FMC Corporation — 2009 Third-Quarter 10-Q
Business context and period: FMC is a global chemicals company with Agricultural Products, Specialty Chemicals and Industrial Chemicals segments. This unaudited, accountant-reviewed filing covers the quarter and nine months ended September 30, 2009, compared with the same 2008 periods.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $713.3 million | $820.8 million | $2,104.1 million | $2,377.6 million |
| Income from continuing operations | $35.5 million | $90.6 million | $187.7 million | $289.8 million |
| Net income attributable to FMC stockholders | $28.0 million | $80.0 million | $166.4 million | $258.3 million |
| Diluted EPS | $0.38 | $1.05 | $2.27 | $3.39 |
| Operating cash flow, continuing operations | Not separately stated | Not separately stated | $274.3 million | $317.2 million |
Q3 total costs and expenses were $645.3 million, including $32.3 million of restructuring and other charges; nine-month charges were $84.9 million. Income from continuing operations before equity in affiliates, net interest and taxes was $68.0 million in Q3 and $279.2 million year to date. The filing does not provide a single consolidated operating-margin measure.
- Agricultural Products: Q3 revenue rose 2% to $268.3 million and segment operating profit increased 34% to $59.2 million. Nine-month revenue fell 4% to $782.1 million, while profit rose 15% to $242.2 million.
- Specialty Chemicals: Q3 revenue declined 3% to $191.7 million, but profit rose 14% to $40.9 million. Nine-month revenue declined 3% to $558.9 million and profit increased 2% to $119.5 million. Lithium was weak; BioPolymer performed better.
- Industrial Chemicals: Q3 revenue fell 29% to $254.4 million and profit fell 69% to $20.7 million. Nine-month revenue declined 22% to $766.6 million and profit declined 62% to $57.0 million, mainly reflecting lower volumes and weak demand.
At September 30, cash was $59.9 million, total debt was $613.6 million, and total equity was $1,121.7 million. Cash increased $7.5 million from year-end 2008. Nine-month investing cash outflow was $141.2 million and financing cash outflow was $96.5 million. Cash dividends paid were $27.3 million; share repurchases under the announced program totaled $35.0 million.
Available borrowing capacity was $320.1 million under the domestic revolving facility and $161.4 million under the European facility. FMC reported compliance with credit covenants: leverage was 1.2 against a 3.5 maximum, and interest coverage was 20.4 against a 3.5 minimum.
Material changes versus prior period
- Consolidated revenue declined 13% in Q3 and 12% for the first nine months. Management attributed the broad weakness to the global downturn; Industrial Chemicals was most affected.
- Stockholder net income fell 65% in Q3 and 36% year to date. Lower Industrial Chemicals profit and substantially higher restructuring and other charges were the primary factors; stronger Agricultural Products results partly offset the decline.
- Nine-month restructuring and other charges rose to $84.9 million from $18.0 million. Items included shutdown and realignment costs, asset write-downs, workforce reductions, and a $21 million charge related to an Industrial Chemicals regulatory matter.
- Operating cash flow declined to $274.3 million from $317.2 million. The filing cites lower accounts payable, pension and postretirement contributions, and weaker business conditions; the company contributed $75 million to its U.S. pension plan.
- Total debt declined from $623.6 million at December 31, 2008, although short-term debt rose from $28.6 million to $69.8 million.
Outlook, risks and unusual items
- Management expected 2009 Agricultural Products revenue to be level with 2008 and segment operating profit up in the high teens. Specialty Chemicals revenue was expected to be level, with profit up in the mid-single digits. Industrial Chemicals revenue was expected to decline about 20% and profit about 55%. These are segment forecasts; the filing provides no clear consolidated full-year forecast.
- Management said Industrial Chemicals demand showed improvement in Q3 versus Q2, but volumes remained below prior-year levels. Planned capital expenditures for 2009 were expected to be about 10% below 2008.
- FMC decided to phase out or shut down facilities in Barcelona, Santa Clara and Bayport, and to realign alginates manufacturing. Management cited cost competitiveness, weaker demand and efficiency improvements.
- Environmental reserves were $182.7 million before expected recoveries of $58.1 million; net reserves were $163.7 million. Management estimated reasonably possible environmental losses could exceed accrued amounts by approximately $80 million, while stating these obligations were not likely to materially harm liquidity or financial condition. Remediation and compliance spending remained significant.
- FMC recorded a $21 million charge for an European Commission animal-feed-phosphates investigation. The company said it was cooperating; the final outcome and actual cost remain uncertain.
- Other legal exposures include appeals involving a European hydrogen-peroxide antitrust fine and ongoing U.S. and Canadian hydrogen-peroxide litigation. FMC had settled the U.S. direct-purchaser class action for $10 million, but opt-out and Canadian proceedings remained. The filing cautions that adverse outcomes in contingencies could materially affect results, financial position or liquidity.
- Agricultural Products faces pesticide-registration uncertainty, including U.S. and European reviews of carbofuran and other products. FMC described possible sales impacts, while noting carbofuran U.S. sales were not significant and expected to end in 2009.
- FMC uses currency and energy derivatives. The company reported a $13.1 million net liability position in financial instruments and stated that a 1-percentage-point interest-rate move would have changed first-nine-month interest expense by $3.1 million, based on its sensitivity analysis.
Investor verification priorities
- Track whether Industrial Chemicals volumes and profitability recover, and whether management’s 2009 segment forecasts were achieved.
- Reconcile reported earnings with the unusually high restructuring and regulatory charges, including the $21 million feed-phosphates provision.
- Monitor operating cash generation, working-capital movements, pension contributions, debt mix and available credit capacity.
- Assess developments in environmental exposures, including the estimated $80 million potential excess over accrued losses, and related recoveries and spending.
- Follow pesticide-registration decisions and outstanding antitrust proceedings, including the possible financial effects of unresolved claims and appeals.