FMC Corporation — Q3 2010 Form 10-Q
Business context and reporting period. FMC is a diversified global chemicals company with Agricultural Products, Specialty Chemicals and Industrial Chemicals segments. This unaudited quarterly report covers the three and nine months ended September 30, 2010, compared with the same 2009 periods. KPMG performed an interim review, not an audit.
Key financial results
Amounts are in millions of dollars except per-share data. Figures below are for Q3 and, where shown, the first nine months.
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $772.5 | $713.3 | $2,305.8 | $2,104.1 |
| Income from continuing operations | $86.2 | $35.5 | $260.5 | $187.7 |
| Net income attributable to FMC stockholders | $82.9 | $28.0 | $226.0 | $166.4 |
| Diluted EPS | $1.13 | $0.38 | $3.08 | $2.27 |
| Operating cash flow from continuing operations | — | $308.2 | $274.3 |
- Revenue rose 8% in Q3 and 10% year to date. Net income attributable to FMC stockholders increased 196% in Q3 and 36% year to date.
- Segment operating profit was $152.3 million in Q3 and $481.0 million year to date, versus $120.8 million and $418.6 million, respectively. Derived segment operating margins were approximately 19.7% and 20.9%, compared with 16.9% and 19.9%.
- Company-reported non-GAAP after-tax income from continuing operations, excluding restructuring and other income/charges, was $83.5 million in Q3 and $275.7 million year to date, versus $65.3 million and $235.2 million. FMC cautions this measure is not a substitute for GAAP results.
- Cash and cash equivalents were $267.3 million at September 30, up from $76.6 million at year-end 2009. Total debt was $668.2 million, up from $643.9 million. Debt due within one year was $132.9 million.
- Available committed revolving credit was $459.0 million under the domestic facility and $297.5 million under the European facility; neither had borrowings at quarter-end. FMC reported covenant compliance, with leverage of 1.2 against a 3.5 maximum and interest coverage of 15.9 against a 3.5 minimum.
- Year-to-date investing cash outflow was $107.3 million, including $95.3 million of capital expenditures. Financing cash inflow was $13.3 million. Operating cash flow included an $80 million voluntary U.S. pension contribution and substantial working-capital movements.
Segment performance and changes
- Agricultural Products: Q3 revenue increased 15% to $308.9 million and segment operating profit rose 27% to $75.1 million. Nine-month revenue increased 16% to $907.3 million, while profit grew 2% to $247.5 million. Stronger sales were partly offset year to date by less favorable mix, inventory and distribution costs, higher selling expenses and growth investment.
- Specialty Chemicals: Q3 revenue increased 5% to $202.2 million and profit rose 15% to $47.1 million. Nine-month revenue increased 11% to $619.4 million and profit rose 16% to $139.0 million. Lithium recovery, BioPolymer demand and productivity gains supported results; higher raw-material costs were a partial offset.
- Industrial Chemicals: Q3 revenue increased 3% to $262.4 million and profit rose 45% to $30.0 million. Nine-month revenue increased 2% to $781.7 million and profit rose 65% to $94.3 million. Volume recovery and lower raw-material and energy costs lifted profit, partly offset by lower selling prices and reduced electricity sales following a facility divestiture.
- For the first nine months, total restructuring and other charges declined to $35.7 million from $84.9 million. Q3 charges were $3.7 million versus $32.3 million; the prior-year quarter included a $21 million regulatory-matter charge and 2010 had no comparable charge.
Outlook, risks and unusual items
- Management expected 2010 Agricultural Products revenue growth of about 15% and segment operating profit growth in the mid-single digits; Specialty Chemicals revenue growth of about 10% and profit growth of 20%; and Industrial Chemicals revenue roughly flat with profit growth of 35%. These are management expectations stated in the filing, not guarantees.
- FMC was reviewing strategic alternatives for its Foret phosphorus business in Huelva, Spain. Management said the selected option would determine the magnitude of any charge; the filing does not provide a clear estimate.
- Environmental reserves were $245.0 million before expected recoveries and $227.3 million net of recoveries at September 30. Management estimated reasonably possible environmental losses could exceed accruals by approximately $90 million, with potential obligations extending over 20 years or longer. Reserves increased mainly for the Pocatello and Middleport sites; further remediation requirements could increase costs.
- Discontinued operations generated a $25.3 million after-tax loss year to date, primarily reflecting environmental and legal matters. FMC reported that known contingencies were not expected to materially harm financial position or liquidity, but adverse outcomes could materially affect results, liquidity or financial position.
- FMC continued to appeal a European Commission hydrogen peroxide fine; interest accrued at 4.0% and a $41.2 million letter of credit secured the fine and accrued interest. The company also disclosed ongoing Canadian hydrogen peroxide class actions and other litigation.
- Agricultural product registrations remain a risk. U.S. carbofuran sales had ceased; a court reinstated import tolerances but did not reverse the EPA’s denial of a hearing on domestic tolerances. EU restrictions affected carbofuran, carbosulfan and bifenthrin; FMC said the expected 2010 sales impact was not material. Brazilian review of carbofuran was pending.
- FMC intended to repurchase up to $100 million of stock in Q4 2010, after repurchasing $35 million during the first nine months. The company also highlighted possible future pension funding needs, energy and currency exposure, and uncertainty about the effects of new derivatives regulation.
Important facts for investors to verify
- Whether segment growth and the stated full-year 2010 outlook were achieved, particularly given Agricultural Products costs and Industrial Chemicals pricing.
- How environmental estimates at Middleport and Pocatello evolve, including the potential losses beyond recorded reserves and related recoveries.
- Developments in the European Commission fine appeal, Canadian hydrogen peroxide litigation and other legal contingencies.
- The decision and potential financial impact of strategic alternatives for the Huelva phosphorus business.
- Cash conversion and working-capital trends, including Brazilian receivables and customer rebates, as well as the planned share repurchases and pension funding needs.