Back to GetFilings.com
================================================================================
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, 2001
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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1735 Market Street
Philadelphia, Pennsylvania 19103
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 215/299-6000
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
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 MARCH 1, 2002 WAS $1,186,791,031. THE NUMBER OF SHARES OF THE
REGISTRANT'S COMMON STOCK, $0.10 PAR VALUE, OUTSTANDING AS OF THAT DATE WAS
31,573,929. THE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES EXCLUDES
THE VALUE OF THOSE SHARES HELD BY TEN PERCENT STOCKHOLDERS AND EXECUTIVE
OFFICERS AND DIRECTORS OF THE REGISTRANT.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K REFERENCE
-------- -------------------
Portions of Proxy Part III
Statement for
2002 Annual Meeting of
Stockholders
================================================================================
PART I
FMC Corporation was incorporated in 1928 under Delaware law and has its
principal executive offices at 1735 Market Street, Philadelphia, Pennsylvania
19103. 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.
ITEM 1. BUSINESS
General
FMC is a diversified chemical company serving agricultural, industrial and
consumer markets globally with innovative solutions, applications and quality
products. As one of the world's leading producers of chemicals, FMC employs
approximately 6,000 people and has 37 manufacturing facilities in 19 countries.
The company operates in three distinct business segments: Agricultural
Products, Specialty Chemicals and Industrial Chemicals. Agricultural Products
provides crop protection and pest control products for worldwide markets.
Specialty Chemicals includes food ingredients that are used to enhance
structure, texture and taste; pharmaceutical additives for binding and
disintegrant use; and lithium specialties for pharmaceutical synthesis and
energy storage. Industrial Chemicals encompasses a wide range of inorganic
materials in which FMC possesses market and technology leadership, including
soda ash, hydrogen peroxide, phosphorus and specialty peroxygens in both North
America and in Europe through FMC's subsidiary, FMC Foret, S.A. ("Foret").
Effective December 31, 2001, the company completed its previously announced
plan to separate into two separately traded public companies. FMC has retained
the three chemical segments. A separate company, FMC Technologies, Inc.
("Technologies"), operates the businesses that comprised the former Energy
Systems and Food and Transportation Systems segments. The company's plan of
separation was first announced publicly on October 31, 2000. On May 31, 2001,
FMC contributed the two non-chemical business segments to Technologies, which
at the time was a wholly-owned subsidiary of FMC. The company completed an
initial public offering of approximately 17% of Technologies' stock in June
2001 and completed the separation on December 31, 2001 by distributing all
remaining shares of Technologies owned by FMC as a tax-free dividend to its
stockholders. The majority of historical data in this Report regarding the
company's financial condition or results of operations have been reclassified
to reflect the separation of Technologies' businesses.
Financial Information About Industry Segments.
See Note 20 in the company's 2001 consolidated financial statements at pages
64 through 66 of this report which is incorporated herein by reference.
General Description of the Business Segments
The following is a description of the company's three business segments.
Agricultural Products
The majority of Agricultural Product sales are from insecticide chemistries
including carbamates and pyrethroids. The remaining sales are from herbicides
including clomazone and the newer chemistries of sulfentrazone and
carfentrazone. Key crops for FMC include cotton, corn, fruits, rice and
vegetables. This segment has a leading global position in pyrethroid chemistry
and a portfolio of commercialized herbicides with growth opportunities.
Agricultural Products differentiates itself by its flexibility to react to
worldwide market conditions, direct distribution in key markets, solid product
stewardship programs and focused research and development ("R&D").
2
Agricultural Products is a business characterized by R&D innovation in order
to both grow and maintain share. In an increasingly competitive market, the
development of innovative R&D and market access programs has been and will
continue to be essential. FMC has a focused strategy to:
. gain near term growth through label expansions in carfentrazone and newer
generation pyrethroids;
. develop novel insecticide chemistry in a strategic alliance with Ishihara
Sangyo Kaisha, Ltd. ("ISK") for use on certain pests in the Americas;
. expand a leading genomics-based research program in a strategic alliance
with Devgen to identify target specific insect sites and chemistries; and
. focus our sales and marketing organization in the Americas and expand
market access abroad through regional alliances in Europe and Asia.
Specialty Chemicals
BioPolymer and lithium-based operations make up the Specialty Chemicals
segments. BioPolymer provides products that add structure, texture and taste to
a wide range of beverage, dairy, meat and low-fat products as well as act as
binders and disintegrants for dry tablet drugs. Lithium is a technology-based
business in which mined lithium is refined into many end uses including
pharmaceutical synthesis and energy storage in batteries.
Specialty Chemicals has leading or significant positions in alginates,
carrageenan, microcrystalline cellulose and lithium-based products. This
segment's customers consist primarily of industrial companies engaged in the
food, pharmaceutical and specialty additives businesses. Remaining sales are to
the personal care, dental, industrial and energy storage markets.
The ongoing strength of Specialty Chemicals is the development of
customer-focused solutions and new product concepts. Key elements include plans
to:
. grow market share with large food and pharmaceutical firms as their
partner for developing new food categories and innovative drugs;
. explore complementary technologies that could further enhance the product
offering of the food and pharmaceutical franchises;
. focus on high value-added applications for lithium specialties and
continue to exit more commodity-like markets; and
. invest in large market potential opportunities for lithium including
hybrid electric vehicles and concrete restoration.
Industrial Chemicals
Industrial Chemicals sales comprise several products: soda ash, peroxygens
(hydrogen peroxide and active oxidants) and phosphorus. FMC's alkali chemicals
division manufactures soda ash and related derivatives for the U.S. and Asian
glass, detergents and chemicals markets. FMC is the largest producer in the
world of natural soda ash and has enjoyed strong growth outside the U.S. based
upon the superior cost economics of naturally occurring soda ash from Green
River, Wyoming versus synthetic soda ash produced abroad.
Sales of peroxygens, including hydrogen peroxide and specialty derivatives,
make up approximately 25% of Industrial Chemicals' sales. FMC is the market
leader in the U.S. for hydrogen peroxide and is the worldwide leader in the
specialty markets for persulfates and peracetic acid. The array of end-use
markets served includes pulp and paper, polymers, electronics and food.
FMC is a 50% owner of a joint venture with Solutia, Inc. in phosphorus
chemicals, Astaris LLC ("Astaris"). Astaris offers a wide range of phosphorus
compounds for markets ranging from agriculture to detergents. During late 2001,
Astaris undertook significant restructuring of its supply chain to move away
from production of elemental phosphorus to lower cost purified phosphoric acid.
3
FMC's European Industrial Chemicals subsidiary, Foret, leverages its strong
brand name in southern Europe to provide sulfur derivatives, peroxygens and
phosphorus products to Europe, Africa and the Middle East.
The focus of Industrial Chemicals is toward maximizing cash generation
through cost reduction initiatives and prudent capital management. The segment
has three key strategies:
. focus on the development of new and innovative process and mining
technologies to continue to lower unit production costs;
. manage capacity effectively in order to keep utilization rates high and
control fixed costs; and
. shift commercial resources towards the development of specialty niches
that have few competitive alternatives and higher corresponding margins.
Source and Availability of Raw Materials
FMC's raw material requirements vary by business segment and include mineral
related natural resources, processed chemicals, seaweed, and energy sources
such as oil, gas, coal, and electricity generated by hydroelectric and nuclear
power.
Ores used in Industrial Chemicals manufacturing processes, such as trona,
are extracted from mines in the United States on property held by FMC under
long-term leases subject to periodic adjustment of royalty rates. Raw materials
used by Specialty Chemicals include lithium carbonate, which is obtained from a
South American manufacturer under a long-term sourcing agreement, alginates and
carrageenan, which are derived from various types of seaweed that are sourced
by the company on a global basis and wood pulp which is purchased from several
North American producers. Raw materials used by Agricultural Products,
primarily processed chemicals, are obtained from worldwide sources.
The company does not use single source suppliers for the majority of its raw
material purchases and believes the available supplies of raw materials are
adequate.
Patents
FMC owns a number of U.S. and foreign patents, trademarks and licenses that
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.
Seasonality
The seasonal nature of the crop protection market and the geographic spread
of the Agricultural Products business generally produce stronger earnings in
the second and third quarters. Agricultural products sold into the northern
hemisphere (North America, Europe and parts of Asia) serve seasonal
agricultural markets from March through September, while markets in the
southern hemisphere (Latin America, parts of Asia and Australia) are served
from July through December.
The remainder of FMC's businesses is generally not subject to significant
seasonal fluctuations.
Competitive Conditions
FMC encounters substantial competition in each of its three business
segments. This competition is expected to continue in both the United States
and markets outside the United States. FMC markets its products through its own
sales organization and through independent distributors and sales
representatives. The number of the company's principal competitors varies from
segment to segment. In general, FMC competes by operating in a cost-efficient
manner and by leveraging its industry experience to provide advanced
technology, high product quality and reliability and quality customer and
technical service.
4
FMC's Agricultural Products segment competes in the global crop protection
market for insecticides and herbicides. The industry is characterized by a
small number of large competitors and a large number of smaller, often regional
competitors such as FMC. Industry products include crop protection chemicals
and, for major competitors, genetically engineered (crop biotechnology)
products. Competition from generic producers has increased as a significant
number of product patents have expired in the last decade. In general, FMC
competes as a product innovator by focusing on insecticide discovery and
development and licensing products from alliance partners when the products
complement FMC's product portfolio. FMC also differentiates itself by reacting
quickly in key markets, establishing effective product stewardship programs,
and developing strategic alliances, which strengthen market access in key
countries.
With leading or significant positions in markets that include alginate,
carrageenan, microcrystalline cellulose and lithium-based products, Specialty
Chemicals competes on the basis of product differentiation, customer service
and price. BioPolymer competes with both direct suppliers of cellulose and
seaweed extract as well as suppliers of other hydrocolloids, which may provide
similar functionality in specific applications. In cellulose, competitors are
typically smaller than FMC, while in seaweed extracts, FMC competes with other
broad-based chemical companies. Both of FMC's two most significant competitors
in lithium each extract the element from naturally occurring, lithium-rich
brines located in the Andes mountains of Argentina and Chile which are believed
to be the world's most significant and lowest cost sources of lithium.
Industrial Chemicals serves the alkali, hydrogen peroxide and phosphorus
markets predominantly in the United States and to a lesser extent, Europe. The
Alkali Chemicals Division is the world's largest producer of natural soda ash.
In North America, the soda ash business competes with five domestic producers
of natural soda ash, three of which operate in the vicinity of our mine and
processing facility in Green River, Wyoming. Outside of North America and
Europe, FMC sells soda ash through American Natural Soda Ash Corporation
(ANSAC), a foreign sales association organized under the Webb-Pomerene Act.
Internationally, FMC's natural soda ash competes with synthetic soda ash
manufactured by numerous producers, ranging from integrated multinational
companies to smaller regional players. The Hydrogen Peroxide Division maintains
a leading position in the North American market for hydrogen peroxide. There
are currently five firms competing in the hydrogen peroxide market in North
America. The primary competitive factor affecting the sales of soda ash and
hydrogen peroxide is price. FMC seeks to maintain its competitive position by
employing low cost processing technology. At Foret, FMC possesses a strong cost
and market position in phosphates, perborates, peroxygens, zeolites and sulfur
derivatives. In each of these markets FMC faces significant competition from a
range of multinational and regional chemical producers. FMC participates in the
phosphorus business in the United States through Astaris, FMC's joint venture
with Solutia Inc. Astaris competes primarily with Rhodia which is the only
other global producer competing with Astaris across a wide variety of
phosphorus chemicals in the North American market. Competition in phosphorus is
based primarily on price and product differentiation through customer service.
Research and Development Expense
FMC's research and development expenditures in the last three years are set
forth below:
Year Ended December 31,
-----------------------
2001 2000 1999
----- ----- ------
In Millions
Agricultural Products $72.5 $66.7 $ 60.9
Specialty Chemicals.. 15.9 19.1 21.2
Industrial Chemicals. 11.4 12.0 18.5
----- ----- ------
Total............. $99.8 $97.8 $100.6
===== ===== ======
Compliance with Environmental Laws and Regulations
See Note 13 "Environmental Obligations" in the company's 2001 consolidated
financial statements at pages 53 through 55 in this report which is
incorporated herein by reference.
5
Employees
FMC employs approximately 6,000 people in its domestic and foreign
operations. Approximately 18% of such employees are represented by collective
bargaining agreements in the United States. In 2002, one of the company's six
collective bargaining agreements will expire, covering less than 100 employees.
FMC believes that it 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 cannot predict,
however, the outcome of future contract negotiations.
Financial Information About Geographic Areas
See Table on "Geographic Segment Information Revenue and Long-lived Assets"
in Note 20 to the company's 2001 consolidated financial statements at page 66
in this report which is incorporated herein by reference.
ITEM 2. PROPERTIES
FMC leases executive offices in Philadelphia and subleases administrative
offices from Technologies in Chicago. The company operates 37 manufacturing
facilities and mines in 19 countries. Its major research facility is in
Princeton, NJ.
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. A
number 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 or to the company as a whole.
Most of FMC's plant sites are owned, with some under lease. FMC believes its
properties and facilities meet present requirements and are in good operating
condition and that each of its significant manufacturing facilities is
operating at a level consistent with capacity utilization prevalent in the
industries in which it operates. The number and location of FMC's production
properties for continuing operations are:
Latin
America
United And Western Asia-
States Canada Europe Pacific Total
------ ------- ------- ------- -----
Agricultural Products 5 1 -- 3 9
Specialty Chemicals.. 3 2 5 4 14
Industrial Chemicals. 5 1 8 -- 14
-- - -- -- --
Total............. 13 4 13 7 37
== = == == ==
ITEM 3. LEGAL PROCEEDINGS
See Note 1 "Principal Accounting Policies--Environmental Obligations," Note
13 "Environmental Obligations" and Note 19 "Commitments and Contingent
Liabilities" in the company's consolidated financial statements beginning on
page 32, page 53 and page 63, respectively, of this report which is
incorporated herein by reference.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The executive officers of FMC Corporation, the offices currently held by
them, their business experience since January 1, 1997 and earlier and their
ages as of March 1, 2002, are as follows:
Age on Office, year of election and other
Name 3/1/2002 information
- ---- -------- ----------------------------------
William G. Walter 56 Chairman of the Board, Chief Executive Officer and President (01-present);
Executive Vice President (00); Vice President and General Manager--
Specialty Chemicals Group (97); General Manager--Alkali Division (92);
International Managing Director--Agricultural Products Group (91); Division
Manager, Defense Systems International (86); Director of Market/Sales--
Construction Equipment Group (82).
W. Kim Foster 53 Senior Vice President and Chief Financial Officer (01-present); Vice President
and General Manager--Agricultural Products Group (98); Director,
International, Agricultural Products Group (97-98); Division Manager, Airport
Products and Systems Division (91-97).
Robert I. Harries 58 Senior Vice President and General Manager Industrial Chemicals Group and
Shared Services (01-present); Vice President and General Manager--Chemical
Products Group (94).
Thomas C. Deas, Jr 51 Vice President and Treasurer (01-present); Vice President, Treasurer and CFO,
Applied Tech Products Corp. (98); Vice President, Treasurer and CFO, Airgas,
Inc. (97); Vice President, Treasurer and CFO, Maritrans, Inc. (96); Vice
President--Treasury and Assistant Treasurer, Scott Paper Company (88).
Milton Steele 53 Vice President and General Manager Agricultural Products Group (01-present);
International Director, Agricultural Products (99); General Manager
BioProduct Division (98); General Manager, Asia Pacific (96); Area Manager,
Asia Pacific (92).
Andrea E. Utecht 53 Vice President, General Counsel and Secretary (01-present); Senior Vice
President, Secretary and General Counsel, AtoFina Chemicals, Inc. (96).
Graham R. Wood 48 Vice President, Corporate Controller (01-present); Group Controller--
Agricultural Products Group (99); Chief Financial Officer--European Region
(95); Group Controller--FMC Foodtech (93).
No family relationships exist among any of the above-listed officers, and
there are no arrangements or understandings between any of the above-listed
officers and any other person pursuant to which they serve as an officer. All
officers are elected to hold office for one (1) year or until their successors
are elected and qualified.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The company's common stock of $0.10 par value is traded on the New York
Stock Exchange, the Pacific Stock Exchange and the Chicago Stock Exchange
(Symbol: FMC). There were 8,022 registered common stockholders as of December
31, 2001. The 2001 and 2000 quarterly summaries of the high and low prices of
the company's common stock are represented herein under Item 8 (see Note 21
"Quarterly Financial Information" on page 67 of this report). No cash dividends
were paid in 2001, 2000 or 1999.
FMC's annual meeting of stockholders will be held at 2 p.m. on Tuesday,
April 23, 2002, at the Top of the Tower, 1717 Arch Street, 50/th/ Floor,
Philadelphia, PA 19103. Notice of the meeting, together with proxy materials,
will be mailed approximately 40 days prior to the meeting to stockholders of
record as of March 1, 2002.
Transfer Agent and Registrar of Stock: Shareholder Communications,
Computershare Investor Services, LLC, P.O. Box A3504, Chicago, IL 60690-3504.
A copy of this report on Form 10-K for 2001 is available upon written
request to: FMC Corporation, Communications Department, 1735 Market Street,
Philadelphia, PA, 19103.
ITEM 6. SELECTED FINANCIAL DATA
The company's summary of selected financial data and related notes for the
years 1997 through 2001 are included herein under Item 8 (see "Five Year
Summary of Selected Financial Data" on pages 68 and 69 of this report).
FORWARD-LOOKING INFORMATION
Statement under the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995: FMC Corporation ("FMC" or 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 Management's Discussion and Analysis of Financial
Condition and Results of Operations within, in the company's Annual Report, in
the company's other filings with the Securities and Exchange Commission, or in
reports to its stockholders. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statement. These factors include,
among other things, the risk factors listed below.
In some cases, FMC has identified forward-looking statements by such words
or phrases as "will likely result," "is confident that," "expect," "expects,"
"should," "could," "may," "will continue to," "believe," "believes,"
"anticipates," "predicts," "forecasts," "estimates," "projects," "potential,"
"intends" or similar expressions identifying "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including the negative of those words and phrases. Such forward-looking
statements are based on management's current views and assumptions regarding
future events, future business conditions and the outlook for the company based
on currently available information. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those expressed in, or implied by, these statements. 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.
8
Among the factors that could have an impact on our ability to achieve
operating results and meet our other goals are:
Industry Risks:
Pricing and volumes in our markets are sensitive to a number of industry
specific and global issues and events including:
. Capacity Utilization--Our Industrial Chemicals businesses are sensitive to
industry capacity utilization. As a result, pricing tends to fluctuate
when capacity utilization changes occur within our industry.
. Competition--All of our segments face competition, which could affect our
ability to raise prices or successfully enter certain markets.
. Climatic Conditions--Our Agricultural Products markets are affected by
climatic conditions, which could adversely affect crop pricing and pest
infestations. The nature of these events makes them difficult to predict.
. Changing Regulatory Environment--Changes in the regulatory environment,
particularly in the United States, could adversely impact our ability to
continue selling certain products in our domestic and foreign markets.
. Changes in Our Customer Base--Our customer base has the potential to
change, especially when long-term supply contracts are renegotiated. Our
Industrial Chemical and Specialty Chemical businesses are most sensitive
to this risk.
. Energy Costs--Energy costs represent a significant portion of our
manufacturing costs and dramatic increases in such costs could have an
adverse affect on our results of operations.
. Unforeseen Economic and Political Change--Our business could be adversely
affected by unforeseen economic and political changes in the international
markets where we compete including: war, civil unrest, inflation rates,
recessions, trade restrictions, foreign ownership restrictions and
economic embargoes imposed by the United States or any of the foreign
countries in which FMC does business; change in governmental laws and
regulations and the level of enforcement of these laws and regulations;
other governmental actions; and other external factors over which we have
no control.
. Litigation and Environmental Risks--Current reserves relating to FMC's
ongoing litigation and environmental liabilities may prove inadequate.
. Production Hazards--Our facilities are subject to operating hazards, which
may disrupt our business.
Technology Risks:
. Failure to make continued improvements in our product technology and new
product introductions could impede our competitive position, particularly
in Agricultural Products and Specialty Chemicals.
. Failure to continue to make process improvements to reduce costs could
impede our competitive position.
Financial Risks:
. We have a significant amount of indebtedness, which could adversely affect
our financial condition and limit our ability to grow and compete
successfully in our markets. We also rely on a revolving credit facility
that requires renegotiation as circumstances warrant. This also subjects
us to the impact of changing interest rates.
9
. We have certain commitments and guarantees which could adversely affect
our liquidity and financial condition.
. We are an international company and therefore face foreign exchange rate
risks. We are particularly sensitive to the euro and the Brazilian real.
To a lesser extent, we are sensitive to Asian currencies, particularly the
Japanese yen.
. We have a number of agreements with our former subsidiary, FMC
Technologies, Inc., dealing with matters such as tax sharing and
insurance. Under certain circumstances, we may incur liabilities under
these agreements and become entitled to be indemnified by FMC
Technologies, Inc. Our ability to be indemnified will depend on the
ability of FMC Technologies, Inc. to pay us.
The company wishes to caution that the preceding list of important factors
may not be all inclusive and 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 notes to our
consolidated financial statements, including those relating to environmental
obligations, contingent liabilities and legal proceedings, 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Reorganization of our Company
We implemented our plan to split FMC into separate chemical and machinery
companies in 2001 through a two-step process. The first step included an
initial public offering ("IPO") of 17 percent of our machinery businesses,
named FMC Technologies, Inc. ("Technologies"), which took place in the second
quarter of 2001. Technologies consists of our former Energy Systems and Food
and Transportation Systems business segments. Subsequent to the IPO,
Technologies made payments of $480.1 million to our company in exchange for the
net assets distributed to Technologies on June 1, 2001, which we used to retire
short-term and long-term debt. The second step, the distribution of our
remaining 83 percent ownership in Technologies (the "spin-off") occurred on
December 31, 2001. Total net assets distributed on December 31, 2001 were
$509.5 million.
We believe that the spin-off of Technologies will allow our company to focus
its efforts in the chemical industry through improved customer orientation,
increased innovation and overall growth. In an effort to align our business
with our future growth plans, we took various strategic measures, including the
restructuring of businesses, reduction of staff, plant shutdowns and the
writedown of certain underperforming assets. We believe these steps will
increase our company's financial flexibility as market conditions change.
Risk and our Significant Accounting Policies
As would be expected, these changes in our company have altered our overall
risk environment as described below and elsewhere in this report.
In addition to risk factors, we have also identified and reviewed our
significant accounting policies, all of which are described in Note 1 to our
consolidated financial statements, while noting that the preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and
assumptions that require judgment. These estimates and assumptions can
significantly affect the reported amounts of assets, liabilities, revenues and
expenses at the date of our financial statements and for the reporting periods
shown. Our disclosures of contingent assets and liabilities at the date of our
financial statements are similarly affected by estimates and assumptions.
10
Some of these accounting estimates and assumptions are particularly
sensitive because of their significance to our consolidated financial
statements and because of the possibility that future events affecting them may
differ markedly from what had been assumed when the financial statements were
prepared.
For example, we provide for environmental related obligations when they are
believed to be probable and amounts can be reasonably estimated. Also, we
review the recoverability of the net book values of our investments in
affiliates and, our fixed and intangible assets whenever events or
circumstances suggest that the net book value of these assets may not be
recoverable. When this is the case, we record an impairment loss. We also
continually assess the return on our business segments, which sometimes results
in a plan to restructure the operations of a business. When such a plan is
final, we record an accrual for severance and other contractual commitments and
obligations. Finally, our reserves for discontinued operations consist of
obligations for discontinued operations, for environmental remediation and
study obligations from some of our former chemical plant sites, and product
liabilities and other potential claims, including those related to retiree
medical and life insurance benefits. (See a further discussion on all of the
policies in Notes 1, 3, 6, 7, 11, 12 and 13 to our consolidated financial
statements.)
Results of Operations
General
All results discussed in this analysis address the continuing operations of
our chemical businesses. Technologies results have been reclassified to
discontinued operations within our consolidated statements of income and
consolidated statements of cash flows for the periods ended December 31, 2001,
2000 and 1999. Accordingly, the results of the Energy Systems and Food and
Transportation Systems business segments will not be included in the results of
operations discussion and analysis.
Our loss from continuing operations for the year ended December 31, 2001,
was $306.3 million compared to income of $125.6 million and $158.7 million in
2000 and 1999, respectively. Income from continuing operations before
cumulative effect of change in accounting principle, excluding special items
defined below for the year ended December 31, 2001, was $99.6 million compared
to $153.5 million and $132.0 million in 2000 and 1999, respectively. Special
items in 2001 consisted of asset impairments and restructuring and other
charges totaling $603.5 million ($405.9 million after tax). Special items in
2000 consisted of asset impairments and restructuring and other charges
totaling $45.3 million ($27.9 million after tax). Special items in 1999
consisted of asset impairments, restructuring and other charges and gains on
divestitures of businesses totaling a gain of $21.3 million ($26.7 million
after tax).
The following table displays the results for the years 2001, 2000 and 1999
through a reconciliation between as-reported income (loss) from continuing
operations before cumulative effect of change in accounting principle and
income from continuing operations before cumulative effect of change in
accounting principle, excluding special items.
Years Ended December 31
-----------------------
2001 2000 1999
------- ------ ------
(In Millions)
Income (loss) from continuing operations before cumulative
effect of change in accounting principle--as reported............ $(306.3) $125.6 $158.7
Asset impairments.................................................. 323.1 10.1 23.1
Restructuring and other charges.................................... 280.4 35.2 11.1
Gains on divestitures of businesses................................ -- -- (55.5)
Tax effect of asset impairments, restructuring and other charges
and gains on divestitures of businesses.......................... (197.6) (17.4) (5.4)
------- ------ ------
Income from continuing operations before cumulative
effect of change in accounting principle, excluding special items $ 99.6 $153.5 $132.0
======= ====== ======
11
Results of Operations--2001 Compared to 2000
In the following discussion, "year" refers to the year ending December 31,
2001 and "prior year" refers to the year ending December 31, 2000. All
comparisons are between these periods unless otherwise noted.
Revenue was $1,943.0 million in 2001, down from $2,050.3 million in 2000.
Revenue in the United States decreased 8.6 percent compared with 2000, while
revenue outside the United States, including exports, decreased 2.2 percent
from 2000. Sales in the United States represented 45.4 percent of our 2001
revenue, slightly less than in 2000.
Income from continuing operations, before the cumulative effect of change in
accounting principle, net of income taxes, excluding asset impairments and
restructuring and other charges was $99.6 million in 2001 compared to $153.5
million in 2000. This decline can be attributed to an overall economic downturn
impacting the chemical industry worldwide and other factors discussed under
"Segment Results" below.
Asset impairments totaled $323.1 million ($233.8 million after tax) for 2001
compared to $10.1 million ($6.2 million after tax) in 2000.
Based upon a comprehensive review of our long-lived assets we recorded asset
impairment charges of $211.9 million related to our U.S. based phosphorus
business. The components of asset impairments related to this business, include
a $171.0 million impairment of environmental assets built to comply with a
Resource Conservation and Recovery Act ("RCRA") Consent Decree ("Consent
Decree") at the Pocatello, Idaho facility and a $36.5 million impairment charge
for our investment in Astaris, LLC ("Astaris"), our phosphorus joint venture
with Solutia, Inc. ("Solutia"). (See Notes 4 and 13 to our consolidated
financial statements.) Driving these charges were a decline in market
conditions, the loss of a potential site on which to develop an economically
viable second purified phosphoric acid ("PPA") plant and our agreement to pay
into a fund for the Shoshone-Bannock Tribes as a result of an agreement to
support a proposal to amend the Consent Decree permitting the earlier closure
of the largest remaining waste disposal pond at Pocatello. In addition, we
recorded an impairment charge of $98.9 million related to our Specialty
Chemicals segment's lithium operations in Argentina. We established this
operation, which includes a lithium mine and processing facilities,
approximately five years ago in a remote area of the Andes Mountains. With the
entry of a South American manufacturer into this business, resulting in
decreased revenues and following the continuation of other unfavorable market
conditions, our lithium assets in Argentina became impaired as the total
capital invested is not expected to be recovered. An additional $12.3 million
of charges related to the impairment of assets in our cyanide operations.
During the second quarter of 2000, we recorded asset impairments of $10.1
million ($6.2 million after tax). Impairments of $9.0 million were recognized
because of the formation of Astaris (see Note 4 to our consolidated financial
statements), including the write down of certain phosphorus assets retained by
our company and the accrual of costs related to our planned closure of two
phosphorus facilities. Other asset impairments were due to the impact of
underlying changes within the Specialty Chemicals segment.
See Note 1 to our consolidated financial statements for further discussion
on our accounting policies related to asset impairments.
Restructuring and other charges. A change in market conditions and in our
corporate strategy resulted in restructuring and other charges of $280.4
million ($172.1 million after tax) in the year. A charge of $35.2 million
($21.7 million after tax) was recorded in 2000.
We believe that the restructuring and other charges recorded in 2001 have
enabled us to engage in long-term growth opportunities for all of our business
segments. See Note 1 to our consolidated financial statements for further
discussion on our accounting policies related to restructuring and other
charges.
We had several minor restructuring activities related to corporate
reorganization in the first quarter of 2001 totaling approximately $1.0 million.
12
During the second quarter of 2001, we recorded $175.0 million in
restructuring and other charges including $160.0 million related to our
Industrial Chemicals segment's U.S. based phosphorus business. The components
included in restructuring and other charges related to the phosphorus business
were as follows: a $68.7 million reserve for further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; and a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes and $8.6 million of other related
charges. In addition, restructuring charges for the quarter included $8.0
million related to our corporate reorganization. The remaining charges of $7.0
million were for the restructuring of two smaller chemical facilities. We
reduced our workforce by approximately 135 people in connection with these
restructuring activities.
During the third quarter of the year, we recorded restructuring charges of
$8.5 million. These charges were largely for reorganization costs and corporate
restructuring activities including severance and contract commitment costs.
(See Note 2 to our consolidated financial statements).
We recorded restructuring and other charges of $95.9 million in the fourth
quarter of 2001. Most of these charges related to our decision to shutdown
operations at Pocatello. These charges include: $36.3 million for our share of
Astaris shutdown costs including environmental cleanup, waste removal and other
activities; also included are $44.6 million of Pocatello costs related to plant
demolition, plant shutdown, severance and other activities. In addition, $12.5
million of severance and other costs related to the Agricultural Products
segment were recorded primarily as a result of our decision to refocus certain
research and development activities. The remaining charges reflected
restructuring initiatives in our Specialty Chemicals segment and in corporate.
We reduced our workforce by approximately 182 people in connection with the
third and fourth quarter restructuring activities.
During 2000, we recorded restructuring and other charges of $35.2 million
($21.7 million after tax). Restructuring charges of $20.6 million were
attributable to the formation of Astaris and the concurrent reorganization of
our Industrial Chemicals sales, marketing and support organizations, the
reduction of office space requirements in our Philadelphia chemical
headquarters and pension expense related to the separation of phosphorus
personnel from our company. In addition, we recorded environmental accruals of
$12.5 million because of increased cost estimates for ongoing remediation of
several phosphorus properties. Other restructuring charges included $2.1
million for other projects. Of the approximately 350 employee severances that
were expected to occur through the completion of these programs in 2000, 281
occurred at December 31, 2000 while the remainder occurred in 2001.
Income (loss) from continuing operations was a loss of $306.3 million in
2001 compared to income of $125.6 million in 2000. Most of the decline can be
attributed to after-tax asset impairments and restructuring and other charges
of $405.9 million in 2001 compared to after-tax charges of $27.9 million in
2000. Also contributing to the decline were poor economic conditions affecting
the chemical industry worldwide.
Corporate expenses (excluding restructuring and other charges in 2001 and
2000) were $36.3 million in 2001 and $36.2 million in 2000.
Other income and expense, net is comprised primarily of LIFO inventory
adjustments and pension income or expense. Net other expense for the year was
$1.6 million compared to net other income of $9.6 million in 2000. This
variance is largely attributable to increased pension costs and lower
amortization of a deferred pension asset.
Net interest expense in 2001 was $58.3 million compared to $61.8 million in
2000. The decrease in net interest expense in 2001 was primarily the result of
lower average debt levels during the year.
13
Provision (benefit) for income taxes. We recorded an income tax benefit of
$166.6 million in 2001 resulting in an effective tax rate of 35.2 percent
compared to income tax expense of $33.0 million and an effective tax rate of
20.8 percent in 2000. The differences between the effective tax rates for these
periods and the statutory U.S. Federal income tax rate relate primarily to
differing foreign tax rates, the impairment of certain Argentina assets,
foreign sales corporation benefits, incremental state taxes and non-deductible
goodwill amortization.
Discontinued operations. We recorded a loss from discontinued operations of
$42.5 million ($30.5 million after tax) in 2001. Included in this amount are
earnings of Technologies, including interest expense of $11.2 million, which
was allocated to discontinued operations in accordance with Accounting
Principles Board Statement No. 30 ("APB 30") and later relevant accounting
guidance, costs related to the spin-off and additional income tax provision
related to the reorganization of our worldwide entities in anticipation of the
separation of Technologies from FMC. In addition, we recorded a charge of $18.0
million for updated estimates of environmental remediation costs related to our
other discontinued businesses.
During 2000, we recorded a net loss from discontinued operations of $17.7
million ($15.0 million after tax). Of this amount, $64.0 million are earnings
of the spun-off Technologies business, including allocated interest expense of
$30.9 million. Also included are a $80.0 million loss for a settlement of
litigation related to our discontinued Defense Systems business and a charge of
$1.7 million for interest charges on postretirement benefit obligations.
Net income (loss). We recorded a net loss of $337.7 million for 2001
compared to net income of $110.6 million in 2000. This variance reflects the
effect of significant asset impairments and restructuring and other charges
recorded in 2001.
Additional information regarding discontinued operations and the related
accounting policies can be found in Notes 1, 3 and 20 to our consolidated
financial statements.
Segment Results--2001 Compared to 2000
(See Note 20 to our consolidated financial statements for detailed segment
results.)
Segment operating profit is presented before taxes, asset impairments and
restructuring and other charges. Information about how each of these items
relates to our businesses at the segment level is discussed below and in Note
20 to our consolidated financial statements.
Agricultural Products
Agricultural Products revenue decreased to $653.1 million in 2001 from
$664.7 million in 2000. Agricultural Products segment operating profit declined
to $72.8 million, down 17.1 percent from the prior year.
The decrease in Agricultural Products revenues was largely due to a lack of
sulfentrazone sales to E.I. du Pont de Nemours and Company ("DuPont") in 2001.
In 1998 we entered into an exclusive agreement with DuPont to provide them
sulfentrazone in North America for use on soybeans. However, the sale of
formulated products incorporating sulfentrazone did not reach expectations and
the contract purchases were cancelled in 2001. DuPont no longer has exclusive
rights to the use of sulfentrazone on soybeans in North America. We began
developing new markets in 2001, expanding our sulfentrazone sales, including
sales into the soybean market in North America. We believe that we have
recovered approximately one third of the sulfentrazone volumes lost from the
absence of DuPont's purchases. Somewhat offsetting the sulfentrazone sales
decline in North America was an increase in carfentrazone sales into the rice
and cotton defoliation markets as a result of new product registrations. We
believe that sulfentrazone sales will increase slightly in 2002; however, we
will idle our production facility early in 2002 to allow product inventories to
align with expected sales volumes.
14
Agricultural Products sales were also affected by weakened Asian markets due
to depressed crop prices, unfavorable climatic conditions and lower pricing in
some Asian markets due to weaker exchange rates. Asian revenue shortfalls were
offset by stronger demand for herbicides in Latin and South America due mainly
to the introduction of several new herbicide registrations in 2001.
Agricultural Products operating profit declined to $72.8 million from $87.8
million as a result of a decline in operating margins to 11.1 percent in 2001
from 13.2 percent in 2000. This lower profitability reflects reduced volumes of
sulfentrazone, weaker pricing due to lower crop prices, and weaker currencies
in Asia and Brazil. The adverse impact of the lower sulfentrazone volumes in
North America was significantly offset by a one time contract penalty payment
from DuPont of $20.0 million which was paid in the first half of 2001.
Additionally, Agricultural Products incurred higher selling costs in North
America in 2001 as it pursued new sulfentrazone markets through direct selling
instead of through DuPont's sales channels.
During the fourth quarter of 2001, Agricultural Products began a
restructuring of its operations to focus on key markets and products. We will
concentrate our future research and development ("R&D") activities on our core
strength of insecticides and reduce all work on herbicides, while continuing
our efforts to maximize the market potential of already commercialized
herbicide chemistries including clomazone, carfentrazone and sulfentrazone.
Additionally, we have reduced our direct sales and support staffs outside
North, South and Latin America, relying instead on new and expanded strategic
alliances with Ishihara Sangyo Kaisha, Ltd ("ISK") in Asia and Belchim in
Europe. A restructuring charge of $12.5 million ($7.8 million after tax) was
taken in the fourth quarter to implement these plans. This restructuring should
be complete by the end of the first quarter 2002.
We believe that Agricultural Products will have a challenging year in 2002,
but the actions we have taken to expand product labels, improve market access
and reduce costs should allow us to recover the earnings decline that resulted
from the loss of DuPont's sulfentrazone business.
Specialty Chemicals
Specialty Chemicals revenue was $472.0 million in 2001, down from $488.8
million in 2000 due to lower revenue in both the FMC BioPolymer AS
("BioPolymer") and Lithium businesses. Specialty Chemicals segment operating
profit declined to $87.5 million, or 5.3 percent from $92.4 million in the
prior year.
BioPolymer revenue decreases resulted from a combination of weaker demand
and lower selling prices for alginate and carrageenan in specialty markets,
partially offset by strong growth from microcrystalline cellulose in the
pharmaceutical and food ingredients markets. Specialty markets, which include
pet food, textiles and household products, experienced the impacts of a slowing
economy and lower competitor pricing. Customer inventory corrections and a weak
euro also drove sales lower.
Lithium revenue decreases resulted from our strategic exit from the
commodity lithium carbonate market and slower industrial markets, particularly
in Europe. The lithium carbonate market has experienced substantially lower
prices since the entry of a new competitor in 1997 which resulted in our
decision to exit the market. These sales declines were offset by continued
growth in lithium specialty products.
Specialty Chemicals operating profit decreased to $87.5 million in 2001 from
$92.4 million in 2000 despite relatively flat operating margins as compared to
2000. The decrease in operating profit can be attributed to a decrease in
BioPolymer volumes and prices in the pet food, textile and household products
markets offset, in part, by lower operating costs and an improved mix in
lithium. A weaker euro, compared to the prior year, also unfavorably impacted
earnings.
15
Industrial Chemicals
Industrial Chemicals revenue decreased to $822.0 million in 2001, compared
to $905.6 million in 2000. Industrial Chemical segment operating profit
declined by 36.6 percent to $72.6 million in 2001 from $114.5 million in 2000.
Revenue decreases reflected weaker demand in most markets for Industrial
Chemicals. Weaker end-market demand for glass and the entry of a new competitor
resulted in lower soda ash volumes and revenue compared to the prior year.
Price increases announced in the late summer of 2001 are not expected to have
any material effect on revenues until 2002. In hydrogen peroxide, weakness in
the pulp and textile markets resulted in decreased revenues despite the price
increases initiated in late 2000 and the application of an energy surcharge in
early 2001. Softer demand in the polymer and electronics end-markets also
resulted in lower volumes for specialty peroxygens.
Foret, our Spain-based operation, recorded increases in sales that reflected
strong phosphate and zeolite markets. Phosphate volumes improved as a result of
a recovery in their export markets, particularly in the Middle East and North
Africa. Zeolite sales increased as a result of an acquisition in the third
quarter of 2001 and stronger sales to new and existing customers. Conversely,
peroxygen sales declined on lower export sales. Foret's increase in sales was
offset by unfavorable translation, due to a weaker euro in 2001.
These revenue comparisons were further affected by the inclusion of the
sales of our U.S. based phosphorus business in the first three months of 2000.
Subsequent U.S. phosphorus sales have been deconsolidated and recorded in
earnings from equity investments as part of Astaris, which was formed effective
April 1, 2000 (see Note 4 to our consolidated financial statements). We account
for Astaris on an equity basis for Industrial Chemicals and therefore, the
sales of Astaris are not reflected in our consolidated revenues after March
2000.
Industrial Chemicals operating profit (net of minority interests) decreased
36.6 percent to $72.6 million in 2001 from $114.5 million in 2000. Driving the
Industrial Chemicals segment's profit decreases were lower sales volumes in
hydrogen peroxide, soda ash and active oxidants and reduced earnings from
Astaris, as discussed below. Additionally, during 2000 we hedged our natural
gas requirements for 2001, which, due to the forward pricing in the market at
that time, resulted in generally higher gas costs in 2001 versus the prior
year. Offsetting these unfavorable factors were increased pricing in several
products.
Our U.S. based phosphorus business is comprised of our 50 percent interest
in Astaris for the manufacture and sale of our phosphorus-based products, and
the activities of our corporate phosphorus division, which manages remediation
and other environmental projects associated with the Astaris elemental
phosphorus plant in Pocatello, Idaho. Astaris has experienced a difficult
business environment as a result of the economic slowdown and significant
changes in its manufacturing and sourcing strategy. During the first quarter of
2001, Astaris was asked by its electric power provider, Idaho Power Company, to
assist in combating the energy crisis in the state of Idaho. Historically, the
Astaris elemental phosphorus facility has been the largest consumer of power in
the state. Astaris agreed to work with Idaho Power and signed a two-year
agreement to resell 50 megawatts of power to Idaho Power at rates below the
then current market prices, but above the rate paid by Astaris under its power
contract. The gross economic value of the power contract, in the nine months of
2001 during which the contract was in effect, was $68.0 million of which half,
or $34.0 million, is reflected in FMC's earnings in Astaris. However, this
decision required Astaris to shutdown one of the two remaining operating
furnaces in Pocatello and to source raw materials including purified phosphoric
acid and other products from third-party suppliers at an additional cost to
Astaris of approximately $60.0 million ($30.0 million is reflected in FMC's
earnings in Astaris). This significant restructuring of the supply chain also
adversely impacted Astaris' sales. Sales declined due to the intentional
reduction of volume capacity and Astaris' inability to meet customer material
needs. In December 2001, the Idaho Public Utility Commission ("IPUC") was
petitioned by its staff to reduce the future amounts to be paid to Astaris
under the power resale contract. This petition is subject to the approval of
the full IPUC, which is expected to make a decision later in 2002. Any adverse
decision would be subject to appeal.
16
Additionally, the start-up of the new Astaris PPA plant in Soda Springs,
Idaho in the second half of the year added costs in 2001. Start-up costs for
this plant are expected to continue until early 2002.
Our corporate phosphorus division also affected segment operating profit in
2001. Working with the EPA and the Shoshone-Bannock Tribes we agreed to amend
the July 1999 Consent Decree to permit the capping of a specific waste disposal
pond at the Pocatello site. As part of this settlement, FMC agreed to
contribute $40.0 million to a fund for the Tribes to support various Tribal
activities. ($30.0 million was paid during 2001). This agreement enabled
Astaris to shutdown the Pocatello operation in December 2001.
We expect the results of our U.S. based phosphorus operations to improve in
2002. The new Astaris PPA plant in Idaho should be fully operational in early
2002 and start-up expenses experienced in 2001 should be significantly less in
2002. In addition, spending by the corporate phosphorus division will be lower
in 2002 compared with 2001 due to lower spending on projects under the Consent
Decree. We believe the shutdown of the elemental phosphorus production at
Pocatello will enable Astaris to lower its costs by increasing the share of the
supplies it obtains from lower cost purified phosphoric acid.
Following this challenging year, we believe that results in the Industrial
Chemicals segment will improve in 2002. We will continue to focus on lowering
the cost of production and we expect to benefit from the 2001 restructuring of
our U.S. phosphorus business. However, market demand is expected to continue to
be weak through most of 2002 partially offsetting the improvements in our U.S.
phosphorus business.
Results of Operations - 2000 Compared to 1999
Revenue was $2,050.3 million in 2000, down from $2,320.5 million in 1999.
Revenue in the United States decreased 17.3 percent compared with 1999, while
revenue outside the United States, including exports, decreased by less than
5.9 percent when compared to 1999. Sales in the United States represented 47.1
percent of our 2000 revenue compared to 50.3 percent in 1999.
Revenue. Lower revenue in 2000 when compared with 1999 was principally
attributable to the contribution of our phosphorus operations to a joint
venture and to divestitures of other businesses, and was offset by revenue from
a Specialty Chemicals business acquired in 1999. Beginning April 1, 2000, sales
of phosphorus chemicals were recorded by Astaris and are not reflected as
revenue in our consolidated financial statements. Our interest in Astaris is
accounted for under the equity method and our share of Astaris' operating
earnings is included in operating profit for our Industrial Chemicals segment.
(See Note 4 to our consolidated financial statements.)
Income from continuing operations, before the cumulative effect of change in
accounting principle, net of income taxes excluding asset impairments and
restructuring and other charges (in 2000 and 1999) and gains on divestitures of
businesses (in 1999) was $153.5 million in 2000 compared with $132.0 million in
1999. This increase reflects the performance of our business segments discussed
more fully below and in Note 20 to our consolidated financial statements.
Gains on divestitures of businesses. On July 9, 1999, we completed the sale
of our bioproducts business to Cambrex Corporation for $38.2 million in cash,
resulting in a pre-tax gain of $20.1 million. Our bioproducts business was
included in our Specialty Chemicals segment and had 1999 revenue of $13.3
million (through the date of divestiture).
On July 31, 1999, we completed the sale of our process additives business to
Great Lakes Chemical Corporation for $161.1 million in cash, resulting in a
gain of $35.4 million on both a pre-tax and after-tax basis. Our process
additives business was included in our Specialty Chemicals segment and had 1999
revenue of $98.5 million (through the date of divestiture).
17
Asset impairments recorded by the company amounted to $10.1 million ($6.2
million after tax) and $23.1 million ($14.1 million after tax) for the years
ended December 31, 2000 and 1999, respectively.
During the second quarter of 2000, we recorded asset impairments of $10.1
million. Impairments of $9.0 million were recognized as a result of the
formation of Astaris (see Note 4 to our consolidated financial statements),
including the writedown of certain phosphorus assets retained by our company
and the accrual of costs related to the planned closure of two phosphorus
facilities. Other impairments were due to the impact of underlying changes
within the Specialty Chemicals segment.
In the third quarter of 1999, we recorded asset impairments of $23.1
million. Asset impairments of $14.7 million were required to write off the
remaining net book values of two U.S. lithium facilities. Both facilities were
constructed to run pilot and development quantities for new lithium-based
products. During the third quarter of 1999, management determined that it would
not be feasible to use the facilities as configured. Additionally, an
impairment charge of $8.4 million was required to write off the remaining net
book value of a caustic soda facility in Green River, Wyoming. Estimated future
cash flows related to this facility indicated that an impairment of the full
value had occurred.
Restructuring and other charges. Total restructuring and other charges of
$35.2 million ($21.7 million after tax) were recorded in 2000 compared to $11.1
million ($6.8 million after tax) in 1999.
Restructuring charges of $20.6 million were attributable to the Astaris
formation and the concurrent reorganization of our Industrial Chemicals sales,
marketing and support organizations, the reduction of office space requirements
in our Philadelphia chemical headquarters and pension expense related to the
separation of phosphorus personnel from our company. In addition, we recorded
environmental accruals of $12.5 million because of increased cost estimates for
ongoing remediation of several phosphorus properties. Other restructuring
charges included $2.1 million for several smaller projects.
In the third quarter of 1999, we recorded restructuring and other charges of
$11.1 million ($6.8 million after tax). Restructuring and other charges of $9.2
million resulted primarily from strategic decisions to divest or restructure a
number of businesses and support departments, including certain Agricultural
Products and corporate and shared service support departments. The remaining
charge related to actions, including headcount reductions, required to achieve
planned synergies from acquisitions of businesses in Specialty Chemicals.
Income (loss) from continuing operations of $125.6 million in 2000 was lower
when compared with $158.7 million in 1999, primarily resulting from gains on
divestitures of businesses in 1999 and higher restructuring and other charges
recorded in 2000.
Corporate expenses (excluding restructuring and other charges in 2000 and
1999) of $36.2 million in 2000 reflected a decrease of $5.1 million from 1999.
The company's cost reduction efforts are responsible for this trend.
Net interest expense was $61.8 million and $76.4 million during 2000 and
1999, respectively. The decrease in 2000 was the result of lower average debt
levels when compared with 1999.
Other income and expense, net is comprised primarily of LIFO inventory
adjustments and pension and postretirement plan adjustments. Other income of
$9.6 million remained relatively flat when compared to $9.3 million recorded in
1999.
Discontinued operations. During 2000, we recorded a net loss from
discontinued operations of $17.7 million ($15.0 million after tax). Of this
amount, $64.0 million represents the earnings of the spun-off Technologies
business including interest expense of $30.9 million allocated to discontinued
operations in accordance with APB 30 and later relevant accounting guidance.
Also included is a $80.0 million loss for a settlement of litigation related to
our discontinued Defense Systems business and a charge of $1.7 million for
interest charges on postretirement benefit obligations.
18
We recorded net income from discontinued operations of $73.5 million ($53.9
million after tax) in 1999. Of this amount, $79.2 million related to the
earnings of the spun-off Technologies businesses including allocated interest
expense of $30.3 million. Results of discontinued operations in 1999 included
gains of $53.7 million from the sale of properties in California that were
formerly used by our divested defense business (as discussed below). In
addition, in the fourth quarter of 1999, we provided $59.4 million in response
to updated estimates of environmental remediation costs, primarily at our
former Defense Systems sites, and increased estimates of our liabilities for
general liability, workers' compensation, postretirement benefit obligations,
legal defense, property maintenance and other costs.
During the year ended December 31, 1999, we sold several real estate
properties formerly used by United Defense, L.P., and our Defense Systems
operations divested by our company in 1997. In the second quarter of 1999, we
received $33.5 million in cash, recognizing a gain of $29.5 million, and in the
fourth quarter of 1999, we received $31.0 million in cash, recognizing a gain
of $24.2 million related to property sales.
Net income in 2000 was $110.6 million compared to $212.6 million in 1999.
Contributing to this decrease was a one-time gain of $55.5 million related to
the divestiture of a Specialty Chemicals business in 1999 offset by a charge of
$66.7 million to discontinued operations in 2000 related to our former Defense
Systems business segment.
Segment Results - 2000 Compared to 1999
Agricultural Products
Agricultural Products revenue increased to $664.7 million in 2000 compared
to $632.4 million in 1999. Operating profits increased to $87.8 million in 2000
compared to $64.3 million in 1999.
Agricultural Products revenue increased because of stronger sales in Latin
and North America, which more than offset lower sales in Asia. North American
revenue improved after a return to more normal pest pressures following 1999's
unusually low levels. Latin American sales improved due to a rapid recovery
from the devaluation of the Brazilian real in 1999, a new distribution
agreement for third-party products in Brazil and a stronger Mexican market.
Increased revenue in 2000 also reflected higher volumes for herbicides and
pyrethroids, offset by lower sales of carbamates.
Operating profits in our Agricultural Products segment increased to $87.8
million in 2000 from $64.3 million in 1999 on increased volumes and lower
costs, partially offset by higher research and development spending to develop
a new herbicide and to fund our strategic alliance with Devgen, a Belgian
biotechnology company, to support the company's insecticide discovery program.
Specialty Chemicals
Specialty Chemicals revenue was $488.8 million in 2000, down from $564.5
million in 1999. Operating profit was $92.4 million compared to $73.5 million.
Lower revenue in 2000 reflected our divestitures of the process additives
and bioproducts businesses, both of which occurred in the third quarter of
1999, and the effect of unfavorable foreign currency exchange rates. Partially
offsetting this decrease in 2000 was revenue from Pronova Biopolymer AS, an
alginate business acquired in mid-1999. The Pronova Biopolymer operation was
combined with certain carrageenan and microcrystalline cellulose businesses and
renamed FMC BioPolymer AS. BioPolymer's revenue reflected a strong market for
pharmaceutical and food-grade microcrystalline cellulose along with growth in
sales to Latin America and Asia, but was partially offset by the impact of
foreign currency translation of the euro to the U.S. dollar.
19
Sales of lithium products were up slightly in 2000. Increased revenue
reflected higher volumes of butyllithium to the polymer and pharmaceutical
markets. Lithium volume increases were offset by lower pricing, primarily the
result of weak European currencies.
Specialty Chemicals' operating profit in 2000 increased to $92.4 million
from $73.5 million in 1999. BioPolymer's increased profitability was based on
lower manufacturing costs in 2000 for carrageenan and realized synergies
associated with the acquisition of the alginate product line when compared with
1999. Lithium's improved operating profitability in 2000 when compared with
1999 was a result of higher sales, and the successful implementation of
manufacturing cost reduction initiatives.
Industrial Chemicals
Industrial Chemicals revenue decreased to $905.6 million in 2000 from
$1,141.3 million in 1999. Operating profit (net of minority interests) declined
to $114.5 million in 2000 from $144.4 million in 1999.
Lower revenue was primarily the result of the contribution of the phosphorus
business to the newly formed Astaris joint venture, effective April 1, 2000.
After that date, phosphorus revenue was no longer consolidated with our
revenue. Phosphorus revenue of $327.0 million through December 31, 1999 is
included in 1999 segment revenue, while revenue in 2000 before the joint
venture formation amounted to $79.2 million. Subsequent to the first quarter of
2000, our equity share of Astaris' earnings was included in segment operating
profit for Industrial Chemicals.
Other factors contributing to reduced revenue were the translation impact of
the weaker euro and competitive pressures both at Spain-based FMC Foret and at
Astaris. Partially offsetting the decline in revenue were increased sales of
hydrogen peroxide, reflecting both volume and price increases compared with
1999, and soda ash, a result of the Tg Soda Ash acquisition in mid-1999.
Reduced profitability for Industrial Chemicals to $114.5 million in 2000 was
primarily the result of increased energy costs for all businesses, but
especially at Astaris, while foreign currency translation losses negatively
affected reported operating profitability at Foret. In addition, segment
profits were down due to phosphorus environmental compliance costs retained by
our company for design, implementation and depreciation of capital assets in
Pocatello, Idaho in connection with the Consent Decree.
Offsetting these declines in profitability were higher earnings for soda ash
and hydrogen peroxide. Soda ash profitability increased in 2000, reflecting the
Tg Soda Ash acquisition and reduced costs despite significant increases in
energy prices. Hydrogen peroxide's favorable operating profits were largely the
result of a strong pulp and paper market. In addition, our share of Astaris'
results reflected the cost reduction benefits of the joint venture's
rationalization and restructuring programs.
Taxes
Although our domestic earnings (losses) are generally subject to tax expense
(benefit) at the statutory rate of 35.0 percent, many factors alter our
consolidated tax rate. These factors include non-deductible or non-taxable
transactions related to goodwill or other items, differing foreign tax rates,
state tax increments, depletion, extraterritorial income exclusion, and other
permanent differences. Our effective tax rate of 35.2 percent on income from
continuing operations in 2001 also includes the beneficial impact of deductible
restructuring and impairment charges recorded during the year. (See Notes 6, 7
and 10 to our consolidated financial statements.)
New Accounting Standards Adopted
On January 1, 2001 we adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and SFAS No. 138, "Accounting for Certain
20
Derivative Instruments and Certain Hedging Activities," an amendment of SFAS
No. 133. These Statements establish accounting and reporting standards that
require every derivative instrument to be recorded on the consolidated balance
sheet as either an asset or a liability measured at its fair value. SFAS No.
133, as amended, requires the transition adjustment resulting from adopting
these Statements to be reported in net income or accumulated other
comprehensive income, as appropriate, as the cumulative effect of change in
accounting principle. On January 1, 2001, we recorded the fair value of all
outstanding derivative instruments as assets or liabilities on the consolidated
balance sheet. The transition adjustment was a $0.9 million after-tax loss to
earnings and a $16.4 million after-tax gain to accumulated other comprehensive
income (loss). Both components of the adjustment were recorded as a cumulative
effect of change in accounting principle.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires that all business
combinations be accounted for by the purchase method and adds disclosure
requirements related to business combination transactions. SFAS No. 141 also
establishes criteria for the recognition of intangible assets apart from
goodwill. This Statement applies to all business combinations for which the
acquisition date was July 1, 2001 or later. We had no significant acquisitions
during 2001. We intend to implement the provisions of SFAS No. 141 in any of
our future business combinations.
On June 30, 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which establishes guidelines for the financial accounting
and reporting of acquired goodwill and other intangible assets. With the
adoption of SFAS No. 142, goodwill is no longer subject to amortization;
rather, it will be subject to at least an annual assessment for impairment by
applying a fair value based test. We are required to adopt the provisions of
this pronouncement no later than the beginning of 2002, however, goodwill and
other intangible assets acquired after June 30, 2001, are subject immediately
to the amortization provisions of this statement. We had no material
acquisitions of goodwill or other intangibles in the second half of 2001. We
will adopt the amortization provisions of SFAS No. 142 beginning in the first
quarter of 2002. During 2001, 2000 and 1999, goodwill and other intangible
amortization (pretax and after discontinued operations) was $19.4 million,
$13.5 million and $12.0 million, respectively. We believe adopting SFAS No. 142
will result in approximately a $4.0 million pre-tax benefit to earnings in 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. We are required to adopt the provisions
of this pronouncement no later than the beginning of 2003 and are evaluating
the potential impact of adopting SFAS No. 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The Statement also supersedes APB No. 30 provisions related
to the accounting and reporting for the disposal of a segment of a business.
This Statement establishes a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale.
The Statement retains most of the requirements in SFAS No. 121 related to the
recognition of impairment of long-lived assets to be held and used. The
Statement is effective for years beginning after December 15, 2001. We are
evaluating the potential impact of adopting SFAS No. 144.
Environmental Obligations
Our company, like other industrial manufacturers, is involved with a variety
of environmental matters in the ordinary course of conducting its business and
is subject to federal, state and local environmental laws. We believe strongly
that we have a responsibility to protect the environment, public health and
employee safety. This responsibility includes cooperating with other parties to
resolve issues created by past and present handling of wastes.
21
When issues arise, including notices from the Environmental Protection
Agency or other government agencies identifying our company as a Potentially
Responsible Party ("PRP"), our environmental remediation management assesses
and manages the issues. When necessary, we use multifunctional teams composed
of environmental, legal, financial and communications personnel to ensure that
our actions are consistent with our responsibilities to the environment and
public health, as well as to our employees and shareholders.
Environmental provisions totaling $68.8 million ($42.0 million after tax)
were recorded this year. These provisions largely related to the remediation of
the Pocatello site as discussed in Note 13 of our consolidated financial
statements. Also included were costs related to continued cleanup of certain
discontinued manufacturing operations from previous years. This provision and
those made in 2000 and 1999, and our accounting policies on environmental
remediation, are more fully described in Notes 1 and 13 to our consolidated
financial statements.
In the second quarter of 2000, we provided environmental reserves totaling
$12.5 million related to ongoing remediation of several phosphorus
manufacturing properties as part of the restructuring and other charges
described previously.
Additional information regarding our environmental accounting policies and
environmental liabilities is included in Notes 1 and 13, respectively, to our
consolidated financial statements. Information regarding environmental
obligations associated with our discontinued operations is included in Note 3
to our consolidated financial statements. Estimates of 2002 environmental
spending are included in the section below entitled "Cash Flow Analysis."
Liquidity and Capital Resources
In 2001, we experienced the net cash impact of significant special items
recorded in the year and spending related to the spin-off of Technologies. This
spending was somewhat offset by the cash proceeds received in the IPO of
Technologies. Cash from operations, supplemented with proceeds from the IPO and
a new credit facility, provided funding for our capital spending program, debt
pay down and interest payments throughout 2001.
Capital expenditures totaling $145.6 million in 2001, which included $41.2
million of required Pocatello Consent Decree spending, were down 26.2 percent
from 2000. We believe capital expenditures will be reduced in 2002, largely
because of the absence of this Consent Decree spending. Principal categories of
capital spending in 2002 include replacement of existing plant equipment and
compliance spending related to environmental and safety standards.
We retired $128.3 million of long-term debt in 2001, in part with a portion
of the proceeds from the IPO of Technologies. Cash paid for interest in 2001
was $79.1 million compared with $101.6 million in 2000. This decrease can be
attributed to lower average debt levels in 2001 compared to 2000.
Future cash needs include the scheduled repayment of several significant
financings over the next two years, operating cash requirements and capital
expenditures. We plan to meet these liquidity needs through cash generated from
operations, commercial paper borrowings, accounts receivable securiti-zation,
borrowings under bank credit facilities, and if necessary, the issuance of
additional long-term debt. We maintain a universal shelf registration under
which, at December 31, 2001, $345.0 million of securities could be issued.
We currently maintain a commercial paper financing program with outstanding
borrowings at December 31, 2001 of $33.0 million compared to $16.8 million at
December 31, 2000.
22
Our total committed contracts that will affect cash over the next five years
and beyond are as follows:
Expected Cash Payments by Year
----------------------------------
2006 &
Contractual Commitments 2002 2003 2004 2005 beyond Total
- ----------------------- ------ ------- ----- ------ ------ --------
(In Millions)
Short-term debt.............................. $136.5 $ -- $ -- $ -- $ -- $ 136.5
Long-term debt............................... 135.2 182.2 0.5 89.5 379.6 787.0
Lease obligations............................ 25.8 24.9 23.3 22.7 103.2 199.9
Forward energy and foreign exchange contracts 16.2 6.2 2.4 1.1 -- 25.9
Guarantees of vendor financing............... 56.0 -- -- -- -- 56.0
------ ------- ----- ------ ------ --------
Total........................................ $369.7 $ 213.3 $26.2 $113.3 $482.8 $1,205.3
====== ======= ===== ====== ====== ========
Our five-year, non-amortizing committed revolving credit agreement expired
in December 2001. There were no outstanding balances under this agreement at
the due date. At the same time we entered into a new $240.0 million committed
revolving credit facility to meet certain operating cash needs, capital
expenditures, and commercial paper demands. This credit facility will expire in
December 2002. The total amount outstanding under this facility at December 31,
2001 was $68.0 million, which was used to pay down outstanding commercial
paper. The credit agreement contains financial covenants related to leverage
(measured as the ratio of debt to adjusted earnings), interest coverage
(measured as the ratio of interest expense to adjusted earnings) and
consolidated net worth. We were in compliance with the covenants as of December
31, 2001. We expect to renew or replace this credit facility prior to its
expiration. In January 2002, we arranged a supplemental $50.0 million committed
credit facility to meet short-term seasonal financing needs. This credit
facility expires on August 31, 2002.
We also obtain financing through an accounts receivable securitization. We
sell receivables, without recourse, through our wholly owned bankruptcy-remote
subsidiary, FMC Funding Corporation, which then sells the receivables to an
unrelated finance company. The sold receivables and repurchase obligations
related to the financing are not recorded on our consolidated balance sheets,
because we have limited risk to repurchase the receivables. The financing from
the securitization totaled $79.0 million at December 31, 2001 compared to
$113.0 million on December 31, 2000. The agreement for the sale of accounts
receivable provides for the continuation of the program on a revolving basis
through November 2002. We expect to renew or replace this financing prior to
its expiration.
At December 31, 2001, long-term debt included $28.8 million of 6.75 percent
Exchangeable Senior Subordinated Debentures due 2005. (See Note 11 to our
consolidated financial statements.) These debentures are callable by FMC at par
plus accrued interest upon at least 30 days' prior notice. These debentures are
exchangeable by the holders at any time into the common stock of Meridian Gold,
Inc. (NYSE: MDG), the successor to a former subsidiary of FMC, at an exchange
price of $15.125 per share, subject to adjustment. FMC may elect to pay the
holders in cash an amount equivalent to the value of the Meridian Gold common
stock into which the holders could exchange their debentures. At December 31,
2001, FMC did not hold any shares of Meridian Gold common stock. On February
19, 2002, the closing price of Meridian Gold common stock on the New York Stock
Exchange was $13.16. If the price goes above $15.125, it is reasonably likely
that during 2002 the holders would exercise their exchange rights.
Long-term debt also includes $44.3 million of variable rate industrial and
pollution control revenue bonds that are supported by bank letters of credit.
The letters of credit generally have a term of thirteen months and extend each
month for an additional month unless and until the bank sends us a letter of
non-renewal. At December 31, 2001, no notice of non-renewal had been received.
23
The current rating of our commercial paper and similar short-term
indebtedness is A-3 by Standard & Poor's Ratings Group ("S&P") and P-3 by
Moody's Investors Service, Inc. ("Moody's"). The market for commercial paper
with this rating is limited. The current rating of our senior unsecured
long-term indebtedness is BBB- by S&P and Baa3 by Moody's. A downgrade in our
credit ratings, which may be changed, superseded or withdrawn at any time,
could increase the cost and restrict the availability of future financings. The
following table displays credit facilities, debt obligations and other items
along with the cash payments that could be required to repay them, if required
following a downgrade or series of downgrades in our credit rating:
Potential
Cash
Facility Payments
-------- -------------
(In Millions)
Commercial paper..................... $33.0
Accounts receivable securitization(1) $79.0
Forward energy contracts............. $13.3
- --------
(1) Program terminates upon a reduction in rating to Ba2 by Moody's or BB by
S&P or below
Our future liquidity could be affected by certain letters of credit,
commitments and guarantees we provide to vendors, customers and others for
which we are contingently liable. In connection with the spin-off of
Technologies, we retained liability for various contingent obligations totaling
$289.0 million at December 31, 2001. Contingent obligations include guarantees
of the performance of Technologies under various customer contracts,
reimbursements on behalf of Technologies under letters of credit and surety
bonds, and guarantees of indebtedness of Technologies. We have a guarantee from
Technologies providing for reimbursement to us if we are ever called upon to
satisfy these obligations. Technologies has obtained contractual releases of
FMC reducing the level of liabilities for which we are contingently liable to
$175.0 million at February 12, 2002. Because our expectation that the
underlying obligations will be met and the existence of the guarantee from
Technologies, we believe it is unlikely that we would have to pay any of these
contingent obligations and expect this contingent liability to continue to be
reduced throughout 2002. The majority of these obligations will expire before
the end of 2003.
We have provided an agreement to lenders of Astaris under which we have
agreed to make equity contributions to Astaris sufficient to make up one half
of any short-fall in Astaris earnings below certain levels. Astaris earnings
did not meet the agreed levels for 2001 and we do not expect that such earnings
will meet the levels agreed for 2002. We contributed $31.3 million to Astaris
under this arrangement in 2001 and expect to contribute a similar amount in
2002. The proportional amount of Astaris indebtedness subject to this agreement
from FMC at December 31, 2001 was $111.9 million. Our estimates of future
contributions are based on Astaris forecasts and are subject to some
uncertainty.
We provide guarantees to financial institutions on behalf of certain
Agricultural Products customers for their seasonal borrowing. The customers'
obligations to us are largely secured by liens on their crops. The total of
these guarantees at December 31, 2001 was $56.0 million. (See Note 19 to our
consolidated financial statements.)
On June 30, 1999, FMC acquired the assets of Tg Soda Ash, Inc. ("TgSA") from
Elf Atochem North America, Inc. for approximately $51.0 million in cash and a
contingent payment due at year-end 2003. The contingent payment amount, which
will be based on the financial performance of the combined soda ash operations
between 2001 and 2003, cannot currently be determined but could be as much as
$75.0 million.
Our ability to pay the principal and interest on our indebtedness as it
comes due will depend upon our current and future performance. Our performance
is affected by general economic conditions and by financial, competitive,
political, business and other factors. Many of these factors are beyond our
control. We believe that the cash generated from our businesses coupled with
our ability to obtain financing will be sufficient to enable us
24
to make our debt payments as they become due. We also actively evaluate
opportunities to refinance our existing obligations when financing is available
on attractive terms. If, however, we do not generate sufficient cash or
complete such financings on a timely basis, we may be required to seek
additional financing or sell equity on terms which may not be as favorable as
we could have otherwise obtained. No assurance can be given that any
refinancing, additional borrowing or sale of equity will be possible when
needed or that we will be able to negotiate acceptable terms. In addition, our
access to capital is affected by prevailing conditions in the financial and
equity capital markets, as well as our own financial condition.
Cash Flow Analysis
Cash and cash equivalents at December 31, 2001 and December 31, 2000 were
$23.4 million and $7.3 million, respectively. We had total borrowings of $923.5
million and $1,007.5 million as of December 31, 2001 and 2000, respectively.
Operating working capital, which 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, increased $67.0 million to $24.8 million at December
31, 2001, from an unfavorable $42.2 million at December 31, 2000. Factors
contributing to the increase in operating working capital at year-end 2001 when
compared with 2000 include increased accounts receivable and inventory amounts.
Cash required by operating activities of $90.0 million for the year ended
December 31, 2001 decreased from $298.3 million of cash provided by operations
in 2000 primarily as a result of increased restructuring spending accompanied
by higher inventory and accounts receivable balances. Also contributing to the
variance was a decrease in our accounts receivable financing balance in 2001
compared to the prior year.
Cash required by investing activities of $154.9 million in 2001 increased
from the 2000 requirement of $97.4 million, reflecting the impact of a prior
year distribution from Astaris, which was not repeated in the current year.
Capital spending (excluding acquisitions) of $145.6 million for the year ended
December 31, 2001 decreased when compared with 2000. Lower spending on
significant capital projects was due to lower Consent Decree spending at
Pocatello.
Cash provided by financing activities in 2001 of $376.5 million was higher
than the 2000 requirement of $162.0 million, primarily due to the contribution
related to the distribution of Technologies assets and an increase in long-term
debt offset by long-term debt paydowns of $128.3 million.
Projected 2002 spending also includes approximately $10.3 million for
environmental compliance at current operating sites, which is an operating
expense of the company, plus approximately $35.5 million of remediation
spending and $11.2 million for environmental study costs at current operating,
previously operated and other sites, which have been accrued in prior periods.
Dividends
On November 29, 2001, our Board of Directors approved the spin-off of the
remaining 83 percent of Technologies making it an independent publicly traded
company. The spin-off qualified as a tax-free distribution to U.S.
stockholders. Stockholders of record as of December 31, 2001 received
approximately 1.72 shares of common stock of the new company for every 1.0
share of our stock. Fractional shares were paid in cash to stockholders in lieu
of fractional shares on December 31, 2001.
No cash dividends were paid in 2001 other than amounts paid in lieu of
fractional shares as discussed above. No cash dividends were paid in 2000. No
cash dividends are expected to be paid in 2002.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks include changes in foreign currency
exchange rates, interest rates and commodity pricing. In managing our exposure
to these risks, we may use derivative financial instruments in accordance with
established policies and procedures. We account for these derivatives in
accordance with SFAS No. 133 (see "New Accounting Standards Adopted" and Note 1
to our consolidated financial statements). We do not use derivative financial
instruments for trading purposes. At December 31, 2001, our derivative holdings
consisted primarily of foreign currency forward contracts and natural gas
forward contracts.
When we or one of our subsidiaries sells or purchases products or services
outside the United States, transactions are frequently denominated in
currencies other than the U.S. dollar. Exposure to variability in currency
exchange rates is mitigated, when possible, with natural hedges, whereby
purchases and sales in the same foreign currency and with similar maturity
dates offset one another.
A significant portion of our business is conducted in currencies other than
the U.S. dollar, which is our reporting currency. We recognize foreign currency
gains and losses arising from our operations in the period incurred. As a
result, currency fluctuations among the U.S. dollar and the currencies in which
we do business have caused and will continue to cause foreign currency
transaction gains and losses, which could be material. Due to the weakness of
the euro in the period from 1999 through 2001, our business results have been
adversely affected by unfavorable U.S. dollar translation of earnings of our
operations in Europe. We cannot predict the effects of exchange rate
fluctuations upon our future operating results because of the number of
currencies involved, the variability of currency exposures and the potential
volatility of currency exchange rates. We take actions to manage our foreign
currency exposure such as entering into forwards and swaps, where available,
but we cannot ensure that our strategies will adequately protect our operating
results from the effects of exchange rate fluctuations.
Additionally, we initiate hedging activities by entering into foreign
exchange forward or option contracts with third parties when natural hedges do
not exist. The maturity dates of the currency exchange agreements that provide
hedge coverage are consistent with those of the underlying purchase or sales
commitments.
To monitor our currency exchange rate risks, we use a sensitivity analysis,
which measures the impact on earnings of an immediate 10 percent devaluation of
the foreign currencies to which it has exposure. Based on a sensitivity
analysis at December 31, 2001, fluctuations in currency exchange rates in the
near term would not materially affect our consolidated operating results,
financial position or cash flows. We believe that our hedging activities have
been effective in reducing our risks related to currency exchange rate
fluctuations.
We are exposed to changes in interest rates because of our financing and
cash management activities, which include long- and short-term debt to maintain
liquidity and fund our business operations. In managing interest rate risk, our
strategic policy is to monitor the ratio of our fixed- to floating-rate debt.
We may, from time to time, use interest rate swaps to manage our exposure to
changes in interest rates. We did not enter into any material interest rate
swaps in 2001 or 2000.
To address our exposure to risks from changes in commodity prices, we enter
into forward or swap contracts relating to energy purchases used in our
manufacturing processes. The forward energy contracts qualifying as hedges are
accounted for in accordance with SFAS No. 133. The gains or losses on these
contracts are included as an adjustment to the cost of sales or services when
the contracts are settled.
For more information on derivative financial instruments and related
accounting policies, see Notes 1 and 17 to our consolidated financial
statements.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included herein:
1) Consolidated Statements of Income for the years ended December 31, 2001,
2000 and 1999
2) Consolidated Balance Sheets as of December 31, 2001 and 2000
3) Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999
4) Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2001, 2000 and 1999
5) Notes to Consolidated Financial Statements
6) Five-Year Summary of Selected Financial Data
Supplementary selected financial data is incorporated herein under Note 21
"Quarterly Financial Information" on page 68 of this report.
7) Independent Auditors' Report
8) Management's Report on Financial Statements
27
FMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
-----------------------------------
2001 2000 1999
-------- -------- --------
(In Millions, Except Per Share Data
Revenue..................................................... $1,943.0 $2,050.3 $2,320.5
Costs and expenses
Cost of sales or services................................... 1,408.7 1,450.9 1,691.6
Selling, general and administrative expenses................ 243.3 231.3 273.0
Research and development expenses........................... 99.8 97.8 100.6
Gains on divestitures of businesses (Note 5)................ -- -- (55.5)
Asset impairments (Note 6).................................. 323.1 10.1 23.1
Restructuring and other charges (Note 7).................... 280.4 35.2 11.1
-------- -------- --------
Total costs and expenses.................................... 2,355.3 1,825.3 2,043.9
-------- -------- --------
Income (loss) from continuing operations before
minority interests, interest income and expense,
income taxes and cumulative effect of change
in accounting principle.................................. (412.3) 225.0 276.6
Minority interests.......................................... 2.3 4.6 5.1
Interest income............................................. 4.7 4.5 7.4
Interest expense............................................ 63.0 66.3 83.8
-------- -------- --------
Income (loss) from continuing operations before
income taxes and cumulative effect of change
in accounting principle.................................. (472.9) 158.6 195.1
Provision (benefit) for income taxes (Note 10).............. (166.6) 33.0 36.4
-------- -------- --------
Income (loss) from continuing operations before.............
cumulative effect of change in accounting principle...... (306.3) 125.6 158.7
Discontinued operations, net of income taxes (Note 3)....... (30.5) (15.0) 53.9
-------- -------- --------
Income (loss) before cumulative effect of change
in accounting principle.................................. (336.8) 110.6 212.6
Cumulative effect of change in accounting principle,
net of income taxes (Note 1)............................. (0.9) -- --
-------- -------- --------
Net income (loss)........................................... $ (337.7) $ 110.6 $ 212.6
======== ======== ========
Basic earnings (loss) per common share (Note 1)
Continuing operations....................................... $ (9.85) $ 4.13 $ 5.04
Discontinued operations (Note 3)............................ (0.98) (0.49) 1.71
Cumulative effect of change in accounting principle (Note 1) (0.03) -- --
-------- -------- --------
Net income (loss)........................................... $ (10.86) $ 3.64 $ 6.75
======== ======== ========
Diluted earnings (loss) per common share (Note 1)
Continuing operations....................................... $ (9.85) $ 3.97 $ 4.90
Discontinued operations (Note 3)............................ (0.98) (0.47) 1.67
Cumulative effect of change in accounting principle (Note 1) (0.03) -- --
-------- -------- --------
Net income (loss)........................................... $ (10.86) $ 3.50 $ 6.57
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
28
FMC CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
-------------------------
2001 2000
-------- --------
(In Millions, Except Share
and Par Value Data)
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 23.4 $ 7.3
Trade receivables, net of allowance of $8.4 in 2001 and $6.2 in 2000 (Note 1).... 441.7 358.6
Inventories (Notes 1 and 8)...................................................... 207.2 171.4
Other current assets............................................................. 99.6 90.2
Deferred income taxes (Note 10).................................................. 48.4 60.8
Net assets of Technologies (Note 2).............................................. -- 637.7
-------- --------
Total current assets............................................................. 820.3 1,326.0
Investments...................................................................... 25.2 73.0
Property, plant and equipment, net (Note 9)...................................... 1,087.8 1,358.8
Goodwill and intangible assets, net.............................................. 116.3 121.5
Other assets..................................................................... 132.8 100.3
Deferred income taxes (Note 10).................................................. 294.8 82.1
-------- --------
Total assets..................................................................... $2,477.2 $3,061.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt (Note 11)........................................................ $ 136.5 $ 113.0
Accounts payable, trade and other................................................ 327.7 329.1
Amounts owed to Technologies (Note 18)........................................... 4.7 --
Accrued and other liabilities.................................................... 319.7 257.0
Accrued payroll.................................................................. 53.4 52.0
Guarantees of vendor financing (Note 19)......................................... 56.0 51.8
Current portion of long-term debt (Note 11)...................................... 135.2 22.7
Current portion of accrued pensions and other postretirement benefits (Note 12).. 18.2 24.3
Income taxes payable (Note 10)................................................... 27.8 32.3
-------- --------
Total current liabilities........................................................ 1,079.2 882.2
Long-term debt, less current portion (Note 11)................................... 651.8 871.8
Accrued pension and other postretirement benefits, less current portion (Note 12) 109.2 130.7
Reserve for discontinued operations and other liabilities (Notes 3 and 13)....... 296.3 261.3
Other liabilities................................................................ 77.1 68.8
Minority interests in consolidated companies..................................... 44.8 46.5
Commitments and contingent liabilities (Notes 13, 17 and 19).....................
-------- --------
Stockholders' equity (Notes 14 and 15)
Preferred stock, no par value, authorized 5,000,000 shares;
no shares issued in 2001 or 2000............................................... -- --
Common stock, $0.10 par value, authorized 130,000,000 shares in 2001 and 2000;
issued 39,234,578 shares in 2001 and 38,662,349 shares in 2000.................. 3.9 3.9
Capital in excess of par value of common stock................................... 217.5 181.6
Retained earnings................................................................ 691.8 1,398.9
Accumulated other comprehensive loss............................................. (186.8) (272.6)
Treasury stock, common, at cost; 7,929,281 shares in 2001
and 7,977,709 shares in 2000.................................................... (507.6) (511.4)
-------- --------
Total stockholders' equity....................................................... 218.8 800.4
-------- --------
Total liabilities and stockholders' equity....................................... $2,477.2 $3,061.7
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
29
FMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
-------------------------
2001 2000 1999
------- ------- -------
(In Millions)
Cash provided (required) by operating activities
of continuing operations:
Income from continuing operations before cumulative
effect of change in accounting principle......................... $(306.3) $ 125.6 $ 158.7
Adjustments to reconcile income from continuing operations
before cumulative effect of change in accounting principle to
cash provided by operating activities of continuing operations:
Depreciation and amortization.................................. 131.6 129.8 128.5
Gains on divestitures of businesses (Note 5)................... -- -- (55.5)
Asset impairments (Note 6)..................................... 323.1 10.1 23.1
Restructuring and other charges (Note 7)....................... 280.4 35.2 11.1
Deferred income taxes (Note 10)................................ (200.3) (19.0) 3.9
Minority interests............................................. 2.3 4.6 5.1
Other.......................................................... 2.3 (21.4) 1.9
Changes in operating assets and liabilities,
excluding the effect of acquisitions and divestitures
of businesses and formation of a joint venture:
Accounts receivable sold (Note 1).............................. (34.0) (8.9) 120.1
Trade receivables, net......................................... (48.7) 70.9 (6.9)
Inventories.................................................... (40.9) (0.2) 24.9
Other current assets and other assets.......................... (54.8) 15.9 0.6
Accounts payable, accrued payroll,
other current liabilities and other liabilities............... (108.6) (31.1) 24.5
Income taxes payable........................................... (4.5) (