired in June 1996. Increased sales and profits of citrus machinery
in 1997 also contributed to the improved operating results of FMC FoodTech.
Profits of the food processing equipment business benefited from a healthy
poultry market, as well as the strength of FMC's sterilization and fruit
processing lines.
Sales of airport products and systems were significantly higher in 1997 as
a result of a period of strong airline investment. Increased sales of ground
support and automated material handling equipment and higher Jetway passenger
boarding bridge shipments also positively affected operating profits.
In the fourth quarter of 1997, the company recorded $10.0 million of
restructuring and other charges primarily related to work force reductions in
the FMC FoodTech businesses, and asset impairments of $9.0 million primarily
related to unused patents at FMC's airport products businesses.
Outlook for 1999
The order backlog for Food and Transportation Systems was $256.0 million at
December 31, 1998 compared with $239.2 million at the end of the prior year and
$282.5 million at September 30, 1998. The increase in backlog at December 31,
1998 from 1997 was driven by increases in most businesses. The decline in year-
end backlog from September 1998 is due to a downturn in the airline industry,
which could affect sales orders for ground support equipment and passenger
bridges in the near term. The company expects FMC FoodTech to have continued
earnings improvements resulting from cost reduction initiatives and a
strengthening after-market environment, despite continued weakness in the Asian
business climate.
[PICTURE APPEARS HERE]
COLD AS STEEL Frigoscandia Freezer's patented self-stacking spiral belt is the
industry standard.
[PICTURE APPEARS HERE]
UNDER OUR WINGS FMC FoodTech supplies the food industry with total food
processing solutions, including cutting, coating and cooking equipment connected
by FMC conveyors.
Agricultural Products
- ---------------------
1998 COMPARED WITH 1997
Sales for Agricultural Products of $647.8 million in 1998 were up from $637.6
million in 1997, and operating profits increased to $76.3 million from $35.1
million (before asset impairments, restructuring and other charges) in the prior
year.
Sales were up due to improved performance in herbicide markets. The
significant increase in operating profits was largely a result of cost
reductions implemented during 1998. In 1997, operating profits were negatively
affected by difficulties encountered in the start-up process at the company's
Baltimore, Maryland, sulfentrazone plant.
1997 COMPARED WITH 1996
Agricultural Products sales of $637.6 million in 1997 declined slightly from
sales of $650.2 million in the prior year. Operating profits (before asset
impairments, restructuring and other charges) of $35.1 million in 1997, however,
were down significantly from $93.7 million in 1996.
Sales of most insecticides and agricultural intermediates declined in 1997
as a result of weaker sales in Southeast Asia, lower pest infestations in some
markets, and competitive pressure surrounding some product lines. Operating
profits declined significantly as a result of these factors and production
start-up problems associated with the manufacturing of Authority herbicide at
the Baltimore, Maryland, plant.
During the fourth quarter of 1997, the business recorded $13.0 million of
restructuring and other charges primarily to cover work force reductions across
the business, and an asset impairment of $9.0 million for the Authority plant in
Baltimore, Maryland.
Outlook for 1999
During 1998, 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
supply agreement, under which DuPont and the company agree to specify price and
volume requirements, takes effect for the 1999 growing season. In addition,
during the year the company's new herbicide, Aim, was registered by the
Environmental Protection Agency for use on corn in the United States.
Sales growth in herbicides should continue as the production rates for
sulfentrazone at FMC's Baltimore facility continue to increase.
24 FMC Annual Report
<PAGE>
In addition, recent registrations of carfentrazone-ethyl will support continued
global growth in sales of this post-emergent herbicide. Global economic
uncertainty, most recently centered in Brazil, and low crop prices may result in
modest global market growth and increased competitive pressures. The company
expects a continued focus on cost reductions in 1999.
[PICTURE APPEARS HERE]
BUG OFF Use of biotechnology in our research and discovery process continues to
pay dividends with new uses and opportunities in pest control.
[PICTURE APPEARS HERE]
WE MAKE IT BETTER Our focus on manufacturing excellence means continuously
improving processes to assure cost efficiencies and control, quality and safety.
Specialty Chemicals
- -------------------
1998 COMPARED WITH 1997
Specialty Chemicals 1998 sales were $598.2 million, down slightly from 1997
sales of $604.8 million. Operating profits of $77.9 million were up from $77.2
million (before asset impairments) in 1997.
U.K.-based sales of water additives and flame retardant products were up
slightly from the prior year. Operating profits in 1998 increased from 1997 as
cost reductions more than offset negative foreign currency effects.
Food ingredients sales were up from the prior year, driven by sales of new
products. Operating profits increased on higher sales and the continued
reduction of manufacturing and administrative costs.
Lithium sales and operating profits were down from the prior year as a
result of lower lithium carbonate and lithium hydroxide prices and higher
operating costs associated with the start-up of the Argentine production
facility.
1997 COMPARED WITH 1996
Specialty Chemicals sales of $604.8 million in 1997 were up slightly from sales
of $602.0 million in 1996. Operating profits (before asset impairments)
increased 18 percent to $77.2 million in 1997 from $65.5 million in 1996.
Sales of U.K.-based water additives and flame retardant products were
approximately even with 1996, while operating profits before asset impairments
were slightly lower due to significant foreign currency effects.
Food ingredients sales volumes improved from 1996, but total sales in
dollars remained level largely due to the effects of weaker European currencies.
Operating profits before asset impairments improved as a result of operating
efficiencies, lower raw material costs and reductions in selling and
administrative costs.
Sales of pharmaceutical products improved in 1997, primarily due to
increased volumes. Operating profits improved slightly, primarily due to strong
sales volumes and a partial recovery from a 1996 increase in raw material costs.
Lithium products operating profits before asset impairments declined from
1996 as a result of a new competitor's impact on the pricing of lithium
carbonate. The company began producing lithium carbonate at its new Argentine
facility in 1997, and shut down its aging North Carolina mine and mill in early
1998.
In the fourth quarter of 1997, the company recorded asset impairment
charges of $46.0 million related to competitive factors in FMC's process
additives businesses, and $16.0 million related to the write-down of certain
impaired assets at the lithium facility in North Carolina and at the food
ingredients facility in Cork, Ireland.
Outlook for 1999
The impact of continued cost reductions, more favorable exchange rates and
projected increased sales volumes should lead to a continuation of profit
improvement in FMC's process additives business.
The food ingredients business is expected to improve slightly in 1999 on
higher volume and improved productivity. Higher raw material costs and uncertain
economic conditions in Asia and Latin America will be partially offset by
increased pricing.
In 1999, strong competitive pressure is expected to continue in the lithium
carbonate market and as a result, the company is evaluating various strategic
alternatives for the commodity part of the lithium business. The 1998 start-up
of FMC's expanded butyllithium facility in the U.K. and the specialty organics
facility in the U.S. will position the company to capitalize on growth
opportunities in the downstream portions of the lithium business.
[PICTURE APPEARS HERE]
DISCOVERY ZONE A leading producer of lithium chemicals, FMC also is a leader in
research of lithium reagents for use in manufacturing pharmaceuticals.
[PICTURE APPEARS HERE]
WONDER WEED FMC harvests and processes seaweed around the globe to extract
carrageenan, a naturally occurring carbohydrate used to add texture to many
processed foods.
Industrial Chemicals
- --------------------
1998 COMPARED WITH 1997
Industrial Chemicals sales in 1998 were $974.4 million compared with $1,012.0
million in 1997, and operating profits (net of minority interests) were $117.5
million compared to $135.7 million (before asset impairments) in the prior year.
Sales and operating profits of alkali products decreased from last year,
reflecting lower domestic and export prices, decreased export volumes of soda
ash to Asia and lower sodium cyanide sales due to reduced gold mining activity.
Cost reductions implemented in the third and fourth quarters of 1998 at the
company's Green River,Wyoming, facility partially offset the impact of
unfavorable market conditions.
FMC Corporation 25
<PAGE>
Management's Discussion and Analysis
Hydrogen peroxide sales and operating profits were down from 1997, as lower
prices more than offset increased volumes and reduced costs. The company shut
down an older production line at its Bayport, Texas, facility in August 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. FMC expects to meet current demand levels from its
remaining production facilities.
Phosphorus sales decreased in 1998 from the prior year due to reduced
volumes. Operating profits were essentially even with 1997, as the impact of
lower sales was offset by reduced depreciation resulting from an asset
impairment charge recorded in the fourth quarter of 1997.
Sales from Spain-based FMC Foret increased in 1998 as higher sales volumes
more than offset the impact of selling price pressures in the last half of 1998
and the negative translation impact of the U.S. dollar against the Spanish
peseta. Operating profits were lower in 1998 as the impact of higher sales
volumes was offset by reduced margins in the last quarter and by the effect of
foreign currency translation.
1997 COMPARED WITH 1996
Industrial Chemicals sales of $1,012.0 million in 1997 declined slightly from
$1,041.3 million in 1996, and operating profits (before asset impairments and
net of minority interests) of $135.7 million in 1997 were down significantly
from $181.8 million in the prior year.
Soda ash volume increased in 1997, primarily due to the continuing fill-out
of expanded capacity, but declines in prices partially offset the volume gains.
Lower operating profits were also a result of reduced volumes and prices for
caustic soda and sodium cyanide.
Sales volumes for peroxygen products, which include hydrogen peroxide,
persulfates and peracetic acid, improved in 1997. However, declines in hydrogen
peroxide prices, resulting from a weak pulp market and industry overcapacity due
to recent hydrogen peroxide plant expansions, resulted in a net reduction in
sales from the prior year. Operating profits before asset impairments decreased
substantially from the 1996 level as the result of the price declines and the
absence of a $24.1 million gain from the 1996 sale of the company's minority
interest in Tokai Denka Kogyo, a Japanese hydrogen peroxide joint venture.
Phosphorus chemical sales were slightly higher in 1997 due to improved
domestic sales, partially offset by lower exports. Operating profits before
asset impairments were also slightly stronger than the prior year as a result of
the higher sales volume and better operating performance.
Spain-based FMC Foret reported increased sales volumes and pricing
improvements in most product lines. However, sales and operating profits
declined in the U.S. dollar financial statements primarily as a result of the
strong U.S. dollar.
In the fourth quarter of 1997, the company recorded an asset impairment
charge of $126.0 million primarily against the phosphorus division's property,
plant and equipment based on recently increased environmental capital cost
estimates and the impact of increasing international competition.
Outlook for 1999
In 1999, soda ash volume may be negatively affected by the economic situations
in Asia and Latin America. The lower demand and weak currencies in these markets
could result in an increase in competitive pricing pressure. Cost reductions
implemented in 1998, however, are expected to mitigate some of the potential
decline in earnings. In addition, in January 1999, FMC signed a letter of intent
to purchase TG Soda Ash Inc. ("TgSA"). TgSA, a subsidiary of Elf Atochem, has
mining and production facilities adjacent to FMC's soda ash operations in Green
River, Wyoming. The combination is subject to government approvals and final
negotiations.
Hydrogen peroxide results are expected to be comparable with 1998 as price
increases implemented late in the year should begin to improve year-over-year
comparisons in the second half of 1999. In addition, ongoing cost reductions are
expected to offset reduced volumes.
Phosphorus chemical sales and volumes are expected to be even with 1998.
FMC Foret expects increased competitive pressure to continue to affect
prices in 1999; however, the business expects cost control efforts to minimize
the impact on earnings.
[PICTURE APPEARS HERE]
JOB ONE Staff in our quality control labs ensure that FMC's finished products
consistently meet high standards and help customers achieve superior
performance.
26 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
INSIDE JOB These containers for FMC's phosphorus pentasulfide are specially
designed to deliver the mixture directly into the customer's process, keeping
both workers and the product safe.
[PICTURE APPEARS HERE]
DISTINCT DIFFERENCE FMC is the only North American producer of persulfates, used
to make plastics and polymers. Recently expanded capacity gives FMC improved
production flexibility and product quality.
Other Information
- -----------------
Taxes
Although FMC's domestic earnings (losses) are generally subject to tax expense
(benefit) at the statutory rate of 35 percent, many factors can alter the
company's consolidated tax expense (or tax benefit) rate. These factors include
non-deductible or non-benefitable transactions related to goodwill or other
items, differing foreign tax rates, state tax increments, and other permanent
differences. The effective tax rate of 26 percent in 1998, before the cumulative
effect of a change in accounting principle, includes depletion and foreign sales
corporation benefits, as well as income from foreign operations taxed at rates
lower than the U.S. statutory rate. The effective tax benefit rate in 1997,
before the cumulative effect of a change in accounting principle, was 59
percent, which includes the impact of asset impairments and restructuring and
other charges (Note 4 to the consolidated financial statements). The 1997
effective tax rate was 24 percent excluding these charges. The effective tax
rate of 31 percent in 1996 includes taxes provided on the sale of the company's
investment in Tokai Denka Kogyo (Note 2 to the consolidated financial
statements). The 1996 effective tax rate excluding this event was 26 percent.
Accounting Changes
Accounting standards adopted by the company during 1998 are described in further
detail in Note 1 to the consolidated financial statements.
Statement of Financial Accounting Standards ("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. The company is evaluating the new standard's provisions and has
not yet determined the date on which it will adopt the standard or what the
effect of SFAS No. 133 will be on the earnings and the financial position of the
company.
Under generally accepted accounting principles, the company is required to
periodically evaluate the useful lives of its plants and equipment. As a result
of a current study, in the first quarter of 1999, the company expects to extend
the depreciable lives of certain equipment used in its chemical operations to 15
years from an average of 11 years. This change will better reflect the current
service lives of its assets and provide a better matching of revenues and
expenses. The effect of this change in estimate is expected to increase pre-tax
profits by approximately $28 million in 1999.
Asset Impairments, Restructuring and Other Charges
FMC recorded pretax charges of $264.9 million ($180.9 million after tax) in the
fourth quarter of 1997, primarily related to asset impairments and restructuring
activities. Of this amount, $224.0 million ($154.0 million after tax) related to
asset impairments, primarily in the phosphorus chemicals and process additives
businesses, and $40.9 million ($26.9 million after tax) was provided primarily
to cover smaller restructuring activities in several other businesses. See Note
4 to the consolidated financial statements for further discussion of the asset
impairments and restructuring charges.
Environmental Obligations
FMC, like other industrial manufacturers, is involved with a variety of
environmental matters in the ordinary course of conducting its business that are
subject to federal, state and local environmental laws. FMC feels strongly about
its responsibility to protect the environment, public health and employee
safety.
This includes cooperating with other parties to resolve issues created by
past and present handling of wastes. When issues arise, including notices from
the Environmental Protection Agency, or other government agencies, identifying
FMC as a Potentially Responsible Party, FMC's Environment, Health, Safety and
Toxicology staff assess and manage the issues. When necessary, the company
utilizes multifunctional advisory teams composed of environmental, legal,
financial and communications management to ensure that the company's actions are
consistent with its responsibilities to the environment and public health, as
well as to employees and shareholders.
In the fourth quarter of 1998, FMC recorded a $70.0 million ($42.7 million
after tax) environmental charge related to several discontinued operations. The
majority of the charge relates to an agreement in principle that FMC has reached
with the U.S. Environmental Protection Agency and the U.S. Department of Justice
regarding settlement of past costs and future clean-up work at the discontinued
fiber manufacturing site in Front Royal, Virginia.
FMC Corporation 27
<PAGE>
Management's Discussion and Analysis
[PICTURE APPEARS HERE]
RISING TO THE OCCASION In a climate of low energy prices, FMC Energy Systems is
expanding its industry-leading efforts to develop new cost-saving technologies
to help customers maintain profits.
In 1997, the company increased its environmental reserves related to
discontinued operations by $45.0 million ($27.0 million after tax). These
provisions are more fully described in Note 3 to the consolidated financial
statements.
Additional information regarding the company's environmental accounting
policies and potential environmental liability is included in Notes 1 and 14,
respectively, to the company's consolidated financial statements. Information
regarding environmental obligations associated with the company's discontinued
operations is included in Note 3 to the consolidated financial statements.
Estimates of 1999 environmental spending are included under Liquidity and
Capital Resources below.
Liquidity and Capital Resources
Total cash and cash equivalents at December 31, 1998 and 1997 were $61.7 million
and $62.7 million, respectively. At December 31, 1998, the company had total
borrowings of $1.5 billion, up from $1.3 billion at December 31, 1997. Advances
under uncommitted credit facilities decreased $52.0 million and commercial paper
borrowings decreased $5.1 million (net of discount) from 1997 to 1998.
The company also has $800.0 million in committed credit facilities
consisting of a $350.0 million, 364-day non-amortizing revolving credit
agreement due in December 1999 and a $450.0 million, five-year non-amortizing
revolving credit agreement due in December 2001. At December 31, 1998, no
amounts were outstanding under these credit facilities.
In 1995, the company filed a universal shelf registration statement under
which $500.0 million of debt and/or equity securities may be publicly offered.
The company issued $70.0 million of medium-term notes during 1997 for net
proceeds of $69.6 million and $170.0 million of medium-term notes during 1998
for net proceeds of $169.0 million.
In August 1998, the company filed a universal shelf registration statement
under which $500.0 million of debt and/or equity securities may be offered. This
registration statement incorporates $160.0 million of unused capacity from the
company's 1995 shelf registration statement. The company issued $120.0 million
of medium-term notes in 1998 for net proceeds of $119.6 million. The net
proceeds of the 1998 and 1997 debt issues under the shelf registration
statements were used to retire other borrowings. See Note 9 to the consolidated
financial statements for further discussion of the company's debt facilities.
Capital spending (including property, plant and equipment from
acquisitions) of $277.7 million for the 12 months ended December 31, 1998
decreased $39.0 million versus 1997. The decrease was primarily driven by lower
capital spending in the company's chemical businesses. Capital expenditures in
1997 included spending 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 2 to the consolidated financial statements, in August
1998, the company acquired a controlling interest in CBV Industria Mecanica
S.A. ("CBV"). The acquisition price was funded by short-term and long-term
borrowings. Also in 1998, the company sold Crosby Valve to a subsidiary of Tyco
International Ltd. for cash and preferred stock, resulting in an immaterial
gain. The company continues to evaluate potential acquisitions, divestitures and
joint ventures on an ongoing basis.
On August 28, 1997, the Board of Directors authorized a $500.0 million,
open-market stock repurchase program for FMC common stock through the end of
1999. During 1998, the company repurchased a total of 2.4 million shares at a
cost of $150.0 million under this program and an additional 0.1 million shares
at a cost of $6.7 million which it contributed to a benefit plan trust. During
1997, the company repurchased a total of 2.7 million shares of its common stock
at a cost of $209.0 million. The repurchased shares are recorded as treasury
stock at cost in the company's consolidated balance sheet. Depending on market
conditions, the company plans to continue purchasing shares of its common stock
on the open market from time to time, and expects to repurchase approximately
$135 million of the company's common stock during 1999.
As discussed in Note 3 to the company's consolidated financial statements,
the company sold its defense operations to The Carlyle Group on October 6, 1997.
On that date, the company received its share of the net proceeds from the sale,
which included $460.0 million in cash (approximately $375 million in cash after
tax) and a $50.0 million note receivable from The Carlyle Group. In 1998, FMC
collected the note receivable, net of an immaterial cash settlement to reflect
final closing balance sheet adjustments. FMC used the proceeds from the sale to
reduce its outstanding debt and to fund its stock repurchase program.
28 FMC Annual Report
<PAGE>
[PICTURE APPEARS HERE]
WHITE GLOVE TEST A pristine environment is required to manufacture and test the
ultra-pure, electronics-grade hydrogen peroxide used to clean microprocessors
and memory chips.
[PICTURE APPEARS HERE]
WEEDING IT OUT Marketed as Boral in Brazil, FCM's sulfentrazone continues to
provide excellent control of weeds that harm soybean crops.
Cash generated from operations in 1999 and available credit facilities are
expected to be sufficient to meet operating needs, fund capital expenditures and
potential acquisitions, and meet debt service requirements for the year.
Expected cash requirements for 1999 include approximately $275 million to $300
million for planned capital expenditures, including approximately $60 million
for capital projects related to environmental control facilities. Projected 1999
spending also includes approximately $50 million for environmental compliance at
current operating sites, plus approximately $40 million of remediation spending
and $20 million for environmental study costs at current operating, previously
operated and other sites.
Total working capital of $269.8 million at December 31, 1998 increased by
$18.7 million compared with 1997, as a decrease in other current assets and an
increase in accounts payable were more than offset by an increase in deferred
income taxes and a decrease in taxes payable related to a tax payment made in
1998 for the company's previously divested Defense Systems operations. Operating
working capital, which excludes cash and cash equivalents, short-term debt and
income tax balances, decreased $106.2 million to $304.2 million at December 31,
1998 from $410.4 million at December 31, 1997. The majority of the reduction is
due to a decrease in other current assets due to the collection of the note
receivable from The Carlyle Group and the company's overall effort to reduce
working capital.
The increase in investments from $35.9 million at December 31, 1997 to
$186.5 million at December 31, 1998 primarily represents the receipt of Tyco
International Ltd. preferred stock as partial proceeds from the company's sale
of Crosby Valve, as well as common stock received from the sale of a product
line.
The company adopted SOP No. 98-5 effective January 1, 1998, as discussed in
Note 1 to the consolidated financial statements. 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 has various investments in Brazil, including CBV, Agricultural
Products and FMC FoodTech operations, and exports agricultural and other
products to customers in Brazil. As noted in "Derivative Financial Instruments"
below, the company believes any losses from the decline in value of the
company's real-denominated investments during the early 1999 devaluation of the
Brazilian real have been mitigated by derivative contracts; however, certain
other events, such as potential deterioration of FMC's sales, margins and
receivables in Brazil, may occur during 1999 and may affect the company's
results of operations.
The company's ratios of earnings to fixed charges were 2.7x and 0.6x for
the years ended December 31, 1998 and 1997, respectively. The increase in the
ratio from 1997 is primarily the result of higher 1998 earnings, compared with
1997 earnings which were affected by asset impairments, restructuring and other
charges.
Dividends
No dividends were paid in 1998, 1997 and 1996, and no dividends are expected to
be paid in 1999.
Derivative Financial Instruments and Market Risks
FMC's primary financial market risks include fluctuations in interest rates and
currency exchange rates. The company manages these risks by using derivative
financial instruments in accordance with established policies and procedures.
FMC does not use derivative financial instruments for trading purposes.
When FMC sells or purchases products or services outside the United States,
transactions are frequently denominated in currencies other than U.S. dollars.
At December 31, 1998, the foreign currencies to which the company had the most
significant exchange rate exposure were the Brazilian real, Norwegian krone,
British pound, Spanish peseta and German mark. Exposure to variability in
currency exchange rates is mitigated, when possible, through the use of natural
hedges, whereby purchases and sales in the same foreign currency and with
similar maturity dates offset one another. Additionally, FMC initiates hedging
activities by entering into foreign exchange forward contracts with third
parties when the use of natural hedges is not possible. The maturity dates of
the currency exchange agreements which provide hedge coverage are consistent
with those of the underlying purchase or sales commitments.
To monitor its currency exchange rate risks, the company uses a sensitivity
analysis, which measures the impact on earnings of a 10 percent devaluation of
the foreign currencies to which it has exposure. Based on its sensitivity
analysis at December 31, 1998, excluding forward contracts entered into to sell
Brazilian reais, fluctuations in currency exchange rates
FMC Corporation 29
<PAGE>
Management's Discussion and Analysis
[PICTURE APPEARS HERE]
GLOBAL IS LOCAL With laboratories in Europe, Asia, and the United States, FMC's
Food Ingredients business is poised to work with customers worldwide on
applications technologies for fat-replacement and to provide texture, structure
and stability to processed foods.
in the near term would not materially affect FMC's consolidated operating
results, financial position or cash flows. During September 1998, the company
entered into $65.0 million of forward contracts which mature in March 1999, to
offset risks associated with the real-denominated portions of FMC's Brazilian
investments. Subsequent to December 31, 1998, the Brazilian real experienced a
devaluation. The company believes any losses from the decline in value of the
company's real-denominated investments during the 1999 devaluation have been
mitigated by the forward contracts. FMC's management believes that its hedging
activities have been effective in reducing its risks related to currency
exchange rate fluctuations.
FMC utilizes interest rate swaps to manage its exposure to fluctuations in
earnings due to changes in interest rates. The company's interest rate swap
portfolio is an integral part of its risk management strategy and as such, all
swaps are linked to an underlying debt obligation. At December 31, 1998, the
company had in place one interest rate swap denominated in British pounds with a
notional amount of (Pounds)25.0 million ($41.5 million at December 31, 1998)
which matures in May 2000. The swap settles monthly, and the receive and pay
rates are British pounds Libor and 6.9 percent, respectively.
For more information on derivative financial instruments, see Notes 1 and 7
to the consolidated financial statements.
Impact of the Year 2000 Issue
The following discussion should be read in conjunction with the description of
FMC's program for addressing potential Year 2000 ("Y2K") issues included in the
company's quarterly report on Form 10-Q for the period ended September 30, 1998
("Form 10-Q"). Any new or updated information contained herein supercedes the
information contained in the Form 10-Q.
The 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.
The company closely tracks progress against Y2K compliance plans throughout
its businesses. A vital part of the company's compliance program is a detailed
corporate audit process designed to ensure sound Y2K planning and effective
execution at the business unit level.
Of the systems the company has identified as critical, 10 percent are
business application technology ("IT") systems, such as desktop PCs and
telecommunications systems, and 90 percent are manufacturing and facilities
systems, such as embedded technologies, process controls and programmable logic
devices.
The majority of the company's IT business applications are already Y2K-
compliant, and the remainder will be before December 31, 1999. The company
outsources most of its critical computing operations, including its network
operations, to professional outsource service providers. The company has
confirmed or is confirming that each of its outsourcers is either already Y2K-
compliant or has a detailed program in place to achieve compliance within an
acceptable time frame. Where appropriate, the company has participated in joint
planning and coordination to ensure timely outsourcer compliance or to migrate
FMC's processing to compliant platforms.
With respect to its manufacturing and facilities systems, at December 31,
1998 approximately one-third of the company's projects, including all of the
projects of two divisions, had been substantially completed. The remaining two-
thirds of the company's projects, consisting of over 4,000 individual projects,
were in progress at December 31, 1998, with approximately two-thirds of those
projects in preparation for renovation and the remaining one-third already
undergoing renovation, testing, or deployment. The company expects the majority
of the remaining systems to be Y2K-compliant by June 30, 1999.
The company expects that some funds budgeted for operating 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
system changes in its IT, manufacturing, and facility systems that might
otherwise have been made at a later date in order to address Y2K issues. Through
the end of 1998, the company has spent approximately $10 million on Y2K
compliance, of which approximately half has been expensed and half capitalized.
The company expects to incur approximately $7 million to $11 million in expense
in 1999, and to capitalize approximately $4 million to $5 million of additional
costs. FMC has not completed its estimates related to post-1999 spending.
30 FMC Annual Report
<PAGE>
The company is monitoring the compliance status of its priority suppliers
and is developing contingency plans to enable critical operations to continue if
significant Y2K issues persist into the Year 2000. The company's business
divisions have either substantially completed or will complete 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 potential shortfalls that might result from suppliers' inability to
provide products and services as a result of Y2K non-compliance.
The costs of Y2K compliance and the dates by 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, the
availability and lead-time requirements for certain compliant equipment, and
similar uncertainties.
The severity of problems to be confronted by the company for partial or
complete non-compliance of its own systems or those of its key suppliers,
customers, or business partners will depend on a variety of factors that are
currently unknown. Such problems, either individually (as in the case of a major
utility outage) or in combination (for example, if several critical suppliers
and backup sources fail to operate, or if infrastructure systems such as rail,
road, or port systems fail) may have a materially adverse impact on the
company's results of operations and financial condition.
Conversion to the Euro
On January 1, 1999, 11 European Union member states adopted the euro as their
common national currency. From that date 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 euro currency will be used.
FMC management continues to address the strategic, financial, legal and
systems issues related to the various phases of transition. 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 during the transition period.
[PICTURE APPEARS HERE]
JUST OUR TYPE For human genome research, scientists worldwide rely on reagents
supplied by FMC's BioProducts business, based in Rockland, Maine.
FMC Corporation 31
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) Year ended December 31
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $4,378.4 $4,259.0 $3,950.7
- ---------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales 3,244.0 3,136.8 2,849.8
Selling, general and administrative expenses 612.7 625.3 586.0
Research and development 157.7 174.0 176.5
Asset impairments (Note 4) -- 224.0 --
Restructuring and other charges (Note 4) -- 40.9 --
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,014.4 4,201.0 3,612.3
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations before minority interests,
net interest expense, income taxes and cumulative effect
of changes in accounting principles 364.0 58.0 338.4
- ---------------------------------------------------------------------------------------------------------------------
Minority interests 6.2 8.9 9.6
Interest income 12.0 9.5 10.0
Interest expense 120.3 118.3 103.0
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes
and cumulative effect of changes in accounting principles 249.5 (59.7) 235.8
Provision for (benefit from) income taxes (Note 10) 64.2 (35.2) 73.0
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 185.3 (24.5) 162.8
Discontinued operations, net of income taxes (Note 3) (42.7) 191.4 47.9
- ---------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles 142.6 166.9 210.7
Cumulative effect of changes in accounting principles, net
of income taxes (Note 1) (36.1) (4.5) --
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 106.5 $ 162.4 $ 210.7
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share (Note 1)
Continuing operations $ 5.45 $ (0.67) $ 4.40
Discontinued operations (Note 3) (1.26) 5.20 1.29
Cumulative effect of changes in accounting principles (Note 1) (1.06) (0.12) --
- ---------------------------------------------------------------------------------------------------------------------
$ 3.13 $ 4.41 $ 5.69
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share (Note 1)
Continuing operations $ 5.30 $ (0.67) $ 4.28
Discontinued operations (Note 3) (1.22) 5.20 1.26
Cumulative effect of changes in accounting principles (Note 1) (1.03) (0.12) --
- ---------------------------------------------------------------------------------------------------------------------
$ 3.05 $ 4.41 $ 5.54
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32 FMC Annual Report
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(In millions, except share and par value data) December 31
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 61.7 $ 62.7
Trade receivables, net of allowances of $11.9 in 1998 and $10.4 in 1997 840.6 834.2
Inventories (Note 5) 517.7 524.1
Other current assets 136.4 210.4
Deferred income taxes (Note 10) 125.3 84.2
- -------------------------------------------------------------------------------------------------------------
Total current assets 1,681.7 1,715.6
Investments 186.5 35.9
Property, plant and equipment, net (Note 8) 1,727.5 1,679.3
Goodwill and intangible assets 399.1 420.4
Other assets 118.9 174.1
Deferred income taxes (Note 10) 52.7 87.8
- -------------------------------------------------------------------------------------------------------------
Total assets $4,166.4 $4,113.1
- -------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Short-term debt (Note 9) $ 150.6 $ 186.4
Accounts payable, trade and other 685.8 663.5
Accrued payroll 109.3 115.5
Other current liabilities 383.3 362.3
Current portion of long-term debt (Note 9) 4.7 14.0
Current portion of accrued pensions and other postretirement benefits (Note 13) 12.1 17.0
Income taxes payable (Note 10) 66.1 105.8
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 1,411.9 1,464.5
Long-term debt, less current portion (Note 9) 1,326.4 1,140.2
Accrued pensions and other postretirement benefits, less
current portion (Note 13) 228.1 246.5
Reserve for discontinued operations (Note 3) 237.4 231.3
Other liabilities 159.7 212.0
Minority interests in consolidated companies 73.5 58.0
Commitments and contingent liabilities (Notes 14 and 15)
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity (Note 12)
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 shares in 1997;
issued 38,188,586 shares in 1998 and 37,875,549 shares in 1997 3.8 3.8
Capital in excess of par value of common stock 158.4 141.0
Retained earnings 1,075.7 969.2
Accumulated other comprehensive loss (134.1) (135.7)
Treasury stock, common, at cost; 5,485,947 shares in 1998 and 2,951,573
shares in 1997 (374.4) (217.7)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 729.4 760.6
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,166.4 $4,113.1
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FMC Corporation 33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions)
Year ended December 31
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation from income (loss) from continuing operations
before cumulative effect of changes in accounting principles to cash
provided (required) by operating activities of continuing operations
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles $ 185.3 $ (24.5) $ 162.8
Adjustments to reconcile income (loss) from continuing operations before
cumulative effect of changes in accounting principles to cash provided
(required) by operating activities of continuing operations:
Depreciation and amortization 206.6 238.4 223.4
Asset impairments (Note 4) -- 224.0 --
Restructuring and other charges (Note 4) -- 40.9 --
Deferred income taxes 27.4 (15.8) 52.0
Minority interests 6.2 8.9 9.6
Other (13.3) (21.2) (6.4)
Changes in operating assets and liabilities:
Trade receivables, net (9.6) 73.1 (180.7)
Inventories 8.2 (39.9) (96.7)
Other current assets and other assets 77.4 (37.8) (287.3)
Accounts payable, accrued payroll, other current liabilities and other liabilities (6.5) 97.6 77.7
Income taxes payable (22.1) 56.8 (3.3)
Accrued pension and other postretirement benefits, net (17.1) (12.5) (28.1)
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash provided (required) by operating activities of continuing operations 442.5 588.0 (77.0)
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash provided (required) by discontinued operations (Note 3) (61.6) 353.9 116.7
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash provided (required) by investing activities:
Capital expenditures (277.7) (316.7) (512.1)
Disposal of property, plant and equipment 72.9 57.1 43.7
(Increase) decrease in investments (159.2) 21.2 35.2
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash required by investing activities (364.0) (238.4) (433.2)
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash provided (required) by financing activities:
Net increase (decrease) in short-term debt (34.2) (368.3) 127.0
Net proceeds from issuance of (repayment of) commercial paper (10.1) (252.3) 94.7
Net increase (decrease) under credit facilities (69.9) 60.6 84.2
Increase in other long-term debt 288.6 69.7 112.4
Repayment of other long-term debt (37.3) (18.9) (37.5)
Distributions to minority partners (5.3) (8.0) (6.9)
Repurchases of common stock (Note 12) (156.7) (209.0) (0.1)
Issuances of common stock 17.4 21.6 20.4
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash provided (required) by financing activities (7.5) (704.6) 394.2
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Effect of exchange rate changes on cash and cash equivalents (10.4) (11.0) 3.2
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Increase (decrease) in cash and cash equivalents (1.0) (12.1) 3.9
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash and cash equivalents, beginning of year 62.7 74.8 70.9
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
Cash and cash equivalents, end of year $ 61.7 $ 62.7 $ 74.8
- ------------------------------------------------------------------------------------- ------------ ---------------- --------------
</TABLE>
Supplemental cash flow information: Income taxes paid (including taxes paid
related to Defense Systems operations), net of refunds, were $65.4 million,
$46.0 million and $47.1 million for 1998, 1997 and 1996, respectively. Interest
payments, excluding amounts capitalized (Note 1), for 1998, 1997 and 1996 were
$115.6 million, $112.0 million and $94.9 million, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
34 FMC Annual Report
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except par value)
Accumulated
Common Capital other
stock, $0.10 in excess Retained comprehensive Treasury Comprehensive
par value of par earnings income (loss) stock income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 $3.7 $ 99.7 $ 596.1 $ (36.8) $ (9.2) $210.7
Net income 210.7
Stock options exercised (Note 11) 20.4
Purchases of treasury shares (Note 12) (0.1)
Foreign currency translation adjustment
(Note 6) (28.7) (28.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 3.7 120.1 806.8 (65.5) (9.3) $182.0
------
Net income 162.4 $162.4
Stock options exercised (Note 11) 0.1 20.3
Purchases of treasury shares (Note 12) (209.0)
Shares reissued 0.6 0.6
Foreign currency translation adjustment
(Note 6) (70.2) (70.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 3.8 141.0 969.2 (135.7) (217.7) $ 92.2
------
Net income 106.5 $106.5
Stock options and awards exercised (Note 11) 17.4
Purchases of treasury shares (Note 12) (156.7)
Foreign currency translation adjustment
(Note 6) 1.6 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $3.8 $158.4 $1,075.7 $(134.1) $(374.4) $108.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FMC Corporation 35
<PAGE>
- --------------------------------------------------------------------------------
Geographic Segment Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sales Year ended December 31
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Third party sales (by location of customer)
- --------------------------------------------------------------------------------
United States $1,909.1 $1,823.7 $1,731.0
All other countries 2,469.3 2,435.3 2,219.7
- --------------------------------------------------------------------------------
Total sales $4,378.4 $4,259.0 $3,950.7
- --------------------------------------------------------------------------------
Long-lived assets December 31
(In millions) 1998 1997
- --------------------------------------------------------------------------------
United States $1,431.9 $1,263.5
All other countries 601.0 625.8
- --------------------------------------------------------------------------------
Total long-lived assets $2,032.9 $1,889.3
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Other Industry Segment Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Depreciation Research and
Capital expenditures and amortization development expense
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31 Year ended December 31 Year ended December 31
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Energy Systems $ 42.2 $ 35.4 $ 30.9 $ 35.6 $ 36.4 $ 32.6 $ 24.7 $ 20.0 $ 17.4
Food and Transportation
Systems 28.9 29.7 56.6 26.6 28.4 25.3 26.0 26.7 24.1
Agricultural Products 37.4 44.5 76.4 26.6 28.5 21.7 60.2 73.9 78.3
Specialty Chemicals 60.5 84.7 142.6 34.9 39.3 37.6 28.0 35.2 34.8
Industrial Chemicals 102.3 112.6 167.5 73.5 92.6 91.6 18.6 18.2 20.4
Corporate 6.4 9.8 38.1 9.4 13.2 14.6 0.2 -- 1.5
- -------------------------------------------------------------------------------------------------------------------
Total $277.7 $316.7 $512.1 $206.6 $238.4 $223.4 $157.7 $174.0 $176.5
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Descriptions of the company's industry segments are on pages 18 through 21 of
this annual report. Sales, income (loss) from continuing operations before
income taxes and cumulative effect of changes in accounting principles, assets
and operating capital employed by industry segment are on pages 16 and 17.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Order backlog (unaudited) December 31
- --------------------------------------------------------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy Systems $877.9 $749.6 $657.1
Food and Transportation Systems $256.0 $239.2 $265.9
- --------------------------------------------------------------------------------
</TABLE>
Backlogs are not reported for Agricultural Products, Specialty Chemicals or
Industrial Chemicals due to the nature of these businesses.
- --------------------------------------------------------------------------------
36 FMC Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Other Supplemental Information
- --------------------------------------------------------------------------------
Quarterly financial information (unaudited)
<TABLE>
<CAPTION>
(In millions, except per share and common stock data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $1,022.4 $1,129.4 $1,110.7 $1,115.9 $ 992.9 $1,134.3 $1,059.4 $1,072.4
Income (loss) from continuing operations
before minority interests, net interest
expense, income taxes and cumulative
effect of changes in accounting
principles $ 61.7 $ 120.3 $ 105.8 $ 76.2 $ 60.3 $ 111.1 $ 103.2 $ (216.6)
Income (loss) from continuing operations
before cumulative effect of changes in
accounting principles $ 26.8 $ 67.6 $ 55.4 $ 35.5 $ 21.2 $ 60.6 $ 55.1 $ (161.4)
Income (loss) from discontinued
operations, net of income taxes -- -- -- (42.7) 18.8 12.1 7.8 152.7
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of changes in accounting principles $ 26.8 $ 67.6 $ 55.4 $ (7.2) $ 40.0 $ 72.7 $ 62.9 $ (8.7)
Cumulative effect of changes
in accounting principles (36.1) -- -- -- -- -- -- (4.5)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (9.3) $ 67.6 $ 55.4 $ (7.2) $ 40.0 $ 72.7 $ 62.9 $ (13.2)
- ---------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per common share:
Income (loss) before cumulative effect
of changes in accounting principles $ 0.77 $ 1.95 $ 1.64 $ (0.22) $ 1.07 $ 1.95 $ 1.69 $ (0.24)
Cumulative effect of changes in
accounting principles (1.04) -- -- -- -- -- -- (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
$ (0.27) $ 1.95 $ 1.64 $ (0.22) $ 1.07 $ 1.95 $ 1.69 $ (0.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per common share:
Income (loss) before cumulative effect
of changes in accounting principles $ 0.75 $ 1.89 $ 1.60 $ (0.21) $ 1.05 $ 1.90 $ 1.63 $ (0.24)
Cumulative effect of changes in
accounting principles (1.01) -- -- -- -- -- -- (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
$ (0.26) $ 1.89 $ 1.60 $ (0.21) $ 1.05 $ 1.90 $ 1.63 $ (0.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock prices:
High $ 78 5/8 $82 3/16 $69 7/16 $ 60 1/2 $ 72 1/8 $79 1/16 $90 5/8 $ 89 1/2
Low $ 62 1/4 $ 66 1/2 $50 9/16 $ 48 1/4 $ 61 1/4 $ 59 5/8 $78 5/8 $ 64 1/4
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Significant transactions that affected quarterly results in 1998 and 1997 are
described in Notes 1, 2, 3 and 4 to the consolidated financial statements.
Quarterly earnings per common share may differ from full-year amounts due to
changes in the number of shares outstanding during the year.
- --------------------------------------------------------------------------------
FMC Corporation 37
<PAGE>
Notes to Consolidated Financial Statements
Note 1 Principal Accounting Policies
Nature of operations. FMC Corporation ("FMC" or "the company") is a diversified
producer of chemicals, machinery and other products for industry and
agriculture. Further descriptions of FMC's products, its principal markets and
the relative significance of its operations are included in this annual report
in Products and Markets on pages 18 through 21 and in the Industry Segment Data
on pages 16 and 17.
Reclassifications. Certain prior period amounts have been reclassified to
conform with the current period's presentation.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results are likely to differ from those estimates, but
management does not believe such differences will materially affect the
company's financial position, results of operations or cash flows.
Consolidation. The consolidated financial statements include the accounts of FMC
and all significant majority-owned subsidiaries and ventures except those
excluded because control is restricted or temporary in nature. All material
intercompany accounts and transactions are eliminated in consolidation.
Investments. Investments in companies in which FMC's ownership interest is 50
percent or less and in which FMC exercises significant influence over operating
and financial policies, and majority-owned investments in which FMC's control is
restricted or temporary in nature are accounted for using the equity method
after eliminating the effects of any material intercompany transactions. All
other investments are carried at their fair values or at cost, as appropriate.
Cash equivalents. The company considers investments in all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined on the last-in, first-out ("LIFO") basis for all domestic
inventories, except certain inventories relating to contracts which are stated
at the actual production cost incurred to date, reduced by amounts identified
with recognized revenue. The first-in, first-out ("FIFO") method is used to
determine the cost for all other inventories.
Inventory costs include those costs directly attributable to products prior to
sale, including all manufacturing overhead but excluding costs to distribute.
Property, plant and equipment. Property, plant and equipment, including
capitalized interest, is recorded at cost. Depreciation for financial reporting
purposes is provided principally on the straight-line basis over the estimated
useful lives of the assets (land improvements--20 years, buildings--20 to 50
years, and machinery and equipment--3 to 18 years). Gains and losses are
reflected in income upon sale or retirement of assets. Expenditures that extend
the useful lives of property, plant and equipment or increase productivity are
capitalized.
Under generally accepted accounting principles the company is required to
periodically evaluate the useful lives of its plants and equipment. As a result
of a current study, the company expects to extend the depreciable lives of
certain assets in the first quarter of 1999. The new lives will be within the
ranges disclosed above.
The company periodically evaluates the recoverability of property, plant and
equipment net book values, particularly in the case of a change in business
circumstances or other triggering events, based on expected future undiscounted
cash flows for the asset or group of assets. As described further in Note 4, the
company recognized significant impairments of certain long-lived assets during
the fourth quarter of 1997. The company believes that no material impairment of
long-lived assets exists at December 31, 1998.
Capitalized interest. Interest costs of $4.4 million in 1998 ($6.6 million in
1997 and $15.5 million in 1996) associated with the construction of certain
long-lived assets have been capitalized as part of the cost of those assets and
are being amortized over the assets' estimated useful lives.
Deferred costs and other assets. Effective January 1, 1998, pre-operating,
organizational and start-up costs directly related to, and incurred in the
start-up phase of, major new manufacturing facilities are expensed as incurred.
(See Accounting standards adopted below.) Deferred start-up costs totaling $46.5
million were a component of other assets at December 31, 1997 and were charged
to expense on January 1, 1998 as the cumulative effect of a change in accounting
principle.
The company capitalizes certain costs related to the development of software for
internal use. Such costs are amortized over periods not exceeding the expected
life of software technology (three to seven years). Recoverability of deferred
software costs is assessed on an ongoing basis and writedowns to net realizable
value are recorded as necessary. Capitalized software costs totaling $58.5
million and $58.0 million at December 31, 1998 and 1997, respectively, are
components of other assets, which also include anticipated environmental
recoveries (Note 14), bond discounts and other deferred charges.
Goodwill and intangible assets. Goodwill and identifiable intangible assets
(such as trademarks) are amortized on a straight-line basis over their estimated
useful or legal lives, not exceeding 40 years. At each balance sheet date, the
company evaluates the recoverability of goodwill based on expected future
undiscounted cash flows for each operation having a significant goodwill
balance. The company believes that no goodwill or intangible assets are
materially impaired at December 31, 1998.
Accounts payable. Amounts advanced by customers as deposits on orders not yet
billed and progress payments on contracts-in-progress are recorded as accounts
payable ($175.7 million at December 31, 1998 and $130.6 million at December 31,
1997).
Revenue recognition for contracts-in-progress. Sales are recorded for most
production contracts as deliveries are made. A smaller portion of production
contracts use the percentage-of-completion method. Losses are provided for
contracts-in-progress in the period in which such losses become probable.
Income taxes. Current income taxes are provided on income reported for financial
statement purposes adjusted for transactions that do not enter into the
computation of income taxes payable. Deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Income
taxes are not provided for the equity in undistributed earnings of foreign
subsidiaries or affiliates when it is management's intention that such earnings
will remain invested in those companies. Taxes are provided in the year the
decision is made to repatriate the earnings.
38 FMC Annual Report
<PAGE>
Foreign currency translation. Assets and liabilities of most foreign operations
are translated at exchange rates in effect at year-end, and their income
statements are translated at the average monthly exchange rates prevailing
during the year. Translation gains and losses are accumulated in a separate
component of stockholders' equity until the foreign entity is sold or
liquidated. For operations in highly inflationary countries and where the local
currency is not the functional currency, inventories, property, plant and
equipment, and other noncurrent assets are converted to U.S. dollars at
historical exchange rates, and all gains or losses from conversion are included
in net income.
Derivative financial instruments and foreign currency transactions. The company
uses derivative financial instruments selectively to offset exposure to market
risks arising from changes in foreign exchange rates and interest rates.
Derivative financial instruments currently utilized by the company primarily
include foreign currency forward contracts. Contracts are executed centrally to
minimize transaction costs on currency conversions and minimize losses due to
adverse changes in foreign currency markets. The company evaluates and monitors
consolidated net exposures by currency and maturity, and external derivative
financial instruments correlate with that net exposure in all material respects.
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income when those carrying amounts are converted. Gains and losses
related to hedges of firm commitments are also deferred and included in the
basis of the transaction when it is completed. Gains and losses on unhedged
foreign currency transactions are included in income as part of cost of sales.
Gains and losses on derivative financial instruments which protect the company
from exposure in a particular currency, but do not currently have a designated
underlying transaction, are also included in income as part of cost of sales. If
a hedged item matures, is sold, extinguished, or terminated, or is related to an
anticipated transaction that is no longer likely to take place, the derivative
financial instrument is closed out and the related gain or loss is included in
income as part of cost of sales.
Cash flows from hedging contracts are reported in the statements of cash flows
in the same categories as the cash flows from the transactions being hedged.
Treasury stock. Shares of common stock repurchased under the company's stock
repurchase plans are recorded at cost as treasury stock and result in a
reduction of stockholders' equity in the consolidated balance sheet. When the
treasury shares are reissued under FMC's stock compensation plans, the company
uses a FIFO method for determining cost. The difference between the cost of the
shares and the reissuance price is added to or deducted from capital in excess
of par value of common stock.
Earnings (loss) per common share ("EPS"). Basic EPS is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted EPS is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the year plus the weighted average number of additional common shares
that would have been outstanding during the year if potentially dilutive common
shares had been issued under the company's stock compensation plans. The
weighted average numbers of shares outstanding used to calculate the company's
annual EPS are as follows:
<TABLE>
- -------------------------------------------------------------------------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS 34,007 36,805 37,024
Diluted EPS 34,939 36,805 38,058
- --------------------------------------------------------------------------------
</TABLE>
The company's loss from continuing operations in 1997 results in an antidilutive
effect in the calculation of diluted EPS. Accordingly, the potential common
shares that cause the antidilutive effect have been omitted from the calculation
of 1997 diluted EPS.
During January 1999, FMC repurchased an additional 136,900 common shares, and
will continue to repurchase common shares during 1999 under its stock repurchase
plan.
Segment information. Effective December 31, 1998, FMC adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information", with respect to segment reporting. As a
result, FMC has changed the number and composition of its segments. The prior
periods have been restated and are presented on a comparable basis. Certain
disclosures, especially those related to geographic segments, have also been
revised in accordance with SFAS No. 131 for all periods presented.
The company's determination of its reportable segments on the basis of its
strategic business units and the commonalities among the products and services
within each segment, corresponds to the manner in which the company's management
reviews and evaluates operating performance. The company has combined certain
similar operating segments that meet applicable criteria established under SFAS
No. 131. Energy Systems supplies drilling, engineering, metering and subsea
products and systems and related services to the oil and gas exploration
industry. Food and Transportation Systems businesses provide automated
processing and handling equipment to consumer-based industries. Agricultural
Products produces crop protection and pest control chemicals for worldwide
markets. Specialty Chemicals develops and manufactures highly-specialized
chemical products used in food, pharmaceutical and personal care products.
Industrial Chemicals provides commodity-based chemicals produced in large
quantities to industrial consumers. Industry segment data is included on pages
16 and 17.
Segment operating profit is defined as total revenue less operating expenses.
The following items have been excluded in computing segment operating profit:
corporate staff expense, interest income and expense associated with corporate
debt facilities and investments, income taxes, significant gains or losses on
abnormal retirements of assets, restructuring and other charges (Note 4), asset
impairments (Note 4), the 1995 gain on the sale of FMC Wyoming stock (Note 2),
LIFO inventory adjustments and other income and expense items.
Segment assets and liabilities are those assets and liabilities that are
recorded and reported by segment operations. Segment operating capital employed
represents segment assets less segment liabilities. Segment assets exclude
corporate and other assets, which are principally cash equivalents, LIFO
reserves, deferred income tax benefits, eliminations of intercompany receivables
and property and equipment not attributable to a specific segment. Segment
liabilities exclude substantially all debt, income taxes, pension and other
postretirement benefit liabilities, restructuring reserves, intercompany
eliminations and reserves for discontinued operations.
Geographic segment sales represent sales by location of the company's customers.
Geographic segment long-lived assets include investments, net property, plant
and equipment, and other non-current assets. Geographic segment data is included
on page 36.
FMC Corporation 39
<PAGE>
Notes to Consolidated Financial Statements
Environmental obligations. The company provides for environmental-related
obligations when they are probable and amounts can be reasonably estimated.
Where the available information is sufficient to estimate the amount of
liability, that estimate has been used; where the information is only sufficient
to establish a range of probable liability and no point within the range is more
likely than any other, the lower end of the range has been used.
Estimated obligations to remediate sites that involve the United States
Environmental Protection Agency ("EPA"), or similar government agencies, are
generally accrued no later than when a Record of Decision, or equivalent, is
issued, or upon completion of a Remedial Investigation/Feasibility Study
("RI/FS") that is accepted by FMC and the appropriate government agency or
agencies. Estimates are reviewed quarterly by the company's Environment, Health,
Safety and Toxicology organization, as well as by financial and legal management
and, if necessary, adjusted as additional information becomes available. The
estimates can change substantially as additional information becomes available
regarding the nature or extent of site contamination, required remediation
methods, and other actions by or against governmental agencies or private
parties.
The company's environmental liabilities for continuing and discontinued
operations are principally for costs associated with the remediation and/or
study of sites at which the company is alleged to have disposed of hazardous
substances. Such costs include, among other items, RI/FS, site remediation,
costs of operation and maintenance of the remediation plan, fees to outside law
firms and consultants for work related to the environmental effort, and future
monitoring costs. Estimated site liabilities are determined based upon existing
remediation technologies, specific site consultants' engineering studies or by
extrapolating experience with environmental issues at comparable sites.
Provisions for environmental costs are reflected in income, net of probable and
reasonably estimable recoveries from named Potentially Responsible Parties
("PRPs") or other third parties. Such provisions incorporate inflation and are
not discounted to their present values.
In calculating and evaluating the adequacy of its environmental reserves, the
company has taken into account the joint and several liability imposed by the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and the analogous state laws on all 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 degree of uncertainty in disputes regarding the financial contribution by
certain named PRPs, which is common to most multi-party 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 is taken into account when determining the environmental reserve by
adjusting the reserve to reflect the facts and circumstances on a site-by-site
basis. The company believes that recorded recoveries related to PRPs are
realizable in all material respects. Recoveries, excluding those relating to
discontinued operations, are recorded as other assets, and those relating to
discontinued operations are recorded in the reserve for discontinued operations.
Accounting standards adopted. The company adopted AICPA Statement of Position
("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities", effective
January 1, 1998. SOP No. 98-5 requires that costs of start-up activities,
including organizational costs, be expensed as incurred. In conjunction with the
adoption, the company charged $46.5 million ($36.1 million after tax, or $1.03
per share on a diluted basis) to expense, which was reported as the cumulative
effect of a change in accounting principle. The expense represented the
write-off of costs related to the start-up of manufacturing at the Salar del
Hombre Muerto lithium facility in Argentina, the Baltimore, Maryland,
sulfentrazone facility, and the Bayport, Texas, hydrogen peroxide plant
expansion.
During the quarter ended March 31, 1998, the company adopted 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. Comprehensive income includes all changes in stockholders' equity
during the period except those resulting from investments by owners and
distributions to owners.
The company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", for the period ended December 31, 1998. (See Segment
information above.)
Effective December 31, 1998, the company adopted SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits". SFAS No. 132
revises employers' disclosures about pensions and other postretirement benefit
plans. The required disclosures are included in Note 13.
In the fourth quarter of 1997, the company adopted the requirements of the
Emerging Issues Task Force consensus on Issue No. 97-13 ("EITF 97-13"),
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project That Combines Business Process Reengineering and Information
Technology Transformation". In conjunction with the adoption, the company
charged $7.6 million ($4.5 million after tax, or $0.12 per share on a diluted
basis) to expense, which was reported as the cumulative effect of a change in
accounting principle. The expense represented the write-off of business process
reengineering costs capitalized prior to October 1, 1997. Had the consensus in
EITF 97-13 been applied historically by the company, net income in 1997 and 1996
would have been $166.6 million ($4.53 per share on a diluted basis) and $210.0
million ($5.52 per share), respectively.
Accounting standard not adopted. 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 will require the company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of the derivative will
either be offset against the change in fair value of the hedged item through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be recognized in earnings immediately. The company is evaluating the
new standard's provisions and has not yet determined the date on which it will
adopt the standard or what the effect of SFAS No. 133 will be on the earnings
and the financial position of the company.
40 FMC Annual Report
<PAGE>
Note 2 Business Combinations and Divestitures
Acquisitions. In August 1998, the company acquired a majority of the common
stock of CBV Industria Mecanica S.A. ("CBV"), 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. The company also acquired a
minority position in CBV's preferred shares, and issued a tender offer on
December 29, 1998, for the remaining preferred shares, the majority of which
were tendered in January 1999. CBV's operations are included in the company's
Energy Systems segment.
In June 1996, FMC acquired all of the common shares of Frigoscandia Equipment
Holding AB ("Frigoscandia"), a wholly owned subsidiary of ASG AB, for
approximately $165 million plus acquisition costs and debt assumed. Frigoscandia
is a leading worldwide manufacturer of industrial freezers, ovens, fryers and
other equipment for the food processing industry. Frigoscandia's operations are
included in the company's Food and Transportation Systems segment. In
conjunction with the acquisition of Frigoscandia, goodwill and other intangible
assets of $164.4 million were recorded during 1996.
The company also completed a number of smaller acquisitions and joint ventures
during the years ended December 31, 1998, 1997 and 1996.
These acquisitions were accounted for using the purchase method of accounting
and, accordingly, the purchase prices have been allocated to the assets acquired
and liabilities assumed based on the estimated fair values of such assets and
liabilities at the date of acquisition. The excess of the purchase prices over
the fair values of the net tangible assets acquired has been recorded as
intangible assets, primarily goodwill, which are amortized over periods ranging
from 15 to 40 years.
The purchase prices for all the aforementioned acquisitions were satisfied from
cash flows from operations and short-term and long-term financing. Results of
operations of the acquired companies have been included in the company's
consolidated statements of income from the respective dates of acquisition.
Dispositions. In July 1998, the company completed the sale of Crosby Valve to a
subsidiary of Tyco International Ltd. for cash and Tyco International Ltd.
("Tyco") preferred stock. The preferred stock is guaranteed by Tyco and can be
put to either the issuing subsidiary or Tyco three years after issuance. FMC
realized an immaterial gain on the sale. Crosby Valve was included in the Energy
Systems segment.
The company sold its Defense Systems operations in 1997 and FMC Gold Company in
1996 (Note 3).The company also completed a number of smaller divestitures during
the years ended December 31, 1998, 1997 and 1996.
Joint ventures and investments. Since July 1995, Sumitomo Corporation and Nippon
Sheet Glass Company, Ltd. have owned 20 percent of the common stock of FMC
Wyoming Corporation, FMC's soda ash business. The company retains 80 percent of
the common stock, and management control, of FMC Wyoming Corporation.
During the fourth quarter of 1996, FMC sold its 27 percent interest in Tokai
Denka Kogyo, a Japanese hydrogen peroxide joint venture, resulting in a gain of
$24.1 million ($6.5 million after tax).
Note 3 Discontinued operations
The company's results of discontinued operations for the years ended December
31, 1998, 1997 and 1996 comprise the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for liabilities related
to previously discontinued
operations (net of income
tax benefits of $27.3 in
1998, $18.0 in 1997 and
$15.6 in 1996) $(42.7) $(27.0) $(23.4)
Gain on sale of Defense Systems
operations (net of income
taxes of $138.7) -- 179.7 --
Income from operations of
Defense Systems segment
through August 25, 1997
(net of income taxes of
$25.5 in 1997 and $31.6
in 1996) -- 38.7 55.3
Gain on disposal of FMC Gold
Company (including income
tax benefit of $10.3) -- -- 19.7
Loss from operations of Precious
Metals segment through
July 31, 1996 (net of income
tax benefit of $1.9) -- -- (3.7)
- --------------------------------------------------------------------------
Discontinued operations,
net of income taxes $(42.7) $191.4 $ 47.9
==========================================================================
</TABLE>
Sale of Defense Systems 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 $850.0 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 $800.0 million cash and a
$50.0 million, 8.75 percent note receivable to FMC from Carlyle. Of the
estimated proceeds, FMC received $460.0 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, and FMC
collected the note receivable net of an immaterial cash settlement to reflect
those adjustments. The final settlement did not result in any adjustment to
FMC's previously recorded gain. FMC used cash proceeds from the sale to retire
variable rate debt and commercial paper and contribute toward its common stock
repurchase program.
Sales of the Defense Systems segment were $918.9 million for the period from
January 1, 1997 through August 25, 1997 and $1,018.8 million for the year ended
December 31, 1996.
Sale of Precious Metals operations. In July 1996, FMC commenced a secondary
offering of substantially all of FMC's interest in FMC Gold Company following a
reincorporation of FMC Gold Company in Canada under the name Meridian Gold Inc.
FMC Corporation 41
<PAGE>
Notes to Consolidated Financial Statements
Upon completion of the reincorporation and offering in the third quarter of
1996, FMC received cash proceeds, including a dividend of $0.02 per share, of
$210.7 million. FMC recorded a gain of $9.4 million ($19.7 million after tax) on
the transaction. A net tax benefit of $10.3 million on the gain included the
reversal of previously recorded valuation allowances, which are no longer
required, related to certain deferred tax assets arising from the Precious
Metals business.
Sales of the Precious Metals segment were $41.3 million for the seven months
ended July 31, 1996.
Reserve for discontinued operations. In the fourth quarter of 1998, FMC provided
$70.0 million ($42.7 million after tax) for environmental costs net of
anticipated recoveries of $19.8 million. The majority of the charge relates to
an agreement in principle that the company has reached with the EPA and the U.S.
Department of Justice regarding settlement of past costs and future clean-up
work at the discontinued fiber manufacturing site in Front Royal, Virginia (Note
14).
In the fourth quarter of 1997, FMC provided $45.0 million ($27.0 million after
tax) for environmental costs at discontinued operations sites based on the
company's quarterly assessment of future remediation costs.
In the third quarter of 1996, the company recorded a charge of $39.0 million
($23.4 million after tax) to increase reserves related to operations
discontinued by the company between 1976 and 1984. These additional reserves
resulted primarily from an increase in the company's actuarially-determined
estimate of product liability and in other potential claims principally related
to the discontinued Construction Equipment and Chlor-Alkali businesses.
Disposal of assets related to discontinued operations has been completed in
accordance with plans adopted within one year of the measurement dates. In
addition to the 1997 sale of the company's Defense Systems operations and the
1996 sale of FMC Gold Company, residual liabilities relate to operations
discontinued between 1976 and 1984--primarily the Film, Fiber, Chlor-Alkali,
Power Transmission and Construction Equipment businesses. Most residual
liabilities are of a long-term nature and will be settled over a number of
years. Liabilities remaining with FMC total $237.4 million at December 31, 1998
($231.3 million at December 31, 1997) and comprise $112.7 million (net of $85.4
million in anticipated third party recoveries) for environmental remediation and
study obligations, most of which relate to former chemical plant sites; $54.0
million for product liability and other potential claims principally related to
the discontinued Construction Equipment business; $61.8 million for retiree
benefits provided to employees of former chemical businesses and the
Construction Equipment business; and $8.9 million related to the sale of the
Defense Systems operations.
The company uses actuarial methods, to the extent practicable, to monitor the
adequacy of product liability and retiree benefit reserves on an ongoing basis.
The environmental liabilities are subject to the environmental accounting and
review practices described in Notes 1 and 14. While the amounts required to
settle the company's liabilities for discontinued operations could ultimately
differ materially from the estimates used as a basis for recording these
liabilities, management believes that changes in estimates or required
expenditures for any individual cost component will not have a material adverse
impact on the company's liquidity or financial condition in any single year and
that, in any event, such costs will be satisfied over many years. Spending in
1998, 1997 and 1996, respectively, included $22.0 million, $25.9 million and
$9.4 million for environmental obligations, net of recoveries; $20.1 million,
$10.2 million and $8.2 million for product liability and other claims; and $6.3
million, $4.5 million and $3.5 million for retiree benefits. Additionally, $15.5
million of assets related to UDLP were charged against previously-established
reserves in 1998.
Note 4 Asset Impairments and
Restructuring and Other Charges
FMC recorded pretax charges of $264.9 million ($180.9 million after tax, or
$4.92 per share on a diluted basis) in the fourth quarter of 1997. Of this
amount, $224.0 million ($154.0 million after tax, or $4.19 per share) related to
asset impairments primarily in the phosphorus chemicals and process additives
businesses, and $40.9 million ($26.9 million after tax, or $0.73 per share) was
provided to cover restructuring and other activities in several businesses.
Restructuring and other reserves related to the 1997 charge totaled $12.3
million and $29.3 million at December 31, 1998 and 1997, respectively.
Restructuring spending in 1998, 1997 and 1996 was $41.1 million, $13.7 million
and $14.7 million, respectively.
In the phosphorus chemicals business, asset impairments of $120.0 million were
based on recently increased environmental capital cost estimates and difficult
market conditions resulting from increased international competition. The
increased capital costs include environmental projects to reduce air emissions
and meet waste handling and waste pond treatment requirements at the company's
Pocatello, Idaho, facility (Note 14).
In the United Kingdom-based process additives business, asset impairments of
$46.0 million, including the impairment of $19.8 million of goodwill, reflected
lower expected future cash flows resulting from increased market competition in
the flame retardant and water treatment businesses, as well as the strength of
the British pound.
Additional asset impairments of $58.0 million primarily related to a partial re-
engineering of the Authority herbicide plant, certain assets at both the lithium
facility in North Carolina and the food ingredients facility in Cork, Ireland,
and unused patents in the airport products business.
The fair values of impaired assets were determined using discounted cash flow
models and assumptions based on management's estimates.
Restructuring charges in 1997 of $26.0 million related primarily to the
Agricultural Products business ($10.0 million), the FMC FoodTech businesses
($7.0 million), and the Crosby industrial valve business ($6.0 million). Other
charges of $14.9 million consisted of various one-time write-offs and other
restructuring costs.
Note 5 Inventories
Inventories are recorded at the lower of cost or market value. The current
replacement costs of inventories exceeded their recorded values by $283.0
million at December 31, 1998 and $283.8 million at December 31, 1997. During
1998, 1997 and 1996 there were no reductions in LIFO inventories which were
carried at lower than prevailing costs.
42 FMC Annual Report
<PAGE>
Note 6 Foreign Currency
Net income for 1998, 1997 and 1996 included an aggregate foreign currency loss
of $7.7 million and gains of $0.8 million and $2.3 million, respectively.
European currencies were fairly stable against the U.S. dollar in 1998 while the
Canadian dollar and Mexican peso weakened. Certain Southeast Asian currencies
stabilized somewhat although others continue to be extremely volatile. The
Japanese yen reversed the trend of the last few years and strengthened.
Subsequent to December 31, 1998, the Brazilian real experienced a devaluation.
The U.S. dollar strengthened significantly against most currencies in 1997 while
European currencies were mixed against the U.S. dollar in 1996. The Japanese yen
and Mexican peso weakened during 1996.
The following table presents the foreign currency adjustments to key balance
sheet categories and the offsetting adjustments to accumulated other
comprehensive income or to income. Interest earned on foreign cash and cash
equivalents and debt service costs are classified as interest income and
interest expense, respectively, and are not included in the table. In addition,
foreign currency impacts on cash and cash equivalents and debt in
hyperinflationary economies are netted against interest income and expense and
are also not shown in the table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Gains (Losses)
- ------------------------------------------------------------------------
(In millions) 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $(10.4) $(11.0) $ 3.2
Other working capital (1.5) (19.5) 1.7
Property, plant & equipment, net 2.5 (38.5) (1.3)
Investments (2.4) (3.0) (17.8)
Debt 1.6 1.5 (7.3)
Other 4.1 1.1 (4.9)
- ------------------------------------------------------------------------
$ (6.1) $(69.4) $(26.4)
========================================================================
Accumulated other
comprehensive income (loss) $ 1.6 $(70.2) $(28.7)
Gain (loss) in income (7.7) 0.8 2.3
- ------------------------------------------------------------------------
$ (6.1) $(69.4) $(26.4)
========================================================================
</TABLE>
Note 7 Financial Instruments
Fair value disclosures. The carrying amounts of cash and cash equivalents, trade
receivables, other current assets, accounts payable and amounts included in
investments and accruals meeting the definition of a financial instrument
approximate fair value. The carrying values and related estimated fair values
for the company's remaining financial instruments are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
December 31, 1998
- -------------------------------------------------------------------
Carrying Estimated
(In millions) Value Fair Value
- -------------------------------------------------------------------
<S> <C> <C>
Liabilities
- -------------------------------------------------------------------
Interest rate swap agreement $ -- $ 0.8
Foreign exchange forward contracts $ 3.9 $ 18.3
Total debt $1,481.7 $1,473.5
===================================================================
</TABLE>
Fair values of debt have been determined through a combination of management
estimates and information obtained from independent third parties using market
data, such as bid/ask spreads, available on the last business day of the year.
Fair values relating to derivative financial instruments reflect the estimated
amounts that the company would receive or pay to terminate the contracts at the
reporting date based on quoted market prices of comparable contracts as of
December 31, 1998.
Derivative financial instruments. The company has entered into an interest rate
swap agreement under which the company pays fixed-rate British pound amounts in
exchange for floating-rate British pound amounts. This swap agreement reduces
the company's risk to higher British pound interest rates on sterling-
denominated debt.
In addition, as of December 31, 1998 and 1997, the company had $610.8 million
and $436.4 million, respectively, of outstanding foreign exchange forward
contracts in which foreign currencies (primarily Norwegian krone, Belgian franc,
British pound and Spanish peseta in 1998 and Spanish peseta, Swedish krona,
Japanese yen, Italian lira, British pound and German mark in 1997) were
purchased, and approximately $886.8 million and $485.9 million, respectively, of
outstanding foreign exchange forward contracts in which foreign currencies
(primarily Norwegian krone, Swedish krona, Belgian franc, Japanese yen and
Brazilian real in 1998 and Spanish peseta, British pound, Belgian franc, Swedish
krona, Norwegian krone and Irish punt in 1997) were sold.
Cross-currency contracts at December 31, 1998 and 1997 were not significant.
Such contracts provide for the exchange of certain European currencies.
At December 31, 1998, the majority of outstanding instruments relate to
receivables, payables and intercompany transactions and are accounted for as
hedges.
In addition, during September 1998, the company entered into $65.0 million of
forward contracts to offset various risks associated with the potential
devaluation of the Brazilian real. The contracts mature in the first quarter of
1999.
Standby letters of credit and financial guarantees. In the ordinary course of
business with customers, vendors and others, the company is contingently liable
for performance under letters of credit and other financial guarantees totaling
approximately $182 million at December 31, 1998. Management does not believe it
is practicable to estimate the fair value of these financial instruments and
does not expect any material losses from their resolution since performance is
not likely to be required.
FMC Corporation 43
<PAGE>
Notes to Consolidated Financial Statements
Note 8 Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
December 31
(In millions) 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 181.6 $ 189.9
Buildings 526.7 521.6
Machinery and equipment 2,968.7 2,751.5
Construction in progress 147.7 192.2
- --------------------------------------------------------------------
Total cost 3,824.7 3,655.2
Accumulated depreciation 2,097.2 1,975.9
- --------------------------------------------------------------------
Net property, plant and equipment $1,727.5 $1,679.3
====================================================================
</TABLE>
Depreciation expense was $189.0 million, $218.3 million and $205.7 million in
1998, 1997 and 1996, respectively.
Note 9 Debt
Long-term debt. Long-term debt consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 31
(In millions) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility (effective rate:
1998--10.0%; 1997--6.7%)(1) $ -- $ --
Commercial paper (effective rate:
1998--5.8%; 1997--5.7%)(2) 149.9 155.0
Uncommitted credit facilities (effective
rate: 1998--5.8%; 1997--5.8%)(2) 50.1 120.0
Notes payable to banks, various rates -- 18.7
Pollution control and industrial
revenue bonds, 3.2% to 7.1%,
due 1999 to 2024 159.3 166.5
Senior debt, 8.75%, due 1999,
less unamortized discount
(1998--$0.0; 1997--$0.2),
effective rate 8.8% 250.0 249.8
Senior debt, 6.375%, due 2003,
less unamortized discount
(1998--$0.5; 1997--$0.6),
effective rate 6.4% 199.5 199.4
Senior debt, 7.75%, due 2011,
less unamortized discount
(1998--$0.9; 1997--$1.0),
effective rate 7.9% 99.1 99.0
Medium term notes, 6.6% to 7.32%,
due 2002 to 2008, less unamortized
discounts (1998--$1.4, 1997--$0.4),
effective rates 6.6% to 7.4% 358.6 69.6
Exchangeable senior subordinated
debentures, 6.75%, due 2005 64.1 75.0
Other 0.5 1.2
- --------------------------------------------------------------------------
Total 1,331.1 1,154.2
Less current portion 4.7 14.0
- --------------------------------------------------------------------------
Long-term portion $1,326.4 $1,140.2
===============================================================================
</TABLE>
(1) The effective rate for the revolving credit facility is based on average
balances outstanding during the year and includes facility fees.
(2) The effective rates for commercial paper and uncommitted facilities are
based on average balances outstanding during the year.
In December 1996, the company entered into a $450.0 million, five-year non-
amortizing revolving credit agreement due December 2001, and in December 1998,
the company entered into a $350.0 million, 364-day non-amortizing revolving
credit agreement due December 1999. These agreements provide the company with
$800.0 million in committed credit facilities, an increase of $50.0 million from
the credit facilities existing at December 31, 1997. No amounts were outstanding
under these credit facilities as of December 31, 1998 and 1997. Among other
restrictions, the credit agreements contain covenants relating to liens,
consolidated net worth and cash flow coverage (as defined in the agreements).
The company is in compliance with all financial debt covenants.
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. As it is management's intent to do so, $149.9 million and $155.0 million
in outstanding commercial paper, which is supported by credit facilities, have
been classified as long-term debt at December 31, 1998 and 1997, respectively.
In addition, $250.0 million of senior debt has been classified as long-term debt
at December 31, 1998, and $50.1 million and $120.0 million of borrowings under
short-term uncommitted credit facilities have been classified as long-term debt
at December 31, 1998 and 1997, respectively.
In January 1997, the company registered $400.0 million of medium-term debt
securities pursuant to a $500.0 million universal shelf registration filed in
1995. During 1997, the company issued $70.0 million of medium-term notes at
rates ranging from 7.2 percent to 7.32 percent. The net proceeds of $69.6
million were used to retire short-term borrowings. During 1998, the company
issued $170.0 million of medium-term notes at rates ranging from 6.75 percent to
7.0 percent. The net proceeds of $169.0 million were used to retire other
borrowings.
On August 3, 1998, a new universal shelf registration statement became
effective, under which $500.0 million of debt and/or equity securities may be
offered. This registration statement incorporates $160.0 million of unused
capacity from the company's 1995 shelf registration statement. On November 19,
1998, the company issued $100.0 million of 7.125 percent medium-term notes due
on November 25, 2002, and on November 30, 1998, the company issued $20.0 million
of 6.6 percent medium-term notes due March 30, 2001. The company used the net
proceeds of $119.6 million to retire other borrowings.
The exchangeable senior subordinated debentures bearing interest at 6.75
percent and maturing in 2005 are exchangeable at any time into Meridian Gold
Inc. common stock at an exchange price of $15.125 per share, subject to
adjustment. The company may, at its option, pay an amount equal to the market
price of Meridian Gold Inc. common stock in lieu of delivery of the shares.
However, the market price at December 31, 1998 was substantially below $15.125
per share. The debentures are subordinated in right of payment to all existing
and future senior indebtedness of the company. The debentures are redeemable at
the option of FMC at prices decreasing from 103.375 percent of face amount on
January 16, 1995, to par on January 16, 2000. The company redeems small amounts
of these debentures from time to time.
Aggregate maturities and sinking fund requirements over the next five years
are (in millions): 1999-$4.7, 2000-$0.8, 2001-$472.6, 2002-$125.4, 2003-$201.4,
and thereafter-$526.2. The maturities in the year 2001 include commercial paper
redemptions of $149.9 million, senior debt redemptions of $250.0 million and
$50.1 million of borrowings under
44 FMC Annual Report
<PAGE>
short-term uncommitted credit facilities. The company currently has the ability
and intent to refinance these obligations on a long-term basis.
Short-term debt. At December 31, 1998, components of short-term debt were
domestic and foreign borrowings. At December 31, 1997, short-term debt consisted
entirely of foreign borrowings.
Outstanding foreign short-term borrowings totaled $132.7 million and $186.4
million at December 31, 1998 and 1997, respectively. The weighted average
interest rates on outstanding foreign short-term borrowings at December 31, 1998
and 1997 were 10.1 percent and 8.4 percent, respectively. The average interest
rates have been adjusted for currency devaluation associated with borrowing in
hyperinflationary countries.
In November 1995, the company commenced a short-term commercial paper
program, providing for the issuance of up to $500.0 million in aggregate
maturity value of commercial paper at any given time. Four-day commercial paper
of $149.9 million was outstanding at December 31, 1998. As described above, the
outstanding balance at December 31, 1998 was classified as long-term debt. At
December 31, 1997, $155.0 million of outstanding commercial paper was classified
as long-term debt.
Advances under uncommitted credit facilities were $68.0 million and $120.0
million at December 31, 1998 and 1997, respectively. As described above, $50.1
million of the outstanding balance at December 31, 1998 ($120.0 million at
December 31, 1997) was classified as long-term debt.
Compensating balance agreements. FMC maintains informal credit arrangements
in many foreign countries. Foreign lines of credit, which include overdraft
facilities, typically do not require the maintenance of compensating balances,
as credit extension is not guaranteed but is subject to the availability of
funds.
NOTE 10 INCOME TAXES
Domestic and foreign components of income (loss) from continuing operations
before income taxes and the cumulative effect of changes in accounting
principles are shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $127.9 $(174.2) $100.4
Foreign 121.6 114.5 135.4
- --------------------------------------------------------------------------------
Total $249.5 $ (59.7) $235.8
================================================================================
</TABLE>
The provision for (benefit from) income taxes attributable to income (loss)
from continuing operations before the cumulative effect of changes in accounting
principles consists of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 17.1 $ (33.0) $ (8.3)
Foreign 15.6 17.3 28.6
State and local 4.1 (3.7) 0.7
- --------------------------------------------------------------------------------
Total current 36.8 (19.4) 21.0
Deferred 27.4 (15.8) 52.0
- --------------------------------------------------------------------------------
Total $ 64.2 $ (35.2) $ 73.0
================================================================================
</TABLE>
Total income tax provisions (benefits) for the years ended December 31 were
allocated as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations before
the cumulative effect of
changes in accounting
principles $ 64.2 $ (35.2) $ 73.0
Discontinued operations (27.3) 146.2 3.8
Cumulative effect of changes
in accounting principles (10.4) (3.1) --
Items charged directly to
stockholders' equity (3.0) (7.1) (7.8)
- ----------------------------------------------------------------------------------------------
Income tax provision $ 23.5 $100.8 $ 69.0
===============================================================================================
</TABLE>
Significant components of the deferred income tax provision (benefit)
attributable to income (loss) from continuing operations before income taxes and
the cumulative effect of changes in accounting principles for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
In millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax (exclusive of the
valuation allowance) $21.5 $(10.9) $ 57.1
Increase (decrease) in the
valuation allowance for
deferred tax assets 5.9 (4.9) (5.1)
- -----------------------------------------------------------------------------------------------
Deferred income tax
provision (benefit) $27.4 $(15.8) $ 52.0
===============================================================================================
</TABLE>
Significant components of the company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(In millions) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Reserves for discontinued operations
and restructuring $226.8 $209.7
Accrued pension and other
postretirement benefits 86.8 92.8
Other reserves 59.3 61.3
Net operating loss carryforwards 47.3 52.3
Alternative minimum tax
credit carryforwards 19.6 --
Other 14.2 20.0
- ------------------------------------------------------------------------------------
Deferred tax assets 454.0 436.1
Valuation allowance (55.3) (49.4)
- ------------------------------------------------------------------------------------
Deferred tax assets, net of
valuation allowance $398.7 $386.7
====================================================================================
Property, plant and equipment $215.6 $210.3
Other 5.1 4.4
- ------------------------------------------------------------------------------------
Deferred tax liabilities $220.7 $214.7
- ------------------------------------------------------------------------------------
Net deferred tax assets $178.0 $172.0
====================================================================================
</TABLE>
FMC Corporation 45
<PAGE>
Notes To Consolidated Financial Statements
The effective income tax rate applicable to income (loss) from continuing
operations before income taxes and the cumulative effect of changes in
accounting principles is different from the statutory U.S. federal income tax
rate due to the factors listed in the following table:
- -------------------------------------------------------------------------------
(Percent of income (loss) from continuing
operations before income taxes and
the cumulative effect of changes in
accounting principles)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. tax rate 35 % (35)% 35 %
- -------------------------------------------------------------------------------------------
Net difference:
Foreign sales corporation income
subject to different tax rates (3) (13) (3)
Percentage depletion (3) (12) (5)
State and local income taxes, less
federal income tax benefit 2 (11) 3
Foreign earnings subject to different
tax rates (12) (10) (1)
Tax on intercompany dividends and
deemed dividends for tax purposes 2 6 2
Nondeductible goodwill 1 16 1
Nondeductible expenses 3 5 1
Minority interests 1 5 1
Additional taxes on sale of investment -- -- 4
Equity in earnings of affiliates not taxed (1) (3) (2)
Change in valuation allowance 2 (8) (2)
Other (1) 1 (3)
- -------------------------------------------------------------------------------------------
Total difference (9) (24) (4)
- -------------------------------------------------------------------------------------------
Effective tax rate 26% (59)% 31%
===========================================================================================
</TABLE>
The effective tax benefit rate of 59 percent for 1997 includes the impact
of asset impairments, restructuring and other charges (Note 4). The 1997
effective tax rate excluding these charges was 24 percent. The effective tax
rate of 31 percent in 1996 includes taxes provided on the sale of the company's
investment in Tokai Denka Kogyo (Note 2). The 1996 effective tax rate excluding
this event was 26 percent.
FMC's federal income tax returns for years through 1994 have been examined
by the Internal Revenue Service and substantially all issues have been settled.
Management believes that adequate provision for income taxes has been made for
the open years 1995 and after and for any unsettled issues prior to 1995. U.S.
income taxes have not been provided for the equity in undistributed earnings of
foreign consolidated subsidiaries ($576.8 million and $484.2 million at December
31, 1998 and 1997, respectively) or unconsolidated subsidiaries and affiliates
($17.6 million and $14.8 million at December 31, 1998 and 1997, respectively).
Restrictions on the distribution of these earnings are not significant. Foreign
earnings taxable to the company as dividends were $21.7 million, $28.1 million
and $20.3 million in 1998, 1997 and 1996, respectively.
NOTE 11 INCENTIVE COMPENSATION PLANS
The 1995 Management Incentive Plan (the Incentive Plan) and the 1995 Stock
Option Plan (the Option Plan), approved by the stockholders on April 21, 1995,
provide certain incentives and awards to key employees. The plans are
administered by the Compensation and Organization Committee of the Board of
Directors (the Committee) which, subject to the provisions of the plans, reviews
and approves financial targets, times and conditions for payment.
The Incentive Plan provides for the grant of multi-year incentive awards
payable partly in cash and partly in common stock.
The Option Plan (and its predecessor plans) provides for regular grants of
common stock options which may be incentive and/or nonqualified stock options.
The exercise price for options is not less than the fair market value of the
stock at the date of grant. Options are exercisable at the time designated by
the Committee in the option (four years for grants prior to 1995 and three years
for grants during 1995 and thereafter). Incentive options expire not later than
10 years from the grant date. Nonqualified options expire not later than 15
years from the grant date (10 years for grants prior to 1990), although the
Committee may extend the expiration date of any nonqualified stock option upon
such terms and conditions as the Committee shall determine.
Under the plans adopted in 1995, 3 million shares became available for
awards and options granted in 1995 and later years. These shares are in addition
to the shares available from the predecessor plans. Cancellation (through
expiration, forfeiture or otherwise) of outstanding awards and options granted
after 1989 increases the shares available for future awards or grants. At
December 31, 1998, 1,415,854 shares were available for future use under these
plans.
The company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost has
been recognized for the Option Plan. Had compensation cost for the Option Plan
been determined based on the fair value at the grant date for awards in 1998,
1997 and 1996 consistent with the provisions of SFAS No. 123, the company's net
income and diluted earnings per share for the three years ended December 31,
1998 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Net income in millions 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income--as reported $106.5 $162.4 $210.7
Net income--pro forma $101.7 $157.6 $207.3
Diluted earnings per share
- --as reported $ 3.05 $ 4.41 $ 5.54
Diluted earnings per share
- --pro forma $ 2.91 $ 4.28 $ 5.45
- ------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: zero dividend
yield for all years; expected volatility of 19.7 percent, 17.4 percent and 17.8
percent; risk-free interest rates of 5.5 percent, 6.8 percent and 6.0 percent;
and expected lives of 5 years for all grants.
46 FMC Annual Report
<PAGE>
The weighted average fair value per share of stock options granted during
the years ended December 31, 1998, 1997 and 1996, calculated using the Black-
Scholes option-pricing model, was $21.09, $19.84 and $21.51, respectively.
The following summary shows stock option activity for the three years ended
December 31, 1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Number of Weighted-
Shares Average
(Number of shares Optioned But Exercise Price
in thousands) Not Exercised per Share
- -----------------------------------------------------------------------------
<S> <C> <C>
December 31, 1995
(1,092 shares exercisable) 2,984 $40.49
Granted 520 $70.93
Exercised (457) $27.67
Forfeited (121) $51.73
- -----------------------------------------------------------------------------
December 31, 1996
(1,200 shares exercisable) 2,926 $47.44
Granted 555 $61.42
Exercised (395) $33.54
Forfeited (169) $63.73
- -----------------------------------------------------------------------------
December 31, 1997
(1,012 shares exercisable) 2,917 $51.05
Granted 558 $69.92
Exercised (261) $41.87
Forfeited (60) $67.07
- -----------------------------------------------------------------------------
December 31, 1998
(1,734 shares exercisable) 3,154 $54.84
=============================================================================
</TABLE>
The following tables summarize information about fixed-priced stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Options Outstanding
- -------------------------------------------------------------------------------------------------
Weighted- Weighted-
Number Average Average
Outstanding at Remaining Exercise
Range of December 31, 1998 Contractual Life Price
Exercise Prices (in thousands) (in years) per Share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$29.50-$31.13 431 6.4 $30.91
$45.00-$46.38 1,025 9.5 $46.20
$57.75-$65.50 756 9.4 $60.70
$69.00-$82.50 942 8.3 $70.49
- -------------------------------------------------------------------------------------------------
Total 3,154 8.7 $54.84
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Options Exercisable
- -------------------------------------------------------------------------------------------------
Number Weighted-
Exercisable at Average
Range of December 31, 1998 Exercise Price
Exercise Prices (in thousands) per Share
- -------------------------------------------------------------------------------------------------
$29.50-$31.13 431 $30.91
$45.00-$46.38 1,025 $46.20
$59.63-$79.00 278 $59.69
- -------------------------------------------------------------------------------------------------
Total 1,734 $44.56
- -------------------------------------------------------------------------------------------------
</TABLE>
On January 2, 1999, an additional 410,100 shares became exercisable at
prices ranging from $62.75 to $71.13 with an expiration date of March 8, 2006.
Under a plan adopted in 1995, discretionary awards of restricted stock may
be made to selected employees. The awards vest over a period designated by the
Committee, with payment conditional upon continued employment. Compensation cost
is recognized over the vesting period based on the market value of the stock on
the date of the award.
Under the FMC Deferred Stock Plan for Non-Employee Directors, a portion of
the annual retainer for these directors was deferred and paid in the form of
shares of the company's common stock upon retirement or other termination of
their directorships. Effective January 1, 1997, the Board of Directors approved
a comprehensive compensation plan that terminated the retirement plan for
directors and increased the proportion of director compensation paid in common
stock of the company. Each current director elected to convert the benefits
provided for and earned under the old plan into stock units payable in shares of
common stock of the company upon retirement from the Board based on the fair
market value of the common stock on December 31, 1996. At December 31, 1998,
stock units representing an aggregate of 42,887 shares of stock were credited to
the non-employee directors' accounts.
NOTE 12 STOCKHOLDERS' EQUITY
The following is a summary of FMC's capital stock activity over the past three
years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(Number of shares Common Treasury
in thousands) stock stock
- ----------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1995 37,024 300
Stock options exercised 457 (2)
Stock repurchases -- 2
- ----------------------------------------------------------------------------------
December 31, 1996 37,481 300
Stock options exercised 395 --
Stock repurchases -- 2,667
Stock reissued -- (15)
- ----------------------------------------------------------------------------------
December 31, 1997 37,876 2,952
Stock options exercised 261 --
Stock awards 52 --
Stock repurchases -- 2,534
- ----------------------------------------------------------------------------------
December 31, 1998 38,189 5,486
==================================================================================
</TABLE>
During 1998 and 1997, approximately 2.4 million and 2.7 million shares,
respectively, were acquired under the company's stock repurchase plans at an
aggregate cost of $150.0 million and $209.0 million, respectively. Also in 1998,
116,467 shares of common stock were repurchased at a cost of $6.7 million and
contributed to a trust for an employee benefit program. In 1997, 15,000 shares
of treasury stock were reissued under the restricted stock award plan and the
deferred compensation plan for non-employee directors.
At December 31, 1998, 4,848,137 shares of unissued FMC common stock were
reserved for stock options and awards. Common stock equivalents at December 31,
1998 totaled 803,261 potential shares.
At December 31, 1998 and 1997, accumulated other comprehensive loss
consisted of cumulative foreign currency translation losses.
FMC Corporation 47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Covenants of the revolving credit facility agreement (Note 9) contain
minimum net worth and other requirements. No dividends are expected to be paid
on the company's common stock in 1999.
On February 22, 1986, the Board of Directors of the company declared a
dividend distribution to each recordholder of common stock as of March 7, 1986,
of one Preferred Share Purchase Right for each share of common stock outstanding
on that date. Each right entitles the holder to purchase, under certain
circumstances related to a change in control of the company, one one-hundredth
of a share of Junior Participating Preferred Stock, Series A, without par value,
at a price of $300 per share (subject to adjustment), subject to the terms and
conditions of a Rights Agreement dated February 22, 1986 as amended through
February 9, 1996. The rights expire on March 7, 2006, unless redeemed by the
company at an earlier date. The redemption price of $.05 per right is subject to
adjustment to reflect stock splits, stock dividends or similar transactions. The
company has reserved 400,000 shares of Junior Participating Preferred Stock for
possible issuance under the agreement.
NOTE 13 PENSIONS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The funded status of the company's pension and postretirement health care
and life insurance benefit plans and the associated liabilities recognized in
the company's consolidated financial statements as of December 31 are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Pensions Other benefits
(In millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Plans with unfunded accumulated
benefit obligation $ 714.2 $ 21.8 $ -- $ --
- ------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at January 1 $ 771.0 $ 638.5 $ 109.7 $ 121.9
Service cost 26.4 21.2 2.5 2.4
Interest cost 66.7 55.8 8.4 8.3
Actuarial loss (gain) 239.2 15.7 15.9 (14.0)
Amendments 11.8 17.0 (8.4) 0.2
Acquisitions and divestitures (2.2) (4.1) -- (0.6)
Curtailments and settlements (1.9) -- (0.3) --
Plan conversion -- 68.3 -- --
Plan participants' contributions 1.9 1.4 3.0 2.4
Benefits paid (42.9) (42.8) (11.3) (10.9)
- ------------------------------------------------------------------------------------------------
Benefit obligation at December 31 1,070.0 771.0 119.5 109.7
- ------------------------------------------------------------------------------------------------
Change in fair value of plan assets:
Fair value of plan assets at January 1 860.6 643.3 -- --
Actual return on plan assets 133.8 184.8 -- --
Acquisitions and divestitures (2.4) (28.9) -- --
Plan conversion -- 80.1 -- --
Curtailments and settlements (3.1) -- -- --
Company contributions 8.6 22.7 8.3 8.5
Plan participants' contributions 1.9 1.4 3.0 2.4
Benefits paid (42.9) (42.8) (11.3) (10.9)
- ------------------------------------------------------------------------------------------------
Fair value of plan assets at
December 31 956.5 860.6 -- --
- ------------------------------------------------------------------------------------------------
Funded status of the plan (liability) (113.5) 89.6 (119.5) (109.7)
Unrecognized actuarial loss (gain) 72.0 (127.7) 7.6 (9.3)
Unrecognized prior service cost 22.2 25.1 (47.6) (47.4)
Unrecognized transition asset (61.4) (84.1) -- --
- ------------------------------------------------------------------------------------------------
Accrued liability for benefit costs
at December 31 $ (80.7) $ (97.1) $(159.5) $ (166.4)
================================================================================================
Prepaid benefit cost $ 46.6 $ 25.7 $ -- $ --
Accrued benefit liability (127.3) (122.8) (159.5) (166.4)
- ------------------------------------------------------------------------------------------------
Net liability recognized in the
balance sheet at December 31 $ (80.7) $ (97.1) $(159.5) $ (166.4)
================================================================================================
</TABLE>
48 FMC Annual Report
<PAGE>
The following table summarizes the assumptions used and the components of net
annual benefit cost (income) for the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Pensions Other benefits
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assumptions as of December 31:
Discount rate 6.75% 8.00% 8.00% 6.75% 8.00% 8.00%
Expected return on assets 9.20% 9.20% 9.20% -- -- --
Rate of compensation increase 5.00% 5.00% 5.00% -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Components of net annual benefit cost (in millions):
Service cost $ 26.4 $ 21.2 $ 17.9 $ 2.5 $ 2.4 $ 2.4
Interest cost 66.7 55.8 47.2 8.4 8.3 9.2
Expected return on plan assets (76.9) (59.8) (46.4) -- -- --
Amortization of transition asset (22.8) (22.8) (22.0) -- -- --
Amortization of prior service cost 4.2 3.1 2.5 (8.3) (8.3) (7.8)
Recognized net actuarial (gain) loss (5.6) (2.8) 0.2 (0.9) 0.1 0.2
- ---------------------------------------------------------------------------------------------------------------------------------
Net annual benefit cost (income) $ (8.0) $ (5.3) $ (0.6) $ 1.7 $ 2.5 $ 4.0
=================================================================================================================================
</TABLE>
For measurement purposes, a 7.0 percent annual rate increase in the per
capita cost of covered health care benefits was assumed for 1998 and 1997. The
rate was assumed to decrease gradually to 5.0 percent for 2001 and remain at
that level thereafter.
Effective January 1, 1998, the company changed to the 1983 Group Mortality
Table, which is used to calculate the benefit obligations. In addition, the
discount rate was changed from 8.00 percent to 6.75 percent effective December
31, 1998. These changes increased the projected benefit obligation by
approximately $239 million at December 31, 1998.
In 1997, the company adopted SFAS No. 87, "Employers Accounting for
Pensions", for its pension plan for employees in the United Kingdom. The
adoption increased 1997 pension income by $2.0 million. The financial impact of
compliance with SFAS No. 87 for other non-U.S. pension plans is not materially
different from the locally reported pension expense. The cost of providing
pension benefits for foreign employees was $5.2 million in 1998, $6.9 million in
1997 and $9.5 million in 1996.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point change in the
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 Percentage 1 Percentage
(in millions) Point Increase Point Decrease
- --------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 0.1 $(0.1)
Effect on postretirement
benefit obligation $ 1.6 $(1.3)
- --------------------------------------------------------------------------------
</TABLE>
Employees' Thrift and Stock Purchase Plan. The FMC Employees' Thrift and
Stock Purchase Plan is a qualified salary-reduction plan under Section 401(k) of
the Internal Revenue Code in which all salaried and non-union hourly employees
of the company may participate by contributing a portion of their compensation.
The company matches contributions up to specified percentages of each employee's
compensation depending on profits and fund elections. Charges against income for
FMC's matching contributions, net of forfeitures, were $16.7 million in 1998,
$16.2 million in 1997 and $14.8 million in 1996.
NOTE 14 ENVIRONMENTAL OBLIGATIONS
FMC is subject to various federal, state and local environmental laws and
regulations that govern emissions of air pollutants, discharges of water
pollutants, and the manufacture, storage, handling and disposal of hazardous
substances, hazardous wastes and other toxic materials. The most significant
environmental liabilities of the company consist of obligations relating to the
remediation and/or study of sites at which the company is alleged to have
disposed of hazardous substances. In particular, the company is subject to
liabilities arising under CERCLA and similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances, released from the facility, into the environment. In
addition, the company is subject to liabilities under the corrective action
provisions of the Resource Conservation and Recovery Act ("RCRA") and analogous
state laws that require owners and operators of facilities that treat, store or
dispose of hazardous waste to clean up releases of hazardous waste constituents
into the environment associated with past or present practices. The company has
been named a PRP at 29 sites on the government's National Priority List. In
addition, the company also has received notice from the EPA or other regulatory
agencies that the company may be a PRP, or PRP equivalent, at other sites,
including 42 sites at which the company has determined that it is reasonably
possible that it has an environmental liability. The company, in cooperation
with appropriate government agencies, is currently participating in, or has
participated in, RI/FS or their equivalent at most of the identified sites, with
the status of each investigation varying from site to site. At certain sites,
RI/FS have just begun, providing limited information, if any, relating to cost
estimates, timing, or the involvement of other PRPs; whereas, at other sites,
the studies are complete, remedial action plans have been chosen, or Records of
Decision have been issued.
FMC Corporation 49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, total reserves of $294.0 million and
$263.8 million, respectively, before recoveries, were recorded at December 31,
1998 and 1997, of which $198.1 million and $132.7 million, respectively, are
included in the reserve for discontinued operations at December 31, 1998 and
1997. In the fourth quarter of 1998, FMC provided $70.0 million for
environmental costs of discontinued operations (Note 3). The company's total
environmental reserves include $280.6 million and $247.4 million for remediation
activities and $13.4 million and $16.4 million for RI/FS costs at December 31,
1998 and 1997, respectively. In addition, the company has estimated that
reasonably possible environmental loss contingencies may exceed amounts accrued
by as much as $90.0 million at December 31, 1998.
FMC has signed a Consent Decree with the EPA (Region 10) and the United
States Department of Justice ("DOJ") to settle outstanding alleged violations of
the 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 the public comment period closed on
December 18, 1998. Public comments were received and the DOJ and the EPA must
respond to the public comments before the RCRA Consent Decree can 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 approximately four
years. FMC 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. FMC has also paid a penalty of $11.8
million. As described in Note 4, an expected increase in capital costs for
environmental compliance contributed to an impairment in the value of PCD's
assets during the fourth quarter of 1997.
In addition, FMC has signed a second Consent Decree with the EPA, which has
yet to be lodged in court. 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 PCD Pocatello, Idaho,
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.
In a separate matter, FMC has reached an agreement in principle with the
EPA and the DOJ regarding settlement of past costs and future clean-up work at
the discontinued fiber manufacturing site in Front Royal, Virginia. The parties
are currently negotiating the specific terms of the agreement in principle and
the final Consent Decree. The anticipated costs associated with this agreement
in principle are the largest component of the fourth quarter 1998 environmental
charge to discontinued operations of $70.0 million, net of contractual
recoveries (Note 3).
Although potential environmental remediation expenditures in excess of the
current reserves and estimated loss contingencies could be significant, the
impact on the company's future financial results is not subject to reasonable
estimation due to numerous uncertainties concerning the nature and scope of
contamination at many sites, identification of remediation alternatives under
constantly changing requirements, selection of new and diverse clean-up
technologies to meet compliance standards, the timing of potential expenditures,
and the allocation of costs among PRPs as well as other third parties.
The liability arising from potential environmental obligations that have
not been reserved for at this time may be material to any one quarter's or
year's results of operations in the future. Management, however, believes the
liability arising from the potential environmental obligations is not likely to
have a material adverse effect on the company's liquidity or financial condition
and may be satisfied over the next 20 years or longer.
To ensure FMC is held responsible only for its equitable share of site
remediation costs, FMC has initiated, and will continue to initiate, legal
proceedings for contributions from other PRPs, and for a determination of
coverage against its comprehensive general liability insurance carriers. The
Supreme Court of California has determined that FMC's clean-up costs are insured
damages under its liability insurance policies, subject to a determination of
the application of certain policy exclusions and conditions. Recoveries of
$107.6 million ($22.2 million related to continuing operations as other assets
and $85.4 million as an offset to the reserve for discontinued operations) and
$104.9 million ($36.9 million related to continuing operations 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 insurance companies and
other third parties at December 31, 1998 and 1997, respectively. The increase in
recoveries in 1998 relates primarily to contractual recoveries from U.S.
government agencies associated with the Front Royal, Virginia, site. The
majority of recorded assets related to recoveries from PRPs are associated with
existing contractual arrangements with U.S government agencies and amounts due
from insurance carriers.
Regarding current operating sites, the company spent $33.0 million, $29.9
million and $21.8 million for the years 1998, 1997 and 1996, respectively, on
capital projects relating to environmental control facilities, and expects to
spend additional capital of approximately $60 million and $59 million in 1999
and 2000, respectively. Additionally, in 1998, 1997, and 1996, FMC spent $56.0
million, $60.1 million and $54.9 million, respectively, for environmental
compliance costs.
Regarding current operating, previously operated (including discontinued
operations) and other sites for the years 1998, 1997 and 1996, FMC charged $17.8
million, $29.0 million and $22.0 million, respectively, against established
reserves for remediation spending, and $35.0 million, $18.7 million and $12.0
million, respectively, against reserves for spending on RI/FS. Recoveries from
third parties of $4.4 million, $3.3 million and $13.1 million, respectively,
were received in 1998, 1997 and 1996. FMC anticipates that the expenditures for
current operating, previously operated and other sites will continue to be
significant for the foreseeable future.
50 FMC Annual Report
<PAGE>
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES
On April 14, 1998, a jury returned a verdict against the company in the
amount of $125.0 million in conjunction with a federal False Claims Act action,
in which Mr. Henry Boisvert filed and ultimately took to trial allegations that
the company had filed false claims for payment in connection with its contract
to provide Bradley Fighting Vehicles to the Army between 1981 and 1996. Under
law, portions of the jury verdict were subject to doubling or trebling. On
December 24, 1998, the U.S. District Court for the Northern District of
California entered judgment for Mr. Boisvert in the amount of approximately $87
million. This was approximately $300 million less than the maximum judgment
possible under the jury verdict. The reduction resulted from several rulings by
the District Court in favor of the company in the post-trial motions. Cross-
appeals to the U.S. Court of Appeals for the Ninth Circuit are now pending. Both
sides are asserting arguments on appeal, and a number of those arguments, if
successful, would alter or eliminate the amount of the existing judgment. Any
legal proceeding is subject to inherent uncertainty, and it is not possible to
predict how the appellate court will rule. Therefore, it is the position of the
company's management based on a review, including a review by outside counsel,
that it is not possible to estimate the amount of a probable loss, if any, to
the company that might result from some adverse aspects of the judgment in this
action ultimately standing against the company. Accordingly, no provision for
this matter has been made in the company's consolidated financial statements.
FMC leases office space, plants and facilities, and various types of
manufacturing, data processing and transportation equipment. Capital leases are
not significant. Total rent expense under operating leases amounted to $63.9
million, $61.4 million and $55.7 million in 1998, 1997 and 1996, respectively.
Minimum future rentals under noncancellable leases aggregated approximately $323
million as of December 31, 1998 and are estimated to be payable as follows: $48
million in 1999, $43 million in 2000, $31 million in 2001, $28 million in 2002,
$28 million in 2003 and $145 million thereafter. The real estate leases
generally provide for payment of property taxes, insurance and repairs by FMC.
The company also has certain other contingent liabilities resulting from
litigation, claims, performance guarantees, and other commitments incident to
the ordinary course of business. Management believes that the probable
resolution of such contingencies will not materially affect the financial
position, results of operations or cash flows of FMC.
FMC Corporation 51
<PAGE>
INDEPENDENT AUDITORS' REPORT
[LOGO OF KPMG APPEARS HERE]
The Board of Directors and Stockholders, FMC Corporation:
We have audited the accompanying consolidated balance sheets of FMC Corporation
and consolidated subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. With respect to information for the
year ended December 31, 1996, we did not audit the results of discontinued
operations of United Defense, L.P. Those results of discontinued operations were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for United Defense, L.P.,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of the other auditors,
the accompanying consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FMC Corporation and
consolidated subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
January 20, 1999
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements and related information have been prepared
by management, which is responsible for the integrity and objectivity of that
information. Where appropriate, they reflect estimates based on judgments of
management. The statements have been prepared in conformity with accounting
principles generally accepted in the United States and are generally consistent
with standards issued by the International Accounting Standards Committee.
Financial information included elsewhere in this annual report is consistent
with that contained in the consolidated financial statements.
FMC maintains a system of internal control over financial reporting and
over safeguarding of assets against unauthorized acquisition, use or disposition
which is designed to provide reasonable assurance as to the reliability of
financial records and the safeguarding of such assets. The system is maintained
by the selection and training of qualified personnel, by establishing and
communicating sound accounting and business policies, and by an internal
auditing program that constantly evaluates the adequacy and effectiveness of
such internal controls, policies and procedures.
The Audit Committee of the Board of Directors, composed of directors who
are not officers or employees of the company, meets regularly with management,
with the company's internal auditors, and with its independent auditors to
discuss their evaluation of internal accounting controls and the quality of
financial reporting. Both independent auditors and the internal auditors have
free access to the Audit Committee to discuss the results of their audits.
The company's independent auditors have been engaged to render an opinion
on the consolidated financial statements. They review and make appropriate tests
of the data included in the financial statements. As independent auditors, they
also provide an objective, outside review of management's performance in
reporting operating results and financial condition.
/s/ Michael J. Callahan /s/ Ronald D. Mambu
Michael J. Callahan Ronald D. Mambu
Executive Vice President Vice President
and Chief Financial Officer and Controller
Chicago, Illinois
January 20, 1999
52 FMC Annual Report
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
ROBERT N. BURT/1/
Chairman of the Board and
Chief Executive Officer
LARRY D. BRADY/4/
President
B. A. BRIDGEWATER, JR./1/,/2/,/5/
Chairman of the Board,
President and Chief Executive
Officer,
Brown Group, Inc.
PATRICIA A. BUFFLER/3/,/4/
Dean, Professor of Epidemiology,
School of Public Health,
University of California, Berkeley
ALBERT J. COSTELLO/2/,/3/
Retired Chairman, President
and Chief Executive Officer,
W.R. Grace & Co.
PAUL L. DAVIES, JR./1/,/2/
President, Lakeside Corporation
a private real estate investment company
JEAN A. FRANCOIS-PONCET/4/
Member of the French Senate
EDWARD C. MEYER/1/,/4/,/5/
Chairman,
GRC International, Inc.,
former Chief of Staff,
United States Army
EDWARD J. MOONEY/2/,/3/
Chairman of the Board and
Chief Executive Officer,
Nalco Chemical Company
WILLIAM F. REILLY /1/,/2/,/3/
Chairman and Chief Executive Officer,
PRIMEDIA
JAMES R. THOMPSON/4/,/5/
Former Governor of Illinois;
Chairman, Chairman of the Executive Committee,
and Partner; Law Firm of Winston & Strawn
CLAYTON YEUTTER /4/,/5/
Of Counsel, Hogan & Hartson,
former U.S. Trade Representative,
and former Secretary,
U.S. Department of Agriculture
/1/ Executive Committee
/2/ Compensation and Organization Committee
/3/ Audit Committee
/4/ Public Policy Committee
/5/ Nominating and Board Procedures Committee
OFFICERS
ROBERT N. BURT *
Chairman of the Board and
Chief Executive Officer
LARRY D. BRADY *
President
MICHAEL J. CALLAHAN *
Executive Vice President and
Chief Financial Officer
JOSEPH H. NETHERLAND *
Executive Vice President;
General Manager
FMC Energy Systems
WILLIAM J. KIRBY *
Senior Vice President
J. PAUL MCGRATH *
Senior Vice President,
General Counsel and
Corporate Secretary
ALFREDO BERNAD
Vice President;
President, FMC Europe/
Middle East/Africa
PATRICIA D. BROZOWSKI
Vice President
Communications
CHARLES H. CANNON, JR.*
Vice President;
General Manager
FMC FoodTech
ROBERT J. FIELDS
Vice President
Environment, Health, Safety
and Toxicology
W. KIM FOSTER*
Vice President;
General Manager
Agricultural Products Group
W. REGINALD HALL
Vice President;
President Asia-Pacific
ROBERT I. HARRIES *
Vice President;
General Manager
Chemical Products Group
STEPHANIE K. KUSHNER *
Vice President and
Treasurer
RONALD D. MAMBU *
Vice President and
Controller
JAMES A. MCCLUNG *
Vice President
Worldwide Marketing
EUGENE M. MCCLUSKEY *
Vice President
Tax
MICHAEL W. MURRAY
Vice President
Human Resources
HAROLD S. RUSSELL
Vice President
Government Affairs
WILLIAM H. SCHUMANN *
Vice President
Corporate Development
WILLIAM G. WALTER *
Vice President;
General Manager
Specialty Chemicals Group
CRAIG M. WATSON
Vice President and
Chief Information Officer
PETER E. WEBER
Vice President;
President
FMC Latin America
WILLIAM J. WHEELER *
Vice President
Chemical Development
and Shared Services
*Executive Officer
STOCKHOLDER DATA
ANNUAL MEETING OF STOCKHOLDERS
FMC's annual meeting of stockholders will be held at 2 p.m. on Friday,
April 23, 1999, at 200 E. Randolph Drive, Chicago.
Notice of the meeting, together with proxy materials, will be mailed
approximately 40 days prior to the meeting to stockholders of record as of
February 26, 1999.
TRANSFER AGENT AND REGISTRAR OF STOCK
Harris Trust and Savings Bank
P.O. Box 755, Chicago, Illinois 60690
Questions concerning FMC common stock should be sent to the above address, or
call (888) 786-2500.
STOCK EXCHANGE LISTING
New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
STOCK EXCHANGE SYMBOL
FMC
FORM 10-K
A copy of the company's annual report to the Securities and Exchange Commission
on Form 10-K for 1998 is available upon written request to:
FMC Corporation
Communications Department
200 E. Randolph Drive
Chicago, Illinois 60601
However, most information required under Parts II and III of Form 10-K has been
incorporated by reference to the annual report to stockholders or the proxy
statement.
FMC was incorporated in Delaware in 1928.
FMC Corporation 53
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TEN-YEAR FINANCIAL SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except share data and per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $4,378.4 4,259.0 3,950.7
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before net
interest expense, minority interests, gain on sale of FMC
Wyoming stock, income taxes, extraordinary items and
cumulative effect of changes in accounting principles/(1)/ $ 364.0 58.0 338.4
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before special income
and expense items/(4)/, net interest expense, income taxes,
extraordinary items and cumulative effect of changes in
accounting principles/(5)/ $ 357.8 314.0 328.8
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary items and cumulative effect of changes in
accounting principles/(1)(2)/ $ 249.5 (59.7) 235.8
Provision (benefit) for income taxes 64.2 (35.2) 73.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary
items and cumulative effect of changes in accounting principles/(3)/ 185.3 (24.5) 162.8
Discontinued operations, net of income taxes (42.7) 191.4 47.9
Extraordinary items, net of income taxes -- -- --
Cumulative effect of changes in accounting principles, net of
income taxes (36.1) (4.5) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)/(3)/ $ 106.5 162.4 210.7
- ------------------------------------------------------------------------------------------------------------------------------------
Asset impairments and restructuring and other charges/(1)/ $ -- 264.9 --
- ------------------------------------------------------------------------------------------------------------------------------------
Gain on sale of FMC Wyoming stock/(2)/ $ -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends $ -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Average number of shares used in earnings per share computations
(thousands):
Basic 34,007 36,805 37,024
Diluted 34,939 36,805 38,058
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Continuing operations/(3)/ $ 5.45 (0.67) 4.40
Discontinued operations (1.26) 5.20 1.29
Extraordinary items -- -- --
Cumulative effect of changes in accounting principles (1.06) (0.12) --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3.13 4.41 5.69
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Continuing operations/(3)/ $ 5.30 (0.67) 4.28
Discontinued operations (1.22) 5.20 1.26
Extraordinary items -- -- --
Cumulative effect of changes in accounting principles (1.03) (0.12) --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3.05 4.41 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax income per share from continuing operations before
special income and expense items/(4)(5)/
Basic $ 5.45 4.25 4.40
Diluted $ 5.30 4.13 4.28
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR-END
Total assets $4,166.4 4,113.1 4,467.4
Long-term debt (less current portion) $1,326.4 1,140.2 1,268.4
Stockholders' equity (deficit) $ 729.4 760.6 855.8
OTHER DATA
Capital expenditures $ 277.7 316.7 512.1
Provision for depreciation $ 189.0 218.3 205.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes pretax asset impairments of $224.0 million in 1997, $26.4 million
in 1995 and $8.1 million in 1993, pretax restructuring and other charges of
$40.9 million in 1997, $108.1 million in 1995 and $114.4 million in 1993,
and a write-off of acquired in-process research and development of $15.5
million in 1995 .
(2) Includes a nontaxable gain on the sale of 20 percent of FMC Wyoming stock of
$99.7 million in 1995.
(3) Includes asset impairments and restructuring and other charges of $(180.9)
million after tax in 1997 ($(4.92) per share-basic and diluted);
restructuring and other charges, a write-off of acquired in-process research
and development and a gain on the sale of FMC Wyoming stock of $3.5 million,
net, after tax in 1995 ($0.10 per share-basic and $0.09 per share-diluted);
and restructuring and other charges of $(73.5) million after tax in 1993
($(2.04) per share-basic and diluted).
- --------------------------------------------------------------------------------
54 FMC Annual Report
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,482.6 2,869.4 2,678.8 2,692.1 2,568.6 2,463.5 2,319.2
- ------------------------------------------------------------------------------------------------------------------------------------
134.5 221.0 (17.3) 143.0 172.7 166.5 216.0
- ------------------------------------------------------------------------------------------------------------------------------------
279.4 210.4 104.7 142.8 171.2 164.9 214.6
- ------------------------------------------------------------------------------------------------------------------------------------
152.7 150.9 (79.9) 59.9 63.8 36.9 70.6
(2.0) 41.6 (62.8) 9.4 9.4 (4.3) 13.6
- ------------------------------------------------------------------------------------------------------------------------------------
154.7 109.3 (17.1) 50.5 54.4 41.2 57.0
60.9 64.1 58.1 68.9 118.7 114.1 99.8
-- -- (4.7) (11.4) (9.2) -- (20.4)
-- -- -- (183.7) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
215.6 173.4 36.3 (75.7) 163.9 155.3 136.4
- ------------------------------------------------------------------------------------------------------------------------------------
150.0 -- 122.5 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
99.7 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
36,615 36,369 35,976 35,595 35,024 34,739 34,407
37,721 37,195 35,976 36,796 36,267 36,075 36,006
- ------------------------------------------------------------------------------------------------------------------------------------
4.23 3.01 (0.48) 1.42 1.55 1.19 1.66
1.66 1.76 1.62 1.94 3.39 3.28 2.90
-- -- (0.13) (0.32) (0.26) -- (0.59)
-- -- -- (5.16) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
5.89 4.77 1.01 2.12 4.68 4.47 3.97
- ------------------------------------------------------------------------------------------------------------------------------------
4.10 2.94 (0.48) 1.37 1.50 1.14 1.58
1.62 1.72 1.62 1.87 3.27 3.16 2.77
-- -- (0.13) (0.31) (0.25) -- (0.56)
-- -- -- (4.99) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
5.72 4.66 1.01 2.06 4.52 4.30 3.79
- ------------------------------------------------------------------------------------------------------------------------------------
4.13 3.01 1.56 1.42 1.55 1.19 1.66
4.01 2.94 1.53 1.37 1.50 1.14 1.58
- ------------------------------------------------------------------------------------------------------------------------------------
3,751.8 2,857.1 2,532.1 2,565.3 2,393.6 2,484.8 2,421.3
974.4 901.2 749.8 843.4 928.6 1,158.6 1,325.6
653.5 416.6 216.9 219.0 309.8 149.6 (70.6)
500.0 279.7 206.7 274.9 171.4 266.1 221.1
182.6 173.8 172.8 179.9 166.7 159.8 147.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Excludes asset impairments and restructuring and other charges of ($264.9)
million, or $(180.9) million after tax in 1997 ($(4.92) per share-basic and
$(4.77) per share-pro forma diluted); restructuring and other charges, a
write-off of acquired in-process research and development and a gain on the
sale of FMC Wyoming stock of $50.3 million, or $3.5 million, net, after tax
in 1995 ($0.10 per share-basic and $0.09 per share-diluted); and
restructuring and other charges of $(122.5) million, or $(73.5) million
after tax in 1993 ($(2.04) per share-basic and $(1.99) per share-pro forma
diluted).
(5) Supplemental financial information. Should not be considered
in isolation nor as an alternative for income from continuing operations or
net income determined in accordance with generally accepted accounting
principles, nor as the sole measure of the company's profitability.
- --------------------------------------------------------------------------------
FMC Corporation 55
<PAGE>
MAJOR OPERATING UNITS
Energy Systems
Energy Transportation and Measurement
Petroleum Equipment and Systems
Food and Transportation Systems
Airport Products and Systems
FMC FoodTech
Citrus Systems
Food Processing Systems
Food Systems and Handling
Frigoscandia Freezer
Agricultural Products
Specialty Chemicals
Food Ingredients
Lithium
Pharmaceutical
Process Additives
BioProducts
Industrial Chemicals
Active Oxidants
Alkali Chemicals
FMC Foret, S.A.
Hydrogen Peroxide
Phosphorus Chemicals
EXECUTIVE OFFICES
FMC Corporation
200 E. Randolph Drive
Chicago, Illinois 60601
Internet: www.fmc.com
SUBSIDIARIES AND AFFILIATES IN OTHER NATIONS
ANGOLA
FMC International, AG
ARGENTINA
FMC Argentina, S.A.
Minera Del Altiplano, S.A.
AUSTRALIA
FMC (Australia), Ltd.
AUSTRIA
FMC Chemikalien Handelsgesellschaft G.m.b.H.
BANGLADESH
FMC International AG
BARBADOS
FMC International Sales Corporation
BELGIUM
FMC Europe N.V.
BRAZIL
CBV Industria Mecanica, S.A.
FMC do Brasil Industria e Commercio Ltda.
Jetway Systems Equipamentos Aeroportuarios Ltda.
CANADA
FMC of Canada, Limited
FMC Offshore Canada Company
CHILE
FMC Corporation, Inc. Chile Limitada
Neogel, S.A.
CHINA
FMC Asia Pacific Inc.
FMC Hong Kong Limited
Suzhou Fu Mei-Shi Crop Care Company, Ltd.
COLOMBIA
FMC Latino America, S.A.
CZECH REPUBLIC
F&N Agro Ceska Republica, S.r.o.
DENMARK
FMC A/S
EGYPT
FMC International, AG
EQUATORIAL GUINEA
FMC Subsea Services, Inc.
FRANCE
FMC Europe, S.A.
FMC Food Machinery
FMC France S.A.
FMC Overseas, S.A.
Frigoscandia Equipment S.A.
GABON
FMC Gabon, S.A.R.L.
GERMANY
FMC G.m.b.H.
Frigoscandia Equipment G.m.b.H.
Jetway G.m.b.H.
F.A. Sening G.m.b.H.
Smith Meter G.m.b.H.
GREECE
FMC Hellas, EPE
FMC International, AG
GUATEMALA
FMC Guatemala, S.A.
HONG KONG
FMC Asia Pacific, Inc.
FMC Hong Kong Ltd.
INDIA
FMC Sanmar Limited
FMC Asia Pacific, Inc.
INDONESIA
FMC Hong Kong Limited
P.T. Bina Guna Kimia Indonesia
P.T. FMC Santana Petroleum Equipment Indonesia
IRELAND
FMC International, AG
ITALY
FMC Italia, S.p.A.
JAPAN
Asia Lithium Corporation
FMC K.K.
Honjo-FMC Energy Systems, Inc.
L.H. Company, Ltd.
JORDAN
FMC International, AG
KENYA
FMC International, AG
KOREA
FMC Korea Limited
MALAYSIA
FMC Wellhead Equipment, Sdn. Bhd.
FMC Petroleum Equipment (Malaysia) Sdn. Bhd.
Jetway Systems Asia, Inc.
MEXICO
Electro Quimica Mexicana, S.A. de C.V.
E.M.D., S.A. de C.V.
Fabricacion, Maquinaria y Ceras, S.A. de C.V.
FMC Agroquimica de Mexico S. de R.L. de C.V.
FMC Equipo Petrolero, S.A. de C.V.
FMC Ingredientes Alimenticios
NETHERLANDS
FMC Fluid Control (Nederland) B.V.
FMC Industrial Chemicals
(Netherlands), B.V.
NORWAY
Kongsberg Offshore, A/S
OMAN
FMC ETEG & Partners LLC
PAKISTAN
FMC International, S.A.
FMC United (Private) Ltd.
PANAMA
FMC Latino America S.A.
PHILIPPINES
FMC International, S.A.
Marine Colloids (Philippines) Inc.
POLAND
F&R Agro S.P.Z.O.O.
FMC Corporation Poland
PUERTO RICO
FMC Kongsberg International AG
FMC International, AG
SINGAPORE
FMC Singapore Pte. Ltd.
FMC Southeast Asia Pte., Ltd.
SLOVAKIA
F&N Agro Slovensko, S.R.O.
SOUTH AFRICA
FMC (South Africa)(Proprietary) Ltd.
SPAIN
FMC Airline Equipment Europe, S.A.
FMC Foret, S.A.
Forel, S.L.
Forenato, S.L.
Forsean, S.A.
Frigoscandia Equipment Iberica, S.A.
Peroxidos Organicos, S.A.
Sibelco Espanola, S.A.
Valentin Herraiz, S.A.
SWEDEN
Frigoscandia Equipment Holding AB
Frigoscandia Equipment AB
Frigoscandia Equipment International AB
Frigoscandia Equipment Norden AB
Frigoscandia Freezer AB
Potato Processing Machinery AB
SWITZERLAND
FMC International, AG
FMC Kongsberg International AG
THAILAND
FMC (Thailand) Ltd.
Thai Peroxide Company, Ltd.
UKRAINE
FMC Kiev
UNITED ARAB EMIRATES
FMC International, S.A. (Dubai)
UNITED KINGDOM
FMC Corporation (UK), Ltd.
SOFEC, Ltd.
URUGUAY
Lanfor Investment, S.A.
VENEZUELA
Tripoliven, C.A.
FMC Wellhead de Venezuela, S.A.
Italicized brand names used throughout this report are the trademarks of FMC
Corporation or its subsidiaries. (C) 1999 FMC Corporation.
56 FMC Annual Report
<PAGE>
[ARTWORK APPEARS HERE]
<PAGE>
[PICTURE APPEARS HERE]
EMC Corporation
200 East Randolph Drive
Chicago, Illinois 60601
<PAGE>
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES OF REGISTRANT
December 31, 1998
<TABLE>
<CAPTION>
Company(1) Organized Under Percent of Voting
- ---------- Laws of Securities Owned(2)
--------------- -------------------
<S> <C> <C>
FMC Corporation Delaware Registrant
Intermountain Research and Development Corporation Wyoming 100%
Smith Meter Inc. Delaware 100%
Direct Measurement Corporation Colorado 100%
FMC Asia-Pacific, Inc. Delaware 100%
Frigoscandia Equipment Holding AB Sweden 100%
Stein, Inc. Delaware 100%
Frigoscandia Equipment Inc. Delaware 100%
Frigoscandia Equipment AB Sweden 100%
Frigoscandia Freezer AB Sweden 100%
FMC of Canada Limited Ontario 100%
FMC do Brasil Industria e Comercio Ltda. Brazil 100%
Minera Del Altiplano S.A. Argentina 100%
FMC International, A.G. Switzerland 100%
FMC Corporation (UK) Limited England 100%
FMC Europe N.V. Belgium 100%
FMC Europe, S.A. France 100%
FMC Wyoming Corporation Delaware 80%
FMC Food Machinery Italy, S.p.A. Italy 100%
Smith Meter GmbH Germany 100%
FMC A/S Denmark 100%
Kongsberg Offshore A/S Norway 100%
FMC Food Machinery and Chemical Holding Company B.V. The Netherlands 100%
FMC Foret, S.A. Spain 100%
FMC Industrial Chemicals (Netherlands) B.V. Holland 100%
FMC Southeast Asia Pte. Ltd. Singapore 100%
FMC Hong Kong Limited Hong Kong 100%
FMC Petroleum Equipment (Malaysia) Sdn. Bhd. Malaysia 100%
FMC (Australia) Limited Australia 100%
CBV - Industria Mecanica, S.A. Brazil 51%
</TABLE>
- ----------------------------
(1) The names of various active and inactive subsidiaries have been omitted.
Such subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
(2) With respect to certain companies, qualifying shares in names of directors
are included in these percentages. Percentages shown for indirect subsidiaries
reflect the percentage of voting securities owned by the parent subsidiary.
<PAGE>
Exhibit 23
Consent of KPMG LLP
The Board of Directors
FMC Corporation
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Nos. 33-10661, 33-7749, 33-41745, 33-48984, 333-18383, 333-24039, 333-62683
and 333-69805) and the Registration Statement on Form S-3 (No. 333-59543) of FMC
Corporation of our report dated January 20, 1999 relating to the consolidated
balance sheets of FMC Corporation and consolidated subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income, cash flows
and changes in stockholders' equity for each of the years in the three-year
period ended December 31, 1998, which report is incorporated by reference in the
December 31, 1998 annual report on Form 10-K of FMC Corporation.
/s/ KPMG LLP
Chicago, Illinois
March 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from FMC
Corporation Form 10-K for the year ended December 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 853
<ALLOWANCES> 12
<INVENTORY> 518
<CURRENT-ASSETS> 136
<PP&E> 3825
<DEPRECIATION> 2097
<TOTAL-ASSETS> 4166
<CURRENT-LIABILITIES> 1412
<BONDS> 1326
0
0
<COMMON> 4
<OTHER-SE> 725
<TOTAL-LIABILITY-AND-EQUITY> 4166
<SALES> 4378
<TOTAL-REVENUES> 4378
<CGS> 3244
<TOTAL-COSTS> 4014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 250
<INCOME-TAX> 64<F1>
<INCOME-CONTINUING> 185
<DISCONTINUED> (43)
<EXTRAORDINARY> 0
<CHANGES> (36)
<NET-INCOME> 107
<EPS-PRIMARY> 3.13
<EPS-DILUTED> 3.05
<FN>
<F1> Loss from continuing operations before income taxes and accounting change
is net of minority interest of 6 for December 31, 1998. Minority interests
are primarily limited to partners' share of partnership profits for which
tax has not been provided.
</FN>
</TABLE>
