FMC

FMC Corporation 10-Q Summary: Quarter Ended March 31, 2002

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2002, for FMC Corporation, a Delaware corporation. Following a strategic reorganization completed in late 2001, FMC operates as a chemical company with three primary segments: Agricultural Products, Specialty Chemicals, and Industrial Chemicals. The machinery business, FMC Technologies, was spun off as a separate public entity effective December 31, 2001, and its results are reported as discontinued operations.

Key Financial Metrics

Margins: Operating profit before restructuring and interest was $34.1 million in Q1 2002 compared to $36.8 million in Q1 2001. The effective tax rate on continuing operations was 10.0% in 2002 versus 27.2% in 2001, largely due to the tax impact of restructuring charges.

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 3.0% to $434.2 million, driven by weaker demand in the Industrial Chemicals segment and reduced sulfentrazone revenue in the Agricultural Products segment.
• Restructuring Charges: Charges increased significantly to $7.0 million from $1.0 million. Key drivers included idling the sulfentrazone plant ($2.4 million) and mothballing the Granger caustic facility ($3.4 million).
• Discontinued Operations: Q1 2001 included a $40.0 million after-tax loss related to the spin-off of FMC Technologies. Q1 2002 had no discontinued operations impact, contributing to the year-over-year net income improvement.
• Debt Levels: Total borrowings rose to $1.06 billion from $923.5 million, primarily due to seasonal cash demands in the Agricultural Products business.

Guidance, Outlook, and Risks

Management Commentary: Management expects operating cash flows to reverse the seasonal debt build-up over the course of the year. However, they do not expect to pay down significant debt in 2002 due to ongoing cash demands from restructuring and the Phosphorus business. The company is evaluating financing options to pre-fund upcoming long-term debt maturities and intends to access capital markets in the second and third quarters of 2002.

Accounting Changes: FMC adopted SFAS No. 142 on January 1, 2002, ceasing the amortization of goodwill. Transitional impairment tests are underway and expected to be completed in Q2 2002.

Risks and Contingencies:

• Environmental Obligations: Reserves total $249.8 million. Management estimates reasonably possible contingent losses could exceed accrued amounts by up to $70.0 million.
• Joint Venture Commitments: FMC is committed to making equity contributions to its phosphorus joint venture, Astaris, to cover earnings shortfalls. FMC expects to contribute approximately $31.3 million in 2002.
• Currency Risk: Results are adversely affected by the weakness of the Euro and other foreign currencies against the U.S. dollar.

Investor Verification Checklist

• Debt Maturities: Verify the company's ability to refinance $182.4 million in long-term debt maturing in 2003 and the $28.8 million in exchangeable debentures scheduled for redemption in June 2002.
• Restructuring Savings: Monitor the realization of projected annual savings ($20.0 million in Ag Products, $7.0 million in Industrial Chemicals) from recent plant idling and mothballing.
• Astaris Contributions: Track the actual cash outflows required for the Astaris joint venture earnings guarantee, which could impact liquidity.
• Goodwill Impairment: Review the results of the transitional goodwill impairment tests expected in Q2 2002 under SFAS No. 142.
• Environmental Reserves: Assess the adequacy of the $249.8 million environmental reserve given the potential for additional losses up to $70.0 million.