FMC Corporation 10-Q Summary: Period Ended September 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, and the nine-month period ended on the same date. FMC Corporation is a diversified, global chemical company operating in three segments: Agricultural Products, Specialty Chemicals, and Industrial Chemicals. The company reported strong performance across all segments, driven by higher sales volumes and pricing, despite rising raw material and energy costs.
Key Financial Metrics
| Metric (in Millions) | 3 Months Ended 9/30/08 | 9 Months Ended 9/30/08 | 9 Months Ended 9/30/07 |
|---|---|---|---|
| Revenue | $820.8 | $2,377.6 | $1,958.6 |
| Net Income | $80.0 | $258.3 | $91.5 |
| Diluted EPS | $1.05 | $3.39 | $1.18 |
| Operating Cash Flow | N/A | $317.2 | $230.1 |
| Total Debt | $576.0 | $576.0 | $545.2 (Dec 31, 2007) |
| Cash & Equivalents | $95.0 | $95.0 | $75.5 (Dec 31, 2007) |
Margins: The effective tax rate for the nine months ended September 30, 2008, was 28.0%, compared to 19.5% in the prior year period. Segment operating profits increased significantly, particularly in Industrial Chemicals (up 133% for the nine months).
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 31% in the third quarter and 21% for the nine months compared to 2007. Growth was driven by higher selling prices (especially in soda ash and phosphates) and volume increases across all segments.
- Profitability: Net income for the nine months more than doubled to $258.3 million from $91.5 million. This was primarily due to higher segment profits and a significant reduction in restructuring charges compared to 2007.
- Restructuring Charges: Restructuring and other charges were $17.0 million for the nine months of 2008, a sharp decrease from $140.0 million in 2007. The 2007 figure included a $89.7 million charge for the Baltimore facility phase-out and a $22.5 million Solutia legal settlement. The 2008 figure included gains from asset sales (Princeton property and sodium sulfate assets) that offset shutdown costs.
- Acquisitions: In Q3 2008, FMC acquired the hydrocolloids business of International Specialty Products (ISP) and CoLiving Food Ingredients for approximately $97 million, integrating them into the Specialty Chemicals segment.
Guidance, Outlook, and Risks
- Outlook: Management expects full-year 2008 revenue growth of approximately 20% across all segments. Full-year operating profits are expected to increase significantly, particularly in Industrial Chemicals (expected to more than double) and Agricultural Products (expected up nearly 20%).
- Capital Allocation: The Board authorized an additional $250 million share repurchase program in October 2008. The quarterly dividend was increased to $0.125 per share in April 2008.
- Risks and Contingencies:
- Regulatory: Ongoing EPA review of carbofuran in the U.S. and EU non-inclusion of carbofuran, carbosulfan, and cadusafos pose potential risks to Agricultural Products sales, though management expects growth in other products to offset impacts.
- Legal: Pending antitrust litigation regarding hydrogen peroxide in the U.S. and Europe. A fine of €25.0 million was imposed by the European Commission in 2006; FMC is appealing. U.S. class action settlements by co-defendants have occurred, but opt-out cases remain pending.
- Environmental: Reserves for environmental obligations totaled $193.6 million (gross) at September 30, 2008. Management estimates reasonably possible losses may exceed accrued amounts by approximately $75 million.
- Market Conditions: Risks associated with a potential worldwide recession and disruption of financial markets affecting customer liquidity and supplier performance.
Investor Verification Checklist
- Asset Sale Gains: Verify the sustainability of earnings by noting that 2008 results include a $29.6 million gain on the Princeton property sale and a $3.6 million gain on sodium sulfate assets, which are non-recurring.
- Regulatory Status: Monitor the final EPA decision on carbofuran tolerances and the outcome of EU litigation regarding active ingredient approvals.
- Antitrust Exposure: Track the status of pending U.S. hydrogen peroxide opt-out lawsuits and the European Commission appeal regarding the €25 million fine.
- Environmental Reserves: Review the rollforward of environmental reserves and the $75 million estimate of reasonably possible losses exceeding current accruals.
- Share Repurchases: Confirm the execution of the new $250 million share repurchase authorization approved in October 2008.