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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to __________
Commission File Number 1-2376
FMC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0479804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1735 Market Street
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215/299-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF SEPTEMBER 30, 2002.
35,086,303 shares of Common Stock, par value $0.10 per share
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FMC Corporation and Consolidated Subsidiaries Condensed Consolidated Statements
of Income (in millions, except per share data)
(unaudited) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $476.6 $482.8 $1,393.2 $1,453.2
- ----------------------------------------------------------------------------------------------------------------------------
Cost of sales or services 350.1 367.4 1,030.2 1,058.1
Selling, general and administrative expenses 55.7 55.8 171.2 181.4
Research and development expenses 19.4 25.0 60.4 73.9
Asset impairments (Note 7) -- -- -- 323.1
Restructuring and other charges (Note 8) -- 8.5 14.4 184.5
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 425.2 456.7 1,276.2 1,821.0
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 51.4 26.1 117.0 (367.8)
Equity in earnings of affiliates (3.6) (4.7) (4.6) (4.9)
Minority interests 1.0 0.9 2.1 1.5
Interest expense, net 15.7 14.4 48.1 44.2
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes and cumulative
effect of a change in accounting principle 38.3 15.5 71.4 (408.6)
Provision (benefit) for income taxes 10.1 1.6 15.0 (138.0)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before cumulative effect of
change in accounting principle 28.2 13.9 56.4 (270.6)
Discontinued operations, net of income taxes (Note 2) -- 7.4 -- (33.5)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of change in accounting principle 28.2 21.3 56.4 (304.1)
Cumulative effect of change in accounting principle, net of income taxes (Note 3) -- -- -- (0.9)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 28.2 $ 21.3 $ 56.4 $ (305.0)
============================================================================================================================
Basic earnings (loss) per common share (Note 13)
Continuing operations $ 0.80 $ 0.44 $ 1.71 $ (8.72)
Discontinued operations (Note 2) -- 0.24 -- (1.08)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.80 $ 0.68 $ 1.71 $ (9.83)
============================================================================================================================
Diluted earnings (loss) per common share (Note 13)
Continuing operations $ 0.79 $ 0.43 $ 1.66 $ (8.72)
Discontinued operations (Note 2) -- 0.23 -- (1.08)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.79 $ 0.66 $ 1.66 $ (9.83)
============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
September, 30 December 31,
FMC Corporation and Consolidated Subsidiaries 2002 2001
Condensed Consolidated Balance Sheets (in millions, except per share data) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 37.3 $ 23.4
Trade receivables, net of allowance of $11.0 in 2002 and $8.4 in 2001 (Note 16) 367.5 441.7
Inventories 167.5 207.2
Other current assets 116.2 99.6
Deferred income taxes 46.1 48.4
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 734.6 820.3
Investments 32.1 25.2
Property, plant and equipment, net (Note 6) 1,058.7 1,087.8
Goodwill (Note 3) 124.3 113.5
Other assets 138.1 135.6
Deferred income taxes 280.1 294.8
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $2,367.9 $2,477.2
============================================================================================================================
Liabilities and stockholders' equity
Current liabilities:
Short-term debt (Note 9) $ 60.3 $ 136.5
Accounts payable, trade and other 212.3 327.7
Accrued and other liabilities 289.2 337.0
Guarantees of vendor financing (Note 17) 19.7 56.0
Current portion of long-term debt (Note 9) 260.8 135.2
Current portion of accrued pensions and other postretirement benefits 14.8 18.2
Income taxes payable 27.6 27.8
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 884.7 1,038.4
Long-term debt, less current portion (Note 9) 568.8 651.8
Accrued pension and other postretirement benefits, less current portion 107.2 109.2
Environmental reserves, continuing and discontinued (Note 12) 173.3 203.5
Reserves for discontinued operations (Note 10) 73.9 86.3
Other long-term liabilities (Note 11) 94.9 124.4
Minority interests in consolidated companies 43.2 44.8
Commitments and contingent liabilities (Notes 10, 11, 12, 14 and 16)
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, no par value, authorized 5,000,000 shares; no shares issued in 2002 or 2001 -- --
Common stock, $0.10 par value, authorized 130,000,000 shares in 2002 and 2001; issued
43,001,994 shares in 2002 and 39,234,578 shares in 2001 4.3 3.9
Capital in excess of par value of common stock 334.1 217.5
Retained earnings 738.6 691.8
Accumulated other comprehensive loss (Note 14) (147.8) (186.8)
Treasury stock, common, at cost; 7,915,691 shares in 2002 and 7,929,281 shares in 2001 (507.3) (507.6)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 421.9 218.8
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,367.9 $2,477.2
============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
(in millions) September
- ----------------------------------------------------------------------------------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------
Cash provided (required) by operating activities of continuing operations:
Income (loss) from continuing operations before cumulative effect of change in
accounting principle $ 56.4 $(270.6)
Adjustments to reconcile income (loss) from continuing operations before cumulative
effect of change in accounting principle to cash provided (required) by
operating activities of continuing operations:
Depreciation and amortization 89.0 95.3
Asset impairments (Note 7) -- 323.1
Restructuring and other charges (Note 8) 14.4 184.5
Deferred income taxes 17.0 (153.2)
Minority interests 2.1 5.8
Other (1.1) 7.0
Changes in operating assets and liabilities, excluding the effect of acquisitions and
divestitures of businesses:
Trade receivables, net 88.2 29.2
Inventories 34.9 (25.9)
Other current and long term assets (47.4) (49.4)
Accounts payable (115.4) (94.4)
Accrued and other liabilities and other long-term liabilities 0.6 31.6
Reserves for restructuring and other charges (49.7) (39.9)
Environmental reserves, continuing operations (5.8) (11.9)
Income taxes payable (0.3) (33.7)
Accrued pension and other postretirement benefits, net (6.4) (22.2)
- ----------------------------------------------------------------------------------------------------------
Cash provided (required) by operating activities: 76.5 (24.7)
Cash required by discontinued operations:
Environmental reserves discontinued, net of recoveries (Note 12) (10.2) (14.1)
Other reserves (Note 10) (13.6) (80.4)
- ----------------------------------------------------------------------------------------------------------
Cash required by discontinued operations $ (23.8) $ (94.5)
- ----------------------------------------------------------------------------------------------------------
-4-
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
(in millions)
Cash provided (required) by investing activities:
Capital expenditures $(50.9) $(119.2)
Proceeds from disposal of property, plant and equipment 8.5 12.9
Financing commitments to Astaris (Notes 8 and 17) (27.8) (31.3)
Decrease (increase) in investments (1.3) 2.1
- -----------------------------------------------------------------------------------------------
Cash required by investing activities $(71.5) $(135.5)
- -----------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net proceeds from issuance of commercial paper $(29.2) $ 45.1
Net increase under committed credit facilities 38.0 1.9
Accounts receivable sold (Note 16) (14.0) (1.0)
Guarantees of vendor financing (Note 17) (36.3) (14.8)
Net increase (decrease) in other short-term debt 25.2 (56.2)
Increase in long-term debt -- 107.7
Contribution from Technologies, net of funding to Technologies (Note 2) -- 385.4
Repayment of long-term debt (67.9) (216.0)
Distributions to minority partners (2.8) (3.2)
Net proceeds from issuance of common stock from equity offering (Note 12) 101.3 --
Issuances of common stock related to compensation programs 16.0 33.5
- -----------------------------------------------------------------------------------------------
Cash provided by financing activities $ 30.3 $ 282.4
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents $ 2.4 $ (0.4)
===============================================================================================
Increase in cash and cash equivalents 13.9 27.3
Cash and cash equivalents, beginning of period 23.4 7.3
===============================================================================================
Cash and cash equivalents, end of period $ 37.3 $ 34.6
===============================================================================================
Supplemental disclosure of cash flow information: Cash paid for interest
was $44.4 million and $68.3 million for the nine months ended September 30,
2002 and 2001, respectively, and cash paid for income taxes, net of
refunds, was $15.3 million and $18.6 million for the nine months ended
September 30, 2002 and 2001, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
FMC Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Financial Information and Accounting Policies
The condensed consolidated balance sheet as of September 30, 2002, and the
related condensed consolidated statements of income and cash flows for the
interim periods ended September 30, 2002 and 2001 have been reviewed by our
independent auditors. The review is described more fully in their report
included herein. In the opinion of management the condensed consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States applicable to interim period financial
statements and reflect all adjustments necessary for a fair statement of the
company's results of operations and cash flows for the interim periods ended
September 30, 2002 and 2001 and of its financial position as of September 30,
2002. All such adjustments are of a normal recurring nature. The results of
operations for the interim periods ended September 30, 2002 and 2001 are not
necessarily indicative of the results of operations for the full year.
The December 31, 2001 balance sheet has been reclassified to conform to the
September 30, 2002 presentation. Amounts previously reported in reserves for
discontinued operations and other liabilities have been reclassified into one of
three line items: environmental reserves, continuing and discontinued; reserves
for discontinued operations or other long-term liabilities. The prior period's
cash flow has also been reclassified to conform to the September 30, 2002
presentation.
Effective January 1, 2002, FMC adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets. " In the
second quarter of 2002 the company elected to early adopt SFAS No. 145,
"Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB No. 14, and
Technical Corrections." (See Note 3.)
During the third quarter the company expanded several of its principal
accounting policy descriptions as noted below:
The company's accounting policies are set forth in detail in Note 1 to the 2001
consolidated financial statements contained in the company's Annual Report on
Form 10-K for the period ended December 31, 2001.
Investments. Investments in companies in which FMC's ownership interest is 50%
or less and in which FMC exercises significant influence over operating and
financial policies, are accounted for using the equity method. In addition
majority owned investments in which FMC's control is restricted or temporary in
nature also are accounted for using this method. All other investments are
carried at their fair values or at cost, as appropriate.
Revenue recognition. Revenue is recognized when the earnings process is
complete, which is generally upon transfer of title, which typically occurs upon
shipment to the customer. In all cases, the following criteria are in effect for
the recognition of revenue: persuasive evidence of an arrangement exists,
delivery has occurred, the selling price is fixed or determinable and collection
is reasonably assured.
Environmental reserves, net of recoveries. In calculating and evaluating the
adequacy of its environmental reserves, the company has taken into account the
joint and several liabilities imposed by the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and the analogous state laws
on all Potentially Responsible Parties ("PRPs") and has considered the identity
and financial condition of each of the other PRPs at each site to the extent
possible. The company has also considered the identity and financial condition
of other third parties from whom recovery is anticipated, as well as the status
of the company's claims against such parties. In general, the company is aware
of a certain degree of uncertainty in disputes regarding the financial
contribution by certain named PRPs which is common to most multiparty sites.
Although the company is unable to forecast the ultimate contributions of PRPs
and other third parties with absolute certainty, the degree of uncertainty with
respect to each party was taken into account when determining the environmental
reserve by adjusting the reserve to reflect the facts and circumstances on a
site-by-site basis.
Note 2: FMC's Reorganization
In October 2000, the company announced it was initiating a strategic
reorganization (the "reorganization" or "separation") that ultimately would
split the company into two independent publicly held companies - a chemical
company and a machinery company. The remaining chemical company, which continues
to operate as FMC Corporation, includes the Agricultural Products, Specialty
Chemicals and Industrial Chemicals business segments. The new machinery company,
FMC Technologies, Inc.
-6-
("Technologies") includes FMC's former Energy Systems and Food and
Transportation Systems business segments. On June 1, 2001, in accordance with
the Separation and Distribution Agreement (the "Agreement") between the two
companies, FMC distributed substantially all of the net assets comprising the
businesses of Technologies. On June 19, 2001, Technologies completed an initial
public offering ("IPO") of 17% of its equity through the issuance of common
stock. FMC continued to own the remaining 83% of Technologies through December
31, 2001. (See Notes 2 and 3 to our 2001 consolidated financial statements.)
Subsequent to the IPO, Technologies made payments of $385.4 million to FMC, net
of contributions from FMC, in exchange for the net assets distributed to
Technologies on June 1, 2001. Under the terms of the Agreement, Technologies
remitted $480.1 million to FMC in June 2001. The cash payment consisted of
$280.9 million of proceeds from Technologies' borrowings and $207.2 million of
proceeds from Technologies' initial public offering, less an agreed-upon sum of
$8.0 million retained by Technologies to cover certain costs incurred by
Technologies in conjunction with the initial public offering. The payments
contributed to Technologies by FMC were to supplement Technologies' operating
cash needs prior to the spin-off. The payments received by FMC were used to
retire short-term and long-term debt. During the second quarter of 2001, FMC
recognized a $140.0 million gain in stockholders' equity on the sale of
Technologies' stock.
On November 29, 2001, FMC's Board of Directors approved the spin-off of the
company's remaining 83 percent ownership in Technologies through a tax-free
distribution to FMC's stockholders ("the spin off"). Effective December 31,
2001, the company distributed approximately 1.72 shares of Technologies common
stock for every share of FMC common stock based on the number of FMC shares
outstanding on the record date, December 12, 2001. The distribution resulted in
a reduction of stockholders' equity of $509.5 million.
The company recorded an after-tax gain from discontinued operations of $7.4
million and an after-tax loss from discontinued operations of $33.5 million,
respectively, for the three and nine months ended September 30, 2001 related to
the spun-off Technologies business, including after-tax interest expense of $3.2
million and $11.8 million, respectively, which was allocated to discontinued
operations in accordance with Accounting Principles Board Opinion No. 30 and
later relevant accounting guidance, and an additional income tax provision of
$28.8 million related to the reorganization of FMC's worldwide entities in
anticipation of the separation of Technologies from FMC.
Note 3: Recently Adopted Accounting Pronouncements
On January 1, 2002, the company adopted Statement of Financial Accounting
Standards (" SFAS") No. 142, "Goodwill and Other Intangible Assets." With the
adoption of SFAS No. 142, goodwill and other indefinite intangible assets
("intangibles") are no longer subject to amortization, rather they are subject
to at least an annual assessment for impairment by applying a fair value based
test. Prior to January 1, 2002 the company amortized goodwill and identifiable
intangible assets (such as trademarks) on a straight-line basis over their
estimated useful lives not to exceed 40 years.In the second quarter, FMC
completed its transitional goodwill impairment tests required by SFAS No. 142.
FMC recorded no impairments of its goodwill and indefinite life intangibles
based on these tests. The company will continue its goodwill impairment tests,
annually, beginning in the fourth quarter of 2002, in accordance with the
requirements of SFAS No. 142.
Goodwill amortization was $4.2 million, or $0.14 per diluted share in 2001.
Goodwill amortization for the three and nine months ended September 30, 2001 was
$1.1 million or $0.03 per diluted share and $3.2 million or $0.09 per diluted
share, respectively. Goodwill amortization for the three and nine months ended
September 30, 2002 would have been approximately $1.1 million and $3.2 million,
respectively. Goodwill at September 30, 2002 and December 31, 2001 was $124.3
million and $113.5 million, respectively. The majority of FMC's goodwill is
attributed to an acquisition in the Specialty Chemicals segment. There are no
other material indefinite life intangibles at September 30, 2002. FMC's definite
life intangibles totaled $7.1 million at September 30, 2002. These definite life
intangibles are allocated among FMC's segments as follows: $3.2 million in
Agricultural Products, $2.5 million in Specialty Chemicals and $1.4 million in
Industrial Chemicals. All definite life intangible assets are amortizable and
consist primarily of patents, industry licenses and other intangibles.
On January 1, 2002, the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and establishes a single accounting model, based on
the framework established in SFAS No. 121, for long-lived assets to be disposed
of by sale. The Statement retains most of the requirements of SFAS No. 121
related to the recognition of the impairment of long-lived assets to be held and
used. There was no impact of adopting SFAS No. 144 in the first nine months of
2002.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145 "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB No. 14,
and Technical Corrections." The Statement rescinds or amends a number of
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. In
the second quarter of 2002, with the retirement of its 6.75% exchangeable senior
subordinated debentures (as discussed in Note 9 below), FMC elected early
adoption of SFAS No. 145. FMC recorded a $3.1 million loss ($1.9 million
after-tax) in restructuring and other charges in the second quarter of 2002
related to the early retirement of these debentures in its total costs and
expenses in accordance with this statement.
-7-
On January 1, 2001, the company implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138 (collectively, the "Statement"). The Statement requires the company
to recognize all derivatives in the consolidated balance sheets at fair value,
with changes in the fair value of derivative instruments to be recorded in
current earnings or deferred in other comprehensive income, depending on the
type of hedging transaction and whether a derivative is designated as an
effective hedge. In accordance with the provisions of the Statement, the company
recorded a first-quarter 2001 loss from the cumulative effect of a change in
accounting principle of $0.9 million after-tax in the company's consolidated
statement of earnings, and a deferred gain of $16.4 million after-tax in
accumulated other comprehensive loss.
Note 4: New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. FMC is required to adopt the provisions of
this pronouncement no later than the beginning of 2003 and is evaluating the
potential impact of adopting SFAS No. 143.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard addresses the accounting and
reporting for costs of so-called exit activities (including restructuring) and
for the disposal of long-lived assets. The standard changes some of the criteria
for recognizing a liability for these activities. It is effective beginning in
2003 with the liability recognition criteria under the standard applied
prospectively. The company will adopt SFAS No. 146 when required and is
currently evaluating the potential affects of adoption on its accounting
policies regarding exit and disposal activities.
Note 5: Financial Instruments and Risk Management
Hedge ineffectiveness and the portion of derivative gains or losses excluded
from assessments of hedge effectiveness, related to the company's outstanding
cash flow hedges and which were recorded to earnings during the three and nine
months ended September 30, 2002, were less than $0.1 million. For the three
months ended September 30, 2002 and September 30, 2001, the net deferred hedging
loss in accumulated other comprehensive loss was $1.5 million and $19.6 million,
respectively, of which approximately $0.4 million of net losses are expected to
be recognized in earnings during the twelve months ended September 30, 2003, at
the time the underlying hedged transactions are realized, and of which net
losses of $1.1 million are expected to be recognized at various times subsequent
to September 30, 2003 and continuing through November 30, 2005.
Note 6: Property, Plant and Equipment
Property, plant and equipment consisted of the following, in millions:
September 30,
2002 December 31,
(unaudited) 2001
------------- ------------
Property, plant and equipment, at cost $ 2,591.9 $ 2,538.2
Accumulated depreciation (1,533.2) (1,450.4)
--------- ---------
Property, plant and equipment, net $ 1,058.7 $ 1,087.8
========= =========
Note 7: Asset Impairments
Asset impairments totaling $323.1 million ($233.8 million after-tax) were
recorded in the second quarter of 2001. Based upon a comprehensive review of
FMC's long-lived assets the company recorded asset impairment charges of $211.9
million related to its U.S.-based phosphorus business. The components of asset
impairments related to this business included a $171.0 million impairment of
environmental assets built to comply with a RCRA Consent Decree ("Consent
Decree") at the Pocatello, Idaho facility and a $36.5 million impairment charge
for the company's investment in Astaris LLC ("Astaris"), the company's 50%-owned
phosphorus joint venture with Solutia, Inc. Driving these charges were a decline
in market conditions, the loss of a potential site on which to develop an
economically viable second purified phosphoric acid plant and FMC's agreement to
pay into a fund for
-8-
the Shoshone-Bannock Tribes as a result of an agreement to support a proposal to
amend the Consent Decree to permit the earlier closure of the largest remaining
waste disposal pond at Pocatello. In addition, FMC recorded an impairment charge
of $98.9 million related to its Specialty Chemicals segment's lithium operations
in Argentina. The company established this operation, which includes a lithium
mine and processing facilities, approximately five years ago in a remote area of
the Andes Mountains. With the entry of a South American manufacturer into this
business resulting in decreased revenues and following the continuation of other
unfavorable market conditions, the company's lithium assets in Argentina became
impaired, as the total capital invested is not expected to be recovered. An
additional $12.3 million of charges related to the impairment of assets in FMC's
cyanide operations as a result of weakening economic conditions affecting this
business.
Note 8: Restructuring and other charges
The company recorded restructuring and other before tax charges of $14.4 million
and $184.5 million, respectively, for the nine months ended September 30, 2002
and 2001.
Restructuring and other charges for the nine months ended September 30, 2002
Restructuring and other charges of $7.4 million before tax in the second quarter
of 2002 included $2.2 million before tax for restructuring activities related to
severance and other restructuring costs in the Industrial Chemicals segment and
a $2.1 million before tax charge for other costs including expenses related to a
change in benefits provider, which was a direct result of the company's spin-off
of Technologies. Also recorded as other charges in the second quarter 2002 were
premiums of $3.1 million before tax attributed to the redemption of 6.75%
exchangeable senior subordinated debentures completed on June 3, 2002 (see Note
9.)
In the first quarter of 2002 the company recorded $7.0 million before tax of
restructuring and other charges. Of these charges $2.4 million before tax
related to severance and costs of idling the Agricultural Product's
sulfentrazone plant. In the Industrial Chemicals segment, the mothballing of the
Granger caustic facility in Green River, Wyoming resulted in a $3.4 million
before tax charge primarily for severance and other costs. The remaining other
charges resulted from reorganization costs of $1.2 million before tax related to
the spin-off and distribution of Technologies.
Of approximately 200 severances in 2002 related to the company's restructuring
activities 185 occurred prior to September 30, 2002.
Restructuring and other charges for the nine months ended September 30, 2001
During the third quarter of 2001, the company recorded restructuring charges of
$8.5 million. These charges were largely for reorganization costs and corporate
restructuring activities including severance, facility exit costs and contract
commitment costs.
During the second quarter of 2001, FMC recorded $175.0 million in restructuring
and other charges including $160.0 million related to its Industrial Chemicals
segment's U.S.-based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes and $8.6 million of other related
charges. In addition, restructuring charges for the quarter included $8.0
million related to FMC's corporate reorganization. The remaining charges of $7.0
million were for the restructuring of two smaller chemical facilities. These
activities resulted in 135 severances the majority of which occurred in 2001.
The restructuring charges in the first quarter of 2001 related to corporate
reorganization costs and several minor restructuring activities within the
Industrial Chemicals segment.
In the fourth quarter of 2001 the company reached an agreement to shutdown
Pocatello. At this time approximately half of the $68.7 million Consent Decree
reserve recorded in the second quarter of 2001 was spent in the second and third
quarters of 2001. The shutdown of this facility eliminated the need for Consent
Decree spending for continuing operations. The shutdown allowed the company to
reverse the remaining Consent Decree reserve of $34.5 million through
restructuring and other charges. This amount was more than offset by the
company's fourth quarter 2001 restructuring and other charges related to the
shutdown of Pocatello.
Reserves for restructuring and other charges were $71.0 million and $119.2
million at September 30, 2002 and December 31, 2001, respectively. Restructuring
spending in 2002 of $9.6 million related to the 2002 programs and $67.9 million
related to programs initiated in the prior year. Spending during the nine months
ended September 30, 2002 was primarily for workforce
-9-
reductions, reorganization costs, financing commitments to Astaris and shutdown
costs at Pocatello.
The following table shows a rollforward of restructuring and other reserves for
the quarter ended September 30, 2002 and the related spending and other changes:
Phosphorus Related
----------------------------------
Pocatello
Shutdown,
Remediation Financing Workforce-related and
and Other Tribal Commitments Facility Shutdown FMC's
Costs/(3)/ Fund to Astaris Costs Reorganization Total
----------- ------ ----------- --------------------- -------------- ------
2002 2001 2002 2001
----- ----- ----- -----
Reserve at 12/31/2001 $ 58.9 $10.0 $ 28.0 $ -- $13.7 $ -- $ 8.6 $119.2
Increase in reserves -- -- -- 8.0 -- 3.3 -- 11.3
Cash payments (25.3) -- (27.8) (8.4) (9.6) (1.2) (5.2) (77.5)
Recoveries /(1)/ 3.7 -- -- -- -- -- -- 3.7
Reclasses and other /(2)/ 16.7 -- -- 0.4 -- -- -- 17.1
Non-cash changes (1.0) -- -- -- (1.8) -- -- (2.8)
------ ----- ------ ----- ----- ----- ----- ------
Reserve at 9/30/2002 $ 53.0 $10.0 $ 0.2 $ -- $ 2.3 $ 2.1 $ 3.4 $ 71.0
====== ===== ====== ===== ===== ===== ===== ======
(1) Recoveries are amounts received from Astaris for its commitments related to
the shutdown of Pocatello. Recoveries have been recorded as offsets to the
company's reserves and are reduced upon receipt of payment.
(2) Balance classified as current liabilities at December 31, 2001 reclassified
to restructuring reserves in 2002.
(3) Pocatello Shutdown, Remediation and Other Costs reserve at September 30,
2002 includes environmental costs of $46.0 million recorded in the fourth
quarter of 2001 related to the shutdown of Pocatello (see Note 11). This
amount is also included in FMC's environmental/remediation rollforward in
Note 12.
Note 9: Debt
Refinancing
Subsequent to the end of the third quarter of 2002, the company completed its
previously announced refinancing. The company reflected its refinancing in its
Condensed Consolidated Balance Sheet by reclassifying its $240.0 million
revolving credit facility from short-term debt to long-term debt.
On October 21, 2002, the Company issued $355.0 million aggregate principal
amount of its 10.25% Senior Secured Notes due 2009 (the "Notes").
Simultaneously, the company executed a new $500.0 million senior secured credit
agreement (the "Credit Agreement"), which provides for a $250.0 million
revolving credit facility and a $250.0 million term loan, and obtained a $40.0
million supplemental secured standby letter of credit facility (the
"Supplemental Letter of Credit Facility" and together with the Credit Agreement,
the "Credit Facilities"). The net proceeds from the sale of the Notes and the
initial borrowings under the Credit Agreement were or will be used to:
.. Fund into a debt reserve account (the "Debt Reserve Account") an amount
sufficient to repay $99.5 million aggregate principal amount of its 7.125%
medium-term notes due November 2002 and $160.5 million aggregate principal
amount of 6.375% debentures due September 2003;
.. Repay all borrowings under and terminate the former revolving credit
facility and accounts receivable securitization facility, which had
outstanding amounts of approximately $106.0 million and $65.0 million,
respectively at September 30, 2002;
.. Fund into a restricted cash account (the "Restricted Cash Collateral
Account") $130.8 million to refinance and replace with cash collateral
certain surety bonds and letters of credit currently supporting
self-insurance programs, environmental obligations and future business
commitments and cash collateralize letters of credit supporting
approximately $44.0 million of outstanding variable rate industrial and
pollution control revenue bonds; and
.. Pay fees and expenses of approximately $29.0 million, which included bank
fees, printing and distribution costs, attorneys' fees, accountants' fees
and other miscellaneous costs.
-10-
Summary of Terms of the Notes
The Notes bear interest at the rate of 10.25% per year. Interest on the Notes is
payable on May 1 and November 1 of each year, beginning on May 1, 2003. The
Notes mature on November 1, 2009.
The company may redeem all or part of the Notes on or prior to November 1, 2006
at a price of 100% of their principal amount, plus a make-whole premium, plus
accrued and unpaid interest, if any. At any time after November 1, 2006, the
company may redeem all or part of the Notes at fixed redemption prices plus
accrued and unpaid interest, if any. At any time on or prior to November 1,
2005, the company may redeem up to 35% of the Notes from the proceeds of one or
more public equity offerings by the company at a fixed redemption price plus
accrued and unpaid interest, if any.
The Notes are senior obligations and are guaranteed on a senior basis by its
wholly-owned domestic subsidiaries, that guarantee indebtedness under the Credit
Facilities its new $500.0 million Credit Agreement and the $40.0 million
Supplemental Letter of Credit Facility which were entered into concurrently with
the issuance of the Notes. As of September 30, 2002, FMC's subsidiaries that are
not guarantors had approximately $211.3 million of liabilities to which the
Notes are structurally subordinated.
The Notes are secured on a second-priority basis by collateral consisting of
certain of the company's domestic manufacturing or processing facilities and its
shares of FMC Wyoming Corporation, its non-wholly-owned principal domestic
subsidiary. The second-priority liens are shared on an equal and ratable basis
with the holders of indebtedness ("Existing Public Debt") issued under the
company's existing indentures dated April, 1992 and July 1, 1996 (the "Existing
Public Indentures") and with (i) the lenders and other credit providers under
the Credit Facilities, (ii) certain other lenders and credit providers to the
company and its foreign subsidiaries and (iii) lenders to Astaris LLC as
beneficiaries of its obligations under the support agreement relating to
Astaris. This lien is subject and subordinate to the first-priority lien granted
to such lenders and other credit providers in an amount not exceeding 10.0% of
the company's consolidated net tangible assets (as defined in the Existing
Public Indentures) from time to time. In addition, those lenders and credit
providers are secured by liens on substantially all of the company's other
domestic assets that are not included in the collateral securing the notes and
on 65.0% of the stock of certain of our foreign subsidiaries.
Summary Terms of the Credit Facility
The Credit Facilities replaced the company's $240.0 million 364-day
non-amortizing revolving credit facility which was due to expire in December of
this year and a $25.0 million supplemental revolving credit facility due to
expire on October 31, 2002. Under the Credit Agreement, 0.25% of the original
principal amount of the $250.0 million term loan is due and payable at the end
of each quarter, commencing March 31, 2003, with the balance maturing on October
21, 2007. Amounts under the $250.0 million revolving credit facility may be
borrowed, repaid and reborrowed from time to time until the maturity of the
revolving credit facility on October 21, 2005. Up to $50.0 million of the
revolving credit facility is available for issuance of letters of credit on the
company's behalf. Voluntary prepayments and commitment reductions under the
Credit Facilities are permitted at any time without fee upon proper notice and
subject to minimum dollar amounts. Subject to certain exceptions, mandatory
prepayments are required with cash proceeds of asset sales, casualty events and
condemnation proceeds, equity issuances and excess cash flow.
Subject to the availability of additional commitments by lenders, the aggregate
commitment under the revolving credit facility can be increased by up to $90.0
million to a total of $340.0 million. To the extent the commitments are
increased to an amount in excess of $300.0 million, the excess is required to
reduce the Supplemental Letter of Credit Facility, and the amount available for
letters of credit under the revolving credit facility will increase from $50.0
million to $75.0 million.
The Supplemental Letter of Credit Facility makes available prior to its maturity
on October 21, 2005 up to $40.0 million for the issuance of standby letters of
credit. The company intends to use the letters of credit to support its
obligations with respect to environmental remediation and other obligations for
which such credit enhancement is often required.
-11-
Obligations under the Credit Agreement bear interest at a floating rate, which
are, at the company's option, either a base rate or a London InterBank Offered
Rate ("LIBOR"), in each case plus an applicable margin. The base rate is
Citibank N.A.'s base rate. The applicable margin for the term loan are 3.75% per
annum over the base rate and 4.75% per annum over LIBOR. The initial applicable
margin for borrowings under the revolving credit facility is 2.50% over the base
rate and 3.50% over LIBOR. After March 31, 2003 the applicable margins under our
revolving credit facility are subject to adjustment based on the company's
leverage ratio.
Under the Credit Agreement, FMC is required to pay a commitment fee on the
difference between the total amount of the revolving credit facility and the
amount borrowed by the company, or for which letters of credit were issued on
its behalf, under the Credit Agreement. The initial commitment fee is .50% per
year. The commitment fee is subject to adjustment based on the company's
leverage ratio.
The company pays fees under the Supplemental Letter of Credit Facility on the
face amount of letters of credit issued thereunder at a rate per year equal to
the applicable margin for LIBOR loans under the revolving credit facility under
the Credit Agreement, plus 0.25%. The company also pays a commitment fee on the
unused portion of the Supplemental Letter of Credit Facility at the same rate
applicable to its revolving credit facility.
The obligations of FMC under these facilities are guaranteed by each of its
existing and subsequently acquired direct and indirect material wholly-owned
domestic subsidiaries subject to certain exceptions for subsidiaries that are
insignificant to the company's operations. The obligations of FMC under the
Credit Facilities are secured on a first-priority basis by substantially all of
the domestic tangible and intangible assets of the company and its domestic
wholly-owned subsidiaries, including a pledge of 100.0% of the stock of domestic
subsidiaries and at least 65.0% of the stock of first-tier foreign subsidiaries.
The company's pledge of the collateral that secures the Notes and the Existing
Public Debt is limited on a first-lien basis to an aggregate amount not to
exceed 10.0% of consolidated net tangible assets as noted above and thereafter
is shared on an equal ratable basis with the Existing Public debt and Notes. The
Credit Facilities are also secured by all of the cash of the company including
cash held in the Debt Reserve Account and the Restricted Cash Collateral Account
to the extent the latter is available. The Credit Facilities are secured equally
and ratably with the company's obligations owed to certain other lenders to the
company and its foreign subsidiaries and under the company's support agreement
with respect to Astaris.
Other Indebtedness
Short-term debt decreased to $60.3 million at September 30, 2002 compared to
$136.5 million at December 31, 2001. Short-term debt can consist of commercial
paper, borrowings under committed credit facilities and foreign bank borrowings.
Upon the completion of the refinancing on October 21, 2002 the company
reclassified at September 30, 2002 the outstanding amount under its former
$240.0 million revolving credit facility due in December of 2002 to long-term
debt to reflect the completion of its refinancing subsequent to the end of third
quarter of 2002. Since the lowering of FMC's short-term credit rating by Moody's
Investor's Service, Inc. on June 13, 2002, FMC ceased offerings under its
commercial paper program and repaid maturities by borrowing under its former
$240.0 million revolving credit facility. At September 30, 2002, no commercial
paper was outstanding compared to $33.0 million at December 31, 2001.
During the nine months ended September 30, 2002, the company made payments of
$10.4 million and $25.0 million, in the first and second quarter, respectively,
for scheduled maturities of long-term debt.
The current portion of long-term debt was $260.8 million at September 30, 2002
compared to $135.2 at December 31, 2001. This increase can be attributed to the
November 2002 maturity of the company's $99.5 million 7.125% medium-term notes
and $160.5 million 6.375% debentures due September 2003. An amount sufficient to
repay these maturities has been paid into the Debt Reserve Account with proceeds
from the new financing program.
At September 30, 2002 there was $40.0 million principal amount outstanding of
variable rate industrial and pollution control
-12-
revenue bonds supported by approximately $44 million in bank letters of credit.
On May 3, 2002, FMC published notice of a mandatory call for redemption on June
3, 2002 of its 6.75% exchangeable senior subordinated debentures, outstanding in
the principal amount of $28.8 million. From May 21, 2002 to May 31, 2002,
holders of $26.0 million of these debentures exercised their right to forgo
accrued but unpaid interest and exchange their debentures for common shares of
Meridian Gold, Inc., a Canadian company trading on the New York Stock Exchange
(NYSE: MDG) and successor to our former subsidiary, at a price of $15.125 per
share, subject to certain adjustments. Because FMC does not hold any shares of
Meridian Gold, Inc. it exercised its right to pay the fair market value, subject
to certain adjustments, of the Meridian Gold common shares in cash. Because the
price of Meridian Gold common shares rose substantially above the exchange price
of $15.125, FMC was required to pay an amount above the principal amount of the
debentures exchanged, which has resulted in a net charge of approximately $3.1
million ($1.9 million after-tax) in the second quarter of 2002. The remaining
$2.8 million of debentures were redeemed on June 3, 2002 at the principal amount
thereof plus accrued interest.
The company's long-term debt maturities subsequent to the completion of its
refinancing were $100.0 million in 2002, $184.9 million in 2003, $1.1 million in
2004, $63.2 million in 2005 and $977.5 million in 2006 the period therafter.
Note 10: Reserves for Discontinued Operations
Reserves for discontinued operations (excluding those related to environmental
liabilities), at September 30, 2002 and December 31, 2001 were $73.9 million and
$86.3 million, respectively. At September 30, 2002, substantially all
discontinued operations reserves were related to post-employment benefits,
self-insurance and other long-term obligations associated with operations
discontinued between 1976 and 1997.
Included in the reserve for discontinued operations is a reserve established for
asbestos-related personal injury litigation. Management believes that the claims
against FMC are without merit and considers the company a peripheral overall
defendant in these matters. The vast majority of the claims to date have been
dismissed without payment of any kind. The outcome of the remaining cases is not
expected to have a material adverse effect on the company's consolidated results
of operations, cash flows or financial condition.
In the first quarter of 2001 FMC paid an $80.0 million settlement of litigation
related to its discontinued defense systems business.
Note 11: Other Long-Term Liabilities
Other long-term liabilities at September 30, 2002 and December 31, 2001 were
$94.9 million and $124.4 million, respectively, and included reserves for
restructuring and for compensation and benefits. (See Note 3 to the company's
2001 consolidated financial statements and Note 8 above.)
Note 12: Environmental Obligations
The company has provided reserves for potential environmental obligations, which
management considers probable and for which a reasonable estimate of the
obligation could be made. Accordingly, reserves of $225.7 million and $260.4
million, before recoveries, have been provided at September 30, 2002 and
December 31, 2001, respectively. The long-term portions of these reserves before
recoveries, totaled $204.2 million and $244.1 million at September 30, 2002 and
December 31, 2001, respectively. The short-term portion of these obligations are
recorded in accrued and other liabilities.
Cash recoveries of $14.4 million have been recorded as realized claims against
third parties in 2002. Total cash recoveries recorded for the year ended
December 31, 2001 were $12.5 million. At September 30, 2002 and December 31,
2001 reserves for recoveries were $30.3 million and $41.5 million, respectively,
the majority of which relate to existing contractual arrangements with U.S.
government agencies and insurance carriers. These reserves are recorded as an
offset to the environmental reserve, continuing and discontinued.
-13-
The table below is a rollforward of the company's environmental reserves,
continuing and discontinued from December 31, 2001 to September 30, 2002.
($ in millions)
Operating and
Discontinued Sites(1) Pocatello Total
------------------ --------- ------
Environmental reserves current, net of recoveries $ 5.9 $ 9.5 $ 15.4
Environmental reserves long term, net of recoveries 132.0 71.5 203.5
------ ----- ------
Total environmental reserve, net of recoveries at December 31, 2001 137.9 81.0 218.9
2002 provisions:
Continuing -- -- --
Discontinued -- -- --
Spending, net of cash recoveries: (14.0) (9.5) (23.5)
------ ----- ------
Environmental reserve current, net of recoveries: 6.4 15.7 22.1
Environmental reserve, long-term, net of recoveries: 117.5 55.8 173.3
------ ----- ------
Total environmental reserve, net of recoveries at September 30, 2002 /(2)/ $123.9 $71.5/(1)/ $195.4
====== ===== ======
/(1)/"Current" includes only those reserves related to continuing operations.
/(2)/Balance includes environmental remediation reserves of $46.0 million
related to the shutdown of Pocatello recorded as part of Pocatello
shutdown, remediation and other costs reserve in 2001. (See rollforward of
restructuring and other charges table in Note 8.)
The company has estimated that reasonably possible contingent environmental
losses may exceed amounts accrued by as much as $70.0 million at September 30,
2002. Obligations that have not been reserved for may be material to any one
quarter's or year's results of operations in the future. Management, however,
believes the liability arising from the potential environmental obligations is
not likely to have a materially adverse effect on the company's liquidity or
financial condition and may be satisfied over the next twenty years or longer.
A more complete description of the company's environmental contingencies and the
nature of its potential obligations are included in Notes 1 and 13 to FMC's
2001 consolidated financial statements.
Note 13: Capital Stock
On June 6, 2002 the company issued 3,250,000 shares of common stock at a net
price per share of $31.25. Net proceeds from the issuance were approximately
$101.3 million. The proceeds were used to reduce outstanding borrowings under
the company's former $240.0 revolving credit facility.
For the three and nine months ended September 30, 2002, the company had
35,085,556 and 32,984,590, respectively, of average shares outstanding. In
addition, for the three and nine months ended September 30, 2002 FMC had 853,594
and 914,335 of additional shares assuming conversion of stock options and other
dilutive potential common shares (calculated under the treasury stock method).
On August 27, 1999, the Board of Directors authorized $50.0 million of
open-market repurchases of FMC common stock. The implementation of the company's
new financing program which was completed subsequent to September 30, 2002,
brought into effect provisions restricting significantly open-market repurchases
of FMC common stock.
Note 14: Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders' equity during
the period except those resulting from investments by owners and distributions
to owners. The company's comprehensive income (loss) for the three and nine
months ended September 30, 2002 and 2001 consisted of the following:
-14-
(in millions)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
2002 2001 2002 2001
----- ------ ----- -------
Net income (loss) $28.2 $ 21.3 $56.4 $(305.0)
Other comprehensive earnings (loss):
Foreign currency translation adjustment 7.4 (37.1) 19.8 (38.5)
Net deferral of hedging gains (losses) 2.7 (10.3) 15.1 (32.7)
Cumulative effect of a change in accounting
principle (Note 3) -- -- -- 16.4
----- ------ ----- -------
Comprehensive income (loss) $38.3 $(26.1) $91.3 $(359.8)
===== ====== ===== =======
Note 15: Related-Party Transactions
FMC's chemical and machinery businesses became two independent companies in 2001
through the spin-off of Technologies (see Note 2 for a discussion of FMC's
reorganization). Prior to the IPO of Technologies, FMC and Technologies entered
into certain agreements for the purpose of governing the ongoing relationship
between the two companies (see Note 18 to the 2001 consolidated financial
statements). FMC and Technologies continue to engage in transition services for
areas such as benefits, insurance administration and other administrative
services. The cost of these activities were not material as of September 30,
2002.
A guaranty agreement, executed on December 31, 2001, provides for the
performance by Technologies of certain obligations under several contracts, debt
instruments and reimbursement agreements. Prior to the spin-off, these
obligations related to the businesses of Technologies. As of September 30, 2002,
this guarantee agreement covered obligations totaling approximately $88 million
compared to $289.0 million at December 31, 2001. Under the Separation and
Distribution Agreement and guaranty agreement, Technologies has indemnified FMC
for these obligations and any related legal fees and FMC does not expect to make
any unreimbursed payments for any of these obligations.
Note 16: Accounts Receivable Financing
Prior to the completion of its refinancing on October 21, 2002 the company sold
trade receivables without recourse through its wholly owned, bankruptcy-remote
subsidiary, FMC Funding Corporation. This subsidiary then sold the receivables
to a financing company under an accounts receivable financing facility on an
ongoing basis. Availability under the program was reduced upon the lowering of
FMC's credit rating and would of terminated upon a rating of Ba3 by Moody's or
BB- by S&P. The financing from this facility totaled $65.0 million at September
30, 2002 and $79.0 million at December 31, 2001. Subsequent to September 30,
2002 the company terminated this securitization program as part of its new
financing program (see Note 9). Subsequent to September 30, 2002, using proceeds
from the refinancing the company made a final payment of $65.2 million to
terminate its account receivable financing facility.
Note 17: Commitments and Contingencies
During the third quarter of 2000, in connection with the finalization of an
external financing agreement with Astaris, the company provided an agreement to
lenders of Astaris under which FMC agreed to make equity contributions to
Astaris sufficient to make up one half of any short-fall in Astaris' earnings
below certain levels. Astaris' earnings did not meet the agreed levels for the
first nine months of 2002. FMC does not expect that such earnings will meet the
levels agreed for the remainder of 2002. The company contributed $31.3 million
to Astaris under this arrangement in 2001 and $27.8 million through September
30, 2002, and expects the full-year amount to be at approximately the same level
as 2001. FMC's estimates of future contributions are based on Astaris' forecasts
and are subject to some uncertainty. The proportional amount of Astaris'
indebtedness subject to this lending agreement from FMC was approximately $86
million at September 30, 2002. Subsequent to September 30, 2002, certain
amendments to the agreement under which FMC makes equity contributions to
Astaris that were necessary to complete FMC's refinancing (see Note 9) were
obtained from Astaris' lenders.
-15-
The company provides guarantees to financial institutions on behalf of certain
Agricultural Products customers in Brazil for their seasonal borrowings. The
customers' obligations to FMC are largely secured by liens on their crops.
Losses under these programs have been minimal. The total of these guarantees,
which are recorded on the company's balance sheet at September 30, 2002 and
December 31, 2001 was $19.7 million and $56.0 million, respectively.
The company also provides guarantees to financial institutions on behalf of
certain Agricultural Products customers in Brazil to support their importation
of third-party agricultural products. This guarantee program was implemented in
2001. Guarantees totaled $4.3 million and $10.0 million at September 30, 2002
and at December 31, 2001, respectively.
On June 30, 1999, FMC acquired Tg Soda Ash, Inc. from Elf Atochem North America,
Inc. for approximately $51.0 million in cash and contingent payment due at
year-end 2003. The contingent payment amount, which will be based on the
financial performance of the combined soda ash operations between 2001 and 2003,
cannot currently be determined precisely but is expected to be in the range of
$40.0 million to $45.0 million.
During the second quarter of 2002, FMC reached a settlement with the Idaho
Public Utility Commission and Idaho Power Company. Under this settlement, Idaho
Power will reduce its payments under the resale contract, and as a partial
offset, Astaris will avoid certain costs associated with the cancellation of the
power purchase contract with Idaho Power.
In the ordinary course of business, FMC provides credit support to governmental
agencies, insurance companies, and others for its environmental obligations,
self-insurance programs and other future business commitments. At September 30,
2002, banks had provided letters of credit totaling $161.6 million and insurance
companies had provided surety bonds totaling $69.4 million in support of these
obligations. Subsequent to September 30, 2002, as part of the refinancing
program, the company funded $130.8 million into an account to provide for future
cash collateralization of a portion of these obligations. (See Note 9.)
The company also has certain other contingent liabilities arising from
litigation, claims, performance guarantees, and other commitments arising in the
ordinary course of business. Management believes that the ultimate resolution of
its known contingencies will not materially affect the consolidated financial
position, results of operations or cash flows of FMC.
(See Notes 10, 11 and 12 for further discussion on contingencies.)
Note 18: Segment Information
Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------
(in millions) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Revenue
- ----------------------------------------------------------------------------------------------------------------------
Agricultural Products $169.1 $156.9 $ 474.0 $ 497.3
Specialty Chemicals 123.1 115.2 363.5 351.0
Industrial Chemicals 184.0 211.0 559.1 609.9
Eliminations 0.4 (0.3) (3.4) (5.0)
- ----------------------------------------------------------------------------------------------------------------------
Total $476.6 $482.8 $1,393.2 $1,453.2
=======================================================================================================================
Income (loss) from continuing operations before income taxes and cumulative
effect of change in accounting principle
Agricultural Products $ 20.8 $ 9.8 $ 50.8 $ 65.0
Specialty Chemicals 23.6 20.1 66.0 61.1
Industrial Chemicals 20.3 20.4 55.6 53.0
- ----------------------------------------------------------------------------------------------------------------------
Segment operating profit 64.7 50.3 172.4 179.1
Corporate (8.6) (9.0) (27.9) (26.4)
Other expense, net (0.2) (1.7) (5.6) (5.7)
- ----------------------------------------------------------------------------------------------------------------------
Operating profit before restructuring and other charges, and net
interest expense 55.9 39.6 138.9 147.0
Asset impairments (1) -- -- -- (323.1)
Restructuring and other charges (2) -- (8.5) (14.4) (184.5)
Interest expense, net (3) (17.6) (15.6) (53.1) (48.0)
- ----------------------------------------------------------------------------------------------------------------------
Total $ 38.3 $ 15.5 $ 71.4 $ (408.6)
======================================================================================================================
-16-
(1) Asset Impairment for the nine months ended September 30, 2001 related to
Industrial Chemicals ($224.2 million) and Specialty Chemicals ($98.9 million).
(2) Restructuring and other charges for the nine months ended September 30, 2002
related to Industrial Chemicals, ($5.6 million), Agricultural Products ($2.4
million) and Corporate ($6.4 million). Restructuring charges for the three
months ended September 30, 2001 related to Specialty Chemicals ($0.7 million)
and Corporate ($7.8 million). Restructuring and other charges for the nine
months ended September 30, 2001 related to Industrial Chemicals ($166.8
million), Specialty Chemicals ($1.6 million) and Corporate ($16.1 million).
(3) Net interest expense includes the company's share of interest expense of the
phosphorous joint venture (Astaris) for the three months ($1.9 million) and nine
months ($5.0 million) ended September 30, 2002 and for the three months ($1.2
million) and nine months ($3.8 million) ended September 30, 2001. The equity in
earnings (loss) of the joint venture, excluding restructuring charges, is
Fincluded in Industrial Chemicals.
Note 19: Subsequent Event
In accordance with the company's completion of its refinancing on October
21, 2002, condensed consolidated financial statements are being disclosed. The
following entites: InterMountain Research and Development Corporation, FMC
Asia-Pacific, Inc., FMC Overseas, Ltd., FMC WFC I, Inc., FMC WFC II, Inc., FMC
WFC I NL, L.L.C., FMC Defense Corp., FMC Defense NL, L.L.C., FMC Properties,
LLC, FMC Funding Corporation, FMC Idaho, LLC, wholly-owned direct and indirect
domestic subsidiaries of the company ("Guarantors"), fully and unconditionally
guarantee the obligations under the refinancing program on a joint and several
basis. The following consolidating condensed financial statements present, in
separate columns, financial information for: FMC Corporation on a parent-only
basis carrying its investment in subsidiaries under the equity method;
Guarantors on a combined, or where appropriate, consolidated basis, carrying
investments in subsidiaries which do not guarantee the debt (the
"Non-Guarantors") under the equity method; Non-Guarantors on a combined, or
where appropriate, consolidated basis; eliminating adjustments; and consolidated
totals as of September 30, 2002 and December 31, 2001, and for the three and
nine months ended September 30, 2002 and 2001. The eliminating adjustments
primarily reflect inter-company transactions, such as interest income and
expense, accounts receivable and payable, advances, short- and long-term debt,
royalties and profit in inventory eliminations. The company has not presented
separate notes and other disclosures concerning the Guarantors as management has
determined that such material information is available in the notes to FMC's
condensed consolidated financial statements.
-17-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ---------------------------------------------------------------------------------------------------------------------
Revenue $269.2 $ 94.9 $215.5 $(103.0) $476.6
Cost of sales and services 185.0 78.0 184.5 (97.4) 350.1
Selling, general and administrative expenses 39.2 6.2 10.3 -- 55.7
Research and development expenses 17.0 1.2 1.2 -- 19.4
- ---------------------------------------------------------------------------------------------------------------------
Income(loss) from operations 28.0 9.5 19.5 (5.6) 51.4
Equity in earnings of affiliates (2.9) -- (0.7) -- (3.6)
Minority interests (0.1) 0.5 0.6 -- 1.0
Interest expense (income), net 25.8 (10.4) 0.3 -- 15.7
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes 5.2 19.4 19.3 (5.6) 38.3
Income taxes 1.3 5.6 3.2 -- 10.1
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3.9 $ 13.8 $ 16.1 $ (5.6) $ 28.2
=====================================================================================================================
-18-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------
Revenue $274.0 $113.9 $194.2 $ (99.3) $482.8
Cost of sales and services 191.2 93.5 199.6 (116.9) 367.4
Selling, general and administrative expenses 35.8 10.2 9.8 -- 55.8
Research and development expenses 21.5 1.2 2.3 -- 25.0
Restructuring and other charges 7.8 -- 0.7 -- 8.5
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 17.7 9.0 (18.2) 17.6 26.1
Equity in (earnings) loss of affiliates (4.2) 0.1 (0.5) (0.1) (4.7)
Minority interests 0.8 -- -- 0.1 0.9
Interest expense (income), net 22.2 (7.8) -- -- 14.4
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes (1.1) 16.7 (17.7) 17.6 15.5
Income taxes (benefit) 35.3 2.1 (35.4) (0.4) 1.6
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (36.4) 14.6 17.7 18.0 13.9
Discontinued operations 7.4 -- -- -- 7.4
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $(29.0) $ 14.6 $ 17.7 $ 18.0 $ 21.3
==================================================================================================================
-19-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------
Revenue $822.1 $215.5 $646.9 $(291.3) $1,393.2
Cost of sales and services 548.8 182.9 555.2 (256.7) 1,030.2
Selling, general and administrative expenses 122.6 18.4 30.2 -- 171.2
Research and development expenses 53.6 3.1 3.7 -- 60.4
Restructuring and other charges 13.8 -- 0.6 -- 14.4
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations 83.3 11.1 57.2 (34.6) 117.0
Equity in (earnings) loss of affiliates (3.4) -- (1.3) 0.1 (4.6)
Minority interests 0.1 0.1 2.0 (0.1) 2.1
Interest expense (income), net 79.1 (32.4) 1.4 -- 48.1
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 7.5 43.4 55.1 (34.6) 71.4
Income taxes (benefit) (12.4) 19.8 5.6 -- 15.0
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 19.9 $ 23.6 $ 47.5 $ (34.6) $ 56.4
==================================================================================================================
-20-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- --------------------------------------------------------------------------------------------------------------------------------
Revenue $916.7 $ 248.5 $622.5 $(334.5) $1,453.2
Cost of sales and services 574.4 214.3 557.5 (288.1) 1058.1
Selling, general and administrative expenses 121.8 30.8 28.8 -- 181.4
Research and development expenses 63.5 4.2 6.2 -- 73.9
Restructuring, asset impairments, and other charges 119.0 288.2 100.4 -- 507.6
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 38.0 (289.0) (70.4) (46.4) (367.8)
Equity in (earnings) loss of affiliates (3.5) 0.3 (1.4) (0.3) (4.9)
Minority interests 1.9 -- (0.7) 0.3 1.5
Interest (income) expense 67.4 (21.7) (1.5) -- 44.2
- --------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes
and cumulative effect of change in accounting principle (27.8) (267.6) (66.8) (46.4) (408.6)
Income taxes (benefit) 4.2 (111.0) (26.4) (4.8) (138.0)
- --------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before cumulative effect
of change in accounting principle (32.0) (156.6) (40.4) (41.6) (270.6)
Discontinued operations (33.5) -- -- -- (33.5)
- --------------------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in
accounting principle (65.5) (156.6) (40.4) (41.6) (304.1)
Cumulative effect of change in accounting principle (0.9) -- -- -- (0.9)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss $(66.4) $(156.6) $(40.4) $ (41.6) $(305.0)
================================================================================================================================
-21-
FMC Corporation
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2.1 $ 2.1 $ 33.1 $ -- $ 37.3
Trade receivables, net 50.9 229.0 87.6 -- 367.5
Inventories 57.8 62.6 91.1 (44.0) 167.5
Inter-company receivables 196.6 16.9 82.6 (296.1) --
Other current assets 53.1 26.2 36.9 -- 116.2
Deferred income taxes 46.1 -- -- -- 46.1
- ------------------------------------------------------------------------------------------------------------------------
Total current assets $ 406.6 $ 336.8 $331.3 $ (340.1) $ 734.6
Investments in affiliates 1,573.2 11.5 14.1 (1,566.7) 32.1
Property, plant and equipment, net 591.9 81.3 385.5 -- 1,058.7
Goodwill, net 4.6 115.3 4.4 -- 124.3
Other assets 117.5 (0.4) 21.0 -- 138.1
Deferred income taxes 280.1 -- -- -- 280.1
- ------------------------------------------------------------------------------------------------------------------------
Total assets $2,973.9 $ 544.5 $756.3 $(1,906.8) $2,367.9
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt $ (0.3) $ 39.0 $ 21.6 $ -- $ 60.3
Accounts payable, trade and other 90.9 31.4 90.0 -- 212.3
Inter-company payable 49.2 182.4 64.5 (296.1) --
Accrued and other liabilities 202.1 64.7 42.1 -- 308.9
Current portion of long-term debt 260.8 -- -- -- 260.8
Current portion of accrued pension and
postretirement benefits 14.8 -- -- -- 14.8
Income taxes payable (103.1) 115.1 15.6 -- 27.6
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 514.4 432.6 233.8 (296.1) 884.7
Long-term debt 568.8 -- -- -- 568.8
Pension and postretirement liabilities 107.2 -- -- -- 107.2
Inter-company long-term debt 1,034.3 (1,026.0) (8.3) -- --
Investment in subsidiaries (640.2) -- -- 640.2 --
Reserve for discontinued operations, environmental
reserves and other long-term liabilities 272.4 69.0 0.7 -- 342.1
Minority interests in consolidated companies 10.8 0.6 41.3 (9.5) 43.2
Stockholders' Equity (deficit):
Common stock & retained earnings 1,761.3 1,068.3 488.8 (2,241.4) 1,077.0
Accumulated other comprehensive loss (147.8) -- -- -- (147.8)
Treasury stock, common, at cost (507.3) -- -- -- (507.3)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,106.2 1,068.3 488.8 (2,241.4) 421.9
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,973.9 $ 544.5 $756.3 $(1,906.8) $2,367.9
========================================================================================================================
-22-
FMC Corporation
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
Parent
FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
($ in millions)
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7.9 $ 1.3 $ 14.2 $ -- $ 23.4
Trade receivables, net 127.4 213.7 100.6 -- 441.7
Inventories 90.1 61.4 86.3 (30.6) 207.2
Intercompany receivables 135.4 20.2 67.8 (223.4) --
Other current assets 44.3 23.8 31.5 -- 99.6
Deferred income taxes 48.4 -- -- -- 48.4
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 453.5 320.4 300.4 (254.0) 820.3
Investments in affiliates 1,752.9 11.5 14.0 (1,753.2) 25.2
Property, plant and equipment, net 523.9 73.4 490.5 -- 1,087.8
Goodwill, net 4.0 105.1 4.4 -- 113.5
Other assets 115.4 3.2 17.0 -- 135.6
Deferred income taxes 294.8 -- -- -- 294.8
- -----------------------------------------------------------------------------------------------------------------------
Total assets $3,144.5 $ 513.6 $ 826.3 $ (2,007.2) $2,477.2
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt $ 103.5 $ 13.5 $ 19.5 $ -- $ 136.5
Accounts payable, trade and other 177.8 32.7 117.2 -- 327.7
Intercompany payable (39.0) 198.9 59.6 (219.5) --
Accrued and other liabilities 216.0 140.4 36.6 -- 393.0
Current portion of long-term debt 135.2 -- -- -- 135.2
Current portion of accrued pension and
postretirement benefits 18.2 -- -- -- 18.2
Income taxes payable (80.0) 94.3 13.5 -- 27.8
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 531.7 479.8 246.4 (219.5) 1,038.4
Long-term debt 651.8 -- -- -- 651.8
Pension and Postretirement Liabilities 109.2 -- -- -- 109.2
Intercompany long-term debt 1,052.2 (1,039.4) (10.3) (2.5) --
Intercompany investments (188.9) -- (159.5) 348.4 --
Reserves for discontinued operations,
environmental reserves and other long-term
liabilities 343.2 70.7 0.3 -- 414.2
Minority interest in consolidated companies 46.1 -- 8.1 (9.4) 44.8
Stockholders' Equity (deficit):
Common stock and retained earnings 1,293.6 1,002.5 741.3 (2,124.2) 913.2
Accumulated other comprehensive loss (186.8) -- -- -- (186.8)
Treasury stock, common, at cost (507.6) -- -- -- (507.6)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 599.2 1,002.5 741.3 (2,124.2) 218.8
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'equity $3,144.5 $ 513.6 $ 826.3 $ (2,007.2) $2,477.2
=======================================================================================================================
-23-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Nine Months Ended September 30, 2002
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
Cash provided (required) by operating activities $(422.8) $(72.4) $ 210.6 $ 363.5 $ 78.9
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by discontinued operations (23.8) -- -- -- (23.8)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities:
Capital expenditures (21.9) (14.7) (14.3) -- (50.9)
Other investing activities 104.9 6.7 119.2 (251.4) (20.6)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities 83.0 (8.0) 104.9 (251.4) (71.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net change in short-term debt obligations 21.8 25.5 2.1 (54.0) (4.6)
Repayment of long-term debt net of increased borrowings (63.7) -- -- -- (63.7)
Equity offering proceeds 101.3 -- -- -- 101.3
Other financing activities 298.4 55.7 (298.7) (58.1) (2.7)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities 357.8 81.2 (296.6) (112.1) 30.3
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5.8) 0.8 18.9 -- 13.9
Cash and cash equivalents, beginning of the period 7.9 1.3 14.2 -- 23.4
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 2.1 $ 2.1 $ 33.1 $ -- $ 37.3
=============================================================================================================================
-24-
FMC Corporation
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Nine Months Ended September 30, 2001
Parent FMC Non-
Corporation Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------
($ in millions)
Cash provided (required) by operating activities $(150.8) $(382.9) 93.4 $ 415.2 $ (25.1)
- -----------------------------------------------------------------------------------------------------------------------------
Cash required by discontinued operations (94.5) -- -- -- (94.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities:
Capital expenditures (51.2) (34.5) (33.5) -- (119.2)
Other investing activities 274.8 207.9 179.2 (678.2) (16.3)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by investing activities 223.6 173.4 145.7 (678.2) (135.5)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities:
Net change in short-term debt obligations 19.6 2.4 (11.5) 36.5 47.0
Repayment of long-term debt net of increased borrowings (108.3) -- -- -- (108.3)
Contribution to Technologies 385.4 -- -- -- 385.4
Other financing activities (262.1) 204.0 (210.1) 226.5 (41.7)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided (required) by financing activities 34.6 206.4 (221.6) 263.0 282.4
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 12.9 (3.1) 17.5 -- 27.3
Cash and cash equivalents, beginning of period (1.1) 3.3 5.1 -- 7.3
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 11.8 $ 0.2 $ 22.6 $ -- $ 34.6
=============================================================================================================================
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 2 of this report contains certain forward-looking statements, including
statements regarding the outlook of our segments for the fourth quarter of 2002,
that are based on management's current views and assumptions regarding future
events, future business conditions and the outlook for the company based on
currently available information.
Whenever possible, we have identified these forward-looking statements by such
words or phrases as "will likely result", "is confident that", "expects",
"should", "could", "may", "will continue to", "believes", "anticipates",
"predicts", "forecasts", "estimates", "projects", "potential", "intends" or
similar expressions identifying "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, including the negative
of those words or phrases. Such forward-looking statements are based on our
current views and assumptions regarding future events, future business
conditions and the outlook for our company based on currently available
information. The forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in, or implied by, these statements. Certain of these risks and
uncertainties are set forth in the sections entitled "Forward-Looking
Information" in Item 6 of our Annual Report on Form 10K for the year ended
December 31, 2001 and in Exhibit 99.3 of the company's Current Report on Form
8-K dated September 20, 2002. We wish to caution readers not to place undue
reliance on forward-looking statements, which speak only as of the date made.
We further caution that the list of important factors in the above referenced
section and in our Annual Report on our Form 10-K for 2001 factors may not be
all-inclusive, and we specifically decline to undertake any obligation to
publicly revise any forward-looking statements that have been made to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
During the first three quarters of 2002 significant events affecting our
liquidity included:
Spending against restructuring and other reserves of $77.5 million, including
$25.3 million to shutdown our Pocatello plant; paying $35.4 million for
scheduled maturities of long-term debt; redeeming all of the $28.8 million
principal amount outstanding of our 6.75% exchangeable senior subordinated
debentures; and issuing 3.25 million shares of common stock with net proceeds of
$101.3 million. Subsequent to the third quarter of 2002 we completed our
refinancing , discussed below, which addresses our projected liquidity needs for
the next five years.
Liquidity
Cash and cash equivalents at September 30, 2002 and December 31, 2001 were $37.3
million and $23.4 million, respectively.
Cash provided by operating activities was $76.5 million for the nine months
ended September 30, 2002 compared to cash required by operating activities of
$24.7 million for the first nine months of 2001. Historically, cash flow from
operating activities has funded a substantial portion of FMC's cash
requirements. However in the first nine months of 2002 and 2001 cash from
operating activities has been reduced by the net cash impact of spending related
to our restructuring and other charges (see "Restructuring and other charges"
and Note 7 of our condensed consolidated financial statements. Included in our
cash used in operations in 2002 is $49.7 million for spending, on restructuring
activities, including $25.3 million for the shutdown of Pocatello (see Note 8 of
our condensed consolidated financial statements). The future spending against
restructuring reserves of $53.0 million at September 30, 2002 for the shutdown
and remediation of Pocatello and other related activities is expected to
continue through 2007 with progressively less spent in each of the future years.
Accounts payable decreased by $115.4 million and $94.4 million in the first nine
months of 2002 and 2001, respectively, reflecting the paydown of higher yearend
2001 and 2000 balances due to seasonal needs in our Agricultural Products
segment. Also favorably affecting our 2002 cash provided by operating activities
were improved collections of account receivable especially within Agricultural
Products regions such as Asia and South America.
Cash required by discontinued operations for the nine months ended September 30,
2002 and 2001 was $23.8 million and $94.5 million, respectively. The majority of
the spending for our discontinued operations is for environmental remediation on
discontinued sites and post-employment benefits for former employees of
discontinued businesses. The first nine months of 2001 also included an $80.0
million payment in the settlement of litigation related to our discontinued
defense systems business.
Cash required by investing activities was $71.5 million for the nine months
ended September 30, 2002 compared to $135.5 million
-26-
for the nine months ended September 30, 2001. The majority of this spending
related to capital additions to our property, plant and equipment to maintain
operating standards and comply with environment, health and safety regulations.
Also included in investing activities are Astaris LLC ("Astaris") keepwell (see
Note 17 of our condensed consolidated financial statements) payments of $27.8
million and $31.3 million for 2002 and 2001, respectively. Lower capital
spending in 2002 compared to 2001 contributed to the decline in cash required by
investing activities. Additionally, 2001 included $63.2 million for spending on
environmental remediation assets at Pocatello. The fourth quarter 2001 decision
to shutdown Pocatello enabled us to curtail this spending.
Cash provided by financing activities for the first nine months of 2002 of $30.3
million decreased by $252.1 million when compared to cash provided by financing
activities of $282.4 million for the first nine months of 2001. Our 2001
financing activities included $385.4 million from the initial public offering
("IPO") of Technologies, net of contributions to Technologies to support their
operating cash needs. The current year's activity reflects a $63.7 million
paydown of our long-term debt, a $36.3 million decrease in our vendor financing
in Brazil and a $14.0 million decrease in amounts received under our former
accounts receivable securitization program. This includes payments of $10.4
million and $25.0 million in the first and second quarters of 2002,
respectively, for scheduled maturities of long-term debt. We also made
before-tax payments of $32.5 million to redeem all outstanding 6.75%
exchangeable senior subordinated debentures (see Note 9 of our condensed
consolidated financial statements). Financing sources from short-term borrowings
were supplemented by proceeds of $101.3 million (net of issuance costs) from the
issuance of 3.25 million shares of common stock in the second quarter of 2002.
Proceeds from this offering were used to reduce outstanding borrowings under our
former $240.0 million revolving credit facility which has subsequently been
terminated.
Refinancing
On October 21, 2002, we completed our previously announced refinancing.
We issued $355.0 million aggregate principal amount of our 10.25% Senior Secured
Notes due 2009 (the "Notes"). Simultaneously, we executed a new $500.0 million
senior secured credit agreement (the "Credit Agreement"), which provides for a
$250.0 million revolving credit facility and a $250.0 million term loan, and
obtained a $40.0 million supplemental secured standby letter of credit facility
(the "Supplemental Letter of Credit Facility" and together with the Credit
Agreement, the "Credit Facilities"). The net proceeds from the sale of the Notes
and the initial borrowings under the Credit Agreement were or will be used to:
.. Fund into a debt reserve account (the "Debt Reserve Account") an amount
sufficient to repay $99.5 million aggregate principal amount of our 7.125%
medium-term notes due November 2002 and $160.5 million aggregate principal
amount of our 6.375% debentures due September 2003;
.. Repay all borrowings under and terminate our former revolving credit
facility and accounts receivable securitization facility, which had
outstanding amounts of approximately $106.0 million and $65.0 million,
respectively at September 30, 2002;
.. Fund into a restricted cash account (the "Restricted Cash Collateral
Account") $130.8 million to refinance and replace with cash collateral
certain surety bonds and letters of credit currently supporting
self-insurance programs, environmental obligations and future business
commitments and cash collateralize letters of credit supporting
approximately $44.0 million of outstanding variable rate industrial and
pollution control revenue bonds; and
.. Pay fees and expenses of approximately $29.0 million, which included bank
fees, printing and distribution costs, attorneys' fees, accountants' fees
and other miscellaneous costs.
See Note 9 of our condensed consolidated financial statements for a summary of
the terms for both the Notes and the new Credit Facilities.
-27-
Capital Resources
Below is a table that summarizes the effect of the completion of our refinancing
on our condensed consolidated balance sheet as if the refinancing had been
completed on September 30, 2002:
As Reported Pro Forma
September 30, September 30,
2002 2002 /(1)/
(unaudited) (unaudited)
------------- -------------
Cash and cash equivalents $ 37.3 $ 42.0
Restricted cash collateral account 130.8
Debt reserve account 260.0