-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfbwiHkQpQF5n5OAIFAnqWeyjsgrHcywTtVFrE7ipFjgcZ8GRDgPREryaHoLlaTK Z7mUhB1C8PsBFEgqgVB6iw== 0000950131-97-002068.txt : 19970327 0000950131-97-002068.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950131-97-002068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FMC CORP CENTRAL INDEX KEY: 0000037785 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 940479804 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02376 FILM NUMBER: 97563805 BUSINESS ADDRESS: STREET 1: 200 E RANDOLPH DR CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3128616000 FORMER COMPANY: FORMER CONFORMED NAME: BEAN SPRAY PUMP CO DATE OF NAME CHANGE: 19670706 FORMER COMPANY: FORMER CONFORMED NAME: FOOD MACHINERY & CHEMICAL CORP DATE OF NAME CHANGE: 19670706 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________________ to __________________ Commission file number 1-2376 FMC CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-0479804 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 East Randolph Drive, Chicago, Illinois 60601 - ------------------------------------------ ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 312/861-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ----------------------- Common Stock, $0.10 par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by non-affiliates of the Registrant as of February 27, 1997, was $2,566,604,614. The number of shares of Registrant's Common stock, $0.10 par value, outstanding as of that date was 37,232,506. Documents Incorporated by Reference
Document Form 10-K Reference - -------- ------------------- Portions of Annual Report to Part I, Item 1; Part II; and Part IV, Stockholders for 1996 Items 14(a)(1) and (2) Portions of Proxy Statement for 1997 Part III Annual Meeting of Stockholders
================================================================================ Part I FMC Corporation was incorporated in 1928 under Delaware law and has its principal executive offices at 200 East Randolph Drive, Chicago, Illinois 60601. As used in this report, except where otherwise stated or indicated by the context, "FMC", "the Company" or "the Registrant" means FMC Corporation and its consolidated subsidiaries and their predecessors. The Company, a producer of chemicals and machinery for industry, agriculture and government, operates on a worldwide basis in selected segments of four broad markets: Performance Chemicals, Industrial Chemicals, Machinery and Equipment and Defense Systems. The Company operates 117 manufacturing facilities and mines in 27 states and 28 countries. Performance Chemicals develops, manufactures and markets proprietary specialty chemicals for the agricultural, food and pharmaceutical industries. Industrial Chemicals businesses manufacture a wide variety of chemicals including soda ash, phosphates and hydrogen peroxide. Major customers include detergent, glass and paper producers, as well as other chemical companies. Machinery and Equipment businesses provide specialized machinery to the food, petroleum, transportation and material handling industries. Defense Systems develops, manufactures and supplies ground combat vehicles and naval weapons systems to the armed forces of the United States and other governments. Effective January 1, 1994, the Company and Harsco Corporation ("Harsco") formed a joint venture, United Defense, L.P., which is a combination of certain assets and liabilities of the Company's Defense Systems Group and Harsco's BMY Combat Systems Division and pursuant to which the Company is the Managing General Partner with a 60% equity interest. Item 1. Business Incorporated by Reference From: ------------------------------ (a) General Development of Business - Annual Report to Stockholders, Inside back cover, pages 2-4, and Notes 2 and 3 to the consolidated financial statements on pages 42-44 (b) Financial Information About - Annual Report to Stockholders, page 5 Industry Segments (c) Narrative Description of Business - Annual Report to Stockholders, pages 6-9 Source and availability of raw materials - ---------------------------------------- FMC's natural resource requirements are primarily mineral-oriented. Substantial portions of requirements for ores and other raw materials, especially trona and phosphate rock, are produced from mines in the United States on property held by FMC under long-term leases which are subject to periodic adjustments of royalty rates. Machinery operations obtain raw materials, principally steel and castings, from many foreign and domestic sources. No one source is considered essential to any of the machinery operations. The Company uses oil, gas, coal, coke, hydroelectric power and nuclear power to meet its energy needs. Patents - ------- Although FMC's patents, trademarks and licenses are cumulatively important to its business, FMC does not believe that the loss of any one or group of related patents, trademarks or licenses would have a material adverse effect on the overall business of FMC or on any of its business segments. Principal Customer - ------------------ Sales to various agencies of the United States government aggregated $851.2 million, $706.5 million and $618.3 million in 1996, 1995 and 1994, respectively. These sales were made primarily by the Defense Systems segment. Contracts with various agencies of the United States government and subcontracts with other prime contractors are subject to a profusion of procurement regulations, with noncompliance found by any one agency possibly resulting in fines, penalties, debarment or suspension from receiving additional government contracts. Moreover, these contracts may be terminated at the government's convenience, although contractors are normally protected by provisions covering reimbursement for costs incurred as well as the payment of any applicable fees or profits. Seasonality - ----------- FMC's businesses are not generally considered to be seasonal, although there has been a bias in the Performance Chemicals segment towards lower profitability in the fourth quarter primarily due to seasonality in the markets served by the agricultural products businesses. Competitive Conditions - ---------------------- FMC competes on the basis of price and product performance and is among the market leaders in most products it manufactures. FMC is the world's largest producer of natural soda ash, a leading North American producer of hydrogen peroxide, a leading North American producer of industrial phosphorus chemicals and a world leader in the mining and processing of lithium products. FMC manufactures Furadan, one of the largest selling insecticides in the world. FMC is also the largest worldwide producer of carrageenan, microcrystalline cellulose, and phosphate ester flame retardants. United Defense, L.P. is a world leader in the production of tracked, armored personnel carriers. FMC also participates in many machinery businesses, including food processing, material handling and energy equipment, where FMC has a significant market share. Products are sold in highly competitive markets worldwide. Research and Development Expenditures - -------------------------------------
Year Ended December 31 ------------------------ In Millions 1996 1995 1994 ------ ------ ------ Performance Chemicals $113.1 $109.2 $ 94.3 Industrial Chemicals 20.4 16.2 16.2 Machinery and Equipment 41.5 49.0 29.6 Defense Systems 12.9 12.4 16.3 Corporate 1.5 1.0 10.4 ------ ------ ------ Total $189.4 $187.8 $166.8
Expenditures for research and development increased in Performance Chemicals primarily due to continued development of herbicides. Expenditures also increased in Industrial Chemicals primarily due to new product development and process improvement efforts regarding the Company's peroxygen and phosphorus products. Expenditures decreased in Machinery & Equipment primarily related to the absence of the write-off of acquired in-process research and development related to the Moorco acquisition ($15.5 million in 1995) offset partially by increased research and development expenditures related to acquisitions and the Company's airport products business. Not included in these amounts are $320.3 million, $279.6 million and $148.0 million in 1996, 1995 and 1994, respectively, for research and development projects contracted directly with the U.S. government and commercial sponsors, primarily related to Defense Systems programs. Environmental - ------------- Incorporated by Reference From: ------------------------------- Compliance with environmental laws and - Annual Report to Stockholders, regulations Note 14 to the consolidated financial statements on pages 52-53 Employees - --------- FMC employs 22,048 people in its domestic and foreign operations. Approximately 4,500 such employees are represented by collective bargaining agreements in the United States and Canada. In 1997, seven of the Company's 26 contracts will expire. Certain of those contracts are under negotiation at the present time. FMC maintains good employee relations and has successfully concluded virtually all of its recent negotiations without a work stoppage. In those rare instances where a work stoppage has occurred, there has been no material effect on consolidated sales and earnings. However, FMC cannot predict the outcome of future contract negotiations. Incorporated by Reference From: ------------------------------ (d) Financial Information About - Annual Report to Stockholders, page 38 Foreign and Domestic Operations and Export Sales Forward Looking Statements - Safe Harbor Provisions - --------------------------------------------------- The Company and its representatives may from time to time make written or oral forward-looking statements with respect to long-term objectives or expectations of the Company, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to stockholders. The words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "is predicted", "forecast", "estimate", "project", or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Among the factors that could have an impact on the Company's ability to achieve its operating results and growth plan goals are: . significant price competition, particularly among the Company's competitors in industrial chemicals . high ingredient or raw material prices compared to historical levels, or shortages of ingredients or raw materials . the inherent risks in the marketplace associated with new product introductions and technologies, particularly in agricultural and specialty chemicals . the risks associated with developing new manufacturing processes, particularly with respect to complex chemical products . the impact of budgetary restrictions which may be imposed by the U.S. and foreign governments with respect to spending on defense weaponry, training and research . the ability of the Company to integrate recent acquisitions into its existing operations . the impact of unforeseen economic and political changes in the international markets where the Company competes including currency exchange rates, inflation rates, recessions, foreign ownership restrictions, and other external factors over which the Company has no control . the impact of significant changes in domestic interest rates or taxation rates. The Company cautions that the foregoing list of important factors may not be all inclusive and it specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Item 2. Properties FMC leases executive offices in Chicago and administrative offices in Philadelphia. The Company operates 117 manufacturing facilities and mines in 28 countries. Major research facilities are in Santa Clara, CA, and Princeton, NJ. FMC holds mining leases on shale and ore deposits in Idaho to supply its phosphorus plant in Pocatello, and owns substantial phosphatic ore deposits in Rich County, Utah. Trona ore, used for soda ash production in Green River, WY, is mined primarily from property held under long-term lease. FMC also owns half of a lithium mine located near Cherryville, NC, and has long-term lease commitments for the remaining portion and in Argentina FMC owns the land and mineral rights to the Salar del Hombre Muerto lithium reserves. Many of FMC's chemical plants require the basic raw materials which are provided by these FMC- owned or -leased mines, without which other sources would have to be obtained. FMC's mining properties are operated under numerous long-term leases with no single lease or related group of leases material to the businesses of the Company as a whole. United Defense, L.P. leases its administrative offices in Arlington, Virginia. Most of FMC's plant sites are owned, with an immaterial number of them being leased. FMC believes its properties and facilities meet present requirements and are in good operating condition and that each of its significant manufacturing facilities is operating at a level consistent with the industry in which it operates. FMC's production properties for continuing operations are:
Latin America United and Western States Canada Europe Other Total - ----------------------------------------------------------------- Performance Chemicals 13 3 6 4 26 Industrial Chemicals 13 2 12 1 28 Machinery and Equipment 22 5 15 6 48 Defense Systems 13 - - 2 15
Item 3. Legal Proceedings Environmental Proceedings - ------------------------- As initially reported in FMC's annual report on Form 10-K for the year ended December 31, 1994, an environmental inspection was conducted in July 1993 at FMC's Phosphorus Chemicals Division plant in Pocatello, Idaho. In August 1994, the United States EPA (Region 10) (the "EPA") formally notified FMC of a number of alleged violations of the Resource Conservation and Recovery Act and related environmental regulations governing the management of hazardous waste generated by the plant, including the operations of hazardous waste storage and treatment units without interim status, the failure to submit timely closure plans, the failure to implement an adequate groundwater monitoring program and to comply with related reporting requirements and the existence of several other improper treatment and disposal practices. Although there are no legal proceedings pending at this time, FMC has been advised that the matter has been referred to the United States Department of Justice for an evaluation of whether to file a civil enforcement action. If such a civil action is filed, the government is likely to demand both injunctive relief and civil penalties. FMC is seeking to settle this matter in advance of litigation. Management believes that the resolution of these matters will not likely have a material adverse effect on FMC's liquidity, results of operations or financial condition. Other - ----- See Note 14 to the 1996 consolidated financial statements (pages 52-53 of the 1996 Annual Report to Stockholders) for a discussion of legal proceedings against other Potentially Responsible Parties and insurers for contribution and/or coverage with respect to environmental remediation costs. Item 4. Submission of Matters to a Vote of Security Holders None. EXECUTIVE OFFICERS OF THE REGISTRANT The Executive Officers of FMC Corporation, together with the offices in FMC Corporation presently held by them, their business experience since January 1, 1992, and their ages as of March 1, 1997, are as follows:
Age Office, year of election and Name 3/1/97 other information for past 5 years - ---- ------ ---------------------------------- Robert N. Burt 59 Chairman of the Board and Chief Executive Officer (91); President (90-93); Executive Vice President (88) Larry D. Brady 54 President (93) and Director (89); Executive Vice President (89-93); Vice President-Corporate Development (88)
William F. Beck 58 Executive Vice President (94); Vice President (86) and General Manager-Chemical Products Group (86); President of FMC Europe (91) Michael J. Callahan 58 Executive Vice President and Chief Financial Officer (94); Executive Vice President and Chief Financial Officer, Whirlpool Corporation (91-94) William J. Kirby 59 Senior Vice President (94); Vice President-Administration (85) J. Paul McGrath 55 Senior Vice President and General Counsel (96); Associate General Counsel-Litigation, Allied Signal Inc. (92-96) Charles H. Cannon 44 Vice President and General Manager-Food Machinery Group (94); Manager, Food Processing Systems Division (92-94); Manager, Citrus Machinery Division (89-92) W. Reginald Hall 60 Vice President (91) and General Manager-Specialty Chemicals Group (92) General Manager-Food Machinery Group (90) Robert I. Harries 53 Vice President (92) and General Manager-Chemical Products Group (94) Patrick J. Head 64 Vice President (81); General Counsel (81-96) Henry Kahn 50 Vice President and Treasurer (96); Assistant Treasurer (93) and Corporate Finance Director (89), The Dow Chemical Company Ronald D. Mambu 47 Vice President and Controller (95); Director, Financial Planning (94-95); Director, Strategic Planning (93-94); Director, Financial Control (87-93) James A. McClung 59 Vice President (91); Vice President-International (81-91) Joseph H. Netherland 50 Vice President (87) and General Manager-Petroleum Equipment Group (86), Specialized Machinery Group (89); Energy and Transportation Equipment Group (93) Thomas W. Rabaut 48 Vice President (94), President and Chief Executive Officer, United Defense, L.P. (94); General Manager, Defense Systems Group (93); Manager, Ground Systems Division (90-93) William H. Schumann 46 Vice President (95) and General Manager-Agricultural Products Group (95); Director, North American operations, Agricultural Products Group (93-95); Executive Director, Corporate Development (91-93) William J. Wheeler 54 Vice President (91); President, FMC Asia-Pacific (91); General Manager, Phosphorus Chemical Division (86-91)
Each of the Company's executive officers has been employed by the Company in a managerial capacity for the past five years except for Messrs. Callahan, McGrath and Kahn. No family relationships exist between any of the above-listed officers and there are no arrangements or understandings between any of them and any other person pursuant to which they are selected as an officer. All officers are elected to hold office for one year and until their successors are elected and qualify. PART II
Incorporated by Reference From: ------------------------------- Item 5. Market for Registrant's Annual Report to Stockholders, Common Equity and Inside back cover, pages 33 and 39, and Related Stockholder Notes 10 and 11 to the consolidated Matters financial statements on pages 48-50 Item 6. Selected Financial Data Annual Report to Stockholders, pages 56-57
Item 7. Management's Discussion Annual Report to Stockholders, and Analysis of Financial pages 16-17, 21, 28, and 31-33 Condition and Results of Operations Item 8. Financial Statements and Annual Report to Stockholders, Supplementary Data pages 5 and 34-54 (including all Schedules required under Item 14 of Part IV) Item 9. Changes in and None. Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Incorporated by Reference From: ------------------------------- Item 10. Directors and Executive Part I; Proxy Statement for 1997 Officers of the Registrant Annual Meeting of Stockholders, pages 1-11 Item 11. Executive Compensation Proxy Statement for 1997 Annual Meeting of Stockholders, pages 14- 22 Item 12. Security Ownership of Proxy Statement for 1997 Annual Certain Beneficial Owners Meeting of Stockholders, pages 11- and Management 12 Item 13. Certain Relationships and Proxy Statement for 1997 Annual Related Transactions Meeting of Stockholders, page 11
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed with this Report 1. Consolidated financial statements of FMC Corporation and its subsidiaries are incorporated under Item 8 of this Form 10-K. 2. All required financial statement schedules are included in the consolidated financial statements or notes thereto as incorporated under Item 8 of this Form 10-K. 3. Report of Independent Auditors from Ernst & Young LLP for United Defense, L.P. (Exhibit 99). 4. Exhibits: See attached exhibit index, page 14 (b) Reports on Form 8-K During the quarter ended December 31, 1996, Registrant filed reports on Form 8-K as follows: Date Subject ---- ------- October 16, 1996 Announcement of third quarter earnings. (c) Exhibits See Index of Exhibits. SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FMC CORPORATION (Registrant) By: /s/ Michael J. Callahan ---------------------------- Michael J. Callahan Executive Vice President and Chief Financial Officer Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title - --------- ----- Michael J. Callahan Executive Vice President /s/ Michael J. Callahan and Principal Financial ---------------------- Officer Michael J. Callahan March 26, 1997 ---------------------- Ronald D. Mambu Vice President, ) Controller and Principal ) Accounting Officer ) Robert N. Burt Chairman of the Board ) and Chief Executive ) Officer ) Larry D. Brady Director ) B.A. Bridgewater, Jr. Director ) By: /s/ Michael J. Callahan Patricia A. Buffler Director ) ----------------------- Albert J. Costello Director ) Michael J. Callahan Paul L. Davies, Jr. Director ) March 26, 1997 Jean A. Francois-Poncet Director ) ----------------------- Pehr G. Gyllenhammar Director ) Robert H. Malott Director ) Edward C. Meyer Director ) William F. Reilly Director ) James R. Thompson Director ) Clayton Yeutter Director )
PAGE 1 INDEX OF EXHIBITS FILED WITH OR INCORPORATED BY REFERENCE INTO FORM 10-K OF FMC CORPORATION FOR YEAR ENDED DECEMBER 31, 1996 Exhibit No. This 10-K Exhibit Description - ---- ------------------- 3.1 Restated Certificate of Incorporation, as filed on July 1, 1986 (incorporated by reference from Exhibit 3.1 to the Form SE filed on March 25, 1993) 3.2 Amendment to Restated Certificate of Incorporation filed on April 30, 1987 (incorporated by reference from Exhibit 3.2 to the Form SE filed on March 25, 1993) 3.3 Amended and Restated By-Laws of the Company, as amended (incorporated by reference from Exhibit 4.3 to Form S-8 Registration Statement No. 333-18383 filed on December 18, 1996) 4.1 Amended and Restated Rights Agreement, dated as of February 19, 1988, between Registrant and Harris Trust and Savings Bank (incorporated by reference from Exhibit 4 to the Form SE filed on March 25, 1993) 4.2 Amendment to Amended and Restated Rights Agreement, dated February 9, 1996 (incorporated by reference from Exhibit 1 to the Form 8-K filed on February 9, 1996) 4(iii)(A) Registrant undertakes to furnish to the Commission upon request, a copy of any instrument defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries and for any of its unconsolidated subsidiaries for which financial statements are required to be filed 4.3 Participation Agreement, dated as of January 1, 1994, by and among FMC Corporation, Harsco Corporation, Harsco Defense Holding, Inc. and United Defense, L.P.* (incorporated by reference from Exhibit 4.1 to the Form 8-K filed on February 14, 1994) 4.4 Partnership Agreement, dated as of January 1, 1994, by and among FMC Corporation, Harsco Defense Holding, Inc. and United Defense, L.P.* (incorporated by reference from Exhibit 4.2 to the Form 8-K filed on February 14, 1994) 4.5 Annex A - Definitions Relating to the Partnership Agreement and the Participation Agreement (incorporated by reference from Exhibit 4.3 to the Form 8-K filed on February 14, 1994) 4.6 Registration Rights Agreement, dated as of January 1, 1994, by and among FMC Corporation, Harsco Defense Holding, Inc. and United Defense, L.P. (incorporated by reference from Exhibit 4.4 to the Form 8-K filed on February 14, 1994) 4.7 Management Services Agreement, dated as of January 1, 1994, by and between FMC Corporation and United Defense, L.P.* (incorporated by reference from Exhibit 4.6 to the Form 8-K filed on February 14, 1994) 4.8 Form of Senior Promissory Note Agreement by and between Harsco Defense Holding, Inc. and United Defense, L.P. (incorporated by reference from Exhibit 4.6 to the Form 8-K filed on February 14, 1994) 10.1** FMC 1997 Compensation Plan for Non-Employee Directors 10.2** FMC 1981 Incentive Share Plan, as amended, effective May 28, 1986 (incorporated by reference from Exhibit 10.1 to the Form SE filed on March 25, 1993) 10.3** FMC 1990 Incentive Share Plan (incorporated by reference from Exhibit 10.1 to the Form SE filed on March 26, 1991) 10.4** FMC Corporation Salaried Employees' Retirement Plan, as amended and restated effective January 1, 1995 (incorporated by reference from Exhibit 10.4 to the Annual Report on Form 10-K for 1994) 10.5** FMC Employees' Thrift and Stock Purchase Plan, as revised and restated as of April 1, 1991 (incorporated by reference from Exhibit 10.3 to the Form SE filed on March 27, 1992) 10.6** Amendments to the FMC Employees' Thrift and Stock Purchase Plan through December 31, 1994 (incorporated by reference from Exhibit 10.6 to the Annual Report on Form 10-K for 1994) 10.7** FMC Salaried Employees' Equivalent Retirement Plan (incorporated by reference from Exhibit 10.4 to the Form SE filed on March 27, 1992) 10.8** FMC Deferred Compensation Equivalent Retirement and Thrift Plan (incorporated by reference from Exhibit 10.5 to the Form SE filed on March 27, 1992) 10.9** FMC 1995 Management Incentive Plan (incorporated by reference from Exhibit 10.9 to the Form 10-K filed on March 15, 1996) 10.10** FMC 1995 Stock Option Plan as amended (incorporated by reference from Exhibit 10.10 to the Form 10-K filed on March 15, 1996) 10.11** FMC Corporation Amended and Restated Executive Severance Plan (incorporated by reference from Exhibit 10.1 to the Form SE filed on March 28, 1990) 10.12** FMC Employees' Thrift and Stock Purchase Trust dated April 1, 1982 (incorporated by reference from Exhibit 10.7 to the Form SE filed on March 27, 1992) 10.13** Amendment to FMC Employees' Thrift and Stock Purchase Trust dated April 1, 1988 (incorporated by reference from Exhibit 10.8 to the Form SE filed on March 27, 1992) 10.14** FMC Master Trust Agreement between FMC and Bankers Trust Company (incorporated by reference from Exhibit 10.9 to the Form SE filed on March 27, 1992) 10.15 Fiscal Agency Agreement between FMC Corporation and Union Bank of Switzerland, Fiscal Agent, dated as of January 16, 1990 (incorporated by reference from Exhibit 10.4 to the Form SE filed on March 28, 1990) 10.17** Consulting Agreement dated as of September 1, 1990 between the Company and Edward C. Meyer (incorporated by reference from Exhibit 10.16 to Form 10-K-A filed on April 5, 1994) 12 Statement re Computation of Ratios of Earnings to Fixed Charges 13 Annual Report to Stockholders for the year ended December 31, 1996, is included as an Exhibit to this report for the information of the Securities and Exchange Commission and, except for those portions thereof specifically incorporated by reference elsewhere herein, such Annual Report should not be deemed filed as a part of this report. 21 List of Significant Subsidiaries of Registrant 23 Consents of Auditors 24 Powers of Attorney 27 Financial Data Schedule 99 Report of Ernst & Young LLP, Independent Auditors - ------------------------------- * The Registrant has omitted the schedule and certain exhibits to the Participation Agreement, the Partnership Agreement and the Management Services Agreement and agrees to furnish supplementally a copy of such schedules and exhibits to the Commission upon request. ** Indicates a management contract or compensatory plan or arrangement. EX-10.1 2 FMC 1997 COMPENSATION PLAN-NON EMPLOYEE DIRECTORS Exhibit 10.1 FMC CORPORATION 1997 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS ------------------------------------------------- PART I. GENERAL PROVISIONS --------------------------- 1. Purpose. The purpose of the FMC Corporation 1997 Compensation Plan for Non-Employee Directors is to provide a compensation program which will attract and retain qualified individuals not employed by FMC Corporation or its subsidiaries to serve on the Board of Directors of FMC Corporation and to further align the interests of those directors with those of stockholders by providing that a substantial portion of compensation will be linked directly to increases in stockholder value. 2. Definitions. Except as otherwise defined herein, terms used herein in capitalized form shall have the meanings attributed to them in Annex A to this Plan. 3. Transition Rights. This Plan supersedes and replaces the Deferred Stock Plan and the Retirement Plan. Participant rights and benefits accrued as of December 31, 1996, under the Deferred Stock Plan and the Retirement Plan shall remain in effect as provided in this Plan but no new rights or benefits shall accrue pursuant to such plans. 4. Effective Date. This Plan shall be effective as of January 1, 1997. PART II. CASH COMPENSATION --------------------------- 1. Annual Retainer. Each Participant shall be entitled to receive an Annual Retainer in such amount as shall be determined from time to time by the Board of Directors. Until changed by resolution of the Board of Directors, the Annual Retainer shall be $40,000 of which the Deferred Amount shall be paid in the form of Common Stock Units as set forth in Part III and the remainder, if any, shall be paid in cash in quarterly installments at the end of each calendar year quarter. For purposes of this Plan, the Deferred Amount shall mean, with respect to each Participant, an amount equal to (i) $15,000, or such greater amount as the Participant may have elected, through April 30, 1997 and (ii) $25,000, or such greater amount as the Participant shall have elected in accordance with the following sentence, after April 30, 1997. Not less than 60 days prior to the close of any Plan Year, a Participant may elect to increase his or her Deferred Amount by providing written notice of such election to the Corporate Secretary of the Company. Any such election shall be deemed to be effective on the first day of the next succeeding Plan Year; provided that if and to the extent Company, in its sole discretion, determines that the approval of such election by the Board is necessary to assure that such election conforms with Rule 16b-3, the effectiveness of such election shall be deferred until such later date, if any, as such approval has been obtained. 2. Meeting Fees. Each Participant shall be entitled to receive a Meeting Fee, in such amount as shall be determined from time to time by the Board of Directors, for attending each meeting of the Board of Directors or a committee of the Board of Directors, including extraordinary and/or special Board of Directors and committee meetings. Until changed by resolution of the Board of Directors the Meeting Fee shall be $1,000 per meeting, payable in cash at the end of each calendar year quarter. 3. Committee Chairman Fees. Each Participant who serves as Chairman of a committee of the Board of Directors shall be entitled to receive a Committee Chairman Fee for the tenure of such service. Until changed by resolution of the Board of Directors, the Committee Chairman Fee shall be paid in cash at an annualized rate of $4,000 in equal installments at the end of each calendar year quarter. 4. Retirement Benefits. Unless a Participant who was a non-employee director on December 31, 1996, elects to convert his or her Accrued Retirement Benefits to Common Stock Units pursuant to Section 1b. of Part III of this Plan, that Participant shall be entitled to receive the following benefits upon the termination of his or her service as a member of the Board of Directors: a. Benefits. Benefits shall be paid to the Participant in quarterly installments of $7,500 each. Payment of benefits will begin the quarter following the Termination Date and will continue for the number of full years of the Participant's service as a non-employee member of the Board of Directors from the time of his or her first election as a director to and including April 30, 1997. b. Lump Sum Benefit. At the option of the Participant, which option is exercisable by written notice to the Corporate Secretary of the Company, the Participant may elect to receive in a lump sum the Actuarial Equivalent of benefits otherwise payable. For purposes of this Plan, the term "Actuarial Equivalent" means an amount equal to the amount expected to be received under paragraph a., above, based on the following actuarial assumptions: Interest - 6.5% or such other rate as the Board may from time to time prescribe Mortality - Joint Mortality Group Annuity Table 1983 c. Surviving Spouse Benefit. In the event of the death of a Participant who is receiving benefits under this Plan, those benefits that would otherwise have been payable to the Participant will be paid to the Participant's surviving spouse. Such payments to a surviving spouse will terminate on the earlier of the death of the surviving spouse or the date that benefit payments to the Participant would have terminated had he/she not died. PART III. STOCK COMPENSATION --------- ------------------ 1. Deferred Stock Awards. a. Annual Grant. Effective as of the first day of May of each Plan Year, each Participant's Common Stock Account shall be credited with a number of Common Stock Units equal to the number obtained by dividing the Deferred Amount for the Plan Year beginning on such first day of May by the Fair Market Value of the Common Stock on such date. b. Conversion of Retirement Plan Benefits. By election dated not later than February 14, 1997, each person who was a non-employee director of the Company on December 31, 1996, may choose to have his or her Accrued Retirement Benefits under the Retirement Plan converted into Common Stock Units. Such conversions shall be made by calculating as of April 30, 1997 the lump-sum present value of $2,500 per month times the number of months of Board service as of April 30, 1997, assuming benefits commence upon retirement from the Board at age 70, and using a discount rate of 6.5%. The number of Common Stock Units shall be determined by dividing the lump-sum present value by $71.275, the Fair Market Value of the Common Stock on December 31, 1996. 2. Non-Qualified Stock Options. a. Grant of Options. On the first day of May of each year (the "Date of Grant") beginning in 1997, each Participant shall be granted an option (the "Option") to purchase 900 shares of Common Stock, the intention being that such Option should have an approximate present value of $24,000. The number of shares to be subject to a grant of an Option may be increased or decreased by the Board of Directors if it determines by any reasonable option valuation methodology that the present value of such proposed Option exceeds or is less than $24,000 by more than ten percent (10%). All Options granted under the Plan shall have the terms set forth in this Section 2 of Part III and be non- statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended. b. Option Exercise Price. The per share price to be paid by each Participant at the time an Option is exercised shall be 100% of the Fair Market Value of the Common Stock on the Date of Grant. c. Term of Option. Each Option shall expire on the tenth anniversary of its Date of Grant. d. Exercise and Vesting of Option. Each Option will vest on the date of the annual stockholder's meeting next following the date the Option is granted. Except as provided in the next sentence, if, for any reason, a Participant ceases to serve on the Board of Directors prior to the date an Option vests, such Option shall be forfeited and all further rights of the Participant to or with respect to such Option shall terminate. If a Participant should die while serving as a director of the Company, any vested Option may be exercised by the person designated in such participant's last will and testament or, in the absence of such designation, by the Participant's estate, in either case on or before the expiration of the Option, and any unvested Option shall vest and become exercisable in a proportionate amount, based on the full months of service completed during the vesting period of the Option from the date of grant to the date of death. e. Method of Exercise and Tax Obligations. An Option may be exercised at any time after it vests and before it expires by written notice of exercise to the Corporate Secretary of FMC. Each notice of exercise shall be accompanied by the full purchase price of the shares being purchased. Such payment may be made, at the election of the Participant, in cash, check or shares of Common Stock, or in Common Stock Units, valued using the Fair Market Value as of the exercise date or a combination thereof. The Company may also require payment of the amount of any applicable withholding tax attributable to the exercise of an Option or the delivery of shares of Common Stock. f. Nontransferability. An Option may be assignable and transferable by a Participant by will or the laws of descent and distribution, and otherwise only at the discretion of the Board of Directors. 3. Dividend Equivalent Rights. Outstanding Common Stock Units shall be credited with Dividend Equivalent Rights based upon dividends paid on outstanding shares of Common Stock between the date such Common Stock Units are granted and the date of payment in respect of such Common Stock Units. Such Dividend Equivalent Rights, once credited, shall be converted into an equivalent number of Common Stock Units (including fractional Common Stock Units). If a dividend is paid in cash, each Participant's Common Stock Account shall be credited, as of each dividend payment date, in accordance with the following formula: (A x B)/C in which "A" equals the number of Common Stock Units held by the Director on the dividend payment date, "B" equals the cash dividend per share and "C" equals the Fair Market Value per share of Common Stock on the dividend payment date. If a dividend is paid in property other than cash, Dividend Equivalent Rights shall be credited, as of the dividend payment date, in accordance with the formula set forth above, except that "B" shall equal the fair market value per share of the property which the director would have received in respect of the number of shares of Common Stock equal to the number of Common Stock Units held by the director as of the dividend payment date, had such shares been owned as of the record date for such dividend. 4. Form of Payment. a. Except as described in subsection b., payment in respect of Common Stock Units shall be made in shares of Common Stock. b. Any payment made upon an occurrence of a Change in Control, shall be made in a single lump sum cash payment. For purposes of the preceding, the amount of cash delivered in full or partial payment of Common Stock Units shall equal the Change in Control Price of the number of shares of Common Stock relating to the Common Stock Units with respect to which such cash payment is being made. c. Except as described in section 4b. and in Section 6 of Part IV, payments with respect to Common Stock Units shall be paid in annual installments over a specified period of time or in a lump sum, all as the Participant may elect and subject to change from time to time; provided, however, that no such election, change or revocation will be given effect if it is made less than one year in advance of the Participant's Termination Date. d. The Company shall not issue fractions of shares. Whenever, under the terms of the Plan, a fractional share would otherwise be required to be issued, the Director shall be paid in cash for such fractional share. 5. Change in Capital Structure. In the event of any change in the Common Stock by reason of any stock dividend, split, combination of shares, exchange of shares, warrants or rights offering to purchase Common Stock at a price below its fair market value, reclassification, recapitalization, merger, consolidation or other change in capitalization, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares subject to the Plan and any other relevant provisions of the Plan, whose determination shall be binding and conclusive on all persons. 6. Nontransferability. Common Stock Units may be transferable by a Participant by will or the laws of descent and distribution and otherwise only at the discretion of the Board of Directors. 7. Rights. Except to the extent otherwise set forth herein, Participants shall not have any of the rights of a stockholder with respect to the Common Stock Units. 8. Common Stock Subject to the Plan. Common Stock to be issued under this Plan may be made available from shares of Common Stock held in the treasury, from Common Stock purchased in the open market and, provided they have been reserved for issuance and listed on the New York Stock Exchange and all other exchanges on which the Common Stock are listed, as appropriate, from authorized but unissued Common Stock. PART IV. ADDITIONAL PROVISIONS ------------------------------- 1. Administration. The Plan shall be administered by the Board of Directors. A quorum of the Board of Directors for the purposes hereof shall consist of a majority of its members who may act by vote of a majority of the members present at a meeting at which a quorum is present or without a meeting by written consent to the action taken. The Board of Directors shall have full power to interpret the Plan, formulate additional details and regulations for carrying out the Plan and amend or modify the Plan as from time to time it deems proper and in the best interest of the Company, provided that after a Change in Control no amendment, modification of or action to terminate the Plan may be made which would affect compensation earned or accrued prior to such amendments, modification or termination without the written consent of a majority of Participants determined as of the day before a Change in Control. Any decision or interpretation adopted by the Board of Directors shall be final and conclusive. 2. Participation. All directors of the Company who are not employees of the Company or any subsidiary or affiliate of the Company are Participants in the Plan. 3. Statement of Account. Each Participant shall receive an annual statement showing the number and status of and essential terms applicable to Common Stock Units and Options that have been awarded to the Participant under the Plan. 4. Unsegregated Funds. The Company shall not segregate any funds or securities during the Deferral Period and service as a non-employee director of the Company shall constitute an acknowledgment and agreement by the Participant that any interests of such Participant shall remain a part of the Company's general funds and are subject to the claims of the Company's general creditors during the Deferral Period. Nothing herein contained shall be construed as creating any trust, express or implied, for the benefit of any Participant. 5. Payment of Certain Costs of the Participant. If a dispute arises regarding the interpretation or enforcement of this Plan and the Participant (or in the event of his or her death, his beneficiary) obtains a final judgment in his or her favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or his or her claim is settled by the Company prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by the Participant in contesting or disputing any such claim or in seeking to obtain or enforce any right or benefit provided for in this Plan or in otherwise pursuing his or her claim will be promptly paid by the Company with interest thereon at the highest Illinois statutory rate for interest on judgments against private parties from the date of payment thereof by the Participant to the date of reimbursement by the Company. 6. Payments of Stock Upon Death. In the event of a Director's death, payments with respect to any Common Stock Units shall be made in a single lump sum payment in Common Stock to the beneficiary designated by the Director or, in the absence of an executed beneficiary form, to the person legally entitled thereto, as designated under his or her will, or to such heirs as determined under the laws of intestacy for the jurisdiction of his or her domicile. 7. Reservation of Rights. Nothing in this Plan shall be construed to (a) give any Participant any right to defer compensation received for services as a director of the Company other than as expressly authorized and permitted in this Plan or in any other plan or arrangement approved by the Board of Directors, (b) create any obligation on the part of the Board of Directors to nominate any Participant for reelection by the Company's stockholders or (c) limit in any way the right of the Company's Board of Directors to remove a Participant as a director of the Company. 8. Amendment or Termination. The Company's Board of Directors may, at any time, terminate or amend this Plan provided that no such termination or amendment shall adversely affect the rights of Participants or beneficiaries of Participants, including rights with respect to Common Stock Units or shares of Common Stock credited prior to such termination or amendment, without the consent of the Participant or, if applicable, the Participant's beneficiaries. 9. Regulatory Compliance and Listing. The issuance or delivery of any shares of Common Stock deliverable hereunder may be postponed by the Company for such period as may be required to comply with any applicable requirements under the federal securities laws, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or delivery of such shares, and the Company shall not be obligated to issue or deliver any such shares if the issuance or delivery of such shares shall constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange. 10. Withholding. The Company shall have the right to deduct or withhold from all payments of compensation any taxes required by law to be withheld with respect to such payments. 11. Pooling of Interests. Notwithstanding any other provision of the Plan to the contrary, in the event that the consummation of a Change in Control is contingent on using pooling of interests accounting methodology, the Board may take any action necessary to preserve the use of pooling of interest accounting. 12. Change in Law. If, for any reason, the anticipated benefits of the deferral of any Deferred Compensation pursuant to this Plan or any provision hereof are frustrated by reason of any interpretation of or change in law, policy or regulation, the Board of Directors may, at its discretion, terminate the deferral arrangement or delete or suspend the operation of such provision. 13. Governing Law. This Plan shall be governed by the laws of the State of Delaware without regard to its choice of law or conflict of law provisions. ANNEX A TO 1997 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS -------------------------- The following terms when used in the FMC Corporation 1997 Compensation Plan for Non-Employee Directors shall have the meaning set forth opposite the term: a. "Accrued Retirement Benefits" means the payment or payments to which a Participant would be entitled at his or her Termination Date under the Retirement Plan for service as a director through April 30, 1997. b. "Annual Retainer" means the retainer fee established by the Board of Directors, and paid to a director for services on the Board of Directors for a Plan Year. c. "Board of Directors" or "Board" means the Board of Directors of FMC Corporation as it may be constituted from time to time. d. A "Change in Control" means: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of voting securities of the Company where such acquisition causes such Person to own 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (3) below; and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Securities; or (2) Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) The approval by the stockholders of the Company of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Company ("Business Combination") or, if consummation of such Business Combination is subject, at the time of such approval by stockholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. e. "Change in Control Price" means the higher of (i) if applicable, the price paid for the Common Stock in the transaction constituting Change in Control and (ii) the reported closing price of the Common Stock on the New York Stock Exchange on the last trading day preceding the date of the Change in Control. f. "Committee Chairman Fee" means the fee established by the Board of Directors and paid to a director for service as Chairman of any committee of the Board of Directors. g. "Common Stock" means (i) the common stock of the Company, par value $.10 per share, adjusted as provided in Section 6 of Part III or (ii) if there is a merger or consolidation and the Company is not the surviving corporation, the capital stock of the surviving corporation given in exchange for such common stock of the Company. h. "Common Stock Account" means the account to which a Participant's Common Stock Units are credited from time to time. i. "Common Stock Unit" means a right to receive one share of Common Stock. j. "Company" means FMC Corporation. k. "Deferred Compensation" means the portion of the Annual Retainer payable to a Participant in the form of Common Stock Units as determined in accordance with Section 1 of Part II of the Plan. l. "Deferral Period" means the time during which a person is a non- employee director of the Company. m. "Deferred Amount" has the meaning given it in Section 1 of Part II of the Plan. n. "Deferred Stock Plan" means the FMC Deferred Stock Plan for Non- Employee Directors as amended and restated as of December 6, 1996. o. "Dividend Equivalent Rights" shall mean a right, described in Section 3 of Part III hereof, of a holder of Common Stock Units with respect to dividends paid on outstanding shares of Common Stock. p. "Fair Market Value" means the average closing price for a share of Common Stock as reported in the New York Stock Exchange Composite Transactions on the last ten trading days immediately preceding the date on which the Fair Market Value is to be determined. q. "Meeting Fees" shall mean the fees, established by the Board of Directors, paid to a director for attending a meeting of the Board of Directors or a committee of the Board of Directors including extraordinary or special Board of Directors and/or committee meetings. r. "Participant" or "Participants" means all members of the Board of Directors who are not employees of the Company or any subsidiary or affiliates of the Company. s. "Plan" means the FMC 1997 Compensation Plan for Non-Employee Directors. t. "Plan Year" means May 1 to April 30. u. "Retirement Plan" means the FMC Directors' Retirement Plan, as amended. v. "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended and any successor statutes or regulations of similar purpose or effect. w. "Termination Date" shall mean the date the Participant's service on the Board of Directors terminates for any reason. EX-12 3 STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS FMC CORPORATION EXHIBIT 12 --------------- ---------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES --------------------------------------------------- (Amounts in Millions)
Years Ended December 31, -------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Earnings: - --------- Income from continuing operations before income taxes and extraordinary items $322.6 $253.2 $261.7 $80.5 $246.8 Minority interests 56.9 58.7 61.3 0.5 0.6 Undistributed (earnings) losses of affiliates (10.5) 2.0 4.1 (0.4) (6.8) Interest expense and amortization of debt discount, fees and expenses 103.1 84.0 64.1 70.4 92.2 Amortization of capitalized interest 7.5 7.7 7.5 7.4 7.3 Interest included in rental expense 19.5 21.0 20.8 19.5 19.4 ------ ------ ------ ----- ------ Total earnings $499.1 $426.6 $419.5 $177.9 $359.5 ------ ------ ------ ------ ------ Fixed charges: - -------------- Interest expense and amortization of debt discount, fees and expenses $103.1 $ 84.0 $ 64.1 $70.4 $ 92.2 Interest capitalized as part of fixed assets 15.5 10.2 2.7 0.6 2.1 Interest included in rental expense 19.5 21.0 20.8 19.5 19.4 ------ ------ ------ ----- ------ Total fixed charges $138.1 $115.2 $ 87.6 $90.5 $113.7 ------ ------ ------ ----- ------ Ratio of earnings to fixed charges 3.6 3.7 4.8 2.0 3.2 ====== ====== ====== ===== ====== (A) (B)
(A) The ratio of earnings to fixed charges for the year ended December 31, 1995 before the gain on sale of FMC Wyoming stock, restructuring and other charges and write-off of acquired in-process research and development was 4.1x. (B) The ratio of earnings to fixed charges for the year ended December 31, 1993 before restructuring and other charges was 3.3x. EX-13 4 ANNUAL REPORT TO STOCKHOLDERS FOR 12/31/96 EXHIBIT 13 [FMC LOGO] FMC 1996 Annual Report [FMC LOGO] As one of the world's leading producers of chemicals and machinery for industry, agriculture and government, FMC participates on a worldwide basis in four broad markets: PERFORMANCE CHEMICALS, INDUSTRIAL CHEMICALS, MACHINERY AND EQUIPMENT, AND DEFENSE SYSTEMS. FMC operates 117 manufacturing facilities and mines in 28 countries. ABOUT THE COVER: FMC is building our commitment to shareholders by running our operations superbly, through targeted growth and by enlisting the best people to do the job. FINANCIAL SUMMARY
(In millions, except per share, common stock, employee and stockholder data) 1996 1995 Change - ---------------------------------------------------------------------------------------------------- Sales In the United States $2,579.1 $2,310.8 12% Outside the United States, including exports 2,390.3 2,140.0 12% - ---------------------------------------------------------------------------------------------------- Total Sales $4,969.4 $4,450.8 12% ==================================================================================================== Income (after tax) Income from continuing operations $ 218.1 $ 217.5 -- - ---------------------------------------------------------------------------------------------------- Income from continuing operations before special income and expense items(1) $ 218.1 $ 214.0 2% - ---------------------------------------------------------------------------------------------------- Income per share from continuing operations $ 5.73 $ 5.77 (1)% - ---------------------------------------------------------------------------------------------------- Income per share from continuing operations before special income and expense items(1) $ 5.73 $ 5.68 1% ==================================================================================================== Financial data Common stock price range $77 3/4-62 1/4 $79 1/2-57 3/8 - ---------------------------------------------------------------------------------------------------- Capital expenditures excluding acquisitions $ 506.0 $ 452.8 - ---------------------------------------------------------------------------------------------------- Research and development expenditures(2) $ 189.4 $ 172.3 - ---------------------------------------------------------------------------------------------------- At December 31 Working capital $ 171.7 $ 8.7 Number of employees 22,048 21,961 Number of stockholders 11,339 11,844 - ----------------------------------------------------------------------------------------------------
As described further in Note 3 to the consolidated financial statements, the operations constituting FMC's Precious Metals segment have been reclassified as a discontinued operation and results of prior years have been restated for comparative purposes. (1) Supplemental financial information. Income from continuing operations before special income and expense items and income per share from continuing operations before special income and expense items should not be considered in isolation nor as an alternative for net income determined in accordance with generally accepted accounting principles, or as the sole measure of the company's profitability. Special income and expense items in 1995 include (i) restructuring and other charges consisting of increased environmental reserves ($82.5 million), charges related to the shift of lithium-based production to Argentina ($35 million), asset write-downs and other charges ($17 million) and write-off of acquired in-process research and development related to the Moorco International Inc. acquisition ($15.5 million), net of income taxes ($53.8 million) (Note 3 to the consolidated financial statements) and (ii) the non-taxable gain on sale of FMC Wyoming stock of $99.7 million (Note 2 to the consolidated financial statements). (2) Excludes 1995 write-off of acquired in-process research and development of $15.5 million (Note 2 to the consolidated financial statements). FMC Annual Report Financial Summary 1 [PHOTO OF ROBERT N. BURT] [PHOTO OF LARRY D. BRADY] MESSAGE TO SHAREHOLDERS Although we achieved record sales and operating earnings in 1996, the year had mixed results that fell below our financial expectations. Double-digit sales increases and record operating earnings for the second straight year illustrate the fundamental strength of our company and are positive signs that our growth efforts are taking hold. The challenges and the costs of bringing our investments on line, integrating our acquisitions and dealing with market issues in our hydrogen peroxide and food ingredients businesses depressed earnings. In 1997, we will be concentrating on running our businesses superbly and continuing to build on our strengths to ensure we get the payoff from the major investments and acquisitions we have made over the past several years. Sales were up 12 percent to $5 billion. Income from continuing operations was $218 million -- up from $214 million (before special income and expense items) in 1995. Earnings from continuing operations were $5.73 per share compared with $5.68 per share from continuing operations (before special income and expense items) in 1995. Results in 1996 graphically illustrate FMC's fundamental strength. Between 1992 and 1996, FMC's earnings from our defense operations dropped $73 million, or more than 43 percent. Despite that drop in defense results, the strength of FMC's portfolio, plus our dedication to superb execution, resulted in a 23 percent overall increase -- or $97 million -- in operating earnings. That means operating earnings from other businesses increased $170 million, or 69 percent. In spite of the defense slowdown, the expected high costs of start-ups and acquisitions, and unanticipated market issues, we have achieved record earnings in the past two years and are well positioned for growth during the rest of this decade. 2 Message to Shareholders TRACKING GROWTH AND SUPERB EXECUTION A review of our strategic approach over the last five years tells our story. We've spent $3.3 billion on capital expenditures, research and development, and acquisitions. That spending was based on a decision made five years ago when our management team looked at FMC's goals and strategies. We recognized that to continue to provide long-term superior shareholder value, we could no longer rely on a primary strategy of cutting costs from our operations for increased operating improvements, i.e., we could not cost-cut our way to prosperity. We believed that to continue to maximize future shareholder value, we needed to add growth to our tradition of running our businesses well. We created growth by taking advantage of more international opportunities, by fostering more internal development through capital expenditures and research and development, and by making targeted acquisitions. Our growth strategy increased our need for more managers - a top priority for us. To implement this strategy, over the last five years we have invested $1.7 billion in capital expenditures -- an increase of 24 percent from the previous five years, increased research and development expense 14 percent to more than $800 million, and invested more than $800 million in acquisitions. We also continue to look at our portfolio to maximize its value. We have divested FMC Gold Company, the automotive services division, and five product lines in our food machinery business. We sold 20 percent of our soda ash business -- creating a partnership with key Japanese soda ash consumers, thereby significantly improving our strategic position in the Asian market. We also sold our minority interest in a Japanese hydrogen peroxide joint venture. In total, these transactions generated almost $450 million. We have identified and pursued opportunities and made aggressive investments. These investments are still in their early stages and are depressing our earnings through higher interest expense, front-end development costs and initial expenses. Our capital investments, acquisitions and market development efforts are, on average, on schedule. We're on the right track. The operating highlights and management's discussion and analysis later in this report provide details on our businesses. As we implement our long-term growth plan, the priority for the next two years is to bring our investments on line and ensure we get the payoffs from these investments. We will continue to look for growth investments in targeted areas. MAINTAINING OUR FOCUS ON FINANCIALS, PEOPLE As we pursue the growth strategies of our company, it's important to highlight the continuing strength of our financial strategy and the importance of our people development efforts. In terms of our capital structure, our objective is to maintain an investment grade rating in the BBB range of debt ratings -- an optimal spot on the cost of capital curve. The reason we can support this position is our strong and stable operating cash flow, which historically is one of the key benefits of being a diversified company. Second, we have been investing all earnings in opportunities that exceed the cost of capital -- an effort expected to generate a significant amount of shareholder value. Finally, cash flow is our principal measure, and we analyze all investment decisions on this basis. Ultimately, we're in business to generate profits and returns, and we need superior, motivated people across the company to generate superior shareholder returns. For FMC, our most important objective is to attract, develop, motivate and retain more than our fair share of the best people. Achieving this objective leads to a high priority on people development to ensure we remain a successful company and, at the same time, have the management talent to successfully integrate our expanding internal development efforts and acquisitions and support superb execution. MANAGEMENT CHANGES In 1996, we elected J. Paul McGrath as senior vice president and general counsel and Henry Kahn as vice president and treasurer. With Paul as part of our senior management team, we are adding an executive with proven legal expertise and wide-ranging experience. Paul will help us ensure that we continue to maintain high ethical standards within the global marketplace and in a way that supports business strategies. Paul is succeeding Pat Head, who is retiring mid-year. For the past 15 years, Pat has been a valued member of our top management team while providing strong leadership on corporate governance and legal issues. His tenure here has been defined by his sharp mind and by solid experience that has served us well. Henry brings us extensive experience in domestic and international finance, having served in management positions based in the United States, South America, Europe and Asia. His diversified background will help us maintain the financial strength for which our company is known. We also are bidding farewell to a leader who for more than 45 years has made enormous contributions to FMC. At our 1997 annual meeting, Bob Malott, former chairman and CEO and currently chairman of our executive committee, will retire from our board of directors. From his unrelenting focus on shareholder returns, to his broad view of world issues, to his commitment to corporate citizenship, Bob has had an incredibly positive influence on our company. We wish him well. FMC Annual Report Message to Shareholders 3 OUTLOOK We are confident that we have significant earnings leverage between now and the turn of the century. - Our acquisitions are on track and will contribute significant earnings. - We have made major chemical investments, totaling more than $300 million, in our hydrogen peroxide, soda ash and lithium businesses. Short term, all three markets are facing cyclical but significant price deterioration since capacity additions have outpaced market demand. However, two of these investments -- soda ash and lithium -- use state-of-the-art, proprietary technology that gives us a competitive long-term advantage in the marketplace. - We have two herbicides being introduced in 1997 and 1998. These products combined should sell between $250 million and $300 million at good gross margins by the turn of the century. - Our machinery and equipment businesses are now focused in areas where we are the market and technology leader. And with our acquisition of Frigoscandia Equipment, we have the critical mass to strengthen our leadership position in the food machinery market. Most important, we have 22,000 employees around the world whose skills and dedication have produced our past successes and will help ensure our future growth. We have never worked with a group of people in whom we have more confidence in placing our trust -- and yours -- to accomplish our objectives and achieve our goals. /s/ Robert N. Burt /s/ Larry D. Brady Robert N. Burt Larry D. Brady Chairman of the Board and President Chief Executive Officer February 28, 1997 4 Message to Shareholders INDUSTRY SEGMENT DATA
(In millions) Year ended December 31 ------------------------------------------------ 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------- Sales Performance Chemicals $1,251.8 $1,176.5 $1,060.5 $ 973.5 $ 912.3 Industrial Chemicals 1,041.3 976.8 866.8 866.7 925.9 Machinery and Equipment 1,684.9 1,351.0 972.7 870.9 876.7 Defense Systems 1,018.8 968.2 1,080.5 950.2 1,111.8 Eliminations (27.4) (21.7) (30.6) (32.4) (23.6) - ------------------------------------------------------------------------------------------------- Total $4,969.4 $4,450.8 $3,949.9 $3,628.9 $3,803.1 ================================================================================================= Income from continuing operations before income taxes(1) Performance Chemicals $ 159.2 $ 163.7 $ 154.2 $ 139.4 $ 132.4 Industrial Chemicals 181.8 153.1 115.2 52.2 82.0 Machinery and Equipment 75.9 49.4 31.6 5.5 32.2 Defense Systems 98.7 104.7 114.0 153.7 171.7 - ------------------------------------------------------------------------------------------------- Operating profit from continuing operations 515.6 470.9 415.0 350.8 418.3 Restructuring and other charges(2) -- (150.0) -- (122.5) -- Gain on sale of FMC Wyoming stock(2) -- 99.7 -- -- -- Net interest expense (93.0) (74.6) (57.1) (62.1) (82.9) Corporate (91.3) (99.0) (105.9) (117.0) (102.4) Other income and (expense), net (8.7) 6.2 9.7 31.3 13.8 - ------------------------------------------------------------------------------------------------- Total $ 322.6 $ 253.2 $ 261.7 $ 80.5 $ 246.8 ================================================================================================= December 31 ------------------------------------------------ 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------- Identifiable assets Performance Chemicals $1,366.7 $1,040.9 $ 870.1 $ 806.8 $ 757.2 Industrial Chemicals 1,185.3 1,106.6 932.4 873.0 934.4 Machinery and Equipment 1,596.0 1,221.8 669.4 564.8 514.6 Defense Systems 649.9 561.8 499.3 265.9 281.7 - ------------------------------------------------------------------------------------------------- Subtotal 4,797.9 3,931.1 2,971.2 2,510.5 2,487.9 Corporate and other 191.9 215.4 258.9 260.3 227.0 - ------------------------------------------------------------------------------------------------- FMC continuing operations 4,989.8 4,146.5 3,230.1 2,770.8 2,714.9 Net assets of discontinued operation(3) -- 86.0 41.9 -- 55.2 - ------------------------------------------------------------------------------------------------- Total $4,989.8 $4,232.5 $3,272.0 $2,770.8 $2,770.1 =================================================================================================
FMC has modified its presentation of segment results, effective January 1, 1996, to better align presentation with management's evaluation of segment performance. Accordingly, business segment results are presented net of minority interest, reflecting only FMC's share of earnings. The corporate line primarily includes staff expenses, and other income and expense consists of all other corporate items, including LIFO inventory adjustments and certain other amounts previously allocated to business segments. Segment results for 1995-1992 have been restated to be consistent with the presentation for 1996. As described in Note 3 to the consolidated financial statements, the operations constituting FMC's Precious Metals segment have been reclassified as a discontinued operation and results of prior years have been restated for comparative purposes. (1) Results for all segments are net of minority interests in 1996, 1995 and 1994, of $56.9 million, $58.7 million and $61.3 million, respectively, the majority of which, $47.2 million, $53.6 million and $59.7 million, pertains to Defense Systems. Minority interests in 1993 and 1992 were not significant. (2) Restructuring and other charges in 1995 are described in Note 3 to the consolidated financial statements and are related to Industrial Chemicals ($77.5 million), Performance Chemicals ($45.0 million), Machinery and Equipment ($15.5 million) and Defense Systems ($12.0 million). Restructuring and other charges in 1993 are related to Machinery and Equipment ($66.0 million), Industrial Chemicals ($29.7 million), Performance Chemicals ($3.2 million), and Corporate ($23.6 million). Gain on sale of FMC Wyoming stock (Note 2 to the consolidated financial statements) is attributable to the Industrial Chemicals segment. (3) Net assets of discontinued operation are comprised of the net assets of FMC's Precious Metals segment. At December 31, 1993, the discontinued operation had net liabilities of $4.8 million, primarily as a result of asset write-downs recognized in conjunction with a 1993 restructuring program. FMC Annual Report Industry Segment Data 5 PRODUCTS AND MARKETS PERFORMANCE CHEMICALS MARKETS SERVED AGRICULTURAL PRODUCTS Produces crop Food and fiber protection and pest growers, pest control chemicals control markets. for worldwide markets. More than 50 percent of sales derived outside the United States. FOOD INGREDIENTS Leading worldwide Food processing producer of industry, personal carrageenan and care products. Avicel cellulose gel. Market leader in fat replacement products for food, and specialist in providing texture, structure and stability for food systems. PHARMACEUTICAL World's leading Global producer of Avicel pharmaceutical binders and industry. Ac-di-Sol disintegrants, as well as other specialty excipients used in pharmaceutical production. LITHIUM World's largest Pharmaceuticals, producer of batteries, air lithium-based conditioning, rubber products. and plastic, primary aluminum and aluminum alloys, ceramics and glass, lubricating greases, swimming pool sanitation, textiles, concrete construction. PROCESS ADDITIVES World's largest Plastics, hydraulic producer of fluids, lubricant phosphate ester additives, flame retardants. industrial water Leading supplier of treatment and specialty water desalination. treatment chemicals. BIOPRODUCTS Largest worldwide Life science producer of agarose. research; DNA and Leading supplier of protein analysis. proprietary products for life science markets. INDUSTRIAL CHEMICALS ALKALI CHEMICALS World's largest Glass-making, producer of natural chemicals, soda ash and market detergents, food leader in North products, animal America. Downstream feed additives, products include mining, air/water sodium bicarbonate, treatment, pulp and sodium cyanide, paper. sodium sesquicarbonate, caustic soda. ACTIVE OXIDANTS Major worldwide Polymers, electronic producer of circuit boards, persulfates, process equipment peracetic acid and sanitizers, specialty industrial biocides. peroxygens. HYDROGEN PEROXIDE Major worldwide Pulp and paper, producer of hydrogen textiles, peroxide. environmental clean-up, mining, detergents, electronics. PHOSPHORUS CHEMICALS Major worldwide Detergents, cleaning supplier and leading compounds, metal North American treatment, food producer of products, textiles, phosphorus and its pesticide derivatives, intermediates, phosphates and additives, phosphoric acid. pharmaceuticals, water treatment. FORET Major European Detergents, pulp and chemical producer. paper, textiles, Products include chemicals, tanning, hydrogen peroxide, animal feed, mining, perborates, rubber, phosphates, pharmaceuticals, silicates, zeolites, ceramics, paint, sulfur derivatives. food, photography, Leading share in agriculture, water Spanish peroxygen treatment. and phosphate markets. 6 FMC COMPETITIVE ADVANTAGE GROWTH AND SUPERB EXECUTION OUTLOOK Solid business Sulfentrazone Growing markets for presence around the herbicide registered pesticides in world. Direct for use as Authority developing distribution in key (U.S.), Boral countries. Growing markets. Strong (Brazil), Capaz portfolio of pest insecticide (Argentina, control products and portfolio. Paraguay). Continued herbicides, with Introduction of a investment in R&D. substantial market new class of Successfully share gains. herbicides. introduced Command Bringing to market Productive R&D 3ME new herbicides for effort, generating (microencapsulation) use in U.S. and high profitability. herbicide. New plant international Leader in in Suzhou, China, on markets. applications line. Completed technology. Solid supply agreement product stewardship with DuPont to programs. market new soybean herbicides. Superior Developing new Solid position as applications product applications industry leader. knowledge and to meet customer Tightening focus on product performance. needs, especially in effective, Excellent customer water gel, dairy and market-driven service capability meat applications. applications around the world. International sales development. now account for more Pursuing geographic than 50 percent of diversification in total worldwide sourcing raw revenues. material. Proprietary Broadening Continued global technology, brand participation in market penetration, recognition and growing Asian driven by global market pharmaceutical pharmaceutical presence. Strong market. Launched new company growth and formulation support vitamin products, greater use of capabilities. chewable tablet prescription drugs excipient. as a result of Leveraging superior managed healthcare applications programs. knowledge and technology with key customers worldwide. Diverse, Development of new, Well-funded R&D high-value-added low-cost lithium effort spurring products. Strong reserve in South growth in specialty manufacturing America on schedule, markets, such as capabilities. New, using new batteries, proprietary technology, pharmaceuticals and extraction providing 75-plus polymers. technology. years of reserves. Global manufacturing Introduced new flame Competitive markets. and technical sales retardant for the Profit growth capabilities. plastics market. continuing, with new Diverse products. Continuing R&D products, Applications investments in flame applications, and know-how. retardants, fire ongoing cost resistant fluids and improvement efforts. water treatment chemicals. Continued process improvements driven by technology. Advanced Introduced new Increasing demand applications application-specific for DNA and technology. products for protein-related Excellent product conducting DNA analysis in research quality. Proprietary sequencing and and diagnostics. technology. protein analysis. Worldwide brand Continuing R&D recognition. investments. Improved market position in DNA sequencing. Proprietary solution Continuing focus on Market weakness in mining technology. new proprietary 1997. Worldwide Excellent capacity mining technology, capacity utilization share. improving costs. remains high. Export Industry-leading, Capital-efficient growth expected to low-cost position. capacity expansion rise. Continuing Excellent performing well. cost improvement and distribution and Growth in export industry leadership. transportation sales. Introduced systems. new products for cleaning compounds, feed additives, acid waste neutralization. Strong North Continuing focus on Continued growth in American market cost improvement, environmentally position. Unique growth in export favorable cost advantage at sales and product applications. manufacturing site. registrations. Highly Increased production Strong long-term cost-effective capacity at Bayport, growth, driven by manufacturing and Texas, plant. pulp and paper distribution. High Introduced new manufacturers' level of service, high-purity peroxide conversion to reliability, product for semiconductor environmentally quality and safety. industry. friendly hydrogen Major capacity peroxide. share. Downstream share of specialty market niches. World's lowest-cost Growing diversity of Low-cost elemental phosphorus product uses. manufacturing and production. Introduced new improved product mix Significant U.S. high-performance will drive steady capacity share. product for cleaning growth. Lowest-cost U.S. compounds industry. production of sodium Elemental phosphorus tripolyphosphate - supply agreements our largest driving volume downstream product, growth. used in automatic dish detergents. High level of service and reliable delivery. Excellent cost New hydrogen Continued cost positions. Strong peroxide plant in improvements. manufacturing and Delfzijl, European and distribution Netherlands, Mediterranean capabilities. operational. Strong economies and Growing export export growth. increased exports business. driving future growth. 7 PRODUCTS AND MARKETS MACHINERY & EQUIPMENT MARKETS SERVED ENERGY AND TRANSPORTATION EQUIPMENT Oil and gas wellhead Oil and gas completion drilling, equipment; production, engineering, refining, procurement, transportation and construction and power generation equipment for subsea companies. exploration; metering products and systems; loading systems; marine terminals and floating production systems; pressure-relief valves. Airline equipment, Airlines, airports, automated material industrial handling systems. manufacturing, mining, warehouses, newsprint, publishing, chemicals, utilities. FOOD MACHINERY Major worldwide food Food processors and processing supplier. canners; fruit and Global leader in vegetable growers; thermal processing restaurants and fast technology. Leading food industry. market positions in freezing systems, sterilizers, citrus and tomato processing, vegetable harvesting, and in processing, handling and conveying systems for fast food frozen meal production. DEFENSE SYSTEMS UNITED DEFENSE, L.P. GROUND SYSTEMS Develops hardware U.S. Army, Marine and software for Corps and National integration into the Guard; allied manufacture of governments. tracked vehicles for U.S. armed forces and allied governments. Sole source on many major programs. ARMAMENT SYSTEMS Leads development U.S. Navy, Army, team for artillery Marine Corps; allied weapon systems for governments. the U.S. Army, designs and builds guns and launching systems and provides support services for the U.S. Navy and international customers. INTERNATIONAL Markets, U.S. allies. manufactures and Cooperative oversees joint agreements with ventures for major international military products companies. outside the United States. STEEL PRODUCTS Produces steel and Military, nickel alloy ingots, transportation, castings, forgings heavy equipment, and military track. industrial and oil field. 8 FMC COMPETITIVE ADVANTAGE GROWTH AND SUPERB EXECUTION OUTLOOK Only company to Excellent Strong global provide complete performance and growth. Continuing package of products integration of to exploit synergies and services in recent acquisitions. from recent subsea/floating Ongoing acquisitions. production and technological deepwater achievements, technology. Double including HOST, the number of subsea FMC's customized contract awards vs. subsea system. the competition. Continuing to set Strategic alliances standards in with key energy innovation, customers. adaptability, precision and safety. Working with Shell on Mensa project, the deepest subsea well in the world. Member of alliance awarded Terra Nova project from Petro-Canada. Market leader in Strong growth in New products and ground support cargo loaders and international market equipment for the aircraft deicers. penetration driving air transport Introduced new future growth. industry and in modular deicer. passenger boarding Positioned for bridges worldwide. future growth Sole source through leadership alliances with in automated, several key laser-guided vehicle airlines. systems. Proprietary automated guided vehicle technology. Integrated provider Acquisition of Excellent strategic of equipment for Frigoscandia position in all every phase of the provides leading phases of food food harvesting, presence in key harvesting, preparation and freezer, preparation and preservation refrigerator, potato preservation. New process. Strong core processing and ability to customer positions portioning system cross-sell product and critical mass in markets. Sandei lines to customers. all geographic acquisition creates Significant global regions. global leadership in growth potential. tomato harvesting. Successful launch of new, multi-crop detachable harvester line. Focused on cost Upgrades of Bradley Absence of new major reduction, advanced Fighting Vehicle, programs by U.S. and system integration M88 recovery vehicle allies likely to capabilities and and Paladin fueling limit future growth, applications current growth. partially offset by technology. Combat Continuing to growth in Simulation and enhance technology electronics Integration across product spending. Cost laboratory is lines. control continuing. high-technology resource. Proven products and manufacturing capabilities. Superior cost efficiencies, broader product lines, larger installed base of equipment worldwide. Advanced systems Prime contractor for Focus on engineering applications Crusader, a and technology technology. Strong technically superior development for manufacturing field artillery future U.S. capabilities. Proven system. Navy/Army armament products. Privatization of systems. Louisville, Kentucky, Naval Ordnance station expanding service business and providing new product lines. Pursuing international opportunities. Strong product line, Joint venture Continued aggressive flexibility and operational in Saudi pursuit of creativity. Arabia. international Co-production opportunities. agreement in South Intense competition Korea. Production in likely to continue. Turkey continuing. Development and Growth of Declining U.S. Army commercialization of performance alloy demand. Increasing engineering and components sales of track materials, business. Increasing internationally. competitive sales of track to Growing vehicle manufacturing and allied governments. upgrade business. vehicle upgrade Increased growth in capabilities. high-performance materials for commercial businesses. 9 performance chemicals IN PERFORMANCE CHEMICALS, OUR STRATEGIC FOCUS IS ON RESEARCH AND DEVELOPMENT. WE'RE SEEKING GREATER PRODUCT DIFFERENTIATION AND SERVICES FOR OUR CUSTOMERS, AS WELL AS NEW PRODUCT INTRODUCTIONS ESSENTIAL TO OUR CONTINUED SUCCESS. Performance Chemicals sales of $1.3 billion increased 6 percent from 1995, while profits were down slightly this year, reflecting higher raw material costs in the food ingredients and pharmaceutical businesses, and higher costs related to the launch of Authority herbicide in North America. In 1997, we see overall improvement in Performance Chemicals with the introduction of our new Authority herbicide, along with continued improvement in our specialty chemicals businesses. The improvement in specialty chemicals is based on implementing a new food ingredients product strategy, new products and global expansion in pharmaceuticals, and continued manufacturing improvements at our process additives business. [PHOTO CAPTION] WEEDING IT OUT Sulfentrazone, the first of our two new herbicides, made its debut in 1996 in Brazil as Boral, used in soybeans and sugarcane to control the growth of weeds, particularly the difficult-to-control nutsedge. 10 AGRICULTURAL PRODUCTS THE KEY FACTOR FOR SUCCESS IN THE AGRICULTURAL PRODUCTS INDUSTRY IS DEVELOPING NEW PRODUCTS THAT ARE MORE EFFECTIVE AND LESS EXPENSIVE THAN EXISTING PRODUCTS. BASED ON THAT FACT, OUR STRATEGY FOR OUR AGRICULTURAL PRODUCTS BUSINESS IS STRAIGHTFORWARD: FIRST, INVEST IN RESEARCH TO DEVELOP NEW, PROPRIETARY PRODUCTS; AND SECOND, SELL THE PRODUCTS GLOBALLY. 1996 HIGHLIGHTS Sales of our agricultural products increased in 1996 with label and market expansions, but earnings were lower due to spending and plant start-up costs related to the introduction of Authority herbicide in North America. INTRODUCING NEW HERBICIDES In 1996, we rolled out the first of two new herbicides slated for the market during the next two years. In September, we produced the first shipment of sulfentrazone for Brazilian markets, where the product is being sold as Boral. As this pre-emergent herbicide is launched in the United States in 1997, it is being marketed as Authority. Key crops are soybeans, sugarcane and tobacco. Due to initial difficulties and delays in the complex start-up process at our new herbicide plant, current production volumes are lower than we expected for 1997. Carfentrazone-ethyl, our second new herbicide, will be introduced in Europe in 1997 and in the United States in 1999. Carfentrazone is a post-emergent herbicide that will be sold under a family of names, including Affinity. Key crops are cereals, including wheat, corn and rice. Its unique mode of action also will make carfentrazone an important tool in the industry's management of weed resistance to chemicals. [PHOTO CAPTION] A VOTRE SANTE The grape producers of the French Beaujolais region are producing higher yields with FMC's Talstar insecticide. [PHOTO CAPTION] FIBER CONTENT The success of Talstar insecticide in Spain and other cotton-producing countries continues to strengthen our share in the global cotton pyrethroid market. [PHOTO CAPTION] JOINT EFFORTS Producing insecticides for citrus, rice, cotton, vegetable and soybean crops in China, our new joint-venture plant in Suzhou is expanding our presence throughout China. FMC Annual Report Performance Chemicals 11 GROWING GLOBAL MARKETS The Asia-Pacific market continues its rapid growth, with sales up 26 percent from 1995. We opened a new formulation plant in Suzhou, China, in mid-1996, and our joint ventures in Indonesia, China and Pakistan are doing well. Our insecticide business is benefiting from our direct sales organizations in selected areas of Latin America, Europe and Asia. CONTINUING TO EMPHASIZE RESEARCH AND DEVELOPMENT Current spending is at 12 percent of sales - higher than industry averages. While most of our efforts are focused on our two new herbicides, we also are investing in promising insecticide and herbicide pipeline products. Since 1992, we have expanded our labels by 30 percent, adding more than 1,000 new uses for existing products. OUTLOOK Today, FMC's agricultural products business is largely an insecticide business. By the year 2000, our product mix should be closer to 60/40 percent insecticides to herbicides. Future annual sales of our two new herbicides are expected to be about $150 million each - driving the change in our product mix and nearly doubling our sales and profits in this business. Our new herbicides will complement our existing product lines to create new strength in distribution channels and customer service, promising greater profitability from an already strong base. [PHOTO CAPTION] CLOSED LOOP FMC is a leader in applications technology, pioneering the closed-system container for insecticides that is now the industry standard. [PHOTO CAPTION] A FIGHTING CHANCE Working with several prominent drug companies, FMC has created complex organolithium reagents used in the new protease inhibitors. These drugs are proving to be effective in fighting the spread of the Human Immunodeficiency Virus, which leads to AIDS. 12 Performance Chemicals SPECIALTY CHEMICALS THE SUCCESS OF OUR SPECIALTY CHEMICALS BUSINESSES REFLECTS OUR EXTENSIVE KNOWLEDGE OF CUSTOMER APPLICATIONS AND OUR ABILITY TO FIND NEW, PROPRIETARY SOLUTIONS TO CUSTOMERS' NEEDS. WE HAVE DEVELOPED SECURE, LOW-COST SOURCES OF KEY PRODUCTS. WE COMPETE INCREASINGLY ACROSS THE WORLD, DRIVEN IN LARGE PART BY OUR CUSTOMERS' GLOBAL AMBITIONS AND BY THE GROWTH OF NEW LOCAL CUSTOMERS IN PLACES LIKE ASIA. 13 1996 HIGHLIGHTS Sales of specialty chemicals improved in 1996 based on increased global demand and new applications development, but earnings declined due to increased raw material and manufacturing costs, and ongoing competitive pressures in the flame retardants and water treatment businesses. DEVELOPING A NEW LITHIUM RESOURCE For the past two years, we have focused on developing a new lithium resource in Argentina using new, proprietary extraction technology. When our plant is completed in 1997, FMC should have the lowest manufacturing costs in the industry and more than 75 years of lithium reserves. In 1996, we completed a butyllithium expansion at our joint venture in Japan, and we plan to expand our facility in the United Kingdom. Strong growth markets for lithium include use in air conditioning systems and rechargeable lithium ion batteries. We also expect growth in the market for lithium-based intermediates used in the synthesis of new drugs, including the new class of AIDS-related protease inhibitors introduced in 1996. ADDRESSING COMPETITIVE PRESSURES IN THE FOOD INGREDIENTS BUSINESS To address the raw material costs and supply pressures of the past two years, we are expanding our sourcing of warm-water seaweed used to produce carrageenan. We have developed new technology to produce proprietary carrageenan products that allow us to compete successfully in more cost-competitive market segments. Also, an improved regulatory climate in Europe should allow increased use of microcrystalline cellulose-based applications in food. [PHOTO CAPTION] RISING TO THE TOP Throughout Europe, as at Maitre Paul bakers in the Netherlands, FMC's carrageenan is used to bind and stabilize ingredients and create the appropriate texture and "mouth-feel". Our researchers work closely with customers to develop new applications for our food ingredients products. 14 Performance Chemicals SUPPORTING PHARMACEUTICAL CUSTOMERS Our ongoing technical support and formulations expertise allow us to provide our customers with customized products to meet their formulation and development needs. In 1996, we launched new vitamin products, expanded international markets - particularly the high-potential Asian and Latin American regions - and continued to invest in research and development to ensure future growth. IMPROVING OUR PROCESS ADDITIVES BUSINESSES Process and technology improvements at manufacturing operations led to improved performance in 1996. Recent new product introductions include Reofos RDP (resorcinol diphenyl phosphate), a flame retardant used in high-end engineering thermoplastics. The challenge we face is a highly competitive global market for both flame retardant and water treatment products. [PHOTO CAPTION] STAY COOL Making plastics for electrical and electronic components, GE Plastics in the Netherlands is working with our newly introduced product, Reofos RDP (resorcinol diphenyl phosphate), a flame retardant designed for use in producing engineering thermoplastics. FMC Annual Report Performance Chemicals 15 OUTLOOK The speed and strength of a recovery in our food ingredients business will have a major impact on 1997 results. We see improving raw materials costs based on our geographically diverse resources. We are sharpening our focus on effective, market-driven applications development. We are controlling costs. We developed new proprietary carrageenan to compete successfully against semi-refined materials. Our process additives business is improving, driven by lower-cost, better-quality manufacturing. Our technical expertise in pharmaceutical ingredients gives us a competitive advantage. And we should establish the industry's low-cost position in lithium chloride, which promises continued strong future growth. PERFORMANCE CHEMICALS MANAGEMENT'S DISCUSSION AND ANALYSIS 1996 COMPARED WITH 1995 Performance Chemicals sales of $1.3 billion increased 6 percent from sales of $1.2 billion in 1995 as worldwide growth continued in these businesses. Operating profits declined, however, to $159 million in 1996 from a record $164 million in the prior year, primarily as the result of higher raw material costs in food ingredients and pharmaceuticals and higher expenses related to the pending launch of a new herbicide. Sales increased in 1996 for most insecticides, herbicides and agricultural intermediates, as well as in most geographic regions, with the largest gains in Asia-Pacific and Brazil. Sales improved to a lesser extent in the North American, European and Middle Eastern markets. Operating profits declined slightly from the record 1995 performance, primarily due to higher selling and marketing expenses related to the scheduled North American introduction in 1997 of Authority herbicide, as well as increased spending on herbicide research and development projects. Sales of water additives and flame retardant products declined in 1996 due principally to the weak European economy. Operating profits improved, however, as a result of favorable manufacturing performance, lower selling and distribution costs, and reduced general and administrative expenditures. Food ingredients sales improved from 1995, although margins declined primarily as the result of the higher cost of Philippine-harvested seaweed. Lower selling and administrative costs, resulting from personnel reductions and improved cost controls, partially offset lower sales margins. Sales of pharmaceutical products increased from the prior year, but operating profits declined slightly due to increased pulp costs and a higher investment in advertising, selling and research costs to support the introduction of several new products. Sales and operating profits of lithium products increased in 1996, primarily as a result of continued worldwide sales growth of products used in specialty applications. Profits from the increased sales were partially reduced by increased spending on research and development projects to support the specialty performance products and by spending related to the Argentine production facility. [PHOTO CAPTION] BINDING RELATIONSHIPS FMC's pharmaceutical business entered the Chinese market in 1996 with sales of Avicel microcrystalline cellulose to Bristol-Myers Squibb's plant in Shanghai. Avicel acts to bind a pharmaceutical's active ingredients. 16 Performance Chemicals 1995 COMPARED WITH 1994 Performance Chemicals 1995 sales of $1.2 billion increased 11 percent from sales of $1.1 billion in 1994, reflecting the continued worldwide growth in these businesses. Operating profits in 1995 improved to $164 million from $154 million in 1994 as a result of increased volume and pricing and a favorable mix of products, partially offset by unfavorable raw material prices, higher distribution and marketing costs, and record expenditures for research and development. Gains across a range of products worldwide accounted for the increase in sales of insecticides, herbicides and agricultural intermediates. Operating profits also improved in 1995, but not in proportion to the increase in sales. Profit margins were lower as a result of increased expenditures for research and development and higher marketing expenses associated with preparing for new herbicide introductions. Sales of water additives and flame retardant products improved in 1995. Nearly all of this improvement was achieved in the flame retardant line, primarily from price increases and volume gains. Operating profits from these products declined in 1995, however, due to operating difficulties at the company's phosphate ester plant and price competition in the Middle East desalination market. Food ingredient and pharmaceutical sales increased in 1995 primarily as the result of price increases for most products and increased pharmaceutical sales in Europe. Operating profits were lower, however, due to higher prices of key raw materials and increased marketing and research and development costs associated with the launch of five new pharmaceutical products. Lithium product sales increased in 1995 from higher volumes of products used in specialty applications, offset to some extent by declines in sales of basic products. Operating profits also increased due to favorable sales volumes and pricing, offset partially by increased spending on research and development. OUTLOOK FOR PERFORMANCE CHEMICALS The strategic focus of the Performance Chemicals business is on the development and marketing of specialty products for new applications. These investments are expected to positively affect the business in 1997 and over the longer term. Authority was successfully registered with the EPA in early 1997. Continuing difficulties in the start-up process at the new herbicide facility in Baltimore make it unlikely that volumes will meet expected demand for this product in 1997. Sales increases in agricultural products from 1996 should result from new applications for existing products and continued sales growth in global markets. Increased sales of new products should benefit the U.K.-based flame retardant business in 1997, but overall revenues are likely to be negatively affected by the currently strong British pound. Relatively flat prices and higher raw material costs may lower sales margins in these products, despite lower fixed costs resulting from a recent cost containment program. Volume and operating profits in the water additives business are expected to increase from growth in the U.S., Mexican and Asian markets. The outlook for food ingredients in 1997 remains positive. New process technology and new product applications are expected to provide considerable cost savings and opportunities for increased sales. These factors, combined with continued growth in international markets, should result in significant improvement from 1996 results. The pharmaceutical industry has forecast to maintain its strong annual growth, although consolidations within the industry could result in pricing pressures in the generic and dietary supplement segments. FMC's focus in 1997 will be on the commercialization and introduction of additional high-potential products developed in 1996. Specialty lithium applications should see continued growth in 1997 due to increasing demand for specialty reagents, polymer initiators and lithium batteries. The December 1996 decline in the market price of lithium carbonate was driven by increased foreign competition and will have an adverse impact on FMC's upstream business. FMC's new lithium production plant in Argentina, scheduled to begin commercial deliveries in the first half of 1997, should enhance the operating profitability of the lithium business over the longer term by providing a low-cost source for both lithium carbonate and lithium chloride. Due to start-up costs, however, the new plant will have a minimal impact on 1997 earnings. FMC Annual Report Performance Chemicals 17 industrial chemicals IN INDUSTRIAL CHEMICALS, WE CONTINUE TO FOCUS ON OPERATING IMPROVEMENTS THAT GIVE US A SIGNIFICANT COST ADVANTAGE IN OUR CORE BUSINESSES. Industrial Chemicals sales of $1 billion increased 7 percent in 1996, and profits (net of minority interest) also increased, primarily reflecting improved soda ash pricing and volumes, and a gain on the sale of our minority interest in a Japanese hydrogen peroxide venture. Long term, our improved cost positions and competitive advantages in soda ash, phosphorus and hydrogen peroxide will benefit returns of Industrial Chemicals businesses. [PHOTO CAPTION] BOTTLED UP Proprietary solution mining technology gives FMC the lowest-cost position in soda ash. Bottle makers, like Ball Foster in Indiana, rely on our product in the glass-making process. 18 [PHOTO CAPTION] DOOR-TO-DOOR SERVICE At Rhone-Poulenc in Louisiana, FMC's highly trained technicians unload hydrogen peroxide from one of the company's dedicated fleet of trucks. Rhone-Poulenc uses the environmentally compatible product to make agricultural chemical intermediates. 1996 HIGHLIGHTS Demand for industrial chemicals generally is driven by overall economic activity, as well as the dynamics of important end-use markets, including solid detergents, pulp and paper, and glass. Our businesses essentially are capital-intensive, and our strategy is to maintain our low-cost positions, employ capital-effective capacity and protect market niches. GROWING MARKETS FOR SODA ASH Using our proprietary mining technology, our new, low-cost capacity started up in the second quarter of 1996 - ahead of schedule and under budget - adding 700,000 tons, or 25 percent, to our total capacity. We will use this new capacity to meet the continued growth in exports and new domestic applications. We also are introducing new specialty soda ash products for the detergent industry and developing the next generation of soda ash processing technology. ADDING HYDROGEN PEROXIDE CAPACITY Our expansion in Bayport, Texas, is complete and adds a capital-efficient 140 million pounds, or 45 percent, to our total North American production capability. The Delfzijl plant in the Netherlands completed its first full year of operation and continues to run efficiently, benefiting from low-cost energy, available raw materials and an advantageous geographic location. However, weak demand resulting from the downturn in the pulp and paper industry and increased industry capacity depressed earnings in 1996. MAINTAINING STRENGTH IN PHOSPHORUS We are maintaining our strong market position, building off our low-cost elemental phosphorus. We continue to drive down costs through new technology at our phosphorus plant in Pocatello, Idaho, and further repositioning of other plant operations. The automatic dishwashing and industrial detergents markets in North America are essentially stable and, in Europe, the use of phosphates in solid home laundry and dishwashing detergents also has stabilized. [PHOTO CAPTION] COLOR-CODED Samples of production pigments are compared with standard samples at Bayer Corporation in South Carolina. Bayer uses FMC's polyphosphoric acid to produce a line of special paint pigments for the automotive and plastics industry. FMC Annual Report Industrial Chemicals 19 OUTLOOK In SODA ASH, we see significant long-term volume growth for FMC, driven by increased exports and new U.S. customers, the continued overseas shutdown of our competitors' uneconomic synthetic soda ash plants, and the cost benefits of our recent mine water expansion. However, market weakness, driven by declining prices of caustic soda - a substitute for certain uses of soda ash when caustic soda prices are low - - and resulting industry overcapacity, will limit earnings growth in 1997. Long-term demand for HYDROGEN PEROXIDE should grow in Western Europe, driven by pulp and paper recycling markets, and by increased demand as raw material for other chemicals and environmental applications. In North America, our cost position will improve as we fill out our expansion in Bayport, Texas. However, the cyclical downturn that began in 1996 in the pulp and paper industry will reduce earnings in 1997. Our PERSULFATES business will benefit from steady growth in polymers and circuit board end-use markets worldwide. In PHOSPHORUS CHEMICALS, we expect earnings growth on both sides of the Atlantic, driven by stable volume, improved costs, elemental phosphorus price increases, continued product mix upgrades and strong demand for phosphorus-based herbicides. [PHOTO CAPTION] FLEX CIRCUIT Minnesota-based Sheldahl, Inc. uses FMC's sodium persulfate to prepare flexible printed circuit boards manufactured for industries worldwide. [PHOTO CAPTION] THE MARK OF QUALITY Customers like Spain-based Porcelanosa, one of Europe's leading ceramic producers, use FMC Foret's sodium metasilicate and sodium tripolyphosphate to manufacture its ceramic tiles. Foret is a leading European producer of industrial chemicals. 20 Industrial Chemicals INDUSTRIAL CHEMICALS MANAGEMENT'S DISCUSSION AND ANALYSIS 1996 COMPARED WITH 1995 Industrial Chemicals sales of $1 billion increased 7 percent, and operating profits (net of minority interest) of $182 million increased 19 percent in 1996, primarily reflecting improved pricing and a gain on the sale of the company's minority interest in a Japanese hydrogen peroxide venture. Earnings comparisons were negatively affected by the full-year minority interest expense in 1996 following the July 1995 sale of a 20 percent interest in FMC's soda ash business. Sales of alkali chemicals increased from 1995 levels primarily as a result of higher prices and volumes for soda ash and sodium cyanide. Strong soda ash volumes reflected increased export sales and the impact of new product applications. Operating profit gains from higher soda ash volumes and prices and a non-recurring gain on a property sale were partially offset by an increase in minority interest expense related to the soda ash joint venture. Sales of peroxygen products were higher in 1996, primarily due to increased sales by FMC's Mexican peroxygen operation. However, lower sales of hydrogen peroxide to the North American pulp and paper market reduced operating earnings compared with the prior year. During 1996, the unit benefited from a $24 million gain ($6.5 million after tax) on the sale of FMC's 27 percent investment in Tokai Denka Kogyo, a Japanese hydrogen peroxide joint venture. Phosphorus chemical sales and operating profits improved significantly in 1996 as a result of higher pricing and volume for most products, partially offset by reduced export sales. Sales of FMC Foret were higher than 1995 levels due to significant improvement in Spanish and export pricing, partially offset by reduced sales volume within the Spanish market. The higher selling prices, combined with lower raw material costs, more than offset the reduced Spanish sales volume, resulting in improved operating profits. 1995 COMPARED WITH 1994 Industrial Chemicals 1995 sales of $977 million increased 13 percent from $867 million in 1994, and operating profits of $153 million were up 33 percent, reflecting improved pricing, higher capacity utilization across key product lines and the benefits of cost improvements throughout manufacturing operations. Alkali chemicals recorded an increase in sales from the prior year. Increased volumes for all product lines, particularly soda ash and sodium cyanide, as well as price increases for soda ash, were the primary drivers of improved sales and profitability. Export sales increased 22 percent, particularly to Latin American and Asian markets. Sales increases, combined with cost improvement efforts, resulted in a significant improvement in operating profit. In July 1995, FMC sold a 20 percent interest in its soda ash business to Nippon Sheet Glass Co. Ltd. and Sumitomo Corporation for $150 million. The non-taxable gain of approximately $100 million on this transaction is not reflected in 1995 segment earnings. Sales of peroxygen products increased from 1994, and operating earnings increased as well. Volume improvements in most products accounted for the increases. Sales of phosphorus chemicals increased in 1995, but operating profits declined. The sales increase occurred despite a loss of export business in Mexico. Profits were adversely affected by raw material price increases and manufacturing issues in the 1995 fourth quarter. FMC Foret reported a significant improvement in sales in 1995, and profits increased correspondingly. Pricing improvements in most product lines and favorable volumes were the primary drivers. OUTLOOK FOR INDUSTRIAL CHEMICALS In recent years, FMC has added significant capacity in soda ash and hydrogen peroxide, which positions these businesses to benefit from expected long-term increases in market demand. In 1997, the alkali chemical business anticipates continued sales growth in all of its products, although price erosion in soda ash, the largest volume product, is expected to reduce margins. U.S. demand for soda ash is predicted to remain flat, with growth expected in Asian and Latin American markets. Sales of hydrogen peroxide will continue to be affected in 1997 by the weakness in the pulp and paper industry, which is expected to continue through at least the first half of the year. Capacity additions coming on stream in 1997 will result in reduced industry capacity utilization and falling prices. Based partly on the continued use of phosphates in automatic dishwashing detergents, the phosphorus business forecasts full capacity utilization in 1997. Profits should increase due to improved product mix and pricing gains. Strengthening demand for FMC Foret's primary products plus additional volume from the company's new Delfzijl hydrogen peroxide facility are expected to offset the negative impact of competitive pricing in the sodium sulfate and hydrogen peroxide markets. FMC Annual Report Industrial Chemicals 21 ENERGY & TRANSPORTATION EQUIPMENT IN THE ENERGY INDUSTRY, OUR CUSTOMERS - LARGE OIL AND GAS COMPANIES - ARE DOWNSIZING AND CONSOLIDATING. THEY ARE ALSO EXPLORING AND PRODUCING IN EVER-MORE REMOTE AREAS OF THE WORLD - PRODUCTION THAT REQUIRES STATE-OF-THE-ART, DEEP-SEA TECHNOLOGY. TO MEET MARKETPLACE REQUIREMENTS, WE HAVE FOCUSED ON INTERNAL DEVELOPMENT, ACQUISITIONS AND ALLIANCES TO BUILD ON AND LEVERAGE OUR TECHNOLOGY, OUR CUSTOMER RELATIONSHIPS AND OUR GLOBAL INFRASTRUCTURE. SIMILARLY, IN OUR TRANSPORTATION EQUIPMENT BUSINESS, WE HAVE FOCUSED ON INTERNAL DEVELOPMENT AND ACQUISITIONS TO CREATE SOLE-SOURCE ALLIANCES WITH KEY CUSTOMERS. 1996 HIGHLIGHTS Energy and transportation equipment sales and earnings increased in 1996 with the addition of newly acquired businesses, stronger markets, continued gains in the subsea market and improved margins. CEMENTING ALLIANCES IN OUR ENERGY BUSINESS FMC continued to benefit from strategic alliances we formed in 1995 with Shell Oil and Statoil, Norway's state oil company. In 1996, we worked closely with Shell to provide subsea completion equipment for its Gulf of Mexico Mensa project, the world's deepest installation at 5,300 feet below sea level. Installation is slated for mid-1997. FMC also provided subsea completion systems and surface wellhead systems for other Shell projects. In 1996, we introduced the revolutionary Hinge-Over Subsea Template, or HOST, for Statoil, for use in oil fields in the North Sea. The building-block subsea system offers the flexibility of customization with the cost savings of standardization. Since the product's introduction in June, we've had more than 35 major orders for the system. Our work with Mobil led to our appointment as subsea systems supplier for Mobil's developments off the coast of West Africa. Through our participation in the Grand Banks Alliance, FMC also will provide subsea and floating production equipment for Petro-Canada's Terra Nova oil field, located offshore Newfoundland in Canada. [PHOTO CAPTION] MEASURING UP Our Smith Meter operation, a world leader in metering products and systems that measure the flow of oil and gas, built the largest system to date for a floating storage unit for Norway-based Norsk Hydro. [PHOTO CAPTION] GOING DEEP In alliance with Shell Offshore, FMC is providing subsea equipment for the Mensa project in the Gulf of Mexico, which will extract gas reserves from a world-record depth of 5,300 feet below sea level. Our leading-edge equipment is being installed in mid-1997. 22 Machinery & Equipment machinery and equipment IN MACHINERY AND EQUIPMENT, WE'VE ADDED VALUE THROUGH ACQUISITIONS IN OUR EFFORT TO BROADEN OUR ENERGY EQUIPMENT, FOOD MACHINERY AND TRANSPORTATION EQUIPMENT BUSINESSES. WE NOW OFFER EVEN STRONGER PRODUCTS, TECHNOLOGIES AND SERVICES TO MEET THE GLOBAL NEEDS OF OUR CUSTOMERS. Machinery and Equipment sales of $1.7 billion increased 25 percent, and profits also increased in 1996 as a result of acquisitions and strengthening market conditions in the energy equipment, food machinery and airline equipment businesses. We expect continued improvement in these businesses in 1997 as our acquisitions in energy and food machinery and our enhanced position with key customers in energy and airline equipment markets continue to add to sales and profits. 23 TAPPING SYNERGIES In their first full year as part of FMC, the Moorco businesses boosted sales for our energy equipment business, and we are benefiting from the synergies that resulted from the acquisition. In 1996, we shifted more than half of Crosby Valve's manufacturing from Wrentham, Massachusetts, to FMC's lower-cost facility in Stephenville, Texas, and we're realizing additional cost efficiencies throughout the businesses. BUILDING PARTNERSHIPS IN AIRLINE EQUIPMENT In our transportation equipment business, our customers - major U.S. and international airlines - are consolidating and aligning to achieve greater efficiencies, lower costs and worldwide coverage. Through acquisitions and internal development, we have established a package of products that includes cargo loaders, deicers and passenger boarding bridges. We also have established sole-source alliances with Federal Express, British Airways, United Airlines, Iberia and other key airlines. OUTLOOK Through dedicated internal development and acquisition efforts in recent years, FMC remains the only supplier that can offer global customers a package of integrated capabilities for the oil field, especially in subsea, deepwater and floating production technologies. These superior capabilities have allowed us to build long-term, sole-source alliances with key customers, which, in turn, has increased our market share, enabled ongoing technology development and increased our profit margins. Because of the long-term nature of these alliances, we expect sales and profits to remain strong in 1997 and beyond. [PHOTO CAPTION] ON THE MOVE From Phoenix to Chicago to London to Tokyo, United Airlines relies on key supplier FMC to provide Commander cargo loaders, as well as passenger boarding bridges and deicers, to move cargo and passengers safely and efficiently. [PHOTO CAPTION] A PERFECT BLEND FMC's Waugh Controls is providing equipment and services for the integrated lube oil blending facilities at Mobil Oil Nigeria's Apapa Complex. [PHOTO CAPTION] DEEP FREEZE With the 1996 acquisition of Sweden-based Frigoscandia Equipment, FMC's food machinery business is now the world's leading producer of industrial food freezers, such as this GYRoCOMPACT spiral freezer. 24 Machinery & Equipment FOOD MACHINERY IN THE FOOD PROCESSING INDUSTRY, OUR CUSTOMERS ARE GROWING LARGER TO IMPROVE THEIR COMPETITIVE POSITIONS AND GLOBALIZING TO SEIZE OPPORTUNITIES IN DEVELOPING REGIONS. TO RESPOND TO THIS CHANGING INDUSTRY, WE'VE COMPLETED KEY ACQUISITIONS THAT BROADEN OUR TECHNOLOGY AND APPLICATIONS BASE, HEIGHTEN OUR GLOBAL PRESENCE AND OPERATING SCALE, AND SERVE AS A PLATFORM FOR FUTURE GROWTH. 25 1996 HIGHLIGHTS Food machinery sales were higher in 1996, reflecting generally strong markets and the addition of newly acquired businesses, including a full year of sales from the 1995 FranRica acquisition, as well as contributions by the 1996 Frigoscandia acquisition. GROWING THROUGH STRATEGIC ACQUISITIONS Following the acquisition of the FranRica tomato processing and aseptic packaging business in the last half of 1995, our food machinery business continued its quest for targeted growth in 1996. In April, we acquired Italian-based Sandei SRL, manufacturer of the world's leading small-scale tomato harvester designed for European farms. With FMC's already strong position in large-scale harvesters for the U.S. market, we're now the global leader in tomato harvesters. In June, we acquired Swedish-based Frigoscandia Equipment, a leader in industrial freezers, fryers and ovens for food processing customers throughout the world. With half of the world's industrial freezers, Frigoscandia has captured three times the market share of its nearest competitor. FMC now participates in the rapidly growing convenience food equipment segment with Frigoscandia's Stein division, a leading producer of fryers, ovens, and battering and breading equipment, and a key supplier to the fast-food industry. This acquisition provides FMC with enhanced capabilities: a broader array of food processing equipment and systems, a higher level of sales and service coverage, and more advanced food processing technologies. [PHOTO CAPTION] FRESH AND JUICY As one of the world's largest juice processing companies, Sucocitrico Cutrale Ltda. operates plants in Brazil and Florida. Here in Auburndale, Florida, FMC citrus extractors help Cutrale process up to 30 million 90-pound boxes of fruit per year. FMC extractors process 75 percent of the world's supply of orange juice. [PHOTO CAPTION] RIPE OPPORTUNITIES With the addition of Sandei's smaller tomato harvester used in European fields, FMC is now the world leader in tomato harvesters. 26 Machinery & Equipment [PHOTO CAPTION] IN PROCESS Our FranRica operation, market leader in California's tomato processing equipment market with its complete processing systems, also is moving into the citrus processing field with aseptic filling technology, an economical choice for customers. POSITIONING OURSELVES IN THE GLOBAL MARKETPLACE The Frigoscandia acquisition extends our global reach. With sales and service in place around the world, our food machinery business is better positioned to capitalize on the trend toward globalization in the food processing industry. In the Asia-Pacific region, our fastest-growing market, we doubled sales in 1996 and expect continued strong growth in 1997. OUTLOOK Today, FMC is one of the largest global suppliers of food processing equipment. As a larger but more focused operation, our food machinery business is a more complete provider of technological solutions to core customers in global markets and an operation capable of sustaining long-term profit growth. FMC Annual Report Machinery & Equipment 27 MACHINERY AND EQUIPMENT MANAGEMENT'S DISCUSSION AND ANALYSIS 1996 COMPARED WITH 1995 Machinery and Equipment segment sales of $1.7 billion increased 25 percent from 1995, and operating profits of $76 million in 1996 were 54 percent higher than the prior year. Increased sales resulted from acquisitions and strengthening market conditions in the energy, food machinery and transportation equipment businesses. Improved market conditions and continuing cost improvements contributed to the increased profitability. Sales and operating profits of energy equipment were significantly higher than in 1995 as the result of increased sales in most product lines. Higher subsea equipment volume reflects sales to two major oil companies and performance under the contract with Statoil, Norway's state oil company. Partially offsetting these increases were lower sales related to projects completed or nearing completion during the year. SOFEC sales and profits in 1996 declined from 1995 levels as new projects did not fully replace those completed during the year. Sales and profits of energy equipment benefited from the inclusion of full-year results for businesses acquired in the June 1995 purchase of Moorco International Inc. and from growth in sales of loading systems to the liquefied natural gas market. Airline equipment sales and profits increased significantly in 1996, reflecting a strong deicer season, increased shipments of Commander 15 main deck loaders, and improved sales of Jetway boarding bridges. Sales of material handling systems declined slightly in 1996, but operating profits improved due to higher international sales and margins for water treatment equipment. The company's strategic divestiture of the automotive service equipment business early in 1996 resulted in an overall decrease in sales of transportation equipment for the year. Sales of the food machinery businesses increased significantly in 1996, primarily as the result of the inclusion of FranRica for a full year and the acquisitions of Sandei in April 1996 and Frigoscandia Equipment on June 30, 1996. Sales of citrus equipment and food processing systems also improved. Operating profits declined slightly from 1995, however, as a result of incremental costs related to the acquisitions. 1995 COMPARED WITH 1994 Sales of FMC's Machinery and Equipment segment increased to $1.4 billion in 1995 from $973 million in 1994, and operating profits were up 56 percent to $49 million. These results reflect the performance of a number of newly acquired businesses, market share gains in oil field systems and ongoing cost improvements. A significant increase in sales of energy equipment in 1995 resulted from full-year sales of businesses acquired in 1994 and the inclusion of sales of Moorco International Inc. since June 30, 1995. In addition to the increased sales resulting from the acquired businesses, significant gains occurred in petroleum equipment and systems, primarily from continued growth in subsea business in the North Sea. SOFEC also realized sales gains arising from additional volume in the floating production and storage and offloading vessel markets. Operating profits of energy equipment businesses increased slightly from 1994, reflecting increasing price competition in certain markets and the amortization of costs related to acquisitions. Transportation equipment operations benefited from the inclusion of full-year results of Jetway Systems, acquired in May 1994, as well as increased shipments of the Commander 30 main deck loader. Operating profits for transportation equipment improved from 1994 primarily due to increased sales volumes. Sales of food processing systems, packaging and material handling equipment, and agricultural machinery decreased in 1995 due to the divestiture of certain product lines in 1994. Operating profits of the food machinery businesses improved from 1994 primarily as a result of favorable mix and manufacturing cost savings. OUTLOOK FOR MACHINERY AND EQUIPMENT The order backlog for Machinery and Equipment was $923 million at December 31, 1996, compared with $545 million at the end of the prior year. A large portion of this higher backlog is based on an increase in net orders from Statoil and from the order backlog of Frigoscandia, which is included for the first time. The Machinery and Equipment businesses expect the general economic and industry trends of 1996 to continue into 1997 for most of its product lines. Improvement in the oil field services industry is expected to continue as oil companies restructure and increase spending on outsourcing formerly internally provided services. The successful formation of alliances to improve efficiency and raise profitability for both contractors and customers is expected to benefit future performance. FMC's energy equipment business is a partner in several of these alliances and is pursuing further alliance opportunities. The loading systems business also should grow in 1997 due to worldwide growth in liquefied natural gas receiving and export terminals. The market for transportation equipment is expected to remain strong due to a positive outlook for the airline industry in 1997. The food machinery operations see a continuation of their 1996 successes, as well as benefits from a full year of Frigoscandia operations. 28 Machinery & Equipment DEFENSE SYSTEMS IN DEFENSE SYSTEMS, OUR STRATEGIC FOCUS IS ON CONSOLIDATING OUR BUSINESS AND MAINTAINING PROFITS. Defense Systems sales of $1 billion increased 5 percent, and profits (net of minority interest) decreased in 1996. U.S. defense spending is at a 45-year low. Over the next several years, we expect a stagnant or slowly declining market. To preserve our future sales and profitability, our Defense Systems business continues to effect cost efficiencies, enhance our technological capabilities, work on promising programs and pursue international business opportunities. [PHOTO CAPTION] NEXT-GENERATION BATTLEFIELD Work continues on our contract to develop the Bradley A3, a fighting vehicle that introduces state-of-the-art computer systems for pivotal command-and-control, lethality, survivability, mobility and sustainability. 29 DEFENSE SYSTEMS GIVEN THE DECLINES IN SPENDING ON DEFENSE EQUIPMENT AND RESEARCH AND DEVELOPMENT, WE HAVE CONSOLIDATED AND DOWNSIZED UNITED DEFENSE, L.P., OUR JOINT VENTURE WITH HARSCO THAT WE MANAGE. OUR MORE COST-COMPETITIVE POSITION HAS ALLOWED US TO CREATE OPPORTUNITIES AND PENETRATE NEW, PROFITABLE MARKETS THROUGH RE-MANUFACTURING, UPGRADES, PRIVATIZATION AND TECHNOLOGY. 1996 HIGHLIGHTS UPGRADING OPPORTUNITIES We are pursuing opportunities for re-manufacturing and upgrading existing systems. By upgrading earlier models of the Bradley Fighting Vehicle, in October 1996 we introduced the latest state-of-the-art A3 configuration and fire support vehicle with high-tech electronics and software. In 1996, we also rolled out the Hercules, a rebuilt and upgraded tank recovery vehicle. And we're upgrading the M113 armored personnel carrier and the M45 naval gun system. PROCEEDING WITH PROMISING PROGRAMS United Defense is participating in several promising programs. The Bradley family of vehicles continues as the workhorse of the U.S. Army. The Crusader, the howitzer and resupply vehicle of the future, could become a $15 billion program for the Army. ENHANCING TECHNOLOGY For the future, technology will be the driver of new business opportunities, and we're participating in several government-funded research projects that will keep us at the forefront. We're working on a range of technologies, including composite armored vehicles, survivability systems, electric drive, electromagnetic guns and information processing. PURSUING GLOBAL MARKETS Our international business is growing. We are delivering armored personnel carriers to Thailand and Kuwait and artillery systems to Austria; we're working with Samsung on a variety of vehicles in Korea; we're providing logistics support and will be rebuilding armored personnel carriers in Saudi Arabia through our joint venture, FMC Arabia; and our Turkish joint-venture company continues to build infantry fighting vehicles. The Armored Gun System offers potential sales to international customers. OUTLOOK Our Defense Systems business will continue to anticipate changing market needs. To maintain profits, we'll continue to reduce costs, perform on current contracts and seek new opportunities. Our recent consolidation efforts and our tradition of leading-edge technology will position us as a capable, cost-efficient supplier for the limited defense programs into the next century. [PHOTO CAPTION] PRIVATE ISSUE In 1996, in concert with Hughes Missiles Systems, United Defense assumed operations of the naval repair and rebuild center that the U.S. Navy had operated in Louisville, Kentucky. [PHOTO CAPTION] ON A CRUSADE The engineering expertise and technology demonstrators we are producing today should give us an edge in winning full-scale production contracts for the Crusader at the turn of the century. 30 Defense Systems DEFENSE SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS 1996 COMPARED WITH 1995 Defense Systems sales of $1 billion in 1996 increased 5 percent from sales of $968 million in 1995. Operating profits, after deducting minority interest, declined to $99 million from $105 million in the prior year. Operating profits in 1995 included a gain of $12 million from the expected resolution of a legal dispute with a subcontractor, while 1996 earnings included a $7 million gain from the final determination of the related award. In March 1996, a fire destroyed the warehouse at FNSS, FMC's Turkish joint venture for the production of armored vehicles for the Turkish government. While FNSS returned to full production by year-end 1996, the lower level of production reduced royalty payments to UDLP. Dividend income from FNSS in 1996 was in line with prior-year performance. Armament systems recorded net sales and profit gains in 1996 as the result of the shipment of 20 launcher modules, a shipment of a major component for the Seawolf submarine, higher revenue on the Crusader contract, and delivery of 328 vertical canisters for launching systems, compared with 159 in 1995. Partially offsetting these gains were reductions in naval gun sales and higher administrative and research costs. Sales and profits were lower in 1996 for the ground systems division, largely resulting from changes in sales mix. Vehicle deliveries for the Bradley multi-year contract and the M9 vehicle program for the Marine Corps were completed in 1995, and howitzer shipments to Korea were reduced. The termination of the Armored Gun System program by the U.S. Army and reduced shipments of other armored vehicles contributed to decreased sales in 1996. Partially offsetting these reductions were revenues from the start-up of a tank recovery program early in the year and additional revenue from Bradley upgrades and development contracts and Bradley AO/A2 production. The Paladin operation achieved full-rate production in August 1996 and delivered 85 more vehicles than in 1995. A total of 302 M109A6 howitzers have been delivered to date under the multi-year contract awarded in April 1993 for 713 vehicles, including the exercised option for 83 additional vehicles. The increased volume resulted in improved operating profits. 1995 COMPARED WITH 1994 Sales of the Defense Systems segment declined to $968 million in 1995 from $1.1 billion in 1994, and operating profits, after deducting minority interest, declined to $105 million from $114 million in 1994. The sales and related operating profit declines resulted primarily from lower volumes of Bradley Fighting Vehicles and naval weapon systems, partially offset by $84 million of increased revenue from the Crusader development contract and increases of $53 million in deliveries of Paladin self-propelled howitzers. OUTLOOK FOR DEFENSE SYSTEMS The order backlog of the Defense Systems segment increased to $1.6 billion at December 31, 1996, from $1.5 billion at the end of 1995. The backlog increase resulted primarily from additional options awarded for tank recovery vehicles and Bradley upgrade contracts, plus new orders for a variety of vehicles to be produced during 1997 and 1998. Funding for Paladin production also increased the 1996 backlog. Partially offsetting these new orders is a decline due to timing of Crusader funding. Production and financial performance of FMC's Turkish joint venture are expected to fully recover in 1997 following the 1996 fire. FMC expects dividends from FNSS to be considerably lower in 1997 due to the disruption caused by the fire. Some risk for this business continues due to ongoing economic and political uncertainties that may affect the FNSS customer base. Future U.S. government defense funding is expected to decline further and, combined with defense industry consolidations, will intensify competition for available defense funds. This competition will result in further pressure on margins as the operations work to satisfy customer needs. FMC will pursue continued initiatives aimed at improving cost performance in 1998 and beyond. FMC Annual Report Defense Systems 31 GENERAL MANAGEMENT'S DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES, SEGMENT DATA AND OTHER SUPPLEMENTAL INFORMATION. ADDITIONAL BACKGROUND INFORMATION ON THE COMPANY'S OPERATIONS IS PROVIDED IN THE SEGMENT DISCUSSIONS ON PAGES 10 THROUGH 31. 1996 COMPARED WITH 1995 Sales from continuing operations in 1996 were $5 billion, an increase of 12 percent from $4.5 billion in 1995. Sales both in and outside of the United States increased by a like percentage from the 1995 sales levels. Income from continuing operations increased to $218.1 million in 1996 from $214.0 million before special income and expense items in 1995 (restructuring and other charges of $81 million after tax, a $100 million non-taxable gain on the sale of FMC Wyoming stock and a $15.5 million write-off of acquired in-process research and development costs). Earnings from continuing operations were $5.73 per share compared with $5.68 per share in 1995 before special income and expense items. Net income per share in 1996, including discontinued operations and special income and expense items, was $5.54 compared with $5.72 in 1995. The net loss of $7.4 million from discontinued operations in 1996 resulted primarily from an increase in general and product liability reserves for previously divested operations, partially offset by a net gain from the sale of FMC's 80 percent interest in FMC Gold Company on July 31, 1996 (Note 3 to the consolidated financial statements). 1995 COMPARED WITH 1994 Sales in 1995 were $4.5 billion, an increase of 13 percent from 1994. Sales in the United States increased 11 percent during the year, while sales outside the United States increased 14 percent from 1994. Before special income and expense items, consolidated income from continuing operations in 1995 of $214.0 million, or $5.68 per share, increased 20 percent. Including these items, income from continuing operations totaled $217.5 million, or $5.77 per share. Net income, including special charges and discontinued operations, increased 24 percent to $215.6 million from $173.4 million in 1994. Earnings per share increased to $5.72 from $4.66. INDUSTRY SEGMENTS Results on a segment basis for the five years ended December 31, 1996 are presented on page 5. Segment operating profits exclude certain elements of revenue and expense as described in Note 1 to the consolidated financial statements. Management's Discussion and Analysis of segment operating performance appears on these pages following the operating highlights for each segment: Performance Chemicals on pages 16 and 17; Industrial Chemicals on page 21; Machinery and Equipment on page 28; and Defense Systems on page 31. OTHER INFORMATION TAXES The effective tax rate in 1996 was 32 percent, which includes taxes provided on the sale of the company's investment in Tokai Denka Kogyo (Notes 1 and 9 to the consolidated financial statements). The effective tax rate, excluding this event, was 29 percent. For 1995, the effective tax rate was 14 percent. The company's 1995 effective tax rate, excluding the impact of restructuring and other charges (Note 3 to the consolidated financial statements) and the non-taxable gain on the sale of FMC Wyoming stock (Note 2 to the consolidated financial statements), was 29 percent. In 1994, the effective tax rate was 33 percent. The effective tax rates in 1996, 1995 and 1994 were lower than the U.S. statutory rate primarily as a result of depletion, foreign sales corporation benefits and income from foreign operations taxed at rates lower than the U.S. statutory rate. RESTRUCTURING AND OTHER CHARGES FMC recorded restructuring and other charges of $35 million ($20 million after tax) in the third quarter of 1995 covering asset writedowns and related exit liabilities for the expected shift in 1997 of its lithium-based production from North Carolina to its new lower-cost, higher quality mineral resource in Argentina. Other charges of $17 million ($10 million after tax) related primarily to asset impairments. In addition, the company increased its environmental reserves by $82.5 million, or $51 million after tax, as part of its ongoing assessment of sites with known environmental issues. See Notes 3 and 14 to the consolidated financial statements for further discussions of the restructuring and environmental reserves. ENVIRONMENTAL FMC, like other industrial manufacturers, is involved with a variety of environmental matters in the ordinary course of conducting its business that are subject to federal, state and local environmental laws. FMC feels strongly about its responsibility to protect the environment, public health and employee safety. This includes cooperating with other parties to resolve issues created by past and present handling of wastes. When issues arise, including notices from the Environmental Protection Agency, or other government agencies, identifying FMC as a Potentially Responsible Party, the company uses multifunctional advisory teams comprising environmental, legal, financial and communications management to ensure that the company's actions are consistent with its responsibilities to the environment and public health, as well as to employees and shareholders. Additional information regarding the company's environmental accounting policies and potential environmental liability (including additional amounts recorded in 1995) is included in Note 1 and Note 14, respectively, to the company's consolidated financial statements. Information regarding environmental obligations associated with the company's discontinued operations is included in Note 3 to the consolidated financial statements. Estimates of 1997 environmental spending are included under Liquidity and Capital Resources. 32 Management's Discussion and Analysis LIQUIDITY AND CAPITAL RESOURCES Total cash and cash equivalents at December 31, 1996 and 1995 were $74.8 million and $70.9 million, respectively. At December 31, 1996, the company had total borrowings of $1.8 billion, up from $1.4 billion at December 31, 1995. The increase in debt reflects cash required for capital expenditures and acquisitions, as well as working capital requirements related to increased sales. Advances under uncommitted facilities of $360 million, up from $201 million at December 31, 1995, senior debentures of $100 million issued in July 1996, and commercial paper borrowings represent the primary sources of the additional debt. Commercial paper with an aggregate maturity value of $391 million was outstanding at December 31, 1996, compared with $275 million in 1995. The company also has $750 million in committed credit facilities consisting of a $300 million, 364-day non-amortizing revolving credit agreement due in December 1997, and a $450 million, five-year non-amortizing revolving credit agreement due in December 2001. At December 31, 1996, no amounts were outstanding under these credit facilities. See Note 8 to the consolidated financial statements for a further discussion of debt. In 1995, the company filed a universal shelf registration under which $500 million of debt and/or equity securities may be publicly offered. In July 1996, the company issued $100 million of 7.75% senior debentures for net proceeds of $98.2 million. In January 1997, the company registered $400 million of medium-term debt securities under the 1995 universal shelf registration. On January 29, 1997 the company issued $45 million of medium-term notes due February 2007, for net proceeds of $44.7 million, which were used to retire short-term borrowings. Cash generated from operations in 1997 and available credit facilities are expected to be sufficient to meet operating needs, fund capital expenditures and acquisitions, and meet debt service requirements for the year. Expected cash requirements for 1997 include approximately $300 million to $400 million for planned capital expenditures and acquisitions, including approximately $34 million for capital projects related to environmental control facilities. Projected 1997 spending also includes approximately $50 million for environmental compliance at current operating sites, plus approximately $30 million of remediation spending and $15 million for study costs at current operating, previously operated and other sites. Total working capital of $172 million at December 31, 1996 increased by $163 million compared with 1995. The increase is primarily due to higher trade receivables and inventories as a result of increased sales volumes and acquisitions, partially offset by higher short-term debt levels. Working capital decreased to $9 million at December 31, 1995 from $125 million at December 31, 1994, primarily as a result of higher short-term debt levels, which more than offset increased current assets. An increase in other non-current assets from $145 million at December 31, 1995 to $204 million at December 31, 1996 resulted primarily from the capitalization of certain manufacturing start-up costs and certain costs related to the development of internal-use software in 1996 and 1995. See Note 1 to the consolidated financial statements. DIVIDENDS No dividends were paid in 1996, 1995 and 1994, and no dividends are expected to be paid in 1997. FMC Annual Report Management's Discussion and Analysis 33 CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data) Year ended December 31 ---------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------- Revenue Sales $4,969.4 $4,450.8 $3,949.9 Other revenue 111.2 56.9 39.4 - ---------------------------------------------------------------------------------- Total revenue 5,080.6 4,507.7 3,989.3 - ---------------------------------------------------------------------------------- Costs and expenses Cost of sales 3,726.0 3,267.3 2,874.0 Selling, general and administrative expenses 692.7 631.3 568.4 Research and development 189.4 187.8 166.8 Restructuring and other charges (Note 3) -- 134.5 -- - ---------------------------------------------------------------------------------- Total costs and expenses 4,608.1 4,220.9 3,609.2 - ---------------------------------------------------------------------------------- Income from continuing operations before minority interests, net interest expense, gain on sale of FMC Wyoming stock and income taxes 472.5 286.8 380.1 - ---------------------------------------------------------------------------------- Minority interests 56.9 58.7 61.3 Interest income 10.1 9.4 7.0 Interest expense 103.1 84.0 64.1 Gain on sale of FMC Wyoming stock (Note 2) -- 99.7 -- - ---------------------------------------------------------------------------------- Income from continuing operations before income taxes 322.6 253.2 261.7 Provision for income taxes (Note 9) 104.5 35.7 85.5 - ---------------------------------------------------------------------------------- Income from continuing operations 218.1 217.5 176.2 Discontinued operations, net of income taxes (Note 3) (7.4) (1.9) (2.8) - ---------------------------------------------------------------------------------- Net income $ 210.7 $ 215.6 $ 173.4 ================================================================================== Earnings (loss) per common share (Note 1) Continuing operations $ 5.73 $ 5.77 $ 4.73 Discontinued operations (Note 3) (0.19) (0.05) (0.07) - ---------------------------------------------------------------------------------- Net income $ 5.54 $ 5.72 $ 4.66 ==================================================================================
See notes to consolidated financial statements. 34 Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data) December 31 ------------------ 1996 1995 - ---------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 74.8 $ 70.9 Trade receivables, net of allowances of $10.9 in 1996 and $11.3 in 1995 1,001.9 832.9 Inventories (Note 4) 835.3 600.2 Other current assets 194.3 178.3 Deferred income taxes (Note 9) 86.8 98.5 - ---------------------------------------------------------------------- Total current assets 2,193.1 1,780.8 Investments 59.4 98.4 Net assets of discontinued operation (Note 3) -- 86.0 Property, plant and equipment, net (Note 7) 1,959.3 1,705.7 Goodwill and intangible assets (Note 2) 498.8 345.6 Other assets 204.0 144.9 Deferred income taxes (Note 9) 75.2 71.1 - ---------------------------------------------------------------------- Total assets $4,989.8 $4,232.5 ====================================================================== Liabilities and Stockholders' Equity Current liabilities Short-term debt (Note 8) $ 555.6 $ 420.8 Accounts payable, trade and other 886.0 835.6 Accrued payroll 140.6 109.4 Other current liabilities 359.9 302.4 Current portion of long-term debt (Note 8) 10.4 29.8 Current portion of accrued pension and other postretirement benefits (Notes 12 and 13) 17.9 36.4 Income taxes payable (Note 9) 51.0 37.7 - ---------------------------------------------------------------------- Total current liabilities 2,021.4 1,772.1 Long-term debt, less current portion (Note 8) 1,268.4 974.4 Accrued pension and other postretirement benefits, less current portion (Notes 12 and 13) 276.5 284.6 Reserve for discontinued operations (Note 3) 191.4 168.3 Other liabilities 236.9 261.2 Minority interests in consolidated companies 139.4 118.4 Commitments and contingent liabilities (Notes 14 and 15) - ---------------------------------------------------------------------- Stockholders' equity (Note 11) Preferred stock, no par value, authorized 5,000,000 shares; no shares issued in 1996 or 1995 -- -- Common stock, $0.10 par value, authorized 60,000,000 shares; issued 37,480,854 shares in 1996 and 37,024,187 shares in 1995 3.7 3.7 Capital in excess of par value of capital stock 120.1 99.7 Retained earnings 806.8 596.1 Foreign currency translation adjustment (Note 5) (65.5) (36.8) Treasury stock, common, at cost; 300,427 shares in 1996 and 300,447 shares in 1995 (9.3) (9.2) - ---------------------------------------------------------------------- Total stockholders' equity 855.8 653.5 - ---------------------------------------------------------------------- Total liabilities and stockholders' equity $4,989.8 $4,232.5 ======================================================================
See notes to consolidated financial statements. FMC Annual Report Consolidated Financial Statements 35 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) Year ended December 31 --------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- Reconciliation from income from continuing operations to cash provided (required) by operating activities of continuing operations Income from continuing operations $ 218.1 $ 217.5 $ 176.2 Adjustments to reconcile income from continuing operations to cash provided (required) by operating activities of continuing operations: Restructuring and other charges (Note 3) -- 134.5 -- Gain on sale of FMC Wyoming stock (Note 2) -- (99.7) -- Depreciation and amortization 254.2 227.0 213.4 Deferred income taxes 52.0 (3.7) 30.3 Minority interests 56.9 58.7 61.3 Other (4.8) (2.9) (4.8) Changes in operating assets and liabilities: Trade receivables (167.9) (186.8) (62.9) Inventories (234.3) (208.8) (44.4) Other current assets and other assets (248.5) (343.0) (28.9) Accounts payable, accrued payroll, other current liabilities and other liabilities 129.7 199.9 94.1 Income taxes payable (3.3) (15.2) (31.4) Restructuring reserve (14.7) (48.5) (72.2) Accrued pension and other postretirement benefits, net (34.2) (9.9) (13.5) - --------------------------------------------------------------------------------------------------------- Cash provided (required) by operating activities of continuing operations 3.2 (80.9) 317.2 - --------------------------------------------------------------------------------------------------------- Cash provided (required) by discontinued operations 77.8 (62.0) (69.6) - --------------------------------------------------------------------------------------------------------- Cash provided (required) by investing activities: Capital spending (533.0) (525.0) (297.9) Disposal of property, plant and equipment 61.1 29.5 18.7 Decrease (increase) in investments 35.4 49.5 (55.8) - --------------------------------------------------------------------------------------------------------- Cash required by investing activities (436.5) (446.0) (335.0) - --------------------------------------------------------------------------------------------------------- Cash provided (required) by financing activities: Net increase (decrease) in short-term debt 127.0 79.5 (1.9) Net proceeds from issuance of commercial paper 94.7 272.3 -- Net increase under credit facilities 84.2 89.0 161.0 Increase in other long-term debt 112.4 18.5 142.6 Repayment of other long-term debt (37.5) (49.4) (130.0) Proceeds from sale of FMC Wyoming stock (Note 2) -- 171.8 -- Distributions to minority partners (44.9) (37.8) (70.0) Issuance of capital stock, net 20.3 9.2 10.5 - --------------------------------------------------------------------------------------------------------- Cash provided by financing activities 356.2 553.1 112.2 - --------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 3.2 8.5 (4.0) - --------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 3.9 (27.3) 20.8 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year 70.9 98.2 77.4 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 74.8 $ 70.9 $ 98.2 =========================================================================================================
Supplemental cash flow information: The company considers investments in all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash flows from hedging contracts are reported in the statements of cash flows in the same categories as the cash flows from the transactions being hedged. Income taxes paid, net of refunds, were $47.1 million, $29.4 million and $63.1 million for 1996, 1995 and 1994, respectively. Interest payments, excluding amounts capitalized (Note 1), for 1996, 1995 and 1994 were $94.9 million, $76.3 million and $68.3 million, respectively. See notes to consolidated financial statements. 36 Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions) Common Capital Foreign stock, $0.10 in excess Retained currency Treasury par value of par earnings translation stock - --------------------------------------------------------------------------------------------------- Balance December 31, 1993 $3.6 $ 79.6 $207.1 $(64.7) $(8.7) Net income 173.4 Stock options exercised (Note 10) 0.1 10.8 Purchase of treasury shares (0.4) Translation adjustment (Note 5) 15.8 - --------------------------------------------------------------------------------------------------- Balance December 31, 1994 3.7 90.4 380.5 (48.9) (9.1) Net income 215.6 Stock options exercised (Note 10) 9.3 Purchase of treasury shares (0.1) Translation adjustment (Note 5) 12.1 - --------------------------------------------------------------------------------------------------- Balance December 31, 1995 3.7 99.7 596.1 (36.8) (9.2) Net income 210.7 Stock options exercised (Note 10) 20.4 Purchase of treasury shares (0.1) Translation adjustment (Note 5) (28.7) - --------------------------------------------------------------------------------------------------- Balance December 31, 1996 $3.7 $120.1 $806.8 $(65.5) $(9.3) ===================================================================================================
See notes to consolidated financial statements. FMC Annual Report Consolidated Financial Statements 37 GEOGRAPHIC SEGMENT INFORMATION
Sales Year ended December 31 - ------------------------------------------------------------------------------ (In millions) 1996 1995 1994 - ------------------------------------------------------------------------------ Third party sales (from origination of sale) - ------------------------------------------------------------------------------ United States $3,523.7 $3,211.0 $3,023.9 Latin America and Canada 203.8 179.8 159.6 Europe 1,084.9 947.3 693.5 Asia, Africa & others 157.0 112.7 72.9 - ------------------------------------------------------------------------------ 4,969.4 4,450.8 3,949.9 - ------------------------------------------------------------------------------ Intersegment sales - ------------------------------------------------------------------------------ United States 193.7 151.2 111.5 Latin America and Canada 12.6 10.1 10.9 Europe 113.3 92.2 92.3 Asia, Africa & others 27.3 22.1 11.4 Eliminations (346.9) (275.6) (226.1) - ------------------------------------------------------------------------------ Total sales $4,969.4 $4,450.8 $3,949.9 ============================================================================== Income from continuing operations before income taxes Year ended December 31 - ------------------------------------------------------------------------------ (In millions) 1996 1995 1994 - ------------------------------------------------------------------------------ United States $364.6 $323.9 $300.8 Latin America and Canada 19.7 21.3 13.7 Europe 119.1 121.5 99.1 Asia, Africa & others 12.2 4.2 1.4 - ------------------------------------------------------------------------------ Operating profit from continuing operations 515.6 470.9 415.0 Restructuring and other charges (Note 3) -- (150.0) -- Gain on sale of FMC Wyoming stock (Note 2) -- 99.7 -- Net interest expense (93.0) (74.6) (57.1) Corporate and other (91.3) (99.0) (105.9) Other income and (expense), net (8.7) 6.2 9.7 - ------------------------------------------------------------------------------ Total $322.6 $253.2 $261.7 ============================================================================== Identifiable assets December 31 - ------------------------------------------------------------------------------ (In millions) 1996 1995 1994 - ------------------------------------------------------------------------------ United States $3,189.9 $2,735.7 $2,074.2 Latin America and Canada 329.9 208.1 156.2 Europe 1,153.0 900.2 676.0 Asia, Africa and others 125.1 87.1 64.8 - ------------------------------------------------------------------------------ Subtotal 4,797.9 3,931.1 2,971.2 Corporate and other 191.9 215.4 258.9 - ------------------------------------------------------------------------------ Continuing operations 4,989.8 4,146.5 3,230.1 Net assets of discontinued operation -- 86.0 41.9 - ------------------------------------------------------------------------------ Total $4,989.8 $4,232.5 $3,272.0 ============================================================================== U.S. Export Sales to Unaffiliated Customers by Destination of Sale Year ended December 31 - ------------------------------------------------------------------------------ (In millions) 1996 1995 1994 - ------------------------------------------------------------------------------ Latin America and Canada $271.1 $211.8 $192.7 Europe 108.8 100.2 115.7 Asia, Africa and others 564.7 588.2 668.6 - ------------------------------------------------------------------------------ Total $944.6 $900.2 $977.0 ==============================================================================
38 Consolidated Financial Statements OTHER SUPPLEMENTAL INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------------- (In millions, except per share and common stock data) 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. - --------------------------------------------------------------------------------------------------------------------------- Sales $1,094.3 $1,250.7 $1,261.6 $1,362.8 $1,006.6 $1,118.6 $1,141.2 $1,184.4 Income (loss) from continuing operations before minority interests, net interest expense, gain on sale of FMC Wyoming stock and income taxes $ 126.1 $ 114.0 $ 120.8 $ 111.6 $ 112.8 $ 138.7 $ (33.8) $ 69.1 Income (loss) from discontinued operations, net of income taxes $ (1.6) $ (1.1) $ (4.7) $ -- $ (3.4) $ (1.3) $ (0.5) $ 3.3 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 55.2 $ 56.3 $ 54.6 $ 44.6 $ 52.4 $ 77.7 $ 57.1 $ 28.4 Net income per share $ 1.45 $ 1.48 $ 1.44 $ 1.17 $ 1.40 $ 2.06 $ 1.51 $ 0.75 - --------------------------------------------------------------------------------------------------------------------------- Common stock prices: High $ 76 1/4 $ 76 $ 67 7/8 $ 77 3/4 $ 60 5/8 $ 67 1/4 $ 79 1/2 $ 75 3/8 Low $ 67 1/4 $ 62 1/4 $ 62 3/4 $ 64 1/2 $ 57 3/8 $ 59 $ 67 $ 67 1/4 ===========================================================================================================================
Quarterly earnings per common share may differ from full-year amounts due to changes in the number of shares outstanding during the year. OTHER INDUSTRY SEGMENT INFORMATION
- ---------------------------------------------------------------------------------------------------------------- Depreciation Research and Capital expenditures and amortization development expenditures - ---------------------------------------------------------------------------------------------------------------- Year ended December 31 Year ended December 31 Year ended December 31 - ---------------------------------------------------------------------------------------------------------------- (In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Performance Chemicals $219.0 $143.3 $ 65.7 $ 59.3 $ 59.4 $ 55.5 $113.1 $109.2 $ 94.3 Industrial Chemicals 167.5 205.1 128.6 91.6 75.2 71.3 20.4 16.2 16.2 Machinery and Equipment 87.5 132.2 76.3 57.9 45.6 34.2 41.5 49.0 29.6 Defense Systems 20.9 24.2 18.2 30.8 31.4 33.9 12.9 12.4 16.3 Corporate 38.1 20.2 9.1 14.6 15.4 18.5 1.5 1.0 10.4 - ---------------------------------------------------------------------------------------------------------------- Total $533.0 $525.0 $297.9 $254.2 $227.0 $213.4 $189.4 $187.8 $166.8 ================================================================================================================
Descriptions of the company's industry segments are on pages 10 through 31 of this annual report. Sales, income from continuing operations before income taxes and identifiable assets by industry segment are on page 5. Research and development expenditures in 1995 for the Machinery and Equipment segment include a $15.5 million write-off of acquired in-process research and development related to the Moorco International Inc. acquisition (Note 2). Sales to various agencies of the U.S. government aggregated $851.2 million, $706.5 million and $618.3 million in 1996, 1995 and 1994, respectively. These sales were made primarily by the Defense Systems segment.
ORDER BACKLOG (UNAUDITED) Year ended December 31 - --------------------------------------------------------------- (In millions) 1996 1995 1994 - --------------------------------------------------------------- Machinery and Equipment $ 923.0 $ 545.0 $ 480.0 Defense Systems 1,565.1 1,495.0 1,412.3 - --------------------------------------------------------------- Total $2,488.1 $2,040.0 $1,892.3 ===============================================================
Backlogs are not reported for Industrial Chemicals or Performance Chemicals due to the nature of these businesses. FMC Annual Report Consolidated Financial Statements 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 PRINCIPAL ACCOUNTING POLICIES Nature of operations. FMC Corporation ("FMC" or "the company") is a diversified producer of chemicals, machinery and other products for industry, government and agriculture. Further descriptions of FMC's products, its principal markets and the relative significance of its operations are included in this annual report in Products and Markets on pages 6 through 9 and in the Industry Segment Data on page 5. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results are likely to differ from those estimates, but management does not believe such differences will materially affect the company's financial position, results of operations or cash flows. Consolidation. The consolidated financial statements include the accounts of FMC and all significant majority-owned subsidiaries and partnerships except those excluded because control is restricted or temporary in nature. All material intercompany accounts and transactions are eliminated in consolidation. Restatements and reclassifications. As described further in Note 3, during 1996 the company divested its interest in FMC Gold Company. In connection with the divestiture, the operations constituting the Precious Metals segment have been accounted for as a discontinued operation, and all prior period financial statements and disclosures presented herein have been restated for comparative purposes. Certain prior period balances have been reclassified to conform with the current period's presentation. Investments. Investments in companies in which ownership interests are 50 percent or less and FMC exercises significant influence over operating and financial policies are accounted for using the equity method after eliminating the effects of any material intercompany transactions. All other investments are carried at their fair values or at cost if appropriate. During the fourth quarter of 1996, FMC sold its 27 percent interest in Tokai Denka Kogyo, a Japanese hydrogen peroxide venture, resulting in a gain of $24 million ($6.5 million after tax). Dividends received from affiliates were $3.7 million in 1996 ($5.3 million in 1995 and $9.4 million in 1994). Dividends included in other revenue from other investments were $28.3 million, $21.7 million and $13.0 million in 1996, 1995 and 1994, respectively. Inventories. Inventories are stated at the lower of cost or market value. Cost is determined on the last-in, first-out ("LIFO") basis for all domestic inventories, except certain inventories relating to long-term contracts which are stated at the actual production cost incurred to date, reduced by amounts identified with recognized revenue. The costs attributed to units delivered under such contracts are based on the estimated average cost of all units expected to be produced. The first-in, first-out ("FIFO") method is used to determine the cost for all other inventories. Inventory costs include those directly attributable to products prior to sale, as well as all manufacturing overhead. Revenue recognition for contracts-in-progress. Sales are recorded under most production contracts as deliveries are made. Sales under cost reimbursement contracts for research, engineering, prototypes, repair and maintenance, and certain production contracts are recorded as costs are incurred and include estimated fees in the proportion that costs incurred to date bear to total estimated costs. The fees under certain government contracts may be increased or decreased in accordance with cost or performance incentive provisions. Such awards or penalties are recognized at the time the amounts can be reasonably determined. Losses are provided for contracts-in-progress in the period in which such losses become probable. Property, plant and equipment. Property, plant and equipment, including capitalized interest, is recorded at cost. Depreciation for financial reporting purposes is provided principally on the straight-line basis over the estimated useful lives of the assets (land improvements--20 years, buildings--20 to 50 years, and machinery and equipment--3 to 18 years). Gains and losses are reflected in income upon sale or retirement of assets. Expenditures that extend the useful life of property, plant and equipment or increase its productivity are capitalized. The company periodically evaluates the recoverability of property, plant and equipment net book values, particularly in the case of a change in business circumstances or other triggering events, based on expectations of future undiscounted cash flows for the asset or group of assets. The company believes that no material impairment of long-lived assets existed at December 31, 1996 or 1995. Capitalized interest. Interest costs of $15.5 million ($10.2 million in 1995 and $2.7 million in 1994) associated with the construction of certain capital assets have been capitalized as part of the cost of those assets and are being amortized over their estimated useful lives. 40 Notes to Consolidated Financial Statements Deferred costs. Pre-operating and start-up costs directly related to and incurred in the start-up phase of major new manufacturing facilities are deferred and amortized over a five-year period. The company also capitalizes certain costs related to the development of software for internal use. Such costs are amortized over periods not exceeding the expected life of software technology (three to seven years). Recoverability of deferred costs is assessed on an ongoing basis and writedowns to net realizable value are recorded as necessary. The deferred start-up costs and capitalized software costs are components of other assets, which also includes anticipated environmental recoveries, bond discounts and other deferred charges. Goodwill and intangible assets. Goodwill and identifiable intangible assets (such as trademarks) are amortized on a straight-line basis over their estimated useful or legal lives, not exceeding 40 years. At each balance sheet date, the company evaluates the recoverability of goodwill based on expectations of future undiscounted cash flows for each operation having a significant goodwill balance. Based on its analysis, the company believes that no material impairment of recorded goodwill existed at December 31, 1996 or 1995. Accounts payable. Amounts advanced by customers as deposits on orders not yet billed and progress payments on contracts-in-progress are recorded as accounts payable ($344.1 million at December 31, 1996 and $254.5 million at December 31, 1995). Income taxes. Current income taxes are provided on income reported for financial statement purposes adjusted for transactions that do not enter into the computation of income taxes payable. Deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income taxes are not provided for the equity in undistributed earnings of foreign subsidiaries or affiliates when it is management's intention that such earnings will remain invested in those companies. Taxes are provided in the year the dividend payment is received or when the decision is made to repatriate the earnings. Foreign currency translation. Assets and liabilities of most foreign operations are translated at exchange rates in effect at year-end, and income statements are translated at the average monthly exchange rates prevailing during the year. These translation gains and losses are accumulated in a separate component of stockholders' equity until the foreign entity is sold or liquidated. For operations in highly inflationary countries and where the local currency is not the functional currency, inventories, property, plant and equipment, and other noncurrent assets are converted to U.S. dollars at historical exchange rates, and all gains or losses from conversion to U.S. dollars are included in net income. Derivative financial instruments and foreign currency transactions. Gains and losses on hedges of existing assets and liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in income as part of those carrying amounts. Gains or losses related to hedges of firm commitments are also deferred and included in the basis of the transaction when it is completed. Gains and losses on unhedged foreign currency transactions are included in income. Earnings per common share. Earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year (38,058,000 in 1996, 37,721,000 in 1995 and 37,195,000 in 1994). Segment information. Segment operating profit from continuing operations is defined as total revenue less operating expenses. The following items have been excluded in computing segment operating profit: general corporate income and expense, non-operating interest income and expense, income taxes, significant gains or losses on abnormal retirements of assets, restructuring and other charges, the 1995 gain on the sale of FMC Wyoming stock (Note 2), LIFO inventory adjustments and other income and expense items. Identifiable assets by industry segment are those assets that are used by or attributable to segment operations. Corporate assets are principally cash and cash equivalents, LIFO reserves, deferred income tax benefits and property and equipment. Environmental. The company provides for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used; where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. Estimated obligations to remediate sites that involve the Environmental Protection Agency ("EPA"), or equivalent government agencies, are generally accrued no later than when a Record of Decision, or equivalent, is issued, or upon completion of a Remedial Investigation/Feasibility Study ("RI/FS") that is accepted by FMC and the appropriate government agency or agencies. Estimates are reviewed quarterly by the company's Environment, Health, Safety and Toxicology organization, as well as financial and legal management and, if necessary, adjusted as additional information becomes available. The estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties. FMC Annual Report Notes to Consolidated Financial Statements 41 The company's continuing and discontinued operations' environmental liability is principally for costs associated with the remediation and/or study of sites at which the company is alleged to have disposed of hazardous substances. Such costs include, among other items, remedial investigations and feasibility studies, site remediation, costs of operation and maintenance of the remediation plan, fees to outside law firms and consultants for work related to the environmental effort, and future monitoring costs. Estimated site liabilities are determined based upon existing remediation technology, specific site consultants/engineering studies or by extrapolating experience with environmental issues at comparable sites. Provisions for environmental costs are reflected in income, net of probable and reasonably estimable recoveries from named Potentially Responsible Parties ("PRPs") or other third parties. Such provisions incorporate inflation and are not discounted to their present values. In calculating and evaluating the adequacy of its environmental reserves, the company has taken into account the joint and several liability imposed by the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and the analogous state laws on all PRPs and has considered the identity and financial condition of each of the other PRPs at each site to the extent possible. The company has also considered the identity and financial condition of other third parties from whom recovery is anticipated, as well as the status of the company's claims against such parties. In general, the company is aware of a degree of uncertainty in disputes regarding the financial contribution by certain named PRPs, which is common to most 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 is taken into account when determining the environmental reserve by adjusting the reserve to reflect the facts and circumstances on a site-by-site basis. The company believes that recorded recoveries related to PRPs are realizable in all material respects. Recoveries, excluding those relating to discontinued operations, are recorded in other assets and those relating to discontinued operations are recorded in the reserve for discontinued operations. Accounting standards adopted. The company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. The adoption of this standard, which establishes criteria for recognizing, measuring and disclosing impairments of long-lived assets, did not have a material impact on the company's consolidated financial position or results of operations at the date of adoption or during 1996. The company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," on January 1, 1996. As permitted under SFAS No. 123, the company is continuing its current accounting for employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, and has provided disclosures required by SFAS No. 123 in Note 10. NOTE 2 BUSINESS COMBINATIONS Acquisitions. In June 1996, FMC acquired all of the common shares of Frigoscandia Equipment Holding AB ("Frigoscandia"), a wholly owned subsidiary of ASG AB, for approximately $165 million plus acquisition costs and debt assumed. Frigoscandia is a leading worldwide manufacturer of industrial freezers, ovens, fryers and other equipment for the food processing industry. Frigoscandia's operations are included in the company's Machinery and Equipment segment. In conjunction with the acquisition of Frigoscandia, goodwill and other intangible assets of $164.4 million were recorded during 1996. In June 1995, FMC acquired all of the common shares of Moorco International Inc. ("Moorco") for $28 per share, or approximately $350 million (including acquisition costs and debt assumed). Moorco is the leading worldwide manufacturer of meters for the petroleum industry and a leading manufacturer of valves for the process and power generation industries. Moorco's operations are included in the company's Machinery and Equipment segment. In conjunction with the acquisition of Moorco, goodwill and other intangible assets of $218.4 million were recorded, and $15.5 million of acquired in-process research and development was charged to research and development expense during 1995. On September 20, 1995, the company acquired the assets of FR Manufacturing Corporation, a wholly owned subsidiary of Bridge Atlantic Corporation, for $15.7 million in cash. The acquired business is a full-line, global supplier of tomato processing equipment and aseptic systems sold under the FranRica trade name. The operations are included in the company's Machinery and Equipment segment. During 1994, the company acquired the Fluid Controls Systems product line from National-Oilwell and the Jetway Systems Division of Pneumo-Abex Inc., both of which are included in the company's Machinery and Equipment segment. The Fluid Controls Systems product line is a leader in a variety of high-performance oil field applications, including engineered production and injection manifolds, a family of valves, and fittings used to control and distribute the flow of production from oil and gas wells. Jetway Systems is a leader in the design, production and installation of passenger boarding bridges and other aircraft support systems. The company also completed a number of other smaller acquisitions and joint ventures during the years ended December 31, 1996, 1995 and 1994. The purchase prices for all the aforementioned acquisitions were satisfied from cash flow from operations and short-term and long-term financing. The company's 1996 acquisitions did not have a material pro forma impact on the company's consolidated results of operations. 42 Notes to Consolidated Financial Statements These acquisitions were accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values of such assets and liabilities at the date of acquisition. The excess of the purchase price over the fair value of the net tangible assets acquired has been recorded as intangible assets, primarily goodwill, which will be amortized over periods ranging from 15 to 40 years. Results of operations of the acquired companies have been included in the company's consolidated statements of income from the respective dates of acquisition. Joint venture. In July 1995, FMC completed a joint venture agreement involving the sale of 20 percent of its soda ash business, FMC Wyoming Corporation, to Sumitomo Corporation and Nippon Sheet Glass Company, Ltd. for $150 million, resulting in a nontaxable gain of $99.7 million ($2.64 per share). The company retains management control of the joint venture. In conjunction with the agreement, the company's joint venture partners also contributed approximately $22 million, representing their share of preformation funding of capital projects intended to reduce costs and expand capacity at FMC Wyoming Corporation's soda ash facilities. NOTE 3 DISCONTINUED OPERATIONS AND RESTRUCTURING Discontinued operations. On July 15, 1996, FMC's management approved a plan to dispose of shares of FMC Gold Company through a secondary offering of substantially all of FMC's interest following a reincorporation of FMC Gold Company in Canada. In connection with the approval of the plan of disposal, beginning in the second quarter of 1996, the operations constituting the Precious Metals segment have been accounted for as a discontinued operation. Prior period consolidated financial statements presented herein have been restated for comparative purposes. The reincorporation and an offering of a 72 percent interest in FMC Gold Company, which was held by FMC, were completed on July 31, 1996. An option on the part of the underwriters to purchase the remaining 8 percent interest held by FMC was executed on August 9, 1996. A small number of shares not covered by the underwriting agreement were also sold at the market. FMC received gross cash proceeds, including a dividend of $0.02 per share, of $108.4 million, plus rights to receive the second installment under installment receipts totaling $107.5 million due July 31, 1997. During August 1996, FMC collected $3.4 million of those rights and sold the balance of $104.1 million to Bank of Nova Scotia for $98.9 million in cash. Cash proceeds were used to repay intercompany loans, accrued interest and other amounts owing to FMC Gold Company totaling $79.2 million at July 31, 1996. Transaction and other related costs aggregating $23.3 million, including certain taxes on behalf of FMC Gold Company's minority shareholders, were paid from proceeds or accrued pending payment. The sale is subject to recourse (not to exceed Cdn$42.7 million) to the extent the final installment payments of Cdn$2.50 per share are not paid to Bank of Nova Scotia by the purchasers thereof. Such installment obligations are secured by stock of Meridian Gold Inc. After deducting transaction costs and FMC's investment in FMC Gold Company and establishing reserves for sale-related liabilities, FMC recorded a pretax gain of $9.4 million on the disposal of FMC Gold Company. A net tax benefit of $10.3 million on the gain includes the reversal of previously recorded valuation allowances, which are no longer required, related to certain deferred tax assets arising from the Precious Metals business. Sales of the Precious Metals segment for the seven-month period ended July 31, 1996 and the years ended December 31, 1995 and 1994 were $41.3 million, $59.0 million and $60.9 million, respectively. In the third quarter of 1996, the company also recorded a discontinued operations charge of $39.0 million ($23.4 million after tax) to increase reserves related to operations discontinued by the company between 1976 and 1984. These additional reserves resulted primarily from an increase in the company's most recent actuarially-determined estimate of product liability and in other potential claims principally related to the discontinued Construction Equipment and Chlor-Alkali businesses. The company's results of discontinued operations for the year ended December 31, 1996 are comprised of the following, in millions:
- ----------------------------------------------------------- (Loss) from operations of Precious Metals segment through July 31, 1996 (net of income tax benefit of $1.8) $ (3.7) Gain on disposal of FMC Gold Company (net of income tax benefit of $10.3) 19.7 Provision for liabilities related to previously discontinued operations (net of income tax benefit of $15.6) (23.4) - ----------------------------------------------------------- Discontinued operations, net of income taxes $ (7.4) ===========================================================
Disposal of all assets related to discontinued operations has been completed in accordance with plans adopted within one year of the measurement dates. In addition to the 1996 sale of FMC Gold Company, residual liabilities relate to operations discontinued between 1976 and 1984--primarily Film, Fiber, Power Transmission and the Construction Equipment businesses. Most residual liabilities are of a long-term nature and will be settled over a number of years. Liabilities remaining with FMC total approximately $191 million at December 31, 1996 ($168 million at December 31, 1995) and are comprised of: $47 million (net of approximately $70 million in anticipated third party recoveries) for environmental remediation and study obligations, most of which relate to former chemical plant sites; $68 million for product liability and other potential claims principally related to the discontinued Construction Equipment group; $72 million for retiree benefits provided to employees of former chemical businesses and the Construction Equipment group; and $4 million related to the sale of FMC Gold Company. FMC Annual Report Notes to Consolidated Financial Statements 43 The company uses actuarial methods, to the extent practicable, to monitor the adequacy of product liability and retiree benefit reserves on an ongoing basis. The environmental liabilities are subject to the environmental accounting and review practices described in Notes 1 and 14. While the amounts required to settle the company's liabilities for discontinued operations could ultimately differ materially from the estimates used as a basis for recording these liabilities, management believes that changes in estimates or required expenditures for any individual cost component will not have a material adverse impact on the company's liquidity or financial condition in any single year and that, in any event, such costs will be satisfied over many years. Spending in 1996, 1995 and 1994, respectively, included $9 million, $11 million and $15 million for environmental, net of recoveries; $8 million, $5 million and $14 million for product liability; and $3 million, $6 million and $6 million for retiree benefits. Restructuring and other charges. FMC recorded pretax restructuring and other charges of $35 million ($20 million after tax, or $0.53 per share) in the third quarter of 1995 covering asset writedowns and related exit liabilities for the expected shift in 1997 of lithium-based production from North Carolina to a new lower-cost, higher-quality mineral resource in Argentina. Charges of $17 million ($10 million after tax, or $0.27 per share) related primarily to asset impairments, and the company recorded $82.5 million ($50.7 million after tax, or $1.34 per share) of additional environmental reserves (Note 14). In addition, FMC wrote off $15.5 million ($0.41 per share) of acquired in-process research and development costs with no associated tax benefit (Note 2), which was charged to research and development expense. Except for environmental reserves (Note 14), remaining accruals related to restructuring and other charges are not significant at December 31, 1996. NOTE 4 INVENTORIES Inventories are recorded at the lower of cost or market value. The current replacement cost of inventories exceeded their recorded values by approximately $310.7 million at December 31, 1996 and $300.1 million at December 31, 1995. Inventories at December 31, 1996 included approximately $388.3 million ($218.8 million at December 31, 1995) of inventoried costs relating to contracts-in-progress. During 1996 and 1995, there were no reductions in LIFO inventories that were carried at lower than prevailing costs. LIFO inventory reductions increased pretax income from continuing operations by $3.7 million in 1994. NOTE 5 FOREIGN CURRENCY Net income for 1996, 1995 and 1994 included aggregate foreign currency gains of $2.3 million and $0.2 million and losses of $11.1 million, respectively. European currencies were mixed against the U.S. dollar in 1996. The Japanese yen and Mexican peso continued their 1995 weakening trend during 1996. The primary component of the 1994 loss of $11.1 million relates to the devaluation of the Mexican peso. The 1996 decrease in the foreign currency translation adjustment component of stockholders' equity was largely due to the sale of the company's minority interest in a Japanese hydrogen peroxide venture (Note 1) as well as smaller amounts related to European currency movements against the U.S. dollar. The 1995 and 1994 increases were primarily attributable to a weaker U.S. dollar in relation to European currencies, particularly the Spanish peseta. The following table presents the foreign currency adjustments to key balance sheet categories and the offsetting adjustment to the foreign currency translation adjustment or to income. Interest earned on foreign cash and cash equivalents and debt service costs is classified as interest income and interest expense, respectively, and is not included in the amounts shown below. In addition, foreign currency impacts on cash and cash equivalents and debt in hyperinflationary economies are netted against interest income and expense and are not shown in the amounts below.
Gains (Losses) - ----------------------------------------------------------- (In millions) 1996 1995 1994 - ----------------------------------------------------------- - ----------------------------------------------------------- Cash and cash equivalents $ 3.2 $ 8.5 $ (4.0) Debt (7.3) (3.1) (5.9) Other working capital 1.7 2.1 4.0 Property, plant & equipment, net (1.3) 15.1 12.7 Investments (17.8) (3.6) 4.4 Other (4.9) (6.7) (6.5) - ----------------------------------------------------------- $(26.4) $12.3 $ 4.7 =========================================================== Foreign currency translation adjustment $(28.7) $12.1 $ 15.8 Gain (loss) in income 2.3 0.2 (11.1) - ----------------------------------------------------------- $(26.4) $12.3 $ 4.7 ===========================================================
44 Notes to Consolidated Financial Statements NOTE 6 FINANCIAL INSTRUMENTS Fair value disclosures. The carrying amounts of cash and cash equivalents, trade receivables, other current assets, accounts payable and amounts included in investments and accruals meeting the definition of a financial instrument approximate fair value. The carrying value and related estimated fair values for the company's remaining financial instruments are as follows:
- -------------------------------------------------------- December 31, 1996 - -------------------------------------------------------- Carrying Estimated (In millions) Amount Fair Value - -------------------------------------------------------- Assets - -------------------------------------------------------- Foreign exchange forward contracts $ -- $ 8.0 Interest rate swap agreement $ -- $ -- - -------------------------------------------------------- Liabilities - -------------------------------------------------------- Total debt $1,834.4 $1,841.1 ========================================================
Fair values of debt have been determined through a combination of management estimates and information obtained from independent third parties using market data, such as bid/ask spreads, available on the last business day of the year. Fair values relating to derivative financial instruments reflect the estimated amounts that the company would receive or pay to terminate the contracts at the reporting date based on quoted market prices of comparable contracts as of December 31, 1996. Derivative financial instruments. The company uses derivative financial instruments selectively to offset exposure to market risks arising from changes in foreign exchange rates and interest rates. Derivative financial instruments currently utilized by the company primarily include foreign currency forward contracts. The company utilizes forward contracts to hedge receivables, payables, intercompany transactions and other known transactional exposures denominated in a currency other than the functional currency of the business. The company also hedges anticipated exposures in certain circumstances where there is substantial assurance that anticipated exposures will materialize. Foreign currency hedging contracts are not taken out to protect the U.S. dollar value of the company's equity in foreign operations. Hedges are executed centrally to minimize transaction costs on currency conversions, monitor consolidated net exposures in all currencies and minimize losses due to adverse changes in foreign currency markets. The company has entered into an interest rate swap agreement under which the company pays fixed-rate British pound amounts in exchange for floating-rate British pound amounts. This swap agreement reduces the company's risk to higher British pound interest rates on sterling-denominated debt. In addition, as of December 31, 1996 and 1995, the company had approximately $411 million and $318 million, respectively, of outstanding foreign exchange forward contracts in which foreign currencies (primarily Belgium franc, British pound, Norwegian krone and Spanish peseta in 1996 and Belgium franc, British pound and Singapore dollar in 1995) were purchased, and approximately $496 million and $459 million, respectively, of outstanding foreign exchange forward contracts and foreign currency swap contracts in which foreign currencies (primarily British pound, Japanese yen, Spanish peseta and Swedish krona in 1996 and Canadian dollar, German mark, French franc, and Japanese yen in 1995) were sold. Cross-currency contracts at December 31, 1996 and 1995 were not significant. Such contracts provide for the exchange of certain European currencies. Foreign exchange contracts mature at the anticipated cash requirement date of the hedged transaction, generally within one year, except for the sale of $11 million of Japanese yen with various maturities through 2003. At December 31, 1996, the majority of outstanding hedges relate to receivables, payables and intercompany transactions. Unrealized gains and losses on hedges of anticipated transactions are included in net income. NOTE 7 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
- ----------------------------------------------------- December 31 - ----------------------------------------------------- (In millions) 1996 1995 - ----------------------------------------------------- Land and land improvements $ 199.6 $ 225.2 Buildings 575.0 563.2 Machinery and equipment 3,154.9 2,841.1 Construction in progress 354.7 299.9 - ----------------------------------------------------- Total cost 4,284.2 3,929.4 Accumulated depreciation 2,324.9 2,223.7 - ----------------------------------------------------- Net property, plant and equipment $1,959.3 $1,705.7 =====================================================
Depreciation expense was $234.0 million, $211.5 million and $205.2 million in 1996, 1995 and 1994, respectively. FMC Annual Report Notes to Consolidated Financial Statements 45 NOTE 8 DEBT Long-term debt. Long-term debt consists of the following:
- --------------------------------------------------------------- December 31 - --------------------------------------------------------------- (In millions) 1996 1995 - --------------------------------------------------------------- Revolving credit facility, effective rate (1996--6.2%; 1995--6.5%)(1) $ -- $ 95.0 Commercial paper, effective rate (1996--5.5%; 1995--5.9%)(2) 390.6 155.0 Uncommitted facilities, effective rate (1996--5.6%)(2) 59.4 -- Notes payable to banks, various rates, due 1997 to 2042 28.4 49.6 Pollution control and industrial revenue bonds, 3.7% to 7.1%, due 1997 to 2024 175.7 178.9 Senior debt, 8-3/4%, due 1999, less unamortized discount (1996--$0.4; 1995--$0.5), effective rate 8.8% 249.6 249.5 Senior debt, 6-3/8%, due 2003, less unamortized discount (1996--$0.7; 1995--$0.9), effective rate 6.4% 199.3 199.1 Senior debt, 7-3/4%, due 2011, less unamortized discount (1996--$1.0), effective rate 7.8% 99.0 -- Exchangeable senior subordinated debentures, 6-3/4%, due 2005 75.0 75.0 Other 1.8 2.1 - --------------------------------------------------------------- Total 1,278.8 1,004.2 Less current portion 10.4 29.8 - --------------------------------------------------------------- Long-term portion $1,268.4 $ 974.4 ===============================================================
(1) The effective rate for the revolving credit facility is based on average balances outstanding during the year and includes facility fees. (2) The effective rates for commercial paper and uncommitted facilities are based on average balances outstanding during the year. In December 1996, the company entered into a $450 million, five-year non-amortizing revolving credit agreement and a $300 million, 364-day non-amortizing revolving credit agreement. These agreements provide the company with $750 million in committed credit facilities, an increase of $250 million from the previously existing credit facilities. At December 31, 1996, no amounts were outstanding under these credit facilities. Among other restrictions, the credit agreements contain covenants relating to liens, consolidated net worth and cash flow coverage (as defined in the agreements). The company is in compliance with all financial debt covenants. Committed credit available under the revolving credit facilities provides management with the ability to refinance a portion of its debt on a long-term basis and, as it is management's intent to do so, $390.6 million in outstanding commercial paper, which is supported by the committed facilities, has been classified as long-term debt at December 31, 1996. In addition, $59.4 million of borrowings under short-term uncommitted facilities has been classified as long-term debt at December 31, 1996. In July 1996, the company issued $100 million of 7.75% Senior Debentures due 2011 pursuant to a $500 million universal shelf registration statement filed in 1995. The net proceeds from the issuance totaled $98.2 million and were used to reduce variable rate short-term debt. In addition, in January 1997, the company registered $400 million of medium-term debt securities under the 1995 universal shelf registration statement. On January 29, 1997 the company issued $45 million of 7.32% notes due February 2007. Proceeds of $44.7 million were used to retire short-term borrowings. The exchangeable senior subordinated debentures bearing interest at 6 3/4% and maturing in 2005 are exchangeable at any time into Meridian Gold Inc. common stock at an exchange price of $15 1/8 per share, subject to adjustment. The company may, at its option, pay an amount equal to the market price of Meridian Gold Inc. common stock in lieu of delivery of the shares. However, the market price at December 31, 1996 was substantially below $15 1/8 per share. The debentures are subordinated in right of payment to all existing and future senior indebtedness of the company. The debentures are redeemable at the option of FMC at prices decreasing from 103 3/8% of face amount on January 16, 1995, to par on January 16, 2000. Aggregate maturities and sinking fund requirements over the next five years are (in millions): 1997-$10.4, 1998-$15.8, 1999-$264.1, 2000-$0.8, 2001-$452.6, and thereafter-$535.1. The 2001 maturities include commercial paper redemptions of $390.6 million. Short-term debt and compensating balance agreements. At December 31, 1996, components of short-term debt were advances under uncommitted facilities and foreign short-term borrowings. In November 1995, the company commenced a short-term commercial paper program, providing for the issuance of up to $500 million in aggregate maturity value of commercial paper at any given time. Two-day to 30-day commercial paper with an aggregate maturity value of $390.6 million was outstanding at December 31, 1996. As described above, the outstanding balance at December 31, 1996 was classified as long-term debt. At December 31, 1995, $155 million and $120 million of outstanding commercial paper were classified as long-term debt and short-term debt, respectively. 46 Notes to Consolidated Financial Statements Advances under uncommitted facilities were $360 million and $201 million in 1996 and 1995, respectively. As described above, $59 million of the outstanding balance at December 31, 1996 was classified as long-term debt. FMC maintains informal credit arrangements in many foreign countries. Foreign lines of credit, which include overdraft facilities, typically do not require the maintenance of compensating balances, as credit extension is not guaranteed but is subject to the availability of funds. Outstanding foreign short-term borrowings totaled $255 million and $100 million at December 31, 1996 and 1995, respectively. The weighted average interest rates on outstanding foreign short-term borrowings at December 31, 1996 and 1995 were 9.7% and 12.1%, respectively. The average interest rates have been adjusted for currency devaluation associated with borrowing in hyperinflationary countries. NOTE 9 INCOME TAXES Domestic and foreign components of income from continuing operations before income taxes are shown below:
- -------------------------------------------- Year ended December 31 - -------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------- Domestic $187.2 $143.5 $182.5 Foreign 135.4 109.7 79.2 - -------------------------------------------- Total $322.6 $253.2 $261.7 ============================================
The provision for income taxes attributable to continuing operations consists of:
- ---------------------------------------------- Year ended December 31 - ---------------------------------------------- (In millions) 1996 1995 1994 - ---------------------------------------------- Current: Federal $ 19.4 $ 23.9 $ 31.3 Foreign 28.6 14.4 21.6 State and local 4.5 1.1 2.3 - ---------------------------------------------- Total current 52.5 39.4 55.2 Deferred 52.0 (3.7) 30.3 - ---------------------------------------------- Total income taxes $104.5 $ 35.7 $ 85.5 ==============================================
Total income tax provisions (benefits) for the years ended December 31 were allocated as follows:
- --------------------------------------------------------------------- (In millions) 1996 1995 - --------------------------------------------------------------------- Continuing operations $104.5 $ 35.7 Discontinued operations (27.7) (4.4) Items charged directly to stockholders' equity (7.8) (3.7) - --------------------------------------------------------------------- Income tax expense $ 69.0 $ 27.6 =====================================================================
Significant components of the deferred income tax provision (benefit) attributable to income from continuing operations before income taxes are as follows:
- --------------------------------------------------------------------- (In millions) 1996 1995 - --------------------------------------------------------------------- Deferred tax (exclusive of the valuation allowance) $ 57.3 $ (7.4) Increase (decrease) in the valuation allowance for deferred tax assets (5.3) 3.7 - --------------------------------------------------------------------- Deferred income tax expense (benefit) $ 52.0 $ (3.7) =====================================================================
Significant components of the company's deferred tax assets and liabilities as of December 31 are as follows:
- --------------------------------------------------------------------- (In millions) 1996 1995 - --------------------------------------------------------------------- Accrued pension and other postretirement benefits $103.6 $109.9 Reserves for discontinued operations and restructuring 98.6 105.4 Other reserves 110.6 107.2 Net operating loss carryforwards 22.7 33.0 Alternative minimum tax credit carryforwards 46.0 51.0 Other 14.0 15.9 - --------------------------------------------------------------------- Deferred tax assets 395.5 422.4 Valuation allowance (13.3) (42.8) - --------------------------------------------------------------------- Deferred tax assets, net of valuation allowance $382.2 $379.6 - --------------------------------------------------------------------- Property, plant and equipment $214.2 $204.4 Other 6.0 5.6 - --------------------------------------------------------------------- Deferred tax liabilities $220.2 $210.0 ===================================================================== Net deferred tax assets $162.0 $169.6 =====================================================================
FMC Annual Report Notes to Consolidated Financial Statements 47 As of December 31, 1996, the company has prepaid $46.0 million of alternative minimum tax. These prepayments represent credits that are available in future years to offset regular taxes to the extent regular taxes exceed alternative minimum tax. In conjunction with the sale of FMC Gold Company during 1996, the Company reversed $24.2 million of valuation allowance related to certain deferred tax assets arising from the Precious Metals business. The effective income tax rate applicable to income from continuing operations before income taxes is less than the statutory U.S. federal income tax rate due to the factors listed in the following table:
- ---------------------------------------------------------------- (Percent of income from continuing operations before income taxes) Year ended December 31 - ---------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------- Statutory U.S. tax rate 35% 35% 35% - ---------------------------------------------------------------- Net increase (decrease): Foreign sales corporation income not subject to U.S. tax (2) (2) (3) Percentage depletion (4) (5) (5) State and local income taxes, less federal income tax benefit 3 1 4 Foreign earnings subject to different tax rates (1) (2) (1) Tax on intercompany dividends and deemed dividends for tax purposes 2 2 3 Sale of a minority interest in FMC Wyoming not taxed -- (15) -- Additional taxes on sale of investment 3 -- -- Equity in earnings of affiliates not taxed (3) (2) (2) Change in valuation allowance (1) -- (1) Other -- 2 3 - ---------------------------------------------------------------- Total decrease (3) (21) (2) - ---------------------------------------------------------------- Effective tax rate 32% 14% 33% ================================================================
The effective tax rate of 32 percent in 1996 includes taxes provided on the sale of the company's investment in Tokai Denka Kogyo (Note 1). The effective tax rate excluding this event was 29 percent. The effective tax rate for 1995 of 14 percent includes the impact of restructuring and other charges (Note 3) and the nontaxable gain on the sale of FMC Wyoming stock (Note 2). The effective rate excluding these events was 29 percent. FMC's federal income tax returns for years through 1989 have been examined by the Internal Revenue Service and have been settled. Management believes that adequate provision for income taxes has been made for the open years 1990 and after. U.S. income taxes have not been provided for the equity in undistributed earnings of foreign consolidated subsidiaries ($430.4 million and $367.2 million at December 31, 1996 and 1995, respectively) or unconsolidated subsidiaries and affiliates ($19.9 million and $49.5 million at December 31, 1996 and 1995, respectively). Restrictions on the distribution of these earnings are not significant. Foreign earnings taxable to the company as dividends were $45.5 million, $24.3 million and $66.2 million in 1996, 1995 and 1994, respectively. NOTE 10 INCENTIVE COMPENSATION PLANS The 1995 Management Incentive Plan (the Incentive Plan) and the 1995 Stock Option Plan (the Option Plan), approved by the stockholders on April 21, 1995, provide certain incentives and awards to key employees. The plans are administered by the Compensation and Organization Committee of the Board of Directors (the Committee) which, subject to the provisions of the plans, reviews and approves financial targets, times and conditions for payment. The Incentive Plan provides for the grant of multi-year incentive awards payable partly in cash and partly in stock. The Option Plan (and its predecessor plans) provide for regular grants of stock options which may be incentive and/or nonqualified stock options. The exercise price for options is not less than the fair market value of the stock at the date of grant. Options are exercisable at the time designated by the Committee in the option (four years for grants prior to 1995 and three years for grants during 1995 and 1996). Incentive options expire not later than 10 years from the grant date. Nonqualified options expire not later than 15 years from the grant date (10 years for grants prior to 1990), although the Committee may extend the expiration date of any nonqualified stock option upon such terms and conditions as the Committee shall determine. Under the plans adopted in 1995, 3 million shares became available for awards and options granted in 1995 and later years. These shares are in addition to the shares available from the predecessor plans. Cancellation (through expiration, forfeiture or otherwise) of outstanding awards and options granted after 1989 increases the shares available for future awards or grants. At December 31, 1996, 2,543,950 shares were available for future use under these plans. The company has adopted the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Option Plan. Had compensation cost for the Option Plan been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123, the 48 Notes to Consolidated Financial Statements resulting reduction in the company's net income and earnings per share for the years ended December 31, 1996 and 1995 would not have been significant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0% for both years; expected volatility of 17.8% and 22.5%; risk-free interest rates of 6% and 6.9%; and expected lives of 5 years for both grants. The following summary shows stock option activity for the three years ended December 31, 1996:
- ------------------------------------------------------- Number of Weighted- Shares Average (Number of shares Optioned But Exercise Price in thousands) Not Exercised per Share - ------------------------------------------------------- December 31, 1993 (777 shares exercisable) 2,466 $32.41 Granted 852 $46.25 Exercised (341) $23.16 Forfeited (89) $44.54 - ------------------------------------------------------- December 31, 1994 (1,141 shares exercisable) 2,888 $37.21 Granted 372 $58.71 Exercised (210) $25.62 Forfeited (66) $47.07 - ------------------------------------------------------- December 31, 1995 (1,092 shares exercisable) 2,984 $40.49 Granted 520 $70.93 Exercised (457) $27.67 Forfeited (121) $51.73 - ------------------------------------------------------- December 31, 1996 (1,200 shares exercisable) 2,926 $47.44 =======================================================
The weighted-average fair value of stock options granted during the years ended December 31, 1996 and 1995, calculated using the Black-Scholes option-pricing model, was $21.51 and $21.00, respectively. The following tables summarize information about fixed-priced stock options outstanding at December 31, 1996:
- -------------------------------------------------------------------- Options Outstanding - -------------------------------------------------------------------- Weighted- Weighted- Number Average Average Range of Outstanding at Remaining Exercise Exercise December 31, 1996 Contractual Life Price Prices (in thousands) (in years) per Share - -------------------------------------------------------------------- $17.63-$31.13 764 6.4 $29.05 $45.00-$46.38 1,338 11.5 $46.15 $59.63-$65.00 334 13.1 $59.81 $71.13-$79.00 490 9.2 $71.26 - -------------------------------------------------------------------- Total 2,926 9.9 $47.44 ====================================================================
- ---------------------------------------------------------------- (Number of shares in thousands) Options Exercisable - ---------------------------------------------------------------- Number Range of Exercisable at Weighted-Average Exercise Prices December 31, 1996 Exercise Price per Share - ---------------------------------------------------------------- $17.63-$31.13 764 $29.05 $46.38 436 $46.38 - ---------------------------------------------------------------- Total 1,200 $35.36 - ----------------------------------------------------------------
On January 2, 1997 an additional 208,150 shares became exercisable at prices of $45.00 and $46.25 with expiration dates of February 18, 2008 and March 31, 2009. Under a plan adopted in 1995, discretionary awards of restricted stock may be made to selected employees. The awards vest over a period designated by the Committee, with payment conditional based on continued employment. Compensation cost is recognized over the vesting period based on the market value of the stock on the date of the award. Compensation cost recognized in 1996 was approximately $1.6 million. Under the FMC Deferred Stock Plan for Nonemployee Directors, a portion of the annual retainer for these directors was deferred and paid in the form of shares of the company's common stock upon retirement or other termination of their directorships. At December 31, 1996, stock units representing an aggregate of 17,045 shares of stock were credited to the nonemployee directors' accounts. Effective January 1, 1997, the Board approved a comprehensive FMC Annual Report Notes to Consolidated Financial Statements 49 compensation plan to terminate the retirement plan for directors and increase the proportion of director compensation paid in common stock of the company. Each current director has been given the opportunity to receive the benefits provided for in the old plan limited to service tenure through April 30, 1997, or convert those benefits into stock units payable in shares of common stock of the company upon retirement from the Board based on the fair market value of the common stock at the end of 1996. NOTE 11 STOCKHOLDERS' EQUITY The following is a summary of FMC's capital stock activity over the past three years:
- ------------------------------------------------ Common Treasury (In thousands) stock stock - ------------------------------------------------ Balance December 31, 1993 36,473 292 Stock options exercised 341 Stock repurchases 6 - ------------------------------------------------ Balance December 31, 1994 36,814 298 Stock options exercised 210 2 - ------------------------------------------------ Balance December 31, 1995 37,024 300 Stock options exercised 457 (2) Stock repurchases 2 - ------------------------------------------------ Balance December 31, 1996 37,481 300 ================================================
At December 31, 1996, 5,568,900 shares of unissued FMC common stock were reserved for stock options and awards. Covenants of the revolving credit facility agreement (Note 8) contain minimum net worth and other requirements. No dividends are expected to be paid on the company's common stock in 1997. On February 22, 1986, the Board of Directors of the company declared a dividend distribution to each recordholder of common stock as of March 7, 1986, of one Preferred Share Purchase Right for each share of common stock outstanding on that date. Each right entitles the holder to purchase, under certain circumstances related to a change in control of the company, one one-hundredth of a share of Junior Participating Preferred Stock, Series A, without par value, at a price of $300 per share (subject to adjustment), subject to the terms and conditions of a Rights Agreement dated February 22, 1986 as amended through February 9, 1996. The rights expire on March 7, 2006, unless redeemed by the company at an earlier date. The redemption price of $.05 per right is subject to adjustment to reflect stock splits, stock dividends or similar transactions. The company has reserved 400,000 shares of Junior Participating Preferred Stock for possible issuance under the agreement. NOTE 12 RETIREMENT PLANS FMC has retirement plans for substantially all domestic employees and certain employees in other countries. Plans covering salaried employees provide pension benefits based on years of service and an average of the highest 60 consecutive months of compensation during the last 120 months of consecutive employment. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The company's funding policy is to make contributions based on the projected unit credit actuarial cost method and to limit contributions to amounts that are currently deductible for tax reporting purposes. As a result of acquisitions (described in Note 2), the 1996 and 1995 net pension cost and plan funded amounts include salaried and hourly retirement plans of Frigoscandia (1996 only), Moorco International Inc. and Jetway Systems. The following table summarizes the assumptions used and the components of the domestic net pension cost (benefit):
- ------------------------------------------------------------ Year ended December 31 - ------------------------------------------------------------ Assumptions: 1996 1995 1994 - ------------------------------------------------------------ Weighted average discount rate 8.0% 8.0% 8.0% Rates of increase in future compensation levels 5.0% 5.0% 5.0% Weighted average expected long-term asset return 9.4% 9.3% 9.3% - ------------------------------------------------------------ Components (in millions): - ------------------------------------------------------------ Service cost of benefits earned $ 27.1 $ 25.0 $ 25.5 Interest cost on projected benefit obligation 67.0 60.2 55.5 Actual return on plan assets-- investment (gains) losses (134.8) (210.5) 2.6 Net amortization and deferral: Net transition asset amortization (23.7) (23.7) (23.7) Prior service cost amortization 4.9 5.0 5.2 Net loss (gain) amortization 0.9 3.1 (2.3) Net asset gain (loss) deferred 60.8 143.1 (72.8) - ------------------------------------------------------------ Net pension cost (benefit) $ 2.2 $ 2.2 $(10.0) ============================================================
50 Notes to Consolidated Financial Statements Net pension cost (benefit) for 1996, 1995 and 1994 includes charges of $1.6 million, $4.7 million and $2.4 million, respectively, related to a restructuring program initiated by FMC in 1993. The funded status of the plans and accrued pension benefits recognized in the company's consolidated financial statements as of December 31 are as follows: - ---------------------------------------------------------- (In millions) 1996 1995 - ---------------------------------------------------------- Actuarial present value of benefits for service rendered to date: Accumulated benefit obligation based on salaries to date, including vested benefits of $730.5 in 1996 and $663.8 in 1995 $ (776.6) $(708.3) Additional benefits based on estimated future salary levels (131.6) (117.6) - ---------------------------------------------------------- Projected benefit obligation (908.2) (825.9) Plan assets at fair value(1) 1,027.5 920.4 - ---------------------------------------------------------- Projected benefit obligation less than plan assets 119.3 94.5 Unrecognized net (gain) (127.8) (94.5) Unrecognized prior service cost 22.8 20.7 Unrecognized net transition asset (102.3) (126.0) - ---------------------------------------------------------- Accrued pension benefits $ (88.0) $(105.3) ========================================================== (1) Primarily equities, bonds and participating annuities. The financial impact of compliance with SFAS No. 87 for non-U.S. pension plans is not materially different from the locally reported pension expense. The cost of providing those pension benefits for foreign employees was $9.5 million in 1996, $8.6 million in 1995 and $6.3 million in 1994. Employees' Thrift and Stock Purchase Plans. The FMC Employees' Thrift and Stock Purchase Plan is a qualified salary-reduction plan under Section 401(k) of the Internal Revenue Code in which all salaried and non-union hourly employees of the company may participate by contributing a portion of their compensation. The company matches contributions up to specified percentages of each employee's compensation depending on profits and fund elections. In addition, the company also matched the contributions in the UDLP Salaried Employees' Plan, the UDLP York Plan and the Moorco International Savings Plan, which have provisions similar to the FMC plan. Charges against income for FMC's matching contributions, net of forfeitures, were $22.5 million in 1996, $20.3 million in 1995 and $18.8 million in 1994. NOTE 13 POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS FMC provides retiree health care and life insurance benefits for substantially all domestic employees. There are no significant plans for international employees. Employees generally become eligible for retiree benefits when they meet minimum retirement age and service requirements. The cost of providing most of these benefits is shared with retirees. The company has reserved the right to change or eliminate these benefit plans. The company funds a trust for retiree health and life benefits for the Defense Systems segment. Funding is based on amounts in negotiated government defense contracts, in conformity with Federal Cost Accounting Standards. During 1996, the company's medical contributions for certain hourly employees were capped. The change, effective January 1, 1996, reduced the company's benefit obligation by $9.0 million, amortizable over the remaining years of service to full eligibility. As a result, postretirement expense in 1996 was reduced by $2.0 million. The effect of 1996, 1995 and 1994 business combinations on the company's net periodic postretirement benefit or cost and on accrued postretirement benefits was not significant. For measurement purposes, the assumed rate of future increases in per capita cost of health care benefits was 10 percent in 1996 and 1995, decreasing gradually to 6 percent by the year 2001 and assumed to remain at that level thereafter. The health care cost trend rate assumption has a significant effect on amounts recorded. Increasing the health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation by approximately $5.4 million and would increase annual service and interest costs by $0.6 million. FMC Annual Report Notes to Consolidated Financial Statements 51 The following table summarizes the assumptions used and the components of net periodic postretirement benefit cost (income):
- ------------------------------------------------------------- Year ended December 31 - ------------------------------------------------------------- Assumptions: 1996 1995 1994 - ------------------------------------------------------------- Weighted average discount rate 8.0% 8.0% 8.0% Weighted average expected long-term asset return 9.0% 9.0% 9.0% - ------------------------------------------------------------- Components (in millions): - ------------------------------------------------------------- Service cost of benefits earned $ 3.5 $ 4.2 $ 4.2 Interest cost on accumulated postretirement benefit obligation 13.4 13.5 13.3 Actual return on plan assets-- investment (gain) loss (4.9) (4.5) 0.4 Net amortization and deferral: Plan amendment amortization (8.7) (15.2) (7.7) Net loss (gain) amortization 0.1 (0.6) (0.6) Net asset gain (loss) deferred 2.0 2.1 (2.5) - ------------------------------------------------------------- Net periodic postretirement benefit cost (income) $ 5.4 $ (0.5) $ 7.1 =============================================================
The accrued postretirement benefits recognized in the company's consolidated financial statements and the funded status of the plan as of December 31 are as follows:
- ----------------------------------------------------------- (In millions) 1996 1995 - ----------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees $(110.8) $ (98.4) Fully eligible active participants (18.0) (24.0) Other active participants (49.3) (59.1) - ----------------------------------------------------------- APBO (178.1) (181.5) Plan assets at fair value(1) 38.6 32.2 - ----------------------------------------------------------- APBO obligation in excess of plan assets (139.5) (149.3) Unamortized plan amendments (58.7) (58.0) Unrecognized net gain (8.2) (8.4) - ----------------------------------------------------------- Accrued postretirement benefits $(206.4) $(215.7) ===========================================================
(1) Primarily equities and fixed income securities As part of restructuring and downsizing, the company recognized a one-time curtailment gain of $7.6 million in 1995 which is included in plan amendment amortization ($7.0 million) and in net gain amortization ($0.6 million). NOTE 14 ENVIRONMENTAL FMC is subject to various federal, state and local environmental laws and regulations that govern emissions of air pollutants, discharges of water pollutants, and the manufacture, storage, handling and disposal of hazardous substances, hazardous wastes and other toxic materials. The most significant environmental liabilities of the company consist of obligations relating to the remediation and/or study of sites at which the company is alleged to have disposed of hazardous substances. In particular, the company is subject to liabilities arising under CERCLA and similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances and on current and previous owners and operators of a facility for the cleanup of hazardous substances released from the facility into the environment. In addition, the company is subject to liabilities under the corrective action provisions of the Resource, Conservation and Recovery Act ("RCRA") and analogous state laws that require owners and operators of facilities that treat, store or dispose of hazardous waste to clean up releases of hazardous waste constituents into the environment associated with past or present practices. The company has been named a PRP at 33 sites on the government's National Priority List. In addition, the company also has received notice from the EPA or other regulatory agencies that the company may be a PRP, or PRP equivalent, at other sites, including 39 sites at which the company has determined that it has a reasonably possible environmental liability. The company, in cooperation with appropriate government agencies, is currently participating in, or has participated in, RI/FS or their equivalent at most of the identified sites, with the status of each investigation varying from site to site. At certain sites, RI/FS have just begun, providing limited information, if any, relating to cost estimates, timing, or the involvement of other PRPs; whereas, at other sites, the studies are complete, remedial action plans have been chosen, or Records of Decision have been issued. At December 31, 1996 and 1995, reserves were provided for potential environmental obligations which management considers probable and for which a reasonable estimate of the obligation could be made. Accordingly, reserves of $264 million and $302 million, before recoveries, have been provided at December 31, 1996 and 1995, respectively, of which $117 million and $132 million are included in the reserve for discontinued operations at December 31, 1996 and 1995, respectively. The company's total environmental reserves include approximately $242 million and $270 million for remediation activities and $22 million and $32 million for remedial investigation/feasibility study costs at December 31, 1996 and 1995, respectively. In addition, the company has estimated reasonably possible environmental loss contingencies may exceed amounts accrued by as much as $150 million at December 31, 1996. An environmental inspection was conducted in July 1993 at FMC's Phosphorus Chemicals Division plant in Pocatello, Idaho. In August 1994, the United States EPA (Region 10) (the "EPA") formally notified FMC of a number of alleged violations of the RCRA and related environmental regulations governing 52 Notes to Consolidated Financial Statements the management of hazardous waste generated by the plant, including the operations of hazardous waste storage and treatment units without interim status, the failure to submit timely closure plans, the failure to implement an adequate groundwater monitoring program and to comply with related reporting requirements and the existence of several other improper treatment and disposal practices. Although there are no legal proceedings pending at this time, FMC has been advised that the matter has been referred to the United States Department of Justice for an evaluation of whether to file a civil enforcement action. If such a civil action is filed, the government is likely to demand both injunctive relief and civil penalties. FMC is seeking to settle this matter in advance of litigation. Management believes that the ultimate resolution of this matter will not likely have a material adverse effect on FMC's liquidity, results of operations or financial condition. In a separate matter, the EPA issued a draft risk assessment on August 17, 1995 for the Eastern Michaud Flats Superfund site, which includes FMC's Pocatello phosphorus facility, identifying potential risks from contamination potentially associated with FMC. Release of the Risk Assessment allowed FMC to complete a draft of the Remedial Investigation documenting the nature and extent of contamination from the site. The company submitted its draft Remedial Investigation to the EPA on September 28, 1995. The EPA is expected to issue remediation requirements in the latter half of 1997. FMC added $58 million in the third quarter of 1995 to its existing reserves of approximately $22 million for future environmental remediation costs at the Eastern Michaud Flats site. In addition, $25 million was provided during the third quarter of 1995 related to other sites where additional information became available which indicated the need for increased accruals. Although potential environmental remediation expenditures in excess of the current reserves and estimated loss contingencies could be significant, the impact on the company's future financial results is not subject to reasonable estimation due to numerous uncertainties concerning the nature and scope of contamination at many sites, identification of remediation alternatives under constantly changing requirements, selection of new and diverse clean-up technologies to meet compliance standards, the timing of potential expenditures, and the allocation of costs among PRPs as well as other third parties. The liability arising from potential environmental obligations that have not been reserved for at this time may be material to any one quarter's or year's results of operations in the future. Management, however, believes the liability arising from the potential environmental obligations is not likely to have a material adverse effect on the company's liquidity or financial condition and may be satisfied over the next 20 years or longer. To ensure FMC is held responsible only for its equitable share of site remediation costs, FMC has initiated, and will continue to initiate, legal proceedings for contributions from other PRPs, and for a determination of coverage against its comprehensive general liability insurance carriers. The Supreme Court of California has determined that FMC's clean-up costs are insured damages under its liability insurance policies, subject to a determination of the application of certain policy exclusions and conditions. Approximately $115 million of recoveries ($45 million as other assets and $70 million as an offset to the reserve for discontinued operations) and approximately $140 million of recoveries ($56 million as other assets and $84 million as an offset to the reserve for discontinued operations), have been recorded as probable realization on claims against insurance companies and other third parties at December 31, 1996 and 1995, respectively. The majority of recorded assets related to recoveries from PRPs are associated with existing contractual arrangements with U.S. government agencies. Regarding current operating sites, the company spent approximately $22 million, $17 million and $17 million for the years 1996, 1995 and 1994, respectively, on capital projects relating to environmental control facilities, and expects to spend additional capital of approximately $34 million and $27 million in 1997 and 1998, respectively. Additionally, in 1996, 1995, and 1994, FMC spent approximately $60 million, $53 million and $54 million, respectively, for environmental compliance costs. Regarding current operating, previously operated (including discontinued operations) and other sites for the years 1996, 1995 and 1994, FMC charged approximately $22 million, $14 million and $18 million, respectively, against established reserves for remediation spending, and charged approximately $12 million, $12 million and $13 million, respectively, against reserves for spending on RI/FS. Recoveries from third parties of approximately $13 million, $5 million and $5 million, respectively, were received in 1996, 1995 and 1994. FMC anticipates that the expenditures for current operating, previously operated and other sites will continue to be significant for the foreseeable future. NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES FMC leases office space, plants and facilities, and various types of manufacturing, data processing and transportation equipment. Capital leases are not significant. Total rent expense under operating leases amounted to $58.5 million, $63.0 million and $62.3 million in 1996, 1995 and 1994, respectively. Minimum future rentals under noncancellable leases aggregated approximately $315 million as of December 31, 1996 and are estimated to be payable as follows: $51 million in 1997, $44 million in 1998, $38 million in 1999, $32 million in 2000, $30 million in 2001 and $120 million thereafter. The real estate leases generally provide for payment of property taxes, insurance and repairs by FMC. Effective January 1, 1994, FMC and Harsco Corporation ("Harsco") combined certain assets and liabilities of FMC's Defense Systems Group and Harsco's BMY Combat Systems Division. The combined company, United Defense, L.P. ("UDLP"), operates as a limited partnership, with FMC as the managing general partner with a 60 percent equity interest and Harsco as the limited partner holding a 40 percent equity interest. The limited partnership agreement between the partners of UDLP provides options under which FMC may purchase, or Harsco may require the purchase of, Harsco's ownership interest based on an appraised value as provided in the agreement. These options are exercisable at any time after February 1, 1996. The company also has certain other contingent liabilities resulting from litigation, claims, performance guarantees, and other commitments incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect the financial position or results of operations of FMC. FMC Annual Report Notes to Consolidated Financial Statements 53 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders, FMC Corporation: We have audited the accompanying consolidated balance sheets of FMC Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. With respect to information as of December 31, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1996, we did not audit the financial statements of United Defense, L.P., which statements reflect total assets constituting 13% in 1996 and 1995 and total revenues constituting 21%, 22% and 27%, in 1996, 1995 and 1994, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for United Defense, L.P., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of the other auditors, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of FMC Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Chicago, Illinois January 17, 1997 MANAGEMENT REPORT ON FINANCIAL STATEMENTS The consolidated financial statements and related information have been prepared by management, which is responsible for the integrity and objectivity of that information. Where appropriate, they reflect estimates based on judgments of management. The statements have been prepared in conformity with accounting principles generally accepted in the United States and are generally consistent with standards issued by the International Accounting Standards Committee. Financial information included elsewhere in this annual report is consistent with that contained in the consolidated financial statements. FMC maintains a system of internal control over financial reporting and over safeguarding of assets against unauthorized acquisition, use or disposition which is designed to provide reasonable assurance as to the reliability of financial records and the safeguarding of such assets. The system is maintained by the selection and training of qualified personnel, by establishing and communicating sound accounting and business policies, and by an internal auditing program that constantly evaluates the adequacy and effectiveness of such internal controls, policies and procedures. The Audit Committee of the Board of Directors, composed of directors who are not officers or employees of the company, meets regularly with management, with the company's internal auditors, and with its independent auditors to discuss their evaluation of internal accounting controls and the quality of financial reporting. Both independent auditors and the internal auditors have free access to the Audit Committee to discuss the results of their audits. The company's independent auditors have been engaged to render an opinion on the consolidated financial statements. They review and make appropriate tests of the data included in the financial statements. As independent auditors, they also provide an objective, outside review of management's performance in reporting operating results and financial condition. /s/ Michael J. Callahan /s/ Ronald D. Mambu Michael J. Callahan Ronald D. Mambu Executive Vice President Vice President and Chief Financial Officer and Controller Chicago, Illinois January 17, 1997 54 Reports on Financial Statements DIRECTORS AND OFFICERS BOARD OF DIRECTORS Robert N. Burt 1,5 Chairman of the Board and Chief Executive Officer Larry D. Brady 4 President B. A. Bridgewater, Jr. 1,2,5 Chairman of the Board, President and Chief Executive Officer, Brown Group, Inc. Patricia A. Buffler 3,4 Dean, Professor of Epidemiology, School of Public Health, University of California, Berkeley Albert J. Costello 2 Chairman, President and Chief Executive Officer, W.R. Grace & Co. Paul L. Davies, Jr. 1,2 President, Lakeside Corporation, a private real estate investment company Jean A.Francois-Poncet 4 Member of the French Senate Pehr G. Gyllenhammar 3 Senior Advisor, Lazard Freres & Co., Inc., former Managing Director and Chief Executive Officer, AB Volvo Robert H. Malott 1,5 Chairman of the Executive Committee; Retired Chairman of the Board and Chief Executive Officer, FMC Corporation Edward C. Meyer 1,4,5 Chairman, GRC International, Inc., former Chief of Staff, United States Army William F. Reilly 2,3 Chairman and Chief Executive Officer, K-III Communications Corporation James R. Thompson 4,5 Former Governor of Illinois; Chairman, Chairman of the Executive Committee, and Partner Law Firm of Winston & Strawn Clayton Yeutter 3,4 Of Counsel, Hogan & Hartson, former U.S. Trade Representative, and former Secretary, U.S. Department of Agriculture - ------------------------------------------------- 1 Executive Committee 2 Compensation and Organization Committee 3 Audit Committee 4 Public Policy Committee 5 Nominating and Board Procedures Committee OFFICERS Robert N. Burt * Chairman of the Board and Chief Executive Officer Larry D. Brady * President William F. Beck * Executive Vice President Michael J. Callahan * Executive Vice President and Chief Financial Officer William J. Kirby * Senior Vice President J. Paul McGrath * Senior Vice President and General Counsel Alfredo Bernad Vice President; President, FMC Europe Patricia D. Brozowski Vice President Communications Charles H. Cannon, Jr.* Vice President; General Manager Food Machinery Group Robert L. Day Corporate Secretary and Assistant General Counsel Robert J. Fields Vice President Environment, Health, Safety and Toxicology W. Reginald Hall * Vice President; General Manager Specialty Chemicals Group Robert I. Harries * Vice President; General Manager Chemical Products Group Patrick J. Head * Vice President Henry Kahn * Vice President and Treasurer Ronald D. Mambu * Vice President and Controller James A. McClung * Vice President Worldwide Marketing Michael W. Murray Vice President Human Resources Joseph H. Netherland * Vice President; General Manager Energy and Transportation Equipment Group Thomas W. Rabaut * Vice President; President and Chief Executive Officer United Defense, L.P. Harold S. Russell Vice President Government Affairs William H. Schumann* Vice President; General Manager Agricultural Products Group Peter E. Weber Vice President; President FMC Latin America/ Middle East/Africa William J. Wheeler * Vice President Chemical Development *Executive Officer FMC Annual Report 55 TEN-YEAR FINANCIAL SUMMARY (In millions, except share, per share, employee and stockholder data)
1996 1995 1994 - ---------------------------------------------------------------------------------------- SUMMARY OF EARNINGS - ---------------------------------------------------------------------------------------- Total revenue $5,080.6 4,507.7 3,989.3 - ---------------------------------------------------------------------------------------- Restructuring and other charges(1) $ -- 150.0 -- - ---------------------------------------------------------------------------------------- Total costs and expenses(1) $4,608.1 4,220.9 3,609.2 - ---------------------------------------------------------------------------------------- Income from continuing operations before interest, minority interest, gain on sale of FMC Wyoming stock and taxes(1) $ 472.5 286.8 380.1 - ---------------------------------------------------------------------------------------- Gain on sale of FMC Wyoming stock (2) $ -- 99.7 -- - ---------------------------------------------------------------------------------------- Income from continuing operations before income taxes(1)(2) $ 322.6 253.2 261.7 Provision (benefit) for income taxes 104.5 35.7 85.5 - ---------------------------------------------------------------------------------------- Income from continuing operations(3) 218.1 217.5 176.2 Discontinued operations, net of taxes (7.4) (1.9) (2.8) - ---------------------------------------------------------------------------------------- Income before extraordinary items and cumulative effect of change in accounting principle(3) 210.7 215.6 173.4 Extraordinary items, net of taxes -- -- -- Cumulative effect of change in accounting principle, net of taxes -- -- -- - ---------------------------------------------------------------------------------------- Net income (loss)(3) $ 210.7 215.6 173.4 - ---------------------------------------------------------------------------------------- Total dividends $ -- -- -- - ---------------------------------------------------------------------------------------- SHARE DATA Average number of shares used in earnings per share computations (thousands) 38,058 37,721 37,195 Earnings (loss) per share: Continuing operations(3) $ 5.73 5.77 4.73 Discontinued operations (0.19) (0.05) (0.07) Extraordinary items -- -- -- Cumulative effect of change in accounting principle -- -- -- - ---------------------------------------------------------------------------------------- Net income (loss)(3) $ 5.54 5.72 4.66 - ---------------------------------------------------------------------------------------- After-tax income per share from continuing operations before special income and expense items(4) $ 5.73 5.68 4.73 - ---------------------------------------------------------------------------------------- FINANCIAL POSITION AT YEAR-END Total assets $4,989.8 4,232.5 3,272.0 Long-term debt (less current portion) $1,268.4 974.4 901.2 Stockholders' equity (deficit) $ 855.8 653.5 416.5 OTHER DATA Income from continuing operations as a return on investment 11.8% 15.4 17.5 Capital expenditures $ 533.0 525.0 297.9 Provision for depreciation $ 234.0 211.5 205.2 Employees at year-end 22,048 21,961 21,159 Stockholders of record at year-end 11,339 11,844 12,438 - ----------------------------------------------------------------------------------------
(1) Includes pretax restructuring and other charges of $134.5 million in 1995 and $122.5 million in 1993, and a write-off of acquired in-process research and development of $15.5 million in 1995. (2) Includes a nontaxable gain on the sale of FMC Wyoming stock of $99.7 million in 1995. (3) Includes after-tax restructuring and other charges, a write-off of acquired in-process research and development and a gain on the sale of FMC Wyoming stock of $3.5 million, net, after tax in 1995 ($0.09 per share); and restructuring and other charges of $(73.5) million after tax in 1993 ($(1.99) per share). (4) Supplemental financial information. Should not be considered in isolation nor as an alternative for net income determined in accordance with generally accepted accounting principles, or as the sole measure of the company's profitability. Excludes after-tax restructuring and other charges, a write-off of acquired in-process research and development and a gain on the sale of FMC Wyoming stock of $3.5 million, net, after tax in 1995 ($0.09 per share); and restructuring and other charges of $(73.5) million after tax in 1993 ($(1.99) per share). 56 Ten Year Financial Summary
1993 1992 1991 1990 1989 1988 1987 ----------------------------------------------------------------------- SUMMARY OF EARNINGS - ---------------------------------------------------------------------------------------------------------------------------------- Total revenue 3,663.2 3,832.9 3,769.1 3,581.7 3,257.1 3,152.2 3,035.1 - ---------------------------------------------------------------------------------------------------------------------------------- Restructuring and other charges(1) 122.5 -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses(1) 3,520.2 3,503.0 3,427.3 3,315.7 2,989.9 2,896.1 2,791.7 - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before interest, minority interest, gain on sale of FMC Wyoming stock and taxes(1) 143.0 329.9 341.8 266.0 267.2 256.1 243.4 - ---------------------------------------------------------------------------------------------------------------------------------- Gain on sale of FMC Wyoming stock (2) -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes(1)(2) 80.5 246.8 229.0 136.2 122.4 102.0 149.8 Provision (benefit) for income taxes (3.0) 78.2 73.1 33.7 33.6 34.9 (0.8) - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations(3) 83.5 168.6 155.9 102.5 88.8 67.1 150.6 Discontinued operations, net of taxes (42.5) (49.2) 17.2 52.8 68.0 62.1 40.6 - ---------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary items and cumulative effect of change in accounting principle(3) 41.0 119.4 173.1 155.3 156.8 129.2 191.2 Extraordinary items, net of taxes (4.7) (11.4) (9.2) -- (20.4) -- (10.7) Cumulative effect of change in accounting principle, net of taxes -- (183.7) -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss)(3) 36.3 (75.7) 163.9 155.3 136.4 129.2 180.5 - ---------------------------------------------------------------------------------------------------------------------------------- Total dividends -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- SHARE DATA Average number of shares used in earnings per share computations (thousands) 36,943 36,796 36,267 36,075 36,006 35,860 42,108 Earnings (loss) per share: Continuing operations(3) 2.26 4.58 4.30 2.84 2.46 1.87 3.58 Discontinued operations (1.15) (1.34) 0.47 1.46 1.89 1.73 0.96 Extraordinary items (0.13) (0.31) (0.25) -- (0.56) -- (0.25) Cumulative effect of change in accounting principle -- (4.99) -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss)(3) 0.98 (2.06) 4.52 4.30 3.79 3.60 4.29 - ---------------------------------------------------------------------------------------------------------------------------------- After-tax income per share from continuing operations before special income and expense items(4) 4.25 4.58 4.30 2.84 2.46 1.87 3.58 - ---------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION AT YEAR-END Total assets 2,770.8 2,770.1 2,697.1 2,885.3 2,783.7 2,721.5 2,576.3 Long-term debt (less current portion) 749.8 843.4 928.6 1,158.6 1,325.6 1,468.0 1,380.2 Stockholders' equity (deficit) 216.9 219.0 309.8 149.6 (70.6) (223.6) (343.2) OTHER DATA Income from continuing operations as a return on investment 11.7 18.7 17.1 14.1 14.0 13.7 13.8 Capital expenditures 225.9 295.4 196.5 304.5 257.2 166.3 151.9 Provision for depreciation 196.7 206.4 195.3 191.0 181.9 184.7 187.7 Employees at year-end 20,458 21,655 22,677 23,382 23,822 24,070 24,526 Stockholders of record at year-end 13,180 14,487 14,959 17,451 18,151 19,155 20,231 - ----------------------------------------------------------------------------------------------------------------------------------
FMC Annual Report Ten Year Financial Summary 57 MAJOR OPERATING UNITS PERFORMANCE CHEMICALS Agricultural Products Specialty Chemicals Food Ingredients Lithium Pharmaceutical Process Additives BioProducts INDUSTRIAL CHEMICALS Chemical Products Active Oxidants Alkali Chemicals FMC Foret, S.A. Peroxygen Chemicals Phosphorus Chemicals MACHINERY AND EQUIPMENT Energy and Transportation Equipment Crosby Valve Energy Transportation and Measurement Petroleum Equipment and Systems Smith Meter SOFEC Thermal Products Airport Products and Systems Material Handling Systems Food Machinery Agricultural Machinery Citrus Systems Food Processing Systems Food Systems and Handling Freezer DEFENSE SYSTEMS United Defense, L.P. Armament Systems Ground Systems International Steel Products EXECUTIVE OFFICES FMC Corporation 200 E. Randolph Drive Chicago, Illinois 60601 Internet: www.fmc.com SUBSIDIARIES AND AFFILIATES IN OTHER NATIONS Argentina FMC Argentina, S.A. Minera Del Altiplano, S.A. Australia FMC (Australia), Ltd. Frigoscandia Equipment Pty. Ltd. Austria FMC Chemikalien Handelsgesellschaft m.b.H. Bangladesh FMC International A.G. Barbados Moorco Foreign Sales Corp. UD United Defense International Sales Corporation Belgium FMC Europe N.V. Bermuda UDLP Components, Limited Brazil CBV Industria Mecanica, S.A. Crosby Valve & Gage Participacoes Ltda. FMC do Brasil, Ltda. Frigoscandia Equipment Ltda. Jetway Systems Equipamentos Aeroportuarios Ltda. Canada FMC of Canada, Ltd. FMC Offshore Canada Inc. Crosby Valve Ltd. Chile FMC Corporation, Inc. Chile Limitada Minera FMC Limitada China FMC Asia Pacific Inc. FMC Hong Kong Limited Fu Mei-Shi Crop Care Company, Ltd. Huzou FMC Chemical Company, Ltd. Colombia FMC Latino America, S.A. Czech Republic FMC Czechiasro Denmark FMC A/S Frigoscandia Equipment A/S Egypt FMC International, A.G. France FMC Europe, S.A. FMC Food Machinery FMC France S.A. FMC Overseas, S.A. Frigoscandia Equipment S.A. Gabon FMC Gabon, S.A.R.L. Germany FMC G.m.b.H. Frigoscandia Equipment G.m.b.H. Jetway G.m.b.H. F.A. Sening G.m.b.H. Smith Meter G.m.b.H. Greece FMC Hellas, EPE FMC International, A.G. Guatemala FMC Guatemala, S.A. Hong Kong FMC Asia Pacific, Inc. FMC Hong Kong Ltd. Friendship Minerals and Chemicals, Ltd. India FMC Sanmar Limited FMC Asia Pacific, Inc. Indonesia FMC Hong Kong Limited P.T. Bina Guna Kimia Indonesia P.T. FMC Santana Petroleum Equipment Indonesia Ireland FMC International, A.G. Italy FMC Food Machinery Italy, S.p.A. FMC Packaging Machinery, S.p.A. Frigoscandia Equipment S.r.l. Sandei S.r.l. Japan Asia Lithium Corporation FMC Asia Pacific, Inc. Honjo-FMC Energy Systems, Inc. L.H. Company, Ltd. Frigoscandia, K.K. Kenya FMC International, A.G. Korea FMC Korea Limited UDLP International, Inc. Malaysia FMC Wellhead Equipment, Bhd. FMC Petroleum Equipment (Malaysia) Sdn. Bhd. UDLP International, Inc. Mexico Electro Quimica Mexicana, S.A. de C.V. E.M.D., S.A. de C.V. EPN Arval S.A. de C.V. Fabricacion, Maquinaria y Ceras, S.A. de C.V. FMC Agroquimica de Mexico S. de R.L. de C.V. FMC Ingrediantes Alimenticios Netherlands FMC Fluid Control (Nederland) B.V. FMC Industrial Chemicals (Netherlands), B.V. Norway Kongsberg Offshore, A/S Oman FMC ETEG & Partners LLC Pakistan FMC International, S.A. FMC United (Private) Ltd. Panama FMC Latino America S.A. Philippines FMC International, S.A. Marine Colloids (Philippines) Inc. Poland FMC Corporation Poland Russia A/O FMC Overseas A/O FMC Siberia Petroleum Equipment Saudi Arabia FMC Arabia Singapore Crosby Valve Pte. Ltd. FMC Singapore Pte. Ltd. FMC Southeast Asia Pte., Ltd. Frigoscandia Equipment Pte. Ltd Slovak Republic FMC Slovakia S.R.D South Africa FMC (South Africa)(Proprietary) Ltd. Spain FMC Airline Equipment Europe, S.A. FMC Spain, S.A. FMC Foret, S.A. Forel S.L. Forsean, S.A. Frigoscandia Equipment Iberica S.A. Peroxidos Organicos, S.A. Sibelco Espanola, S.A. Valentin Herraiz, S.A. Sweden Frigoscandia Equipment Holding AB Frigoscandia Equipment AB Frigoscandia Equipment International AB Frigoscandia Equipment Norden AB Frigoscandia Freezer AB Potato Processing Machinery AB Switzerland FMC International, A.G. Taiwan UDLP International, Inc. Thailand FMC Thailand Ltd. Thai Peroxide Company, Ltd. Turkey FMC-Nurol Savunma Sanayii A.S. Ukraine FMC Kiev FMC International, A.G. United Arab Emirates FMC International, S.A. (Dubai) United Kingdom FMC Corporation (UK), Ltd. Frigoscandia Equipment Ltd. Lewis Freezing Systems Ltd. Potato Processing Machinery Ltd. SOFEC, Ltd. (UK) Uruguay Lanfor Investment, S.A. Venezuela Tripoliven, C.A. FMC Wellhead de Venezuela, S.A. Virgin Islands FMC International Sales Corporation 58 STOCKHOLDER DATA ANNUAL MEETING OF STOCKHOLDERS FMC's annual meeting of stockholders will be held at 2 p.m. on Friday, April 18, 1997, at 200 E. Randolph Drive, Chicago. Notice of the meeting, together with proxy material, will be mailed approximately 40 days prior to the meeting to stockholders of record as of February 27, 1997. TRANSFER AGENT AND REGISTRAR OF STOCK Harris Trust and Savings Bank P.O. Box 755 Chicago, Illinois 60690 Questions concerning FMC common stock should be sent to the above address. STOCK EXCHANGE LISTING New York Stock Exchange Pacific Stock Exchange Chicago Stock Exchange STOCK EXCHANGE SYMBOL FMC FORM 10-K A copy of the company's annual report to the Securities and Exchange Commission on Form 10-K for 1996 is available upon written request to: FMC Corporation Communications Department 200 E. Randolph Drive Chicago, Illinois 60601 However, most information required under Parts II and III of Form 10-K has been incorporated by reference to the annual report to stockholders or the proxy statement. FMC was incorporated in Delaware in 1928. Italicized brand names used throughout this report are trademarks of FMC Corporation or its subsidiaries. (C) 1997 FMC Corporation. FMC Annual Report 59 FMC FMC Corporation 200 East Randolph Drive Chicago, Illinois 60601 EX-21 5 LIST OF SIGNIFICANT SUBSIDIARIES OF REGISTRANT EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES OF REGISTRANT December 31, 1996
Percent of Organized Voting Under Securities Company(1) Laws of Owned(2) - ------- ------- ----- FMC Corporation Delaware Registrant FMC Corporation (UK) Limited England 100 FMC Europe, S.A. France 100 FMC Wyoming Corporation Delaware 80 Food Machinery Holding Company B.V. Spain 100 Foret, S.A. Spain 100 Frigoscandia Equipment Holding AB Sweden 100 Intermountain Research & Development Wyoming 100 Corporation FMC Do Brasil Ltda. Brazil 100 FMC International, A.G. Switzerland 100 Kongsberg Offshore, A/S Norway 100 Minera Del Altiplano S.A. Argentina 100 Moorco International Inc. Delaware 100 United Defense, L.P. Delaware 60
- -------------------- (1) The names of various active and inactive subsidiaries have been omitted. Such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. (2) With respect to certain companies, qualifying shares in names of directors are included in these percentages. Percentages shown for indirect subsidiaries reflect the percentage of voting securities owned by the parent subsidiary. EX-23.1 6 CONSENTS OF AUDITORS-KPMG PEAT MARWICK LLP Exhibit 23.1 Consent of KPMG Peat Marwick LLP The Board of Directors FMC Corporation: We consent to incorporation by reference in Registration Statement Nos. 33-7749, 33-10661 and 333-18383 on Form S-8 and Registration Statement Nos. 33-45648 and 33-62415 on Form S-3 of FMC Corporation and consolidated subsidiaries of our report dated January 17, 1997, relating to the consolidated balance sheets of FMC Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three-year period ended December 31, 1996 which report is incorporated by reference in the December 31, 1996 annual report on Form 10-K of FMC Corporation and consolidated subsidiaries. /s/ KPMG Peat Marwick LLP Chicago, Illinois March 24, 1997 EX-23.3 7 CONSENTS OF AUDITORS-ERNST & YOUNG LLP EXHIBIT 23.3 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of FMC Corporation and in the related Prospectuses of our report dated January 15, 1997 with respect to the financial statements of United Defense, L.P. included in this Annual Report (Form 10-K) for the year ended December 31, 1996: Form S-3 Registration Statement (Registration No. 33-62415) Form S-3 Registration Statement (Registration No. 33-45648) Form S-8 Registration Statement (Registration No. 33-10661) Form S-8 Registration Statement (Registration No. 33-7749) Form S-8 Registration Statement (Registration No. 333-18383) /s/ Ernst & Young LLP ---------------------------------------- ERNST & YOUNG LLP Washington, D.C. March 20, 1997 EX-24 8 POWERS OF ATTORNEY Exhibit 24 FMC Corporation Executive Offices 200 East Randolph Drive Chicago, Illinois 60601 312 861 6000 [LOGO] POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: WHEREAS, FMC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the year ended December 31, 1996 under the Securities and Exchange Act of 1934, as amended; and WHEREAS, the undersigned holds and may hereafter from time to time hold one or more positions in the Corporation whether as an Officer, a Director, or both, such that the undersigned may be required or permitted in such capacity or capacities, or on behalf of the Corporation, to sign one or more of such documents; NOW, THEREFORE, the undersigned hereby constitutes and appoints M.J. Callahan, J.P. McGrath, R.L. Day and C.M. Smith or any of them, his attorney for him or her and in his or her name, place and stead, and in each of his or her offices and capacities in the Company as may now or hereafter exist, to sign and file said Form 10-K and any and all amendments, schedules and exhibits thereto, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of the 14th day of February, 1997. ----------------------------------------- EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from FMC Corporation Form 10-K for the year ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 75 0 1013 11 835 2193 4284 2325 4990 2021 1268 0 0 4 852 4990 4970 5081 3726 3726 0 0 103 323 105 218 (7) 0 0 211 5.54 0 Income from continuing operations before income taxes includes minority interests of 57 for December 31, 1996. Minority interests are primarily limited partner's share of partnership profits for which tax has not been provided.
EX-99 10 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Exhibit 99 Report of Ernst & Young LLP, Independent Auditors Partners United Defense, L.P. We have audited the accompanying balance sheets of United Defense, L.P. as of December 31, 1996 and 1995, and the related statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Defense, L.P. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Washington, DC January 15, 1997 -----END PRIVACY-ENHANCED MESSAGE-----