FMC Corporation — Q2 2009 Form 10-Q
Business context and reporting period
FMC is a diversified chemical company operating in Agricultural Products, Specialty Chemicals and Industrial Chemicals. This unaudited report covers the quarter and six months ended June 30, 2009, compared with the corresponding 2008 periods. The interim financial statements were reviewed by KPMG, not audited.
Financial performance and liquidity
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Revenue | $700.3 million | $806.6 million | $1,390.8 million | $1,556.8 million |
| Income from continuing operations | $76.9 million | $96.0 million | $152.2 million | $199.2 million |
| Net income attributable to FMC stockholders | $69.3 million | $84.4 million | $138.4 million | $178.3 million |
| Diluted EPS | $0.94 | $1.10 | $1.89 | $2.33 |
For the first six months, continuing-operations operating cash flow was $173.9 million, versus $138.4 million in 2008. Discontinued-operations operating cash flow used $20.1 million, versus $26.7 million. Investing activities used $106.5 million, including acquisition spending; financing activities used $33.1 million. Cash increased to $67.0 million from $52.4 million at year-end 2008.
At June 30, 2009, total debt was $633.8 million, compared with $623.6 million at December 31, 2008. Total current assets were $1,423.7 million and current liabilities were $717.2 million. Available borrowing capacity was $284.2 million under the domestic facility and $163.2 million under the European facility. FMC reported compliance with debt covenants: leverage was 1.2 against a maximum of 3.5, and interest coverage was 20.2 against a minimum of 3.5.
Material changes versus the prior comparable periods
- Q2 revenue declined 13%; first-half revenue declined 11%. Industrial Chemicals was the main source of weakness, with revenue down 24% in Q2 and 19% for the half.
- Q2 segment operating profit rose 7% in Agricultural Products, fell 2% in Specialty Chemicals and fell 70% in Industrial Chemicals. First-half changes were up 9%, down 3% and down 55%, respectively.
- FMC stockholder net income fell about 18% in Q2 and 22% for the first half. Lower Industrial Chemicals profit and higher restructuring charges weighed on results; lower interest expense, a lower tax rate and stronger Agricultural Products profit partly offset those effects.
- Restructuring and other charges were $30.1 million in Q2 and $52.6 million for the first half, versus $10.7 million and $2.4 million in 2008. The prior-year first-half amount included gains from the Princeton property and sodium sulfate asset sales.
- Q2 effective tax rate was 15.0%, versus 30.7%; first-half rate was 23.6%, versus 29.8%. FMC cited an approximately $18 million reduction in unrecognized tax benefits following audit settlements and statute expirations.
Outlook, management commentary, risks and unusual items
- Management expected 2009 Agricultural Products revenue growth in the low-to-mid single digits and segment operating profit growth in the mid-to-high teens. Specialty Chemicals revenue growth was expected in the low single digits, with operating profit up in the mid-single digits. Industrial Chemicals revenue was expected to decline approximately 20%, with operating profit down 45–55%.
- Management attributed Agricultural Products’ stronger profit to pricing, North American performance, favorable mix, supply-chain improvements and lower costs. Specialty Chemicals faced weak lithium demand and curtailments; Industrial Chemicals faced volume declines and higher raw-material costs, particularly phosphate rock.
- FMC decided to phase out its Barcelona facility by March 2010 and to shut Santa Clara and Bayport operations; it also planned alginates manufacturing realignment. These actions drove restructuring charges and asset-retirement obligations.
- Environmental reserves, net of recoveries, were $166.3 million at June 30. Management estimated reasonably possible environmental losses could exceed accruals by approximately $80 million; it did not expect these obligations to materially harm liquidity or financial condition, but future-period charges could be material.
- Contingencies include hydrogen peroxide antitrust matters, an appealed European Commission fine, and new European Commission proceedings concerning animal-feed phosphates. FMC said known contingencies were not expected to materially affect financial position or liquidity, while acknowledging adverse outcomes could be material.
- Regulatory exposure includes U.S. carbofuran tolerance revocation and EU reviews of pesticide products, including bifenthrin. FMC said U.S. carbofuran sales were not significant and anticipated only a modest 2010 impact from the bifenthrin decision.
- Management planned approximately $75 million of 2009 U.S. pension contributions, including $25 million contributed in the first half. It cautioned that continued market volatility could require higher future contributions. Projected 2009 capital expenditures were approximately 10% below 2008 levels.
- FMC reported no material change in risk factors and no significant off-balance-sheet arrangements. Disclosure controls were deemed effective, with no material quarterly change in internal controls.
Most important facts for investors to verify
- Whether Industrial Chemicals’ volume and margin pressures, including phosphate input costs, persist and how the shutdowns affect results.
- Whether Agricultural Products and Specialty Chemicals meet their stated 2009 segment outlooks amid currency, weather, demand and regulatory risks.
- Cash conversion and working-capital trends, debt levels, available credit and compliance with borrowing covenants.
- Actual restructuring costs and savings, environmental spending and any changes to the estimated $80 million possible environmental exposure above reserves.
- Developments in antitrust and regulatory proceedings, including potential cash, earnings or product-sales impacts.
- Tax-rate sustainability after the benefit from the tax-audit settlements and statute expirations.