FMC

FMC Corporation 10-Q Summary: Quarter Ended September 30, 2003

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2003, and the nine-month period ended on the same date. FMC Corporation operates in three primary segments: Agricultural Products, Specialty Chemicals, and Industrial Chemicals. The company is an accelerated filer with common stock listed on the New York Stock Exchange and Chicago Stock Exchange. As of October 31, 2003, there were 35,289,324 shares of common stock outstanding.

Key Financial Metrics

Note: Operating cash flow is reported for the nine-month period only in the source text.

Material Changes vs. Prior Period

• Profitability Decline: The company reported a net loss of $3.4 million for the quarter, a significant reversal from the $28.2 million net income in the same period in 2002. For the nine months, net income dropped to $20.2 million from $56.4 million.
• Astaris Restructuring Impact: The primary driver of the loss was a $44.9 million charge recorded in "Equity in loss (earnings) of affiliates" related to a restructuring plan at the Astaris joint venture (50% owned with Solutia). This included facility closures and exit from the commodity sodium tripolyphosphate market.
• Revenue Stability: Revenue remained relatively flat, decreasing 1% in the quarter ($470.5M vs $476.6M) but increasing 2% for the nine months ($1,414.5M vs $1,393.2M). Growth in Specialty Chemicals and Industrial Chemicals offset declines in Agricultural Products.
• Debt Reduction: Total debt decreased from $1,267.0 million at year-end 2002 to $1,083.8 million, largely due to the redemption of $143.3 million in 6.375% senior notes.
• Interest Expense: Net interest expense increased to $23.0 million for the quarter (from $15.7 million) and $71.7 million for the nine months (from $48.1 million) due to higher interest costs from the 2002 refinancing.

Guidance, Outlook, and Risks

• Astaris Keepwell Payments: FMC expects total "keepwell" payments (supporting Astaris earnings shortfalls) to be $63 million in 2003 and between $40 million and $50 million in 2004. These payments are recorded as liabilities when probable.
• Contingent Liabilities: A contingent payment of approximately $35 million is expected at year-end 2003 related to the 1999 acquisition of Tg Soda Ash, Inc.
• Legal Proceedings: On October 14, 2003, Solutia filed a lawsuit against FMC alleging breach of the joint venture agreement regarding PPA technology. FMC intends to vigorously defend the suit, which it believes is without merit.
• Environmental Obligations: Reserves for environmental obligations totaled $179.1 million (net of recoveries). Management estimates reasonably possible contingent losses may exceed accrued amounts by up to $80 million.
• Liquidity: The company expects to meet liquidity needs through operating cash flow and its $250 million revolving credit facility. Management anticipates debt balances net of cash will be $30-$40 million lower at year-end 2003 compared to 2002.

Investor Verification Checklist

• Astaris Restructuring Costs: Verify the final cost of the Astaris restructuring and the impact on future "Equity in loss (earnings) of affiliates."
• Keepwell Payment Exposure: Confirm the actual 2003 keepwell payments and the likelihood of the projected $40-$50 million in 2004 payments.
• Solutia Litigation: Monitor the status of the lawsuit filed by Solutia regarding the PPA technology contribution.
• Debt Covenants: Review compliance with debt covenants, specifically the consolidated net worth requirement, which was reduced by the Astaris charges.
• Environmental Reserves: Assess the adequacy of the $179.1 million environmental reserve given the potential for $80 million in additional contingent losses.