FMC Corporation — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010; unaudited interim results. FMC is a diversified global chemical company with Agricultural Products, Specialty Chemicals and Industrial Chemicals segments.
Financial performance
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Revenue | $756.5 million | $690.5 million | +9.6% |
| Income from continuing operations | $86.1 million | $75.3 million | +14.3% |
| Net income attributable to FMC stockholders | $77.4 million | $69.1 million | +12.0% |
| Diluted EPS | $1.06 | $0.94 | +12.8% |
| Operating cash flow, continuing operations | $(1.4) million | $24.8 million | Declined |
| Cash and cash equivalents, quarter-end | $86.7 million | $76.6 million at Dec. 31, 2009 | +$10.1 million |
| Total debt | $699.9 million | $643.9 million at Dec. 31, 2009 | +$56.0 million |
Gross profit was $267.0 million, or approximately 35.3% of revenue, compared with $236.6 million, or 34.3%, in Q1 2009. The effective tax rate increased to 32.1% from 30.7%. Discontinued operations generated an after-tax loss of $5.7 million, versus $4.4 million.
Current assets were $1.638 billion and current liabilities $734.5 million at March 31, 2010, a current ratio of approximately 2.23. Receivables rose to $892.5 million from $749.6 million at year-end. FMC reported $86.7 million cash; revolving credit availability was $417.8 million under its domestic facility and $267.1 million under its European facility. It was compliant with credit covenants.
Segments and changes versus prior year
- Agricultural Products: Revenue rose 17% to $304.6 million; operating profit was essentially flat at $92.8 million. Growth in Europe, Latin America—particularly Brazil—and Asia was offset by higher distribution costs, less favorable mix and growth spending. North American sales were affected by weather and high channel inventories.
- Specialty Chemicals: Revenue increased 16% to $202.6 million and operating profit rose 7% to $40.8 million. BioPolymer and lithium volumes improved; lithium pricing was lower. Prior-year lower-cost inventory benefits did not recur.
- Industrial Chemicals: Revenue fell 2% to $250.1 million as lower prices outweighed higher volumes. Operating profit increased 51% to $34.5 million, helped by the absence of prior-year higher-cost inventory and a one-time “take or pay” commercial settlement.
Consolidated income improved despite higher interest expense ($10.0 million versus $7.0 million) and income taxes. Restructuring and other charges declined to $16.7 million from $22.5 million. The 2010 amount included $8.6 million for the Barcelona facility phase-out and $4.6 million for alginates restructuring.
Cash flow, outlook and management commentary
Continuing-operations operating cash flow was negative $1.4 million, principally reflecting a $148.3 million use of cash from receivables, including longer payment terms on Brazilian agricultural sales. Investing activities used $30.5 million, including $31.0 million of capital expenditures; financing activities provided $48.7 million, mainly from increased credit-facility borrowings. Cash used by discontinued-operations operating activities was $6.3 million.
- Agricultural Products: Management expected full-year revenue growth in the mid-to-high single digits and operating-profit growth in the mid-single digits.
- Specialty Chemicals: Expected full-year revenue growth of approximately 10% and operating-profit growth in the mid-teens.
- Industrial Chemicals: Expected full-year revenue to be level to up 5% and operating-profit growth in the mid-twenties. These expectations relied on higher volumes and, for profit, favorable raw-material and energy costs despite lower selling prices.
- Projected 2010 capital expenditures were approximately 20% below 2009. FMC expected about $80 million in voluntary U.S. pension contributions, including $12 million contributed in Q1, and approximately $35 million of net environmental remediation spending.
Management attributed overall growth to higher volumes and stronger global economic activity. It cautioned that quarterly results are not necessarily indicative of full-year results and that forward-looking statements are subject to risks and uncertainties.
Risks, contingencies and unusual items
- Environmental reserves, net of recoveries, were $188.7 million at quarter-end. Management estimated reasonably possible environmental losses could exceed accrued amounts by approximately $75 million; unreserved obligations could materially affect an individual period, though management did not expect a material adverse effect on liquidity or financial condition.
- Regulatory reviews could affect crop-protection products. FMC had ceased U.S. carbofuran sales following tolerance revocation and expected no material financial impact from that cessation. EU bifenthrin sell-through was permitted through May 2010, with additional use/sales periods in many countries. Outcomes of regulatory challenges remained uncertain.
- FMC continued to appeal a €25 million European Commission hydrogen-peroxide fine; a €29.3 million letter of credit secured the fine and accrued interest. It also faced remaining hydrogen-peroxide purchaser claims and Canadian litigation. A separate European animal-feed-phosphate investigation had a previously recorded $21 million provision.
- FMC was exploring strategic alternatives for its Huelva phosphorus business. If it could not resolve profitability and phosphogypsum-storage constraints, it might exit and incur closure costs.
- The new U.S. health-care law caused a non-cash $3.5 million tax adjustment related to the Medicare Part D subsidy. Barcelona shutdown and other restructuring charges, and the Industrial Chemicals commercial settlement, were notable period items.
- FMC identified greenhouse-gas regulation as a potential source of added costs or operational limits; future regulatory costs were not estimable. It reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the receivables increase and negative operating cash flow reverse as seasonal Brazilian sales are collected.
- Progress against segment outlooks, particularly the assumptions behind Industrial Chemicals’ profit growth and its one-time settlement benefit.
- Developments in pesticide registrations, hydrogen-peroxide and phosphate competition matters, and environmental exposures, including the estimated $75 million potential excess over accrued environmental losses.
- Funding and cash demands from the planned $80 million pension contribution, environmental spending, restructuring, dividends and scheduled debt maturities.
- Huelva phosphorus business alternatives and any resulting closure decision or charges.