UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from-------- to---------
Commission File Number 1-16489
FMC Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-4412642
----------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Randolph Drive, Chicago, Illinois 60601
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(312) 861-6000
------------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
----- -----
Indicate the number of shares outstanding of each of the
Issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at June 30, 2001
--------------------------------------- ---------------------------------
Common Stock, par value $0.01 per share 65,000,000
PAGE 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Statements of Income (Unaudited)
----------------------------------------------------------
(In millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
-------------- --------------
2001 2000 2001 2000
------ ------ ------ ------
Revenue $478.1 $495.4 $907.5 $937.3
Costs and expenses:
Cost of sales or services 368.5 368.7 702.3 708.7
Selling, general and
administrative expense 71.6 77.1 144.4 151.8
Research and development expense 16.1 14.6 29.2 28.9
Asset impairments (Note 8) - 1.5 1.3 1.5
Restructuring and other
charges (Note 8) - 9.8 9.2 9.8
------ ------ ------ ------
Total costs and expenses 456.2 471.7 886.4 900.7
------ ------ ------ ------
Income before interest income,
interest expense, income taxes,
and the cumulative effect of a
change in accounting principle 21.9 23.7 21.1 36.6
Minority interests 0.5 (0.1) 0.6 (0.1)
Interest income 0.9 0.1 1.4 1.2
Interest expense 2.7 0.8 4.3 1.8
------ ------ ------ ------
Income before income taxes and
the cumulative effect of a change
in accounting principle 19.6 23.1 17.6 36.1
Provision for income taxes 9.4 4.8 11.0 8.2
------ ------ ------ ------
Income before the cumulative effect
of a change in accounting
principle 10.2 18.3 6.6 27.9
Cumulative effect of a change in
accounting principle, net of
income taxes (Note 5) - - (4.7) -
------ ------ ------ ------
Net income $ 10.2 $ 18.3 $ 1.9 $ 27.9
====== ====== ====== ======
(continued)
PAGE 3
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Statements of Income (Unaudited)(Continued)
---------------------------------------------------------------------
(In millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------- ----------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Pro forma basic earnings per
common share:
Income before cumulative
effect of a change in
accounting principle $0.16 $ 0.10
Cumulative effect of a
change in accounting
principle - (0.07)
----- ------
Pro forma net earnings per
common share $0.16 $ 0.03
===== ======
Average number of shares
used in pro forma basic
earnings per share
computations 65.0 65.0
===== ======
Pro forma diluted earnings
per common share:
Income before cumulative
effect of a change in
accounting principle $0.15 $ 0.10
Cumulative effect of a
change in accounting
principle - (0.07)
----- ------
Pro forma net earnings per
common share $0.15 $ 0.03
===== ======
Average number of shares
used in pro forma diluted
earnings per share
computations 66.2 65.7
===== ======
The accompanying notes are an integral part of the consolidated and combined
financial statements.
PAGE 4
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
(In millions, except share and per share data)
June 30
2001 December 31
Assets: (Unaudited) 2000
---------- --------
Current assets:
Cash and cash equivalents $ 11.5 $ 17.8
Trade receivables, net of allowances
of $7.6 in 2001 and $7.2 in 2000 355.6 328.9
Inventories 277.8 254.8
Other current assets 89.1 62.0
Deferred income taxes 26.6 29.8
-------- --------
Total current assets 760.6 693.3
Investments 26.6 29.9
Property, plant and equipment, net (Note 6) 254.5 257.3
Goodwill and intangible assets 350.7 373.1
Other assets 15.7 12.0
Deferred income taxes - 8.1
-------- --------
Total assets $1,408.1 $1,373.7
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Short-term debt (Note 10) $ 82.7 $ 41.1
Accounts payable, trade and other 340.2 328.3
Accrued and other current liabilities 182.5 153.2
Payable to FMC Corporation 52.2 -
Current portion of accrued pension and
other postretirement benefits 4.7 13.2
Income taxes payable to FMC Corporation 36.8 34.0
-------- --------
Total current liabilities 699.1 569.8
Long-term debt (Note 10) 180.7 -
Accrued pension and other postretirement
benefits, less current portion 61.5 59.2
Reserves for discontinued operations 27.7 30.6
Deferred income taxes 2.4 -
Other liabilities 71.8 75.9
Minority interests in consolidated companies 3.1 0.5
Stockholders' equity:
Preferred stock, $0.01 par value, authorized
12,000,000 shares; no shares issued in
2001 or 2000 - -
Common stock, $0.01 par value, 195,000,000 and
1,000 shares authorized in 2001 and 2000;
65,000,000 and 1,000 shares issued
and outstanding in 2001 and 2000 (Note 12) 0.7 -
Capital in excess of par value of common stock 504.9 -
Owner's net investment - 752.0
Retained earnings 9.5 -
Accumulated other comprehensive loss (153.3) (114.4)
-------- --------
Total stockholders' equity 361.8 637.6
-------- --------
Total liabilities and stockholders' equity $1,408.1 $1,373.7
======== ========
The accompanying notes are an integral part of the consolidated and combined
financial statements.
PAGE 5
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Statements of Cash Flows (Unaudited)
--------------------------------------------------------------
(In millions)
Six Months
Ended June 30
----------------
2001 2000
------ ------
Cash provided (required) by operating activities
of continuing operations:
Income before the cumulative effect of a
change in accounting principle $ 6.6 $ 27.9
Adjustments to reconcile income before the
cumulative effect of a change in accounting
principle to cash provided (required) by operating
activities of continuing operations:
Depreciation and amortization 30.9 29.3
Asset impairments (Note 8) 1.3 1.5
Restructuring and other charges (Note 8) 9.2 9.8
Settlement of derivative contracts (3.8) -
Deferred income taxes 13.7 (0.1)
Other 4.4 5.3
Changes in operating assets and liabilities:
Trade receivables 9.0 (26.4)
Net sale (repurchase) of securitized receivables (38.0) 0.2
Inventories (30.6) 19.3
Other current assets and other assets (23.2) (14.8)
Accounts payable, accrued and other
current liabilities and other liabilities 6.4 (62.4)
Income taxes payable 3.3 12.1
Restructuring reserve (7.4) 9.0
Accrued pension and other
postretirement benefits, net (9.1) (2.4)
------ ------
Cash provided (required) by operating activities
of continuing operations $(27.3) $ 8.3
------ ------
(continued)
PAGE 6
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Statements of Cash Flows (Unaudited)(Continued)
-------------------------------------------------------------------------
(In millions)
Six Months
Ended June 30
--------------------
2001 2000
------- ------
Cash provided (required) by operating activities
of continuing operations $ (27.3) $ 8.3
------- ------
Cash required by discontinued operations (2.9) (2.5)
------- ------
Cash provided (required) by investing
activities:
Acquisitions of businesses (2.6) (45.4)
Capital expenditures (27.6) (18.9)
Proceeds from disposal of property,
plant and equipment and sale-leasebacks 6.6 21.4
Decrease in investments 12.3 17.4
------- ------
Cash required by investing activities (11.3) (25.5)
------- ------
Cash provided (required) by financing activities:
Net increase (decrease) in short-term debt 41.6 (1.6)
Proceeds from issuance of long-term debt (Note 2) 250.0 -
Repayments of long-term debt (69.3) -
Issuances of common stock (Note 2) 207.2 -
Net contributions from FMC Corporation (Note 3) 86.3 7.6
Payments to FMC Corporation (Note 2) (480.1) -
------- ------
Cash provided by financing activities 35.7 6.0
------- ------
Effect of exchange rate changes on cash
and cash equivalents (0.5) 1.9
------- ------
Decrease in cash and cash equivalents (6.3) (11.8)
Cash and cash equivalents, beginning of period 17.8 40.1
------- ------
Cash and cash equivalents, end of period $ 11.5 $ 28.3
======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest was $5.8 million and 2.4 million, and net cash paid
(refunded) for income taxes was $3.5 million and $(3.2) million for the six-
month periods ended June 30, 2001 and 2000, respectively.
The accompanying notes are an integral part of the consolidated and combined
financial statements.
PAGE 7
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Consolidated and Combined Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------
(Unaudited)
Accumulated
Capital other
Common in excess Retained Owner's net comprehensive Comprehensive
(In millions) stock of par earnings investment income (loss) income (loss)
------- --------- -------- ----------- ------------- -------------
Balance at December 31,
1999 $ - $ - $ - $ 802.0 $ (79.8)
Net income - - - 9.6 - $ 9.6
Foreign currency
translation
adjustment - - - - (8.0) (8.0)
Contribution from
owner (Note 3) - - - 30.0 - -
---- ------ ---- ------- ------- ------
$ 1.6
======
Balance at March 31,
2000 - - - 841.6 (87.8)
Net income - - - 18.3 - $ 18.3
Foreign currency
translation
adjustment - - - - (10.5) (10.5)
Distribution to owner
(Note 3) - - - (22.4) - -
---- ------ ---- ------- ------- ------
$ (7.8)
Balance at June 30, ======
2000 $ - $ - $ - $ 837.5 $ (98.3)
==== ======= ==== ======= =======
Balance at December 31,
2000 $ - $ - $ - $ 752.0 $(114.4)
Net loss - - - (8.3) - $ (8.3)
Foreign currency
translation
adjustment - - - - (9.9) (9.9)
Contribution from
owner (Note 3) - - - 35.5 - -
Net deferral of
hedging
losses - - - - (1.3) (1.3)
Cumulative effect of a
change in accounting
principle (Note 5) - - - - (1.3) (1.3)
---- ------ ---- ------- ------- ------
$(20.8)
======
Balance at March 31,
2001 - - - 779.2 (126.9)
Net income (Note 3) - - 9.5 0.7 $ 10.2
Issuance of common
stock to FMC
Corporation
(Note 12) 0.6 297.8 - (298.4) - -
Sale of common stock
to public (Note 2) 0.1 207.1 - - - -
Return of capital to
FMC Corporation
(Note 2) - - - (488.1) - -
Accrual of additional
payment to FMC
Corporation
(Note 2) - - - (35.7) - -
Foreign currency
translation
adjustment - - - - (23.6) (23.6)
Contribution from
owner (Note 3) - - - 42.3 - -
Net deferral of
hedging losses - - - - (2.8) (2.8)
---- ------ ---- ------- ------- ------
$(16.2)
======
Balance at June 30,
2001 $0.7 $504.9 $9.5 $ - $(153.3)
==== ====== ==== ======= =======
The accompanying notes are an integral part of
the consolidated and combined financial statements.
PAGE 8
FMC Technologies, Inc. and Consolidated Subsidiaries
----------------------------------------------------
Notes to Consolidated and Combined Financial Statements (Unaudited)
-------------------------------------------------------------------
Note 1: Nature of Organization and Business
--------------------------------------------
On October 31, 2000, FMC Corporation (FMC) announced its intention to reorganize
its Energy Production Systems, Energy Processing Systems, FoodTech and Airport
Systems businesses as a new company, FMC Technologies, Inc. (FMC Technologies or
the Company), and to sell up to 19.9% of FMC Technologies' common stock by means
of an initial public offering (the offering). On June 14, 2001, FMC Technologies
completed an initial public offering of 17.0% of FMC Technologies' common stock.
FMC Corporation further advised FMC Technologies that it plans to distribute its
remaining holdings in FMC Technologies in a tax-free transaction by the end of
calendar year 2001.
FMC Technologies was incorporated in Delaware on November 13, 2000 and is
currently an 83.0%-owned subsidiary of FMC Corporation. FMC Technologies
designs, manufactures and services technologically sophisticated systems and
products for its customers through its Energy Production Systems, Energy
Processing Systems, FoodTech and Airport Systems segments. Energy Production
systems is a leading supplier of systems and services used in the offshore,
particularly deepwater, exploration and production of crude oil and natural gas.
Energy Processing Systems is a leading provider of specialized systems and
products to customers involved in the production, transportation and processing
of crude oil, natural gas and refined petroleum-based products. FoodTech is a
leading supplier of technologically sophisticated food handling and processing
systems and products to industrial food processing companies. Airport Systems
provides technologically advanced equipment and services for airlines, airports
and air freight companies.
Note 2: Formation Transactions
--------------------------------
Through May 31, 2001, FMC Corporation operated the businesses of FMC
Technologies as internal units of FMC Corporation through various divisions and
subsidiaries, or through investments in unconsolidated affiliates. On June 1,
2001, FMC Corporation contributed to the Company substantially all of the assets
and liabilities of, and its interests in, the businesses included in these
consolidated and combined financial statements, with the remainder transferred,
or to be transferred, shortly thereafter.
On June 4, 2001, FMC Technologies borrowed $280.9 million under two revolving
debt agreements (Note 10), and on June 19, 2001, FMC Technologies received
proceeds of $207.2 million from an initial public offering of 17% of its common
stock. Under the terms of the Separation and Distribution Agreement (the SDA)
between FMC Corporation and FMC Technologies, in exchange for the assets
contributed by FMC Corporation to FMC Technologies, FMC Technologies remitted
$480.1 million of the proceeds of the debt and equity financings to FMC
Corporation in June 2001 and retained $8.0 million of proceeds to cover the
estimated expenses of the initial public offering (which will be adjusted to
reflect actual expenses at a later date).
Under the terms of the SDA, FMC Technologies expects to pay an additional $52.2
million to FMC Corporation, which we have accrued as of June 30, 2001. This
additional payment incorporates a "true-up" of factors included in the
determination of our initial distribution to FMC Corporation based on our cash
flow and existing debt and cash as of May 31, 2001, as well as other net
intercompany balances due to FMC.
Note 3: Basis of Presentation
------------------------------
The Company's financial statements prior to January 1, 2001, reflect the
combined results of our businesses. The Company's financial statements for all
periods in 2001 are presented on a consolidated basis as if our net assets had
been contributed, and our 65 million capital shares had been outstanding since
January 1, 2001. Our capital structure in 2000 (Note 12) was not indicative of
our new capital structure (subsequent to the transactions discussed in Note 2)
and, accordingly, historical earnings per share information has not been
presented for any periods in 2000.
PAGE 9
FMC Technologies' combined financial statements for periods prior to June 1,
2001, were carved out from the consolidated financial statements of FMC
Corporation using the historical results of operations and bases of the assets
and liabilities of the transferred businesses, and give effect to certain
allocations of expenses from FMC Corporation. Such expenses represent costs
related to general and administrative services that FMC Corporation has provided
to FMC Technologies, including accounting, treasury, tax, legal, human
resources, information technology and other corporate and infrastructure
services. The costs of these services have been allocated to FMC Technologies
and included in the Company's combined financial statements based upon the
relative levels of use of those services. The expense allocations have been
determined on the basis of assumptions and estimates that management believes to
be a reasonable reflection of FMC Technologies' utilization of those services.
These allocations and estimates, however, are not necessarily indicative of the
costs and expenses that would have resulted if FMC Technologies had operated as
a separate entity in the past, or of the costs the Company may incur in the
future.
The financial statements of FMC Technologies for all periods in 2000 included
herein reflect the combined results of the businesses as if they had been
contributed to the Company for all periods. Subsequent to the contribution, all
of the businesses included in these combined financial statements are or will be
consolidated subsidiaries or divisions of the Company, or will be investments of
the Company or its subsidiaries.
Prior to June 1, 2001, the Company's cash resources were managed under a
centralized system wherein receipts were deposited to the corporate accounts of
FMC Corporation and disbursements were centrally funded. Accordingly,
settlement of certain assets and liabilities arising from common services or
activities provided by FMC Corporation and certain related-party transactions
were reflected as net equity contributions from or distributions to FMC
Corporation through May 31, 2001. Beginning June 1, 2001, the Company began
retaining its own earnings and generally began managing its cash separately from
FMC Corporation.
The combined financial statements do not reflect the debt or interest expense
FMC Technologies would have incurred if it were a stand-alone entity. In
addition, the combined financial statements may not be indicative of the
Company's combined financial position, operating results or cash flows in the
future or what the Company's financial position, operating results and cash
flows would have been had FMC Technologies been a separate, stand-alone entity
during all periods presented. The combined financial statements do not reflect
any changes that will occur in the Company's funding or operations as a result
of the offering, the distribution and FMC Technologies becoming a stand-alone
entity.
Note 4: Financial Information and Accounting Policies
------------------------------------------------------
The consolidated balance sheet of FMC Technologies as of June 30, 2001, the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the interim periods ended June 30, 2001, and the
combined statements of income, cash flows and changes in stockholders' equity
for the interim periods ended June 30, 2000 have been reviewed by FTI's
independent accountants. The review is described more fully in their report
included herein. In the opinion of management, these consolidated and combined
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States applicable to interim period financial
statements and reflect all adjustments necessary for a fair statement of the
Company's results of operations, cash flows and changes in stockholders' equity
for the interim periods ended June 30, 2001 and 2000 and of its financial
position as of June 30, 2001. All such adjustments are of a normal recurring
nature. The results of operations for the three-month and six-month periods
ended June 30, 2001 and 2000 are not necessarily indicative of the results of
operations for the full year.
PAGE 10
The Company's accounting policies as of June 30, 2001 are the same as those set
forth in Note 3 to the Company's combined December 31, 2000 financial
statements, which are included in the Company's Registration Statement on
Form S-1, as amended.
Note 5: Derivative Financial Instruments
-----------------------------------------
On January 1, 2001, the Company implemented, on a prospective basis, Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 137 and SFAS No. 138
(collectively, the Statement.) The Statement requires us to recognize all
derivatives in our consolidated balance sheets at fair value, with changes in
the fair value of derivative instruments to be recorded in current earnings or
deferred in other comprehensive income, depending on whether a derivative is
designated as and is effective as a hedge and on the type of hedging
transaction. In accordance with the provisions of the Statement, we recorded a
first-quarter 2001 loss from the cumulative effect of a change in accounting
principle of $4.7 million, net of an income tax benefit of $3.0 million, in our
statement of earnings, and a deferred loss of $1.3 million, net of an income tax
benefit of $0.9 million, in accumulated other comprehensive loss. The 2001 cash
outflow related to contracts settled as a result of SFAS No. 133 of $3.8 million
is reported separately in the consolidated statement of cash flows.
Hedge ineffectiveness and the portion of derivative gains or losses excluded
from assessments of hedge effectiveness, related to our outstanding cash flow
hedges and which were recorded to earnings during the six months and quarter
ended June 30, 2001, were less than $0.1 million. At June 30, 2001, the net
deferred hedging loss in accumulated other comprehensive loss was $5.4 million,
of which approximately $4.1 million of net losses are expected to be recognized
in earnings during the twelve months ended June 30, 2002, at the time the
underlying hedged transactions are realized, and of which net losses of $1.3
million are expected to be recognized at various times subsequent to June 30,
2002 and continuing through November 30, 2009.
Note 6: Property, Plant and Equipment
--------------------------------------
Property, plant and equipment comprised the following, in millions:
June 30
2001 December 31
(Unaudited) 2000
----------- -----------
Property, plant and equipment, at cost $ 588.9 $ 584.1
Accumulated depreciation (334.4) (326.8)
------- -------
Net property, plant and equipment $ 254.5 $ 257.3
======= =======
Note 7: Business Combinations and Divestitures
-----------------------------------------------
On February 16, 2000, the Company acquired York International Corporation's
Northfield Freezing Systems Group (Northfield) for $39.8 million in cash and the
assumption of certain liabilities. Northfield, headquartered in Northfield, MN,
is a manufacturer of freezers, coolers and dehydrators for the industrial food
processing industry. The Company has recorded goodwill (to be amortized over 40
years) and other intangible assets totaling $41.6 million relating to the
acquisition. Northfield's operations are included in the FoodTech segment.
The Company also completed several smaller acquisitions, divestitures and joint
venture investments during the six months ended June 30, 2000 and 2001.
Note 8: Asset Impairments and Restructuring and Other Charges
--------------------------------------------------------------
In the first quarter of 2001, FMC Technologies recorded an asset impairment and
restructuring charges of $10.5 million before taxes ($6.5 million after tax).
An asset impairment of $1.3 million was required to write off goodwill
associated with a small FoodTech product line, which the Company does not intend
to develop further. Restructuring charges were $9.2 million, of which $5.2
million related to planned reductions in force of 91 individuals in the Energy
Processing Systems businesses, $2.5 million related to planned reductions in
force of 72 positions in the FoodTech businesses, and $1.5 million related to a
planned plant closing and
PAGE 11
restructuring of an Airport Systems facility, including 73 planned workforce
reductions. Restructuring spending of $5.1 million related to the 2001 programs
occurred during the six months ended June 30, 2001.
In the second quarter of 2000, FMC Technologies recorded asset impairments and
restructuring and other nonrecurring charges totaling $11.3 million before taxes
($6.9 million after tax). Asset impairments of $1.5 million were required to
write down certain Energy Production Systems equipment, as estimated future cash
flows attributed to these assets indicated that an impairment of the assets had
occurred. Restructuring and other nonrecurring charges were $9.8 million, of
which $8.0 million resulted primarily from strategic decisions to restructure
certain FoodTech operations, and included planned reductions in force of 236
individuals. Restructuring charges of $1.4 million at Energy Production Systems
included severance costs related to planned reductions in force of 68
individuals as a result of the delay in orders received from oil and gas
companies for major systems. Restructuring charges of $0.4 million related to a
corporate reduction in force. Restructuring spending under these programs
totaled $7.0 million in 2000 and $3.0 million in 2001, and all programs were
substantially completed by March 31, 2001. The additional required charge of
$0.2 million for these programs was included in restructuring costs recognized
in the first quarter of 2001.
Note 9: Inventories
--------------------
Inventories consisted of the following:
(In millions) June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
Raw materials and purchased parts $ 94.3 $ 112.0
Work in progress 124.1 120.8
Manufactured parts and finished goods 166.0 124.6
-------- -------
Gross inventory before valuation
adjustments and LIFO reserves 384.4 357.4
Valuation adjustments and LIFO reserves (106.6) (102.6)
-------- -------
Net inventory $ 277.8 $ 254.8
======== =======
Note 10: Debt
--------------
Because FMC Corporation has historically funded most of its businesses
centrally, third-party debt and cash for operating companies was minimal prior
to June 2001 and is not representative of what the Company's actual debt
balances would have been had the Company been a separate, stand-alone entity.
In June 2001, the Company entered into a $250 million five-year credit agreement
and a $150 million 364-day revolving credit facility. At June 30, 2001, long-
term debt of $180.7 million consisted of $180.0 million in borrowings against
the five-year facility and $0.7 million of foreign borrowings. Among other
restrictions, the credit agreements contain covenants relating to tangible net
worth and debt to earnings and interest coverage ratios (as defined in the
agreements). The Company is in compliance with all debt covenants at June 30,
2001.
At June 30, 2001, short-term debt included $35.9 million of borrowings under the
364-day facility and $15.0 million of borrowings from an uncommitted domestic
daily credit facility. At June 30, 2001 and December 31, 2000, short-term debt
also included third-party debt of FMC Technologies' foreign operations of $7.2
million and $14.0 million, respectively. The weighted average interest rates on
these outstanding borrowings were approximately 8.8% and 8.4% at June 30, 2001
and December 31, 2000, respectively. In addition, at June 30, 2001 and December
31, 2000, respectively, short-term debt included $24.6 million and $26.9 million
of borrowings from MODEC International LLC, a 37.5%-owned joint venture, at
interest rates of 5.9% and 7.2%.
Note 11: Income Taxes
----------------------
The Company's income tax provision for the three and six months ended June 30,
2001, respectively, includes nonrecurring charges of $4.2 million and
PAGE 12
$7.5 million related to reorganization of FMC Corporation's entities and
repatriation of a portion of FMC Technologies' foreign earnings in preparation
for the Company's separation from FMC Corporation.
The operating results of FMC Technologies have been included in FMC
Corporation's U.S. consolidated income tax returns and the state and foreign tax
returns of FMC Corporation and its domestic affiliates. In certain instances,
income of domestic subsidiaries of FMC Technologies is reported on separate
state income tax returns of the domestic subsidiaries. In addition, operating
results of foreign operations of FMC Technologies have been included in the tax
returns of foreign affiliates of FMC Corporation. As long as FMC Corporation
continues to own at least 80% of the voting power and value of FMC Technologies'
outstanding capital stock, FMC Technologies will continue to be included in the
U.S. consolidated income tax returns of FMC Corporation and certain state and
foreign income tax returns of FMC Corporation and its affiliates.
The provision for income taxes in FMC Technologies' consolidated and combined
financial statements has been prepared as if FMC Technologies were a stand-alone
entity and filed separate tax returns. Substantially all of the Company's
current domestic tax liability at June 30, 2001 and December 31, 2000 is payable
to FMC under the terms of a tax sharing agreement between FMC Technologies and
FMC.
Note 12: Capital Stock
-----------------------
At December 31, 2000, our capital stock consisted of 1,000 authorized, issued
and outstanding shares of $0.01 par common stock, all of which was owned by FMC
Corporation. At June 30, 2001, our capital stock consisted of 195,000,000
authorized shares of $0.01 par common stock and 12,000,000 shares of
undesignated $0.01 par preferred stock. At June 30, 2001, 65,000,000 common
shares were issued and outstanding, 83.0 percent of which were owned by FMC
Corporation and 17.0 percent of which were sold in our initial public offering,
which closed on June 19, 2001. No preferred shares were issued at June 30,
2001.
Our common stock is traded on the New York Stock Exchange.
Note 13: Commitments and Contingent Liabilities
------------------------------------------------
We have certain contingent liabilities arising from litigation, claims,
performance guarantees, leases, and other commitments incident to the ordinary
course of business. Management believes that the ultimate resolution of its
known contingencies will not materially affect our consolidated financial
position, results of operations or cash flows.
PAGE 13
Note 14: Segment Information
-----------------------------
(in millions) Three Months Six Months
Ended June 30 Ended June 30
---------------------- ----------------------
2001 2000 2001 2000
------ ------ ------ ------
Revenue
-------
Energy Production Systems $172.5 $169.3 $330.4 $347.5
Energy Processing Systems 97.4 86.4 186.5 164.6
Eliminations (0.1) (0.2) (0.3) (0.3)
------ ------ ------ ------
Subtotal Energy Systems 269.8 255.5 516.6 511.8
FoodTech 132.6 172.7 241.1 297.5
Airport Systems 80.0 67.9 154.6 128.6
Eliminations (4.3) (0.7) (4.8) (0.6)
------ ------ ------ ------
$478.1 $495.4 $907.5 $937.3
====== ====== ====== ======
Income before income taxes and
------------------------------
cumulative effect of a change in
--------------------------------
accounting principle
--------------------
Energy Production Systems $ 8.0 $ 13.4 $ 13.5 $ 23.1
Energy Processing Systems 5.3 7.0 8.8 8.3
------ ------ ------ ------
Subtotal Energy Systems 13.3 20.4 22.3 31.4
FoodTech 11.3 17.6 14.8 28.1
Airport Systems 5.1 5.3 11.0 6.9
------ ------ ------ ------
Segment operating profit 29.7 43.3 48.1 66.4
Corporate (8.3) (8.4) (16.4) (16.8)
Other income and (expense),
net - 0.2 (0.7) (1.6)
------ ------ ------ ------
Operating profit before asset
impairments, restructuring
and other charges, net
interest expense, and
cumulative effect of change
in accounting principle 21.4 35.1 31.0 48.0
Asset impairments (a) - (1.5) (1.3) (1.5)
Restructuring and other
charges (b) - (9.8) (9.2) (9.8)
Net interest expense (1.8) (0.7) (2.9) (0.6)
------ ------ ------ ------
Income before income taxes
and cumulative effect of
change in accounting
principle $ 19.6 $ 23.1 $ 17.6 $ 36.1
====== ====== ====== ======
(a) The asset impairment in 2001 relates to FoodTech. The asset
impairments in 2000 relate to Energy Production Systems.
(b) Restructuring and other charges in 2001 relate to Energy Processing
Systems ($5.2 million), FoodTech ($2.5 million), and Airport Systems
($1.5 million). Restructuring and other charges in 2000 relate to
FoodTech ($8.0 million), Energy Production Systems ($1.4 million), and
Corporate ($0.4 million).
A description of the Company's segment determination, composition and
presentation is included in Notes 3 and 15 to the Company's December 31, 2000
combined financial statements included in the Company's Registration Statement
on Form S-1, as amended.
Business segment results are presented net of minority interests, reflecting
only FTI's share of earnings. Minority interests for the periods ended June 30,
2001 and 2000 were not significant. The corporate line primarily includes staff
expenses, and other income and expense consists of all other corporate items,
including LIFO inventory adjustments, certain components of employee benefit
plan cost or benefit and certain foreign exchange gains or losses.
PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FORWARD-LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
---------------------------------------------------
Item 2 of this report contains certain forward-looking statements that are based
on management's current views and assumptions regarding future events, future
business conditions and our outlook for the Company based on currently available
information.
Whenever possible, we have identified these forward-looking statements
by such words or phrases as "will likely result", "is confident that",
"expects", "should", "could", "may", "will continue to", "believes",
"anticipates", "predicts", "forecasts", "estimates", "projects", "potential",
"intends" or similar expressions identifying "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, including
the negative of those words or phrases. Such forward-looking statements are
based on management's current views and assumptions regarding future events,
future business conditions and the outlook for the Company based on currently
available information. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those expressed in, or implied by, these statements. These statements are
qualified by reference to the sections entitled "Risk Factors" and "Cautionary
Statement Regarding Forward-Looking Information" in the Company's Registration
Statement on Form S-1, as amended. We wish to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made.
We caution that the referenced list of factors may not be all-
inclusive, and we specifically decline to undertake any obligation to
publicly revise any forward-looking statements that have been made to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
We had cash and cash equivalents at June 30, 2001 and December 31, 2000 of $11.5
million and $17.8 million, respectively. Cash required by operating activities
of continuing operations was $27.3 million for the first half of 2001, while
cash provided by operating activities of continuing operations was $8.3 million
for the first half of 2000.
Operating working capital, which excludes cash and cash equivalents, short-term
debt and income tax balances, decreased $8.1 million from $151.0 million at
December 31, 2000 to $142.9 at June 30, 2001. Our working capital balances vary
significantly depending on the payment terms and timing of delivery on key
contracts, particularly for Energy Production Systems' customers. Operating
working capital decreased during 2001 due primarily to a payable of $52.2
million to FMC Corporation at June 30, 2001 (see Note 2 to the Company's
consolidated and combined financial statements), partially offset by an increase
in accounts receivable. As part of FMC Corporation, we participated in a
financing facility under which accounts receivable were sold without recourse
through FMC Corporation's wholly owned, bankruptcy remote subsidiary. This
resulted in a reduction of accounts receivable of $38.0 million on our combined
balance sheet at December 31, 2000. During the six months ended June 30, 2001,
we ceased our participation in this program, the net effect of which was an
increase of $38.0 million of accounts receivable and a corresponding increase in
debt.
Cash required by investing activities was $11.3 million and $25.5 million for
the six months ended June 30, 2001 and 2000, respectively. In 2000, we acquired
Northfield Freezing Equipment for $39.8 million in cash and the assumption of
liabilities. We routinely evaluate potential acquisitions, divestitures and
joint ventures in the ordinary course of business.
PAGE 15
During 2000, as part of FMC Corporation, we entered into agreements for the sale
and leaseback of $13.7 million of equipment and received net proceeds of $22.5
million in connection with the transaction. A non-amortizing deferred credit was
recorded in conjunction with the transaction. Credits recorded in conjunction
with sale-leaseback transactions are included in other long-term liabilities and
totaled $31.8 million at June 30, 2001 and December 31, 2000.
Total borrowings were $263.4 million at June 30, 2001, and $41.1 million at
December 31, 2000. Because FMC Corporation has historically funded most of its
businesses centrally, our borrowings and cash balances prior to June 2001 are
not representative of what our actual balances would have been had we been a
separate stand-alone entity.
Proceeds from the issuance of common stock in conjunction with our initial
public offering were $207.2 million, and we retained $8.0 million to cover
expenses (which will be adjusted to reflect actual costs and satisfied through a
cash payment to or from FMC Corporation at a later date). Net proceeds of $199.2
million were distributed to FMC Corporation. On June 4, 2001, we borrowed $280.9
million, which we also distributed to FMC Corporation. This borrowing was
subject to adjustment after the initial public offering of our common stock to
reflect our actual net cash flow for the period from January 1, 2001 through May
31, 2001. This borrowing carries an effective interest rate of 100 basis points
above the one-month London Interbank Offered Rate. We also entered into interest
rate swap agreements related to $100.0 million of the long-term amount borrowed
to fix the effective interest rate thereon at an average rate of 5.78%.
Currently, our committed credit consists of two revolving credit facilities: a
$250 million five-year credit agreement and a $150 million 364-day revolving
credit facility. Among other restrictions, the credit agreements contain
covenants relating to tangible net worth, and debt to earnings and interest
coverage ratios (as defined in the agreements). The Company is in compliance
with all debt covenants at June 30, 2001.
We expect to meet our operating needs, fund capital expenditures and potential
acquisitions and meet debt service requirements through cash generated from
operations and the credit facilities discussed above. As noted previously, we
have discontinued selling accounts receivable with the result being a
corresponding increase in debt. Capital spending is forecast to be
approximately $60 million for 2001, compared with $43.1 million in 2000.
The Company's accumulated other comprehensive loss increased from $114.4 million
at December 31, 2000 to $153.3 million at June 30, 2001, as a result of
increased cumulative foreign currency translation losses of $23.6 million
primarily reflecting the negative translation impact of the Brazilian real and
the Swedish krona against the U.S. dollar. In addition, net losses
of $2.8 million, primarily from foreign exchange forward contracts, were
deferred under SFAS No. 133.
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS
-------------------------------------------------
We are subject to financial market risks, including fluctuations in currency
exchange rates. In managing our exposure to these risks, we may use derivative
financial instruments in accordance with established policies and procedures. We
do not use derivative financial instruments for trading purposes. At June 30,
2001 and December 31, 2000, our derivative holdings consisted primarily of
foreign currency forward contracts and interest rate swap agreements.
PAGE 16
When our operations sell or purchase products or services, transactions are
frequently denominated in currencies other than the particular operation's
functional currency. We mitigate our exposure to variability in currency
exchange rates when possible through the use of natural hedges, whereby
purchases and sales in the same foreign currency and with similar maturity dates
offset one another. Additionally, we initiate hedging activities, generally by
entering into foreign exchange forward contracts with third parties when natural
hedges are not feasible. The maturity dates and currencies of the exchange
agreements that provide hedge coverage are synchronized with those of the
underlying purchase or sales commitments, and the amount of hedge coverage
related to each underlying transaction does not exceed the amount of the
underlying purchase or sales commitment.
To monitor our currency exchange rate risks, we use a sensitivity analysis,
which measures the impact on earnings of an immediate 10% devaluation in the
foreign currencies to which we have exposure. This calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
Based on the sensitivity analysis at June 30, 2001, such a fluctuation in
currency exchange rates in the near term would not materially affect our
consolidated operating results, financial position or cash flows. We believe
that our hedging activities have been effective in reducing our risks related to
historical currency exchange rate fluctuations.
Our debt instruments subject us to the risk of loss associated with
movements in interest rates. We may from time to time enter into arrangements to
manage or mitigate interest rate risk utilizing derivative financial
instruments. We currently have in place two interest rate swaps with a total
notional amount of $100 million, which fix the interest rate on a portion of our
long-term debt.
PAGE 17
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". The standards collectively provide
new guidance for the recognition, amortization and continuing valuation of
goodwill and other intangible assets acquired in a business combination, and
SFAS No. 141 prohibits the use of the pooling of interests method of accounting
for a business combination. We do not expect the adoption of SFAS No. 141 to
have an impact on our historical financial statements. We have not yet
determined the impact of the adoption of SFAS No. 142, which must be applied
beginning January 1, 2002.
RESULTS OF OPERATIONS
---------------------
Industry segment financial data is included in Note 14 to the Company's June 30,
2001 consolidated financial statements.
Three Months Ended June 30, 2001 Compared with
Three Months Ended June 30, 2000
Overview. Our profit for the three months ended June 30, 2001 before
significant non-recurring items was $19.6 million before tax ($14.3 million
after tax) compared with profit for the three months ended June 30, 2000, before
significant non-recurring items, of $34.4 million before tax ($25.2 million
after tax). The significant nonrecurring item in the second quarter of 2001
consisted of a $4.2 million tax provision related to the reorganization of the
Company's worldwide entities in anticipation of their separation from FMC
Corporation. Significant nonrecurring items in the second quarter of 2000
consisted of asset impairments and restructuring and other nonrecurring charges
totaling $11.3 million before tax ($6.9 million after tax).
Revenue. Our total revenue for the three months ended June 30, 2001 decreased
$17.3 million, or 3.5%, to $478.1 million, compared to $495.4 million for the
three months ended June 30, 2000. Lower sales for FoodTech were partly offset
by increased revenue from all of the Company's other business segments.
FoodTech's revenue in the second quarter of 2001 decreased $40.1 million, or
23.2%, to $132.6 million, from $172.7 million in the second quarter of 2000.
Energy Production Systems' sales in the second quarter of 2001 increased $3.2
million, or 1.9%, to $172.5 million, from $169.3 million in the second quarter
of 2000. Energy Processing Systems' revenue in the second quarter of 2001
increased $11.0 million, or 12.7%, to $97.4 million from $86.4 million in the
second quarter of 2000. Airport System's revenue in the second quarter of 2001
increased $12.1 million, or 17.8%, to $80.0 million, from $67.9 million in the
second quarter of 2000.
Increased revenue for Energy Production Systems in the three months ended June
30, 2001 was primarily the result of increased sales of surface wellhead
equipment and, to a lesser extent, subsea systems. Increased sales of surface
wellhead equipment generally reflected a strengthening market, while higher
subsea sales were related primarily to customers' projects in the Gulf of Mexico
and offshore Brazil. These increases in revenue were partially offset by
decreased sales volumes of floating production equipment, reflecting the effect
of project delays by customers during 2000 and the first six months of 2001.
Increased revenue for Energy Processing Systems in the three months ended June
30, 2001 was primarily the result of increased sales of fluid control equipment,
partly offset by a decrease in sales of loading systems. Increased
PAGE 18
revenues for fluid control equipment were attributable to continued strength in
the oilfield service company market, and reflected higher volumes and, to a
lesser extent, improved pricing. Lower sales of loading systems reflected
timing of shipments, which are expected to increase during the second half of
2001.
Decreased revenue for FoodTech in the three months ended June 30, 2001 was
primarily the result of lower volumes of tomato processing equipment and
freezers, and to a lesser extent, lower volumes of harvesting equipment.
Weakening commodity prices, excess processing capacity, industry consolidation
and a slowing of the global economy caused food processors to postpone capital
spending.
Increased revenue for Airport Systems in the three months ended June 30, 2001
was the result of an increase in sales for airport ground support equipment,
with the increase primarily attributable to higher volumes of cargo loaders to
the air freight market, and the timing of those orders, and additional revenue
from the Next Generation Small Loader contract with the United States Air Force.
Also contributing to the increased revenue were higher sales of transporters and
passenger steps to customers located in Europe and the Middle East.
Segment operating profit. Total segment operating profit decreased $13.6
million, or 31.4%, to $29.7 million in the three months ended June 30, 2001 from
$43.3 million in the three months ended June 30, 2000. Energy Production
Systems' operating profit in the second quarter of 2001 decreased $5.4 million,
or 40.3%, to $8.0 million from $13.4 million in the second quarter of 2000.
Energy Processing Systems' operating profit in the second quarter of 2001
decreased $1.7 million, or 24.3%, to $5.3 million from $7.0 million in the
second quarter of 2000. FoodTech's operating profit in the second quarter of
2001 decreased $6.3 million, or 35.8%, to $11.3 million from $17.6 million in
the second quarter of 2000. Airport Systems' operating profit in the second
quarter of 2001 decreased $0.2 million, or 0.2%, to $5.1 million from $5.3
million in the second quarter of 2000.
Energy Production Systems' lower operating profit in the second quarter of 2001
was primarily the result of lower volumes of floating production equipment,
offset somewhat by improvements in surface wellhead volumes.
Energy Processing Systems' lower operating profit in the second quarter of 2001
was primarily the result of weakness in the measurement solutions business,
partially offset by improved margins in fluid control equipment. Management
initiated a restructuring action during the first quarter of 2001 in the
measurement solutions business to mitigate the effect of lower volumes.
FoodTech's operating profit decreased in the second quarter of 2001, primarily
as a result of lower sales volumes for food processing equipment. This decrease
was partially offset by cost savings from restructuring activities initiated by
management prior to the second quarter of 2001.
Airport Systems' operating profit decreased in the second quarter of 2001,
primarily as a result of lower margins for Jetway passenger boarding bridges.
The decrease was partly offset by additional profits from the Next Generation
Small Loader contract with the United States Air Force.
Corporate expenses. Corporate expenses decreased by $0.1 million, or 1.1%, from
$8.4 million for the three months ended June 30, 2000 to $8.3 million for the
three months ended June 30, 2001.
PAGE 19
Other income and expense, net. Other income and expense is comprised primarily
of LIFO inventory adjustments, certain components of employee benefit plan cost
or benefit and certain foreign currency gains or losses. Other income and
expense for the three months ended June 30, 2001 was nil, while other income and
expense for the three months ended June 30, 2000 was $0.2 million of income.
When compared with 2000, the decrease in income in 2001 was the result of a
decrease in pension-related benefit and an increase in LIFO inventory related
expense partially offset by the recording of foreign currency gains. The latter
was, in part, a result of accounting for certain foreign currency forward
contracts under the new accounting standard.
Asset impairments and restructuring and other charges. In the second quarter of
2000, we recorded asset impairments and restructuring and nonrecurring charges
totaling $11.3 million before taxes ($6.9 million after tax). See Note 8 to the
Company's June 30, 2001 consolidated financial statements.
Net interest expense. Net interest expense is associated with cash balances and
third-party debt in our operating companies. Because FMC Corporation funded
most of its businesses centrally prior to June of 2001, third-party debt and
cash for operating companies have been minimal and are not representative of
what our actual debt or cash balances would have been had we been a separate,
stand-alone entity. Net interest expense for the three months ended June 30,
2001 and 2000 was $1.8 million and $0.7 million, respectively. The increase in
net interest expense in 2001 was primarily the result of interest expense
associated with new debt we incurred in preparation for our separation from FMC
Corporation. Had we incurred a similar level of debt at the same interest rate
for the three months ended June 30, 2001 and 2000, we estimate that our net
interest expense on a pro forma basis would have been $4.6 million in each of
the two periods.
Income tax expense. Income tax expense for the three months ended June 30, 2001
was $9.4 million on pretax income of $19.6 million. Excluding the effect of the
provision for income taxes related to the reorganization of the Company's
worldwide entities in anticipation of their separation from FMC Corporation,
income tax expense for the second quarter of 2001 was $5.3 million on pretax
earnings of $19.6 million, resulting in an effective tax rate of 27%. Income
tax expense for the three months ended June 30, 2000 was $4.8 million on pretax
income of $23.1 million. Excluding the effects of restructuring and impairment
charges, income tax expense for the second quarter of 2000 was $9.2 million on
adjusted pretax earnings of $34.4 million, resulting in an effective tax rate of
27%.
The differences between the effective tax rates for these periods and the
statutory U.S. Federal income tax rate relate primarily to differing foreign tax
rates, foreign sales corporation and qualifying foreign trade income benefits,
incremental state taxes and nondeductible goodwill amortization and expenses.
Net income. Net income for the second quarter of 2001 decreased $8.1 million
to $10.2 million, compared with $18.3 million in the second quarter of 2000, due
primarily to lower segment operating profit in 2001 and a $4.2 million tax
provision in 2001 related to the reorganization of the Company's worldwide
entities in anticipation of their separation from FMC Corporation. Net income
in 2000 was unfavorably affected by asset impairments and nonrecurring
restructuring charges totaling $6.9 million on an after-tax basis.
PAGE 20
Order backlog and outlook.
--------------------------
Order Backlog
----------------------------------------------------------------------
(in millions) June 30, December 31, June 30,
2001 2000 2000
---------------------- ---------------------- ----------------------
Energy Production Systems $531.6 $331.4 $360.7
Energy Processing Systems 103.0 93.7 129.2
------ ------ ------
Subtotal Energy Systems $634.6 $425.1 $489.9
FoodTech 116.7 88.6 117.1
Airport Systems 153.6 130.6 121.7
------ ------ ------
Total $904.9 $644.3 $728.7
====== ====== ======
When compared with December 31, 2000 and June 30, 2000, Energy Production
Systems' order backlog increased significantly, primarily as a result of a
stronger subsea market. A significant number of orders were received for
projects that included Enterprise Oil offshore Brazil, Statoil offshore Norway,
TotalFinaElf offshore West Africa, and BP in the Gulf of Mexico. The BP order
for five trees is for its Crazy Horse field offshore Louisiana and is the first
order under the new $250 million, five-year frame agreement between FMC
Technologies and BP. In addition, order backlog also increased for surface
wellhead and floating production equipment, the latter reflecting an order from
Enterprise Oil for turret mooring and related systems for a floating production,
storage and offloading vessel.
Subsea and surface markets continue to improve both domestically and
internationally, although pricing remains competitive. In addition to the long-
term frame agreements that we signed with BP and others, we have several
quotations in process for additional large subsea projects.
Energy Processing Systems' order backlog increased relative to December 2000
primarily attributable to increased orders for loading systems. When compared
with the prior June 30, order backlog decreased, reflecting weakness in the
blending and transfer business and lower orders for manifold systems projects in
the fluid control business.
We expect inbound orders to increase and backlog levels to improve in the second
half of 2001 based on increased quotation activity for manifold systems,
measurement solutions and blending and transfer equipment. In addition,
increased demand during the second half of 2001 for marine loading arms is
expected to favorably impact our loading systems business.
FoodTech's order backlog increased when compared with December 31, 2000,
primarily as a result of increased orders for food processing systems and
freezers. When compared with June 30, 2000, order backlog decreased slightly as
a result of delays in orders for large projects, partially offset by an increase
in freezer backlog.
Business activity in the food processing markets has slowed and revenues have
been negatively affected because customers have postponed placing new orders for
large projects. While there has been a recent increase in inquiries and
quotation activity, the level of future orders remains uncertain because of the
economic environment.
When compared with December 30, 2000 and June 30, 2000, Airport Systems' order
backlog increased, attributable to strong orders for ground support equipment
and our contract to provide the United States Air Force with Next Generation
Small Loaders.
While inbound orders for Airport Systems' equipment have increased in 2001,
profit pressure on the airline industry will likely slow inbound orders in the
second half of 2001 and in 2002, the effect of which will offset future revenue
and operating profitability from the Air Force contract.
PAGE 21
Six Months Ended June 30, 2001 Compared with
Six Months Ended June 30, 2000
Overview. Our profit for the six months ended June 30, 2001 before significant
non-recurring items was $28.1 million before tax ($20.6 million after tax)
compared with profit for the six months ended June 30, 2000, before significant
non-recurring items, of $47.4 million before tax ($34.8 million after tax).
Significant nonrecurring items in the first half of 2001 consisted of impairment
and restructuring charges of $10.5 million ($6.5 million after tax), the
cumulative effect of a change in accounting principle of $7.5 million ($4.7
million after tax), and $7.5 million of tax provisions related to repatriation
of offshore earnings and the reorganization of the Company's worldwide entities
in anticipation of their separation from FMC Corporation. Significant
nonrecurring items in the first half of 2000 consisted of asset impairments and
restructuring and other nonrecurring charges totaling $11.3 million before taxes
($6.9 million after tax).
Revenue. Our total revenue for the six months ended June 30, 2001 decreased
$29.8 million, or 3.2%, to $907.5 million, compared to $937.3 million for the
six months ended June 30, 2000. Lower sales for FoodTech and Energy Production
Systems were partly offset by increased revenue from Airport Systems and Energy
Processing Systems. Energy Production Systems' sales in the first half of 2001
decreased $17.1 million, or 4.9% to $330.4 million, from $347.5 million in the
first half of 2000. Energy Processing Systems' revenue in the first half of
2001 increased $21.9 million, or 13.3%, to $186.5 million from $164.6 million in
the first half of 2000. FoodTech's revenue in the first half of 2001 decreased
$56.4 million, or 19.0%, to $241.1 million, from $297.5 million in the first
half of 2000. Airport System's revenue in the first half of 2001 increased
$26.0 million, or 20.2%, to $154.6 million, from $128.6 million in the first
half of 2000.
Lower revenue for Energy Production Systems for the six months ended June 30,
2001 was primarily the result of lower sales of floating production systems and,
to a lesser extent, subsea systems, partially offset by increased sales of the
surface product line. Decreased revenue from sales of floating production
systems in 2001 reflected the effect of project delays by customers. In
addition, the comparison was affected by sales during the first half of 2000 of
floating production equipment to the Petro Canada Terra Nova project located off
the coast of Nova Scotia. Lower subsea system sales in the first half of 2001
for projects in the North Sea were partly offset by increased sales of subsea
systems for projects in the Gulf of Mexico and Brazil. Increased revenue from
the sales of surface wellhead equipment during the first half of 2001 reflected
improvements in both domestic and international markets.
Higher revenue for Energy Processing Systems for the six months ended June 30,
2001 was primarily the result of increased sales of fluid control equipment,
partially offset by lower sales of blending and transfer equipment. The
increase in sales of fluid control equipment primarily reflected higher volumes
to the oilfield service company market. Lower sales of blending and transfer
equipment were attributable to delays in orders for lube blending and bulk
conveying systems.
Lower revenue for FoodTech for the six months ended June 30, 2001 was primarily
the result of decreased sales of food processing equipment, primarily tomato
processing systems, and decreased sales of freezers and harvesting equipment
reflecting the impact of economic factors on customers' capital spending
decisions. Additional sales of food handling and packaging systems partially
offset this decrease in revenue.
Increased revenue for Airport Systems in the six months ended June 30, 2001
resulted from increased sales for airport ground support equipment, with the
increase primarily attributable to the shipment of higher volumes of cargo
loaders to the air freight market, the timing of the receipt of orders and, to a
lesser extent, additional revenue from the Next Generation Small Loader
PAGE 22
contract with the United States Air Force. Also contributing to improved
revenue in 2001 were increased sales of Jetway passenger boarding bridges, and
sales of transporters and passenger steps to customers located in Europe and the
Middle East.
Segment operating profit. Our total segment operating profit decreased $18.3
million, or 27.6%, to $48.1 million in the six months ended June 30, 2001 from
$66.4 million in the six months ended June 30, 2000. Energy Production Systems'
operating profit in the first half of 2001 decreased $9.6 million, or 41.6%, to
$13.5 million from $23.1 million in the first half of 2000. Energy Processing
Systems' operating profit in the first half of 2001 increased $0.5 million, or
6.0%, to $8.8 million from $8.3 million in the first half of 2000. FoodTech's
operating profit in the first half of 2001 decreased $13.3 million, or 47.3%, to
$14.8 million from $28.1 million in the first half of 2000. Airport Systems'
operating profit in the first half of 2001 increased $4.1 million, or 59.4%, to
$11.0 million from $6.9 million in the first half of 2000.
Energy Production Systems' operating profit decreased in the first half of 2001,
primarily as a result of lower volumes of floating production systems offset
somewhat by higher volumes for surface wellhead. The effect on operating income
of the decline in North Sea subsea volumes was partly offset by higher operating
profits from projects in the Gulf of Mexico and offshore Brazil.
Energy Processing Systems' operating profit increased in the first half of 2001,
reflecting improved volumes and margins for fluid control equipment, partially
offset by reduced profitability in the blending and transfer business.
FoodTech's operating profit decreased in the first half of 2001, primarily as a
result of lower sales volumes for food processing equipment. This decrease was
partially offset by cost savings from restructuring of the food processing
business. Weak margins for freezing systems also contributed to the reduced
profitability.
Airport Systems' operating profit increased in the first half of 2001, primarily
as a result of a higher volume of sales for airline ground support equipment and
also as a result of the Next Generation Small Loader contract with the United
States Air Force. This increase was partly offset by lower margins for Jetway
passenger boarding bridges attributable to spending on new product releases for
two domestic projects.
Corporate expenses. Corporate expenses decreased by $0.4 million, or 2.4%, from
$16.8 million for the six months ended June 30, 2000 to $16.4 million for the
six months ended June 30, 2001.
Other income and expense, net. Other income and expense is comprised primarily
of LIFO inventory adjustments, certain components of employee benefit plan cost
or benefit and certain foreign exchange gains or losses. For the six months
ended June 30, 2001 and 2000, other income and expense consisted of expense of
$0.7 million and $1.6 million, respectively. Lower expense in 2001 was
primarily a result of a decrease in expense related to LIFO inventory
adjustments and an increase in foreign currency-related gains, in part a result
of accounting for certain foreign currency forward contracts under the new
accounting standard. Partially offsetting this decrease in expense was a
reduction in pension-related benefit.
Asset impairments and restructuring and other charges. During the six months
ended June 30, 2001, we recorded an asset impairment and nonrecurring
restructuring charges of $10.5 million before taxes ($6.5 million after tax).
During the six months ended June 30, 2000, we recorded asset impairments and
restructuring and nonrecurring charges totaling $11.3 million before taxes ($6.9
million after tax). See Note 8 to the Company's June 30, 2001 consolidated
financial statements.
PAGE 23
Net interest expense. Net interest expense is associated with cash balances and
third-party debt in our operating companies. Because FMC Corporation funded
most of its businesses centrally prior to June 2001, our third-party debt and
cash balance prior to June 2001 were minimal and were not representative of what
our actual debt or cash balances would have been had we been a separate, stand-
alone entity. Net interest expense for the six months ended June 30, 2001 and
2000 was $2.9 million and $0.6 million, respectively. The increase in net
interest expense in 2001 was primarily the result of interest expense associated
with new debt we incurred in preparation for our separation from FMC
Corporation. Had we incurred a similar level of debt at the same interest rate
for the six months ended June 30, 2001 and 2000, we estimate that our net
interest expense on a pro forma basis would have been $9.2 million in each of
the two periods.
Income tax expense. Income tax expense for the six months ended June 30, 2001
was $11.0 million on pretax income of $17.6 million. Excluding the effects of
restructuring and impairment charges, the income tax expense related to the
repatriation of offshore earnings and the cumulative effect of a change in
accounting principle, income tax expense for the first half of 2001 was $7.5
million on adjusted pretax earnings of $28.1 million, resulting in an effective
tax rate of 27%. Income tax expense for the six months ended June 30, 2000 was
$8.2 million on pretax income of $36.1 million. Excluding the effects of
restructuring and impairment charges, income tax expense for the first half of
2000 was $12.6 million on adjusted pretax earnings of $47.4 million, resulting
in an effective tax rate of 27%.
The differences between the effective tax rates for these periods and the
statutory U.S. Federal income tax rate relate primarily to differing foreign tax
rates, foreign sales corporation and qualifying foreign trade income benefits,
incremental state taxes and nondeductible goodwill amortization and expenses.
Cumulative effect of a change in accounting principle, net of income taxes. On
January 1, 2001, the Company implemented, on a prospective basis, Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, resulting in a loss from the
cumulative effect of a change in accounting principle of $4.7 million, net of an
income tax benefit of $3.0 million. See Note 5 to the Company's June 30, 2001
consolidated financial statements and the section entitled, "Recently Adopted
Accounting Pronouncement."
Net income. Net income in 2001 decreased $26.0 million to $1.9 million,
compared with $27.9 million in 2000, due primarily to a decrease in segment
operating profit. Also contributing to the decrease in net income in 2001 were
additional provisions for income taxes of $7.5 million in conjunction with
repatriation of offshore earnings and the reorganization of the Company's
worldwide entities in anticipation of their separation from FMC Corporation;
asset impairments and nonrecurring restructuring charges totaling $6.5 million
on an after-tax basis; and the cumulative effect of a change in accounting
principle consisting of an after-tax charge of $4.7 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------ ---------------------------------------------------------
The information required by this item is provided in "Derivative Financial
Instruments and Market Risks", under ITEM 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
PAGE 24
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
A report by KPMG LLP, FMC Technologies' independent accountants, on the
financial statements included in Form 10-Q for the quarter ended June 30, 2001
is included on page 25.
PAGE 25
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
The Board of Directors
FMC Technologies, Inc.:
We have reviewed the accompanying consolidated balance sheet of FMC
Technologies, Inc. as of June 30, 2001, and the related consolidated and
combined statements of income and changes in stockholders' equity for the three-
month and six-month periods ended June 30, 2001 and 2000 and the consolidated
and combined statements of cash flows for the six-month periods ended June 30,
2001 and 2000. These consolidated and combined financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated and combined financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the combined balance sheet of FMC
Technologies, Inc. as of December 31, 2000 and the related combined statements
of income, cash flows and changes in stockholders' equity for the year then
ended (not presented herein); and in our report dated February 9, 2001, we
expressed an unqualified opinion on those combined financial statements. In our
opinion, the information set forth in the accompanying combined balance sheet as
of December 31, 2000 is fairly stated, in all material respects, in relation to
the combined balance sheet from which it has been derived.
/s/ KPMG LLP
Chicago, Illinois
July 31, 2001
PAGE 26
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
------- -----------------
There has been no material change in the Company's significant legal proceedings
from the information reported under "Business" in the "Legal Proceedings"
section of the Company's Registration Statement on Form S-1, as amended.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
------- -----------------------------------------
On June 19, 2001, the Company completed an initial public offering (IPO) in
which it sold 11,050,000 shares of its common stock at a price of $20 per share.
The shares were sold pursuant to a registration statement on Form S-1 (File No.
333-55920) that was declared effective by the Securities and Exchange Commission
on June 13, 2001, which was the day prior to the commencement of the offering.
The Company registered 12,707,500 shares under this registration statement,
including 1,667,500 shares that could have been issued upon exercise of the
underwriters' overallotment option. Based on the $20 per share offering price,
the registered shares had an aggregate offering price of $254,150,000. The
managing underwriters for the offering were Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Credit Suisse First Boston Corporation, Salomon Smith Barney
Inc. and Banc of America Securities LLC.
The gross proceeds from the 11,050,000 shares sold in the IPO were $221,000,000.
Underwriting discounts, commissions and other offering expenses, all of which
were paid directly by the Company, are estimated to have totaled $16,500,000.
None of the underwriting discounts and commissions or other offering expenses
was paid to directors, officers, persons owning 10% or more of the Company's
common stock or to its other affiliates. In accordance with the separation and
distribution agreement, the Company distributed proceeds of $196,500,000 to FMC
Corporation, which was the holder of 83% of the Company's issued and outstanding
shares upon completion of the IPO and retained $8,000,000 for estimated costs
related to the offering to be paid by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------
(a) Exhibits
--------
Number in
Exhibit Table Description
------------- -----------
10.6.a FMC Corporation Defined Benefit Retirement Trust
10.6.b Amendment to the FMC Corporation Defined Benefit Retirement
Trust
11 Statement re: computation of
diluted earnings per share
15 Letter re: unaudited
interim financial information
(b) Reports on Form 8-K
-------------------
None
PAGE 27
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FMC TECHNOLOGIES, INC.
------------------------
(Registrant)
Date: August 14, 2001 /s/ Ronald D. Mambu
--------------- --------------------------------
Ronald D. Mambu
Vice President, Controller, and
duly authorized officer
PAGE 1
EXHIBIT INDEX
-------------
Number in
Exhibit Table Description
------------- -----------
10.6.a FMC Corporation Defined Benefit Retirement Trust
10.6.b Amendment to the FMC Corporation Defined Benefit Retirement
Trust
11 Statement re: computation of
diluted earnings per share
15 Letter re: unaudited
interim financial
information (KPMG LLP)