greenwich consultants - indepth sample 1

7/31/2019 Greenwich Consultants - Indepth Sample 1

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Equity ResearchCompany Update

asic Materials/Chemicals

FMC Corporation

FMC, $31.50, BuyInitiating With A Buy Rating

December 12, 2003

Michael Judd

732-842-0700

[email protected]

Ticker FMC

Price $31.50

52-Wk. Range $14.22 - $31.50

Rating Buy

Price Target $37

Shares Out (M) 35

Market Cap (M) 1,112

Yield 0%Trading Volume (M) nm

Market nm

Sector Opinion: The chemicalindustry has significant operatingleverage. Over the past severalyears, basic material companieshave suffered from weak demandand excess capacity. Although it isstill early to know if recentlyimproved demand trends aresustainable, chemical companieshave very recently begun to

experience improving volume, sooperating rates may have bottomedout for this cycle. Many chemicalcompany operating margins remainunder pressure due to higherenergy and hydrocarbon costs. Wecurrently prefer companies with lesshydrocarbon exposure such as theindustrial gas companies. Mostcompanies have significantlyreduced overhead costs, so if grossmargins continue to improve, thiscould drop to the bottom line.

Capital expenditures for manycompanies remain less thandepreciation.

Action

We are initiating coverage of FMC Corporation (FMC) with a Buy rating.Our target price of $37 is based on a 2004 P/E of 15X and a FY2004EV/EBITDA of 6.9X. Our P/E target and EV/EBITDA target are based onour estimation of the value of FMCs business mix relative to otheragricultural chemical and specialty chemical companies. The primary riskto our price target would be less than anticipated improvements inindustrial production and GDP.

Curr. Qtr. Next Qtr. Yr. Ago Qtr.

FO2A F03E F04E C02A C03E C04E 4Q03E 1Q04E 4Q02A

Revenue Current 1,853 1,888 1,930 - - - 474 431 460

Previous - - - - - - - - -

Consensus - - - - - - - - -

- - -

EPS Current 2.53 1.81 2.45 - - - 0.68 0.20 0.62

Previous - - - - - - - - -

Consensus 2.53 1.82 2.46 - - - - - -

- - -

CFPS Current 5.99 5.31 6.01 - - - 1.57 1.09 1.46

P/E Current NM 17.4 12.9 NM NM NM - - -

P/E Consensus NM 17.3 12.8 - - - - - -

Fiscal Year Dec

$

Fiscal Year Calendar Year

Revenues in millions, except when noted.

Source: Consensus number from Capital IQ.

Just about any way we value the stock, NPV, EBITDA takeout,EV/EBITDA, forward year P/E, peak EPS, we calculate an equity value of$38 to $40/share. So, we believe the stock represents good value at thecurrent price.

We anticipate 2004 EPS will improve by 35% from $1.81 to $2.45 and

2005 EPS will improve by about 25% from $2.45 to $3.05. We expectlower interest expense in 2004 to add about $0.20 to EPS. Restructuring atAstaris could add another $0.20 to 2004 EPS. Organic growth inSpecialties and Ag could add another $0.20 to 2004 EPS. Modestlyimproved results in Industrial Chemicals could add about $0.05 to 2004EPS. The impact of a recovery in industrial selling prices could beenhanced by the significant cost reductions FMC has put in place duringthe trough years.


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Page 2 FMC CorporationFMC, $31.50, Buy : Initiating With A Buy Rating


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Page 3 FMC CorporationFMC, $31.50, Buy : Initiating With Buy Rating

Investment ThesisWe are initiating coverage of FMC Corporation (FMC) with a Buy rating.

FMC operates business in three segments: Specialty Chemicals, Agricultural Products, and IndustrialChemicals. The Specialty Chemical segment consists of biopolymers, and Lithium. Agricultural Productssegment is primarily composed of insecticides and to a lesser extent, herbicides. The industrial chemicalssegment includes soda ash, hydrogen peroxide, and Astaris (FMCs joint venture with Solutia in phosphoruschemicals).

FMCs stock price is up 14% year to date (exhibit 1) versus an increase of 20% in the S&P 500 and a 14%increase in the DJ Specialty Chemical index. FMCs stock is up 122% from its 2003 low and is trading at its 52week high. Our target price of $37 is based on a 2004 P/E of 15X and a FY2004 EV/EBITDA of 6.9X. Our P/E

target and EV/EBITDA target are based on our estimation of the value of FMCs business mix relative to otheragricultural chemical and specialty chemical companies. The primary risk to our price target would be less thananticipated improvements in industrial production and GDP.

We rate the stock a Buy for the following reasons:

We think EPS will trough in 2003 at about $1.81. Peak earnings could be north of $6. A recovery in Industrialcould generate close to $100 million of incremental pre-tax operating profit or roughly $2 per share after-tax;growth plans could generate another $50 million of pre-tax operating profit or roughly $1 per share after-tax;and, de-leveraging efforts could enable FMC to reduce approximately $50 million of interest expense or another$1 per share after-tax.

Just about any way we value the stock, NPV, EBITDA takeout, EV/EBITDA, forward year P/E, peak EPS, we

calculate an equity value of $38 to $40/share. So, we believe the stock represents good value at the currentprice.

We anticipate 2004 EPS will improve by 35% from $1.81 to $2.45 and 2005 EPS will improve by about 25%from $2.45 to $3.05. We expect lower interest expense in 2004 to add about $0.20 to EPS. Restructuring atAstaris could add another $0.20 to 2004 EPS. Organic growth in Specialties and Ag could add another $0.20 to2004 EPS. Modestly improved results in Industrial Chemicals could add about $0.05 to 2004 EPS. The impactof a recovery in industrial selling prices could be enhanced by the significant cost reductions FMC has put inplace during the trough years.

Energy costs are only about 9% of FMC'S cost of sales and services. Only about a third of FMCs energyexposure is to natural gas. The remaining 2/3rds of FMCs energy exposure is evenly distributed between coal

and electricity.Net debt to total capital is about 59%, which is on the high side of our comfort level but FMCs debt covenantsare quite restrictive and do not allow the companys to pay a dividend or repurchase shares. Debt covenants alsolimit the size of acquisitions. Management is expected to be focused on maximizing free cash flow in order torepay a syndicated term-loan of $250 million due in 2007, which is the source of the restrictive covenants. Akey management goal is to reduce debt by $300 million by the end of 2006.


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Exhibit 1: FMC 2003 Stock Price Performance (YTD Comparison), %

2003 Stock Price Performance (Year-to-date)

264%

112%

96%

59%

45%41% 39% 36% 35%

32% 32% 31% 30% 28% 27% 27% 27% 26% 26% 25% 25% 24% 24% 21% 21% 20% 19%16% 15% 15% 14% 14% 14% 13% 13% 11% 9% 9% 6% 5% 5% 4% 4% 2% 1% 1%

-2%-7%

-11%-18%

-27%-29%-33%

-50%

0%

50%

100%

150%

200%

250%

300%

OMG

TRA

ROG

POL

MRD

MON

NCX

AGU

CYT

DOW

MMM

EC

PKE

POT

LYO

ROH

PX

MTX

ARJ

GGC

HPC

OLN

MEOH

MCH

PPG

S&P500

APD

CBT

ARG

DJSpec.

Chem.

FMC

DJChemicals

DJComdty.

Chem.

SIAL

SYT

ECL

VAL

CK

FUL

DD

NL

GLK

CCMP

ALB

RPM

EMN

FOE

OMN

AVY

CBM

IGL

SOI

WLM

Source: Greenwich Consultants, LLC


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Exhibit 2: FMC Snapshot

Price: $31.50

Date: 12/7/2003

52-week range: 14.22 - 31.41

S&P 500: 1,062

GC Rating: BuyEPS 2002A 2003E 2004E 2005E Businesses: 03 Operating Profit

1Q $0.41 A $0.05 A $0.20 E Ag. Products $78 mil 43%

2Q 0.71 A 0.61 A 0.95 E Specialty Chem. $104 57%

3Q 0.79 A 0.47 A 0.70 E Industrial Chemicals $41 23%

4Q 0.62 A 0.68 E 0.60 E Corporate expense ($36) -20%

Full Year EPS $2.53 A $1.81 E $2.45 E $3.05 E Other expense, net ($6) -3%

Consensus EPS $1.82 E $2.46 E $3.13 E Total Operating Profit $181 100%

P/E on GC: 17.4 12.9 10.3 Balance sheet data: 9/30/03 $/sh.P/E on Consensus: 17.3 12.8 10.1 Shares outstanding, mil 35

Dividend Yield: 0.0% Market capitalization, $ mil 1,109

Total value/EBITDA: 6.2 5.9 5.6 Net Debt, $ mil 793 22.53

Enterprise value, $ mil 1,902

Previous highest Segment EBIT was $341 in 1996 2003 estimates: $ mil $/sh.

EBIT 181 5.15

Peak EPS potential of about $6/share, implies peak price of ~ $40. D&A 124 3.52

NPV implies price of ~ $40. EBITDA 305 8.67

Sum of the parts valuation implies price of ~ $40. Interest Expense 98 2.80

Dividend 0 0.00

Capital Spending 85 2.42

Earnings se nsitivities: Unit margin EPSProducts Units Units/share change Chg. (a) Comments mil. Lbs

Domestic Soda Ash tons 0.066 $7 0.32 Excludes 1.3 mil. tons of mothballed capacity 2,340

90% operating rate

Export Soda Ash tons 0.036 $7 0.17 35% sold to ANSAC then exported, Prices declining 1,260

Hydrogen Peroxide lbs 10 $0.01 0.07 Excludes 75 mi. lbs of mothballed capacity 350

90% operating rate

Caustic soda tons 0.003 $10 0.02 < 100 K tons, only sell when prices are above $150/ton 100

STPP tons 0.004 $10 0.03 Only in Europe through Foret 125

Astaris based STPP will be phased out end 1Q04.

Lithium Carbonate lbs 0 $0.01 0.00 Only 5% of lithium sales 7

Carrageenan $115 mil. in revenues Vol & Innovation driven

Microcrystalline cellulose $190 mil. in revenues Vol & Innovation driven

Alginates $50 mil. in revenues Vol & Innovation driven

Agriculture Pest Pressure Biggest factor on Ag. sales

Raw Materials: Comments Units

In '02, Raw Materials were approx. 30% of cost of sales & services. No 1 raw material was < 7% of total purchases.

Purchased organic intermediate for Pyrethroids is largest single raw material

Energy costs are approximately 9% of FMC'S cost of sales and services (1/3 nat. gas, 1/3 coal, & 1/3 electricity)Natural Gas mmbtu 0.31 $1 0.24 04 80% hedged, '05 40% hedged, '06 20% hedged 11

$4 in '02, $4 in '03, $4.40 in '04

Coal mmbtu 0.31 $1 0.24 Low cost Green River Coal 11

Electricity mmbtu 0.31 $1 0.24 Ball park estimate 11

Lithium Carbonate lbs 1 $0.01 0.00 Ball park estimate 20

Seaweed lbs 3 $0.01 0.02 Ball park estimate 100

Wood Pulp lbs 3 $0.01 0.02 Ball park estimate 100

Varible-rate debt interest rate 100 bpts $0.04 38% variable-rate debt, 62% fixed

Source: FMC, Greenwich Consultants, LLC


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Business DescriptionFMC Corporation, incorporated in 1928, is a diversified, global chemical company providing solutions,applications and products to a wide variety of end markets. The Company operates in three distinct businesssegments: Agricultural Products, Specialty Chemicals and Industrial Chemicals. Agricultural Products' principalfocus is on insecticides, which are used to enhance crop yield and quality by controlling a wide spectrum ofpests, and on herbicides, which are used to reduce the need for manual or mechanical weeding by inhibiting orpreventing weed growth. Specialty Chemicals consists of the Company's biopolymers and lithium businesses,and focuses on food ingredients that are used to enhance texture, structure and physical stability, pharmaceuticaladditives for binding and disintegrant use and lithium specialties for pharmaceutical synthesis and energystorage. The Company's Industrial Chemicals segment manufactures a range of inorganic materials, includingsoda ash, hydrogen peroxide, specialty peroxygens and phosphorus chemicals.

The following table shows the principal products produced by FMCs three business segments and their rawmaterials and uses.

Exhibit 3: FMC Principal Products, Raw Materials, Product Uses

Source: Greenwich Consultants, LLC; FMC

FMCs single largest geographic market, generating approximately 48% of revenue in 2002, with FMCssecond largest market, Europe, the Middle East and Africa representing 25% and Latin America, FMCs thirdlargest, representing 15% of 2002 revenue. The charts below detail FMCs sales and long-term assets by majorgeographic region.


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Exhibit 4: FMC Geographic Mix


Specialty Chemicals

The Company's Specialty Chemicals segment represents 26% of its revenues. The majority of SpecialtyChemicals revenues are to customers in non-cyclical end markets. It is focused on food ingredients,pharmaceutical excipients and intermediates and lithium specialty products. The segments historical financialsummary is exhibited below.

Exhibit 5: FMC Specialty Chemicals Financial Summary


As the following exhibit demonstrates, 54% of FMCs revenues in 2002 were generated outside North America.


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About 73% of 2002 segment revenues are Biopolymer related with about 27% from Lithium.

Exhibit 6: FMC Specialty Chemicals (Product and Regional Mix)


BioPolymers

BioPolymer is a supplier of microcrystalline cellulose, carrageenan and alginates, which are ingredients thathave applications in the production of food, pharmaceutical and other specialty consumer and industrialproducts. FMC has market share positions in microcrystalline cellulose, carrageenan and alginates ranging from

30 to over 50%. Microcrystalline cellulose, processed from specialty grades of wood pulp, provides binding anddisintegrant properties for tablets and capsules and has unique functionality that improves the texture andstability of many food products. Carrageenan and alginates, both processed from seaweed, are used in a widevariety of food, pharmaceutical and specialty areas.

Biopolymers product and market mix is provided in the following exhibit.


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Exhibit 7: FMC Specialty Chemicals (Biopolymer Product and Market Mix)

29

Specia l t y Chemic a ls : B ioPolymer Sa les Mix

Pharma

47%

Personal

Care

6%

Food

47%Cellulose

52%

Alginates

13%

Carrageen-

an31%

Other

4%

Mix by market Mix by product


FMC supplies alginates into the food and healthcare markets. Highly refined extracts from selected seaweedsprovide a broad range of alginate functionality, including uses in anti-reflux disorders, dental impressions,control release of drugs and wound dressings, as well as food texture management.

BioPolymer is organized around three major marketsfood, pharmaceutical and specialty ingredients. Thefollowing chart summarizes the major markets for BioPolymers products and FMCs chemistries in eachmarket.


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Exhibit 8: FMC Specialty Chemicals - BioPolymers (Products and End Use)


The end-use markets for BioPolymer have growth rates that are typically above GDP growth and are lesscyclical than markets served by other FMC businesses. BioPolymer serves food and pharmaceutical companies.BioPolymer has a broad customer base with low customer concentration.

Food ingredients

Food ingredients is BioPolymer's largest business, accounting for close to 50% of revenues. This businessprovides ingredients that impart unique texture, structure and physical stability (TSPS) to a broad array of foodproducts. TSPS imparts physical properties to thicken and stabilize foods. Key applications include dairy,beverages, and other convenience and healthy food categories that tend to grow faster than the overall food

market. Industry growth has averaged 3 to 4% with BioPolymer's food business tending to grow over time atrates faster than the industry.

Other suppliers of TSPS ingredients include Danisco A/S, DuPont, CP Kelco ApS, Imperial ChemicalIndustries PLC, Cargill Incorporated, Sobel N.V., DGF Stoess AG, FMC, Degussa AG and Tate & Lyle PLC.

Pharmaceuticals

The Company's BioPolymers business sells into the formulation chemicals segment of the pharmaceuticalmarket. The major end markets for formulation chemicals include coatings and colors, fillers, binders,sweeteners and flavors, disintegrants and others.

This business accounts for over 40% of sales and provides functional incipients, which are the inactiveformulation ingredients for cabling and binding of oral dose form drugs, primarily under the Avicel brand of

microcrystalline cellulose.In addition to microcrystalline and cellulose, the pharmaceuticals business has smaller positions in carrageenan,alginates and other cellulose-based product. These products have unique properties that satisfy customer needsin diverse applications such as anti-reflux treatment, dental impressions, liquid cough medicines and coatedtablets.

Industry growth in pharmaceutical incipients has tended toward 4% annually. FMC has grown at rates slightlyhigher than the industry, due to the favorable trends of customers to formulate with microcrystalline cellulose


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and FMCs ability to drive sales of other smaller products under the FMC market umbrella.

Personal care

The third and smallest BioPolymer business is personal care, which focuses on oral care and cosmetic markets.This business is a leader in providing innovative technologies in such applications such as toothpaste, skincareand face masks.

Expanding BioPolymer has been a key objective for FMC. In pharmaceuticals, new technologies and alliancesmay play a key role in broadening FMCs presence beyond the traditional incipient market. Although many ofthese programs have long development cycles, FMC is encouraged by the potential size of the opportunities.FMC believes that the potential exists over a five or ten year period to double the size of their business.

An example of this effort is to broaden BioPolymer presence in pharmaceuticals, as illustrated by the growth

potential of a small biomedical acquisition that FMC made in early 2002. This business, which is now calledFMC Novamatrix, focuses on high purity hydrocarlides marketed to the biomedical field. Use of these highpurity materials are expanding at a double-digit rate due to their unique properties and such end-use applicationsas wound healing, tissue engineering, and other cell-based therapies.

In addition, FMC recently announced an alliance with BioProgress PLC in the UK to develop and market aninnovative drug delivery mechanism named Enrobe to pharmaceutical companies worldwide.

According to FMC, selective acquisitions could add to BioPolymers growth. FMC believes that their platformsin food ingredients and pharmaceuticals are strong and could be added to with related businesses that wouldbenefit from the market franchise and operational focus that the company brings. Any potential acquisitionswould need to improve their leadership position, broaden their product and service portfolio to existingcustomers and offer significant intangible synergies.

The Company's principal microcrystalline cellulose competitors in pharmaceuticals include J. Rettenmaier &Sohne, Ming Tai Chemical, Asahi Kasei Corporation and Blanver Farmoquimica.

Lithium

Lithium is a vertically-integrated business, based on both inorganic and organic lithium chemistries. Whilelithium is sold into a variety of end-markets, FMC has focused their efforts on selected growth niches such asfine chemicals for pharmaceutical synthesis, specialty polymers and energy storage.

Lithiums product and market mix is provided in the following exhibit.


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Exhibit 9: FMC Specialty Chemicals (Lithium Product and Market Mix)

32

Polymers

30%

PharmaSynthesis

25%

Energy

Storage20%

Other

25%

Specia l ty Chemic als : L i th ium Sales Mix


FMC markets a variety of lithium-based products, ranging from upstream, commodity lithium carbonate tohighly specialized downstream products such as organolithium compounds and cathodic materials for batteries.In recent years, lithium carbonate has experienced a significant price decline due largely to industry oversupply.

The electrochemical properties of lithium make it a good material for portable energy storage in highperformance applications, including heart pacemakers, cell phones, camcorders, personal computers and nextgeneration technologies that combine cellular and wireless capabilities into a single device. Lithium is alsobeing developed as the enabling element in advanced batteries for use in hybrid electric vehicles.

Organolithium products are sold to fine chemical and pharmaceutical customers who use lithiums chemicalproperties to synthesize higher value-added products. Organolithiums are also valued in the specialty polymermarkets as polymer initiators in the production of synthetic rubbers and elastomers.

This business has done a better job in restoring profitability in recent years and has positioned itself longer-termfor continued growth. Lithium chemistry offers unique properties that apply to a broad array of end-useropportunities. Over the last several years, FMC has exited from the commodity grade lithium carbonate andfocused their resources on higher margin downstream activity.

Today FMCs lithium sales mix is split among four end market segments. First, polymers is the largest segmentaccounting for approximately 30% of sales. Given their utilities as initiators, butyl lithium and otherorganometallic products have demonstrated great value in synthetic polymer markets. Sales have grown at ratesabove GDP.

Second, pharmaceuticals synthesis accounts for about 25% of sales with annual growth rates consistent with


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that of the pharmaceutical industry. Butyl lithium and several new chemistries are the key products in thissegment. FMCs strategy is to become a broader-based total solution provider in order to capture additionalopportunities with key pharmaceutical customers.

Third, the energy storage segment has been the fastest-growing segment and now accounts for almost 20% ofsales. Sales have been growing in excess of 10% annually as lithium-based batteries continue to be the preferredtechnology. Although this segment has attractive growth fundamentals, FMCs strategy is to focus ondeveloping more proprietary technologies that will allow the company to improve profitability.

Fourth, inorganics account for the remaining 25% of sales. A wide variety of industrial applications with slowergrowth potential characterizes this segment. Over the last few years, FMC has reduced their focus on thesesegments but is developing selective new niche opportunities. Priorities for the lithium business are to continueto improve profitability and shift the sales mix toward higher value downstream markets. FMC expects the

division to provide returns in excess of the cost of capital in 2004.

FMC competes with Chemetall and Sociedad Quimica y Minera de Chile, which produce lithium carbonate.

The following exhibit summarizes the major markets for various lithium products.

Exhibit 10: FMC Specialty Chemicals - Lithium (Products and End Use)


Agricultural Products

FMCs Agricultural Products segment, which represents approximately 32% of its 2003 estimated revenues,manufactures and sells a portfolio of crop protection, pest control and turf and ornamental products. FMC


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Exhibit 12: FMC Agricultural Products (Product and Regional Mix)


In contrast to most other major crop protection companies, insecticides dominate FMCs Agricultural Productssegment, particularly pyrethroid and carbamate chemistries. Pyrethroids are a major class of insecticides whoselow spread rates distinguish it from other classes of insecticides. They are most effective against worm pests.Carbamates are a broad spectrum of insecticides used to control a wide variety of pests in both soil and foliage.

FMC also maintains niche positions in the herbicide market. The following exhibit summarizes the principalproduct chemistries in Agricultural Products and the principal uses of each chemistry.

Exhibit 13: FMC Agricultural Products (Product and End Use)



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The agrochemicals industry has recently undergone significant consolidation. Based on sales and giving effectto recent acquisitions, the top crop protection companies, Syngenta, Bayer, Monsanto Company, BASF, DowChemical and DuPont, currently represent more than three quarters of global sales, while in 1995, the top sixcompanies represented approximately half of global sales. Four of these companies, Syngenta, Bayer, BASFand Dow, have all made significant acquisitions of other crop protection companies over the past few years. Adriver for this consolidation has been the advent of biotechnology and the resulting escalation of research anddevelopment costs, particularly in herbicides employed in row crops.

The next tier agrochemical producers, including Makhteshim-Agan Industries Ltd., Sumitomo ChemicalCompany Limited, FMC and Nufarm Limited, generally employ strategies focusing on niche crops and markets(i.e., fruits, vegetables, household plants, turf and ornamental markets and/or generic products). Additionally,there is an emerging trend among these producers to partner with one another to gain economies of scale more

comparable to larger competitors.The environment in which FMC has been operating over the last 5 years has been anything but favorable. Aglobal crop recession, growth of generic producers and penetration of biotechnology have all taken their toll onthe industry. The impact of Monsantos bioengineered Roundup-Ready in row crops was the key factor inFMCs deciding to exit the row crop business for sulfentrazone, a product which contributed to their financialresults in 2000. Despite these challenges, FMCs pyrethroid insecticide business has grown at 5% CAGR.

In response to the changing dynamics of the crop protection market, FMC substantially restructured andrefocused their business in 2002 generating SG&A savings exceeding $20 million on an annual basis. From acost reduction perspective, the company has outsourced production to China, Mexico and India, saving on theorder of $40 million since 1999. FMC sees additional opportunities to outsource production in the next fewyears, which will, in part, drive future earnings growth.

From a revenue perspective, three core, patented products representing nearly half of FMCs sales will continueto drive near-term growth through label expansions, or the right to sell an ag chemical in a new crop and/orcountry. In both bifenthrin and zeta-cypermethrin, FMCs third and fourth generation pyrethroid insecticides,FMC foresees a wide range of labels driving growth including corn, vegetables, fruits and nuts. Similarly, FMCis optimistic about label growth for their post-emergent herbicide called Carfentrazone.

FMC also remains optimistic about a novel chemistry they are developing for the Americas in conjunction withISK. This product will target sucking pests and, because of its more favorable environmental impact versuscurrent technology, is receiving a fast-track review by the EPA. The EPA has prioritized this patented newchemistry for registration in certain applications as an organophosphate alternative. The EPA is encouraging thedevelopment of alternative products for organophosphates, currently the number one class of insecticides in

terms of worldwide demand. FMC expects to launch the product in 2005.

FMC entered into several agreements with ISK, under which FMC will work together to market and distributeexisting and new insecticide chemistries in various markets. With the ISK alliance, FMC has expanded itsdistribution capabilities in Japan and in Europe by jointly investing with ISK in the Belgian-based pesticidedistribution company, Belchim Benelux N.V.

FMC plans to obtain new and approved uses for existing product lines as well as complementary chemistriesfrom other pesticide companies. For example, FMC recently obtained new labels for zeta-cypermethrin for use


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on corn, rice, alfalfa, sugar cane and leafy vegetable crops. Meanwhile, FMCs carfentrazone herbicide has beenapproved for cotton defoliation in North America. In addition, FMC continues to develop new applications forsulfentrazone and clomazone herbicides.

FMC is among the first agrochemicals companies to pursue a predominantly genomics-based approach in theirlong-term discovery efforts to identify compounds with a specific biological function on agricultural pests.FMC hopes this approach will enable a more rapid and cost-effective way to discover new insecticidechemistries that target unique mechanisms of action in economically important insects. FMCs genomics-basedresearch platform has discovered 10 insect-active chemistries, which are now in field testing. Given the highlyregulated nature of the ag business, commercialization of such chemistries is at least 5 years away.

Industrial Chemicals

The Industrial chemicals business is operating in difficult trough conditions. FMC is the number onemanufacturer of soda ash, peroxygens and phosphorus chemicals in North America and FMC is backwardintegrated into the natural resource where it is strategically important.

FMCs historical performance in this segment reflects the difficult operating conditions facing these businessessince 2000 and the impact of capacity overbuilding in the late 1990s.

During the past few years, FMC has taken actions to improve profitability including mothballing of roughly25% of their capacity in both soda ash and hydrogen peroxide, closure of Astaris elemental phosphorus facilityin Pocatello, Idaho, and overhead cost reductions across all businesses. FMC has conserved cash flow throughlow capital spending and working capital discipline.

Unfortunately, in 2003, efforts to improve our core Industrial Chemicals business have been more than offset by

continued weakness at Astaris resulting from low selling prices and depressed market conditions.However, the outlook for the segments 2004 performance is improving. In hydrogen peroxide, recovery mayhave already begun with a 1 cent per lb. increase realized in 2003. Several more cents per pound are possible in2004. Steady volume growth in the pulp markets has resulted in tighter industry capacity utilization levels thatare now above 90%. The recent industry-wide support for a 5-cent per lb. price increase could result in higherprices for 2004.

In soda ash, tightening industry capacity utilizations, now just above 90%, and the possibility of capacityrationalization following Solvays acquisition of American Soda, bode well for higher prices in 2004. Already,nearly all suppliers have supported at least a $7 per ton price increase. We believe less than this will beachieved given the protracted length of the current trough, recovery to even normalized levels of pricing maytake a couple of years. In addition, until FMC gets into the market with the recent price increaseannouncements, they will not know what kinds of price caps their competitors have put in place, which can inturn limit their ability to realize higher prices nearer term.

In phosphorus chemicals and, more specifically Astaris, the market may have bottomed. Industry volumegrowth has been modest, and capacity utilizations remain at an unhealthy mid-70 percent level. Nonetheless,pricing has stabilized and, in a few areas, increased. However, a substantial recovery is not likely until one ormore of suppliers rationalize capacity.

FMCs Industrial Chemicals segment, which represents 41% of its consolidated revenues, has positions in high-


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volume inorganic chemicals, including soda ash, phosphorus chemicals and hydrogen peroxide, complementedby niche positions in specialty alkali, phosphorus and peroxygen products.

The segments historical financial summary is exhibited below.

Exhibit 14: FMC Industiral Chemicals Financial Summary


As the following exhibit demonstrates, 45% of FMCs revenues in 2002 were generated outside North America.About 49% of 2002 segment revenues were Alkali, 20% Foret, and 21% peroxygens. Sales to North Americaand Europe drive FMCs regional sales mix, although both soda ash and Foret have healthy major exportbusinesses into both Asia and Latin America. Not included in FMCs sales mix, but accounted for on anearnings basis via the equity method and included in FMCs Industrial Chemicals segment earnings, is its shareof Astaris, a 50/50 joint venture in phosphorus chemicals with Solutia.


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Exhibit 15: FMC Industrial Chemicals (Product and Regional Mix)


Industrial Chemicals serves a diverse group of markets, from economically sensitive industrial sectors totechnology-intensive specialty markets. FMC processes and sells refined inorganic products that are sought bycustomers for their reactivity or specific functionality. In addition, FMC produces, purifies and marketsdownstream derivatives into specialized and customer-specific applications. These applications include dialysis,rocket propulsion, animal nutrition, biocides, semiconductors and baking.

AlkaliFMC's alkali chemical division produces natural soda ash. Soda ash is used by manufacturers in the glass,chemical processing and detergent industries. To a lesser degree, FMC also produces sodium bicarbonate,caustic soda and sodium sesquicarbonate. FMCs products are manufactured and sold through FMC WyomingCorporation, which FMC manages as an integral part of their alkali business in which FMC own sharesrepresenting an 87.5% economic interest, with the remaining 12.5% held by two Japanese companies.

FMC mines and produces natural soda ash using proprietary, low-cost mining technologies, such as long-walland solution mining, which may give FMC a low cost versus other suppliers. FMCs two production sites inGreen River, Wyoming have the capacity to produce approximately 4.9 million tons of soda ash annually,though the business over the last several years has mothballed 1.3 million tons of capacity to improve coststructure and to respond to market conditions.

Peroxygens

FMC produces hydrogen peroxide worldwide, with production facilities in the United States, Canada, Mexico,Spain, the Netherlands and through a joint venture company in Thailand. FMC sells hydrogen peroxide into thepulp and paper industry, and to a lesser extent, in the electronics, chemical processing, food and textilesindustries. Hydrogen peroxide represents three quarters of FMC peroxygens sales.

FMCs specialty peroxygens business supplies persulfate products primarily to polymer and printed circuit


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board markets, and peracetic acid predominately to the food industry for biocidal applications.

Foret

FMC's European subsidiary, FMC Foret, headquartered in Barcelona, Spain, is a supplier of chemical productsto the detergent, paper, textile, tanning and chemical industries. Foret is a large and diverse operation withseven manufacturing locations in Europe. Foret has positions in phosphates, hydrogen peroxides, perborates,sulfur derivatives, silicates and zeolites. Foret's sales efforts are focused in Southern Europe, Africa and theMiddle East.

Astaris

Astaris, FMCs 50%-owned unconsolidated joint venture with Solutia, is one of two diversified phosphoruschemical suppliers in the western hemisphere. Astaris was formed as a separate company in 2000. Astaris'

products are used in chemical processing, baking, food processing, detergent applications and fire suppressants.Astaris is shifting its manufacturing process to take advantage of lower-cost sourcing of phosphorus. FMCbelieves that the move from a manufacturing strategy based on elemental phosphorus to one based on purifiedphosphoric acid (PPA) feedstock will eliminate the high environmental compliance and energy costs thatadversely affected their Pocatello elemental phosphorus facility and unfavorably impacted their earnings inrecent years.

The significant restructuring which is now underway at Astaris is expected to take about nine months toimplement. The Board of Managers of Astaris has approved a plan that will result in the closing of fourfacilities, the exit of the commodity sodium tripolyphosphate business, and once completed the reduction ofnearly $40 to $50 million of cost on an annual basis. With this restructuring, Astaris will improve its own

phosphorus chemicals capacity utilization from approximately 60% to greater than 90, and it will also driveoverall utilization to much healthier levels. The resulting business should have revenues of about $400 million,generate modest operating profit, and produce steady free cash flow. Any subsequent improvements in sellingprices and/or in economic recovery should lead to further improvements in both profits and cash flows.

Among the facility closures will be several former FMC facilities including the Bedford Park, Illinois,distribution facility and the Green River, Wyoming STPP plant. The remaining other FMC Green River plants,primarily serving the Alkali business, will continue operating. As a result of the Green River STPP closure, theConda, Idaho PPA plant, which has been solely dedicated to supplying Green River's raw materialrequirements, will also be shut down. We expect these changes in Astaris's business to adversely affect theoperating profits of other businesses within FMC by approximately $4 million in 2004.

FMC remains optimistic that with this restructuring Astaris will be able to refinance during 2004 under terms

which no longer require the support of its parents. And, therefore, FMC will not be required to make the fourkeep-wells.

Industrial Industry Overview

Soda ash, peroxygens and phosphorus chemicals are generally inorganic-based, produced from minerals or air,and are generally commodities, which, in many cases, have few cost effective substitutes. Growth is typically afunction of GDP or the rate of industrialization in key export markets. Pricing tends to reflect short-term supplyand demand as producers add or reduce capacity and demand changes.


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Soda Ash

Soda ash is a highly alkaline inorganic chemical essential in the production of glass, and widely used in theproduction of chemicals, soaps and detergents and many other products. Natural soda ash is generally producedfrom trona, a natural form of sodium sesquicarbonate, through mining and chemical processing. Soda ash mayalso be produced synthetically using the process developed in the 19th century by Ernest Solvay, which usessalt, ammonia, carbon dioxide and limestone as raw materials. The Solvay process requires a significant amountof heat energy and produces large quantities of waste by-products, making it much less cost-effective thannatural soda ash production.

Because of the processing cost advantages of trona and the large natural reserves of trona in the U.S.,particularly in Green River, Wyoming, all U.S. soda ash production is natural. By contrast, due to a lack oftrona, a large percentage of the soda ash that is manufactured in the rest of the world is produced synthetically.

Other U.S. producers are OCI Chemical Corporation, Solvay, The General Chemical Group, IMC Global Inc.and American Soda.

Approximately 30% to 35% of U.S. natural soda ash production is exported through the American Natural SodaAsh Association (ANSAC). ANSAC is the foreign sales association of all U.S. producers of soda ash, and wasestablished in 1983. Since its creation, ANSAC has been successful in coordinating soda ash exports, exploitingthe natural cost benefits of U.S.-produced natural soda ash.

Peroxygens

Hydrogen peroxide is typically sold in aqueous solutions for use as a bleach or oxidizer. As such, it oftencompetes with other chemicals capable of performing similar functions. Some of our specialty peroxygenderivatives (e.g., perborates) also function as bleaching or oxidizing agents. Environmental regulations, regional

cost differences (often due to transportation costs) and technical differences in product performance enter intothe decision to use hydrogen peroxide or one of its derivatives rather than another product. Since theseconsiderations vary by region, the consumption patterns vary in different parts of the world. Hydrogen peroxideis sold in aqueous solutions, usually 35%, 50% or 70% by weight.

The U.S. pulp and paper industry represents approximately 65% of domestic demand for hydrogen peroxide. Inthis market, hydrogen peroxide is used as an environmentally friendly bleaching agent to brighten chemical,mechanical and recycled pulps, as well as treat a wide range of mill pollutants in the waste stream.

During the 1990s the hydrogen peroxide market became increasingly cyclical dependent on the pulp industry,which has recently experienced a general slowdown. In addition, demand growth for hydrogen peroxide hasslowed as the conversion from elemental chlorine by the U.S. pulp industry is largely complete. These trends

have had a negative effect on pricing. The other North American hydrogen peroxide producers are Akzo Nobel,ATOFINA Chemicals, Degussa, Kemira Oyj and Solvay.

Phosphorus Chemicals

Phosphorus chemicals are used in many industrial applications in a wide array of chemical compounds. Overallgrowth in demand for phosphorus chemicals tends to correlate with GDP. Phosphoric acid and phosphate salts(e.g., sodium phosphates, calcium phosphates, potassium phosphates) are sold into many markets includingfood, beverage, water treatment, automotive, metal cleaning, detergents, specialty agricultural and fire


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suppressants.

The basic feed for making phosphorus chemicals is now produced using two processes. Most industrialapplications use the cost-effective process, which involves making PPA by the purification of fertilizer-gradephosphoric acid. Thermal phosphoric acid, long the industry standard, is produced from elemental phosphorusbut is far more costly due to energy and environmental compliance costs, and is now used mainly in limitedapplications. While Astaris ceased the production of elemental phosphorus in 2001, it is still produced byMonsanto in the United States, Thermphos in the Netherlands, and in several other countries, principally China.

Worldwide demand for phosphorus chemicals declined in the early 1990s as detergents containing phosphatesfor home-laundry use were banned in North America and parts of Europe. According to FMC, though notprojected to occur in 2003, over the next few years, industrial demand for phosphorus chemicals could improve,driven by growing demand in the detergents and food and beverage industries in newly industrializing nations,

and by the growth of food and beverage applications in the United States and Europe.

Beginning in the 1990s, reduced demand, the shift in growth toward developing regions, and the advent of newtechnology resulted in a significant restructuring of the phosphorus chemicals industry as producersconsolidated or exited the business.

In North America, FMC participates in the industrial phosphate business through their Astaris joint venture. InEurope, FMC participates in this business through Foret. Both Astaris and Foret use the PPA process. Majorcompetitors include Rhodia, Potash Corporation of Saskachewan, Prayon Rupel, and Rotem Amfer & Negev.


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ValuationOur target price for FMC is $37 based on 15X our 2004 EPS estimate of $2.45. We note that FMC currentlytrades a discount to our group average, which we believe is largely due to its lower liquidity, lower organicgrowth prospects, and higher debt. We note that FMC does not pay a dividend so there has been no dividendsupport for the stock.

Exhibit 16: FMC Valuation

Rating Mkt. Cap. Price 52 Wk Range

Target

Price

Target

Price %

Yield

(%)

03E

EPS

04E

EPS

03E

P/E

04E

P/E3M COMPANY Not Rated 63.842B $81.34 59.73 - 81.65 1.6% $3.07 $3.45 26.5 23.6

DU PONT CO Buy 43.509B $43.65 34.71 - 45.55 $48.40 11% 3.2% $1.64 $2.20 26.6 19.8

DOW CHEMICAL CO Hold 35.625B $38.70 24.83 - 39.53 $35.00 -10% 3.5% $1.18 $1.75 32.8 22.1

PRAXAIR INC Buy 11.885B $73.10 50.03 - 74.66 $75.60 3% 1.5% $3.51 $4.20 20.8 17.4

AIR PRODS & CHEM Buy 11.085B $50.40 36.97 - 50.55 $51.30 2% 1.8% $2.50 $2.85 20.2 17.7

MONSANTO CO Buy 7.181B $27.41 13.55 - 28.58 $30.60 12% 1.9% $1.50 $1.70 18.3 16.1

LYONDELL CHEM Sell 2.486B $15.30 10.96 - 16.12 $11.00 -28% 5.9% ($1.70) ($0.75) (9.0) (20.4)

MINERALS TECH Buy 1.113B $54.62 34.10 - 55.65 $61.00 12% 0.2% $2.75 $3.05 19.9 17.9

FMC CORP Buy 1.112B $31.50 14.22 - 31.41 $36.75 17% 0.0% $1.81 $2.45 17.4 12.9

GEORGIA GULF Hold 924.0M $28.43 16.94 - 29.36 $28.60 1% 1.1% $0.58 $2.20 48.7 12.9

Average 2.1% 25.7 17.8ex. 3M ex. LYO ex. LYO


Relative to our coverage universe, FMC looks inexpensive based on price to cash flow, EV to EBITDA, price tosales, and price to book value even though our 03 EBITDA/sales estimate is only slightly lower than average.

Exhibit 17: FMC Valuation

Rating

03E

P/CF

04E

P/CF

03E EV

to

EBITDA

04E EV

to

EBITDA

03E

Price/

Sales

Net

Debt/Total

Cap (Bk)

03

EBITDA/

Sales

Price/

Book

Short

RatioDU PONT CO Buy 13.1 12.0 11.8 10.5 1.6 43% 16% 4.5 2.0

DOW CHEMICAL CO Hold 12.4 10.5 11.0 9.3 1.1 57% 13% 4.5 3.3

PRAXAIR INC Buy 6.6 7.4 10.4 9.3 2.2 50% 26% 4.2 2.0

AIR PRODS & CHEM Buy 5.4 5.9 8.9 8.3 1.6 39% 22% 2.9 1.6MONSANTO CO Buy 8.4 7.7 7.2 6.8 1.4 16% 23% 1.4 2.2

LYONDELL CHEM Sell 10.3 6.7 12.6 8.8 0.2 83% 6% 2.1 14.1

MINERALS TECH Buy 6.1 6.5 7.8 7.5 1.4 10% 19% 1.7 5.5

FMC CORP Buy 5.3 6.0 6.2 5.9 0.6 61% 16% 2.2 4.5

GEORGIA GULF Hold 11.1 6.8 10.7 6.7 0.6 79% 9% 6.8 7.1

Average 8.8 7.7 9.6 8.1 1.2 49% 17% 3.4 4.7



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Exhibit 19: FMC Acquisition AnalysisValuation

2003 2004 2005 2003 2004 2005 (billions) Methodology

Sum of The Parts Method

Agricultural Products 602 617 633 108 114 117 0.8 7 X '03 EBITDA

Specialty Chemicals 517 541 565 131 135 140 1.0 8 X '03 EBITDA

Industrial Chemicals 773 777 788 101 105 111 0.4 4 X '03 EBITDA

Net Debt (0.8)

Total 1.4

Equity Value/share $40

Whole Company Method (Specialty Chemical EBITDA Multiple)

FMC 1,893 1,935 1,985 339 354 369 2.1 6 X '04 EBITDA

Net Debt (0.8)

Total 1.3

Equity Value/share $38

Revenue (millions) EBITDA (millions)

Source: Greenwich Consultants

The following exhibit provides a matrix of potential values for FMCs stock depending on the discount rate andterminal value of revenues. Assuming a 9% discount rate to cash flows through FY2008 and a terminal valuefor revenues in 2008 of 1.25X, we estimate that FMCs stock is worth about $40/share.

Exhibit 20: FMC Net Present Value of about $40/share

NET PRESENT VALUE CASH FLOWS

Terminal Value Revenue Multiple

1.00 1.25 1.50

Discount 8% $1,191 $1,524 $1,857

Rate, % 9% $1,109 $1,421 $1,734

10% $1,033 $1,326 $1,619

NET PRESENT VALUE CASH FLOWS PER SHARE

Terminal Value Revenue Multiple

1.00 1.25 1.50

Discount 8% $34 $43 $53

Rate, % 9% $32 $40 $4910% $29 $38 $46

Source: Greenwich Consultants


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Earnings OutlookOur financial outlook for 2003 through 2008 is provided in the following exhibit. We expect lower interestexpense in 2004 to add about $0.20 to EPS. Restructuring at Astaris could add another $0.20 to 2004 EPS.Organic growth in Specialties and Ag could add another $0.20 to 2004 EPS. Modestly improved results inIndustrial Chemicals could add about $0.05 to 2004 EPS.

Exhibit 21: FMC Earnings Model ($ in millions or per share)

1Q03A 2Q03A 3Q03A 4Q03E 1Q04E 2Q04E 3Q04E 4Q04E 2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008E

Agricultural Products 129 175 154 145 132 179 158 149 653 615 602 617 633 649 681 715

Specialty Chemicals 127 139 126 126 133 145 131 132 472 488 517 541 565 590 617 645

Industrial Chemicals 180 197 192 204 168 213 196 200 822 753 773 777 788 815 868 928

Eliminations (1) (1) (1) (1) (1) (1) (1) (1) (4) (4) (5) (5) (5) (5) (5) (5)

Total Rev enues 434 510 471 474 431 536 484 479 1,943 1,853 1,888 1,930 1,981 2,049 2,161 2,283

% Chg. Yr./Yr. 0% 6% -1% 3% -1% 5% 3% 1% -5% -5% 2% 2% 3% 3% 5% 6%

COGS (325) (371) (344) (340) (320) (390) (350) (350) (1,417) (1,360) (1,380) (1,410) (1,450) (1,510) (1,600) (1,700)

Gross profit 109 139 126 134 111 146 134 129 526 493 508 520 531 539 561 583

Gross profit, % 25% 27% 27% 28% 26% 27% 28% 27% 27% 27% 27% 27% 27% 26% 26% 26%

SG&A + R&D (77) (82) (77) (77) (77) (77) (77) (77) (343) (306) (314) (309) (305) (305) (305) (305)

Other 8 8 6 6 6 6 6 6 50 44 28 26 26 26 26 26

Operating Profit

Ag. Products 5 27 24 21 6 30 26 22 73 70 78 84 87 91 95 99

Specialty Chem. 24 30 23 26 24 33 25 26 88 90 104 108 113 118 125 131

Industrial Chemicals 10 8 8 16 11 12 12 10 73 72 41 45 51 51 62 73

Segment EBIT 40 65 55 63 41 75 63 58 233 231 222 237 252 260 282 304

Corporate ex pense (7) (10) (9) (9) (9) (9) (9) (9) (36) (36) (36) (37) (37) (37) (37) (37)Other ex pense, net (FIFO, Pension, etc.) (3) (2) (0) (0) (0) (0) (0) (0) (2) (0) (6) (1) (1) (1) (1) (1)

EBIT 29 53 46 53 31 65 54 49 195 195 181 199 214 222 244 266

% Chg. Yr./Yr. -14% 8% -18% -4% 6% 24% 17% -9% -27% 0% -7% 9% 8% 4% 10% 9%

Interest ex pense, net (27) (25) (24) (22) (22) (22) (22) (21) (64) (78) (98) (87) (74) (57) (43) (26)

Pre-tax income 2 28 22 31 9 43 32 27 131 117 83 112 139 165 201 240

Tax ex pense (1) (6) (5) (7) (2) (10) (7) (6) (31) (29) (19) (26) (32) (38) (46) (55)

Tax rate 21% 23% 23% 23% 23% 23% 23% 23% 24% 25% 22% 23% 23% 23% 23% 23%

Net Income 2 22 17 24 7 33 25 21 100 88 64 86 107 127 155 185

Excl. unusuals 36 0 0 0 0 0 (603) 0 36 0 0 0 0 0

Diluted Shares out (av g for EPS) 36 36 35 35 35 35 35 35 31 34 35 35 35 35 35 35

EPS, First Call Basis $0.05 $0.61 $0.47 $0.68 $0.20 $0.95 $0.70 $0.60 $3.10 $2.53 $1.81 $2.45 $3.05 $3.60 $4.40 $5.25

% Chg. Yr./Yr. -88% -14% -41% 10% 300% 56% 49% -12% -36% -18% -28% 35% 24% 18% 22% 19%


Cash Flow

On June 30, 1999, FMC acquired the assets of Tg Soda Ash, Inc. from ATOFINA Chemicals for approximately$51 million in cash and a contingent payment due at year-end 2003. The contingent payment amount, whichwill be based on the financial performance of the combined soda ash operations between 2001 and 2003, cannotbe determined precisely but is expected to be approximately $35 million.


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We expect FMCs to manage its capital spending below D&A. We believe that FMC can meet the expecteddemand growth in all their businesses over the next 5 years through mothballed capacity and debottleneckingand, therefore, do not expect any significant capital spending projects as the economy recovers.

We anticipate that FMC will generate significant free cash flow in 2004 to reduce debt. We believe FMC cangenerate close to $70 million in free cash flow in 2004 provided Astaris can be refinanced, or $27 million if not.The refinancing would eliminate the need for Astaris Keepwell payments in 2004. Further reductions inworking capital are also likely in our opinion. We have also assumed that by 2005, FMC will sell its twoproperties in Princeton, NJ and San Jose, Ca for more than $100 million.

Exhibit 22: FMC FMCs Cash Flow ($ in mil lions or per share)

Abbreviated Free Cash Flow Calc. 1Q03A 2Q03A 3Q03A 4Q03E 1Q04E 2Q04E 3Q04E 4Q04E 2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008E

Net Income 2 22 17 24 7 33 25 21 100 88 64 86 107 127 155 185

D&A 31 31 31 31 31 31 31 31 132 119 124 125 125 125 125 125

Gross Cash Flow 32 53 48 55 38 65 56 52 232 206 188 211 233 252 280 310

Cash Flow /Share $0.91 $1.48 $1.36 $1.57 $1.09 $1.84 $1.59 $1.49 $7.40 $5.99 $5.31 $6.01 $6.61 $7.16 $7.96 $8.81

Capital Ex penditures (17) (22) (20) (26) (24) (24) (24) (24) (140) (84) (85) (95) (95) (95) (95) (95)

Astaris Financing/Keepw ell 0 (26) (21) (15) 0 (22) (11) (11) (31) (30) (63) (45) 0 0 0 0

Tex as Gulf Acquisition 0 0 0 (35) 0 0 0 0 0 0 (35) 0 0 0 0 0

Poctello Restructuring (8) (4) 2 (5) (8) (8) (8) (8) (87) (64) (15) (33) (10) (10) 0 0

Div idend 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Asset Sales 0 0 13 0 0 0 0 0 nm nm 13 0 100 0 0 0

Operating Working Capital (101) 34 143 (12) 5 5 5 5 nm nm 64 20 10 0 0 0

Pre-paid Pension 0 (7) 0 0 0 (7) 0 0 0 (2) (7) (7) (7) (7) (7) (7)

Env ironmental (2) (10) (8) (5) (6) (7) (6) (6) (31) (25) (25) (25) (25) (25) (25) (25)

Free Cash Flow (95) 17 156 (43) 5 2 12 8 (57) 1 35 27 206 115 153 183

Free Cash Flow /Share ($2.67) $0.48 $4.42 ($1.21) $0.16 $0.05 $0.34 $0.24 ($1.83) $0.04 $0.99 $0.78 $5.84 $3.26 $4.35 $5.20

EBITDA 60 84 77 85 62 97 85 80 327 314 305 324 339 347 370 391

Cap. Ex ./D&A 56% 71% 65% 83% 76% 76% 76% 76% 106% 71% 69% 76% 76% 76% 76% 76%


Capitalization

Restricted cash - During 2002, FMC obtained capital resources for planned business operations by executing aseries of financing transactions that were completed in the fourth quarter of 2002. At September 30, 2003 andDecember 31, 2002 there were no outstanding borrowings under their $250 million committed revolving creditfacility, obtained as part of the 2002 refinancing. Another objective of the 2002 refinancing was to providesubstantial cash for collateral assuring the payment of certain self-insurance obligations, environmentalremediation activities, future business commitments, cash to collateralize letters of credit supporting variable-rate pollution control and industrial revenue bonds, and cash to redeem long-term debt maturing beforeDecember 31, 2003. The cash set aside for these purposes is shown on the condensed consolidated balancesheets as "Restricted cash," which was $137.4 million and $274.6 million at September 30, 2003 and December31, 2002, respectively.

One of FMCs objectives is to reduce net debt by $300 million by the end of 2006. FMCs syndicated term loan


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of $250 million due 2007 does not allow FMC to repurchase shares or pay a dividend until it is repaid. We donot anticipate any large acquisitions the possibility of small bolt-on acquisitions in specialty chemicals can notbe ruled out. In the short-term to medium-term, we expect FMC to use free cash flow to pay down itssyndicated term loan. We expect net debt to decline from about 59% of total capital in 2003 to about 55% bythe end of 2004 and 44% by the end of 2005. This could prove to be conservative if Astaris is refinanced in2004, which would increase cash by reducing the number of keepwell payments.

We note that return on invested capital (ROIC) is above 10% and we expect ROIC will trend upwards movingforward.

Exhibit 23: FMC FMCs Capitalization, ($ in mill ions or per share)

Capitalization 1Q03A 2Q03A 3Q03A 4Q03E 1Q04E 2Q04E 3Q04E 4Q04E 2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008E

Long-Term Debt 1,123 1,109 1,034 956 951 949 937 929 652 1,036 956 929 723 608 455 272

Short-Term Debt 196 181 50 50 50 50 50 50 272 231 50 50 50 50 50 50

Less: Cash Items 319 355 291 170 170 170 170 170 23 364 170 170 170 170 170 170

Net Debt 999 935 793 836 831 829 817 809 900 903 836 809 603 488 335 152

Minority Interest 44 44 43 43 43 43 43 43 45 45 43 43 43 43 43 43

Equity 440 510 502 526 533 567 591 613 219 406 526 613 720 847 1,002 1,186

Total Capital (incl. Net Debt) 1,483 1,489 1,339 1,406 1,407 1,439 1,452 1,465 1,164 1,354 1,406 1,465 1,366 1,378 1,380 1,382

Net Debt/Total Capital 67% 63% 59% 59% 59% 58% 56% 55% 77% 67% 59% 55% 44% 35% 24% 11%

Return on Inv ested Capital (ROIC) 6.5% 11.0% 10.0% 12.0% 6.8% 14.1% 11.4% 10.3% 9.8% 11.6% 10.2% 10.7% 11.6% 12.4% 13.6% 14.8%


The following Exhibit contains selected balance sheet items at the end of September 2003. Net asset value

(PP&E net + inventories - net debt) implies value for FMCs assets of about $38/share. Book value per share isabout $14.


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Investment PositivesWe think EPS will trough in 2003 at about $1.81. Peak earnings could be around $6. Just about any way wevalue the stock, NPV, EBITDA takeout, EV/EBITDA, forward year P/E, peak EPS, we calculate an equityvalue of $38 to $40/share. So, we believe the stock represents good value at the current price.

Solvay acquisition of American Soda LLP should result in capacity closure and higher industry operating rateswhich could help Soda Ash pricing in 2004.

Astaris is being restructured and if it can be refinanced in 2004, FMC may save some keepwell payments.

FMC has two significant properties. One, the former defense operations FMC had in San Jose, California (nextto the airport), and second, FMCs Princeton research facility, which has large unutilized both land, lab andoffice space, which FMC is interested in monetizing. These two properties may be worth more than $100

million.

No meaningful amount of debt maturities until 2006, but we expect FMC to pay down about $300 million interm debt by the end of 2006.

Debt covenants restrict stock buyback, dividends, and limit acquisitions until FMCs syndicated term-loan of$250 million is paid back. This provides clear direction for cash flows and limits the possibility of large dilutiveacquisitions.

FMC could be a candidate for sale after Jan 2004. The 2 year grace period will be over after the company splitinto two separate corporations, FMC and FTI. Separately and in our opinion, there is no longer a rationale tostay in the Ag business. So, FMC could sell its Agricultural Chemicals division for 8X EBITDA and would usethe cash to pay down its $250 million syndicated term-loan.


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Investment RisksWeather, Pests, and Politics

Poor weather in North America, South America, or Asia can easily ruin what otherwise might have been a goodAgricultural Products earnings year. Weather can limit farmers ability to use agricultural chemicals andweather can also impact the level of insect pressure and the amount of weeds. There are also economic andpolitical risks associated with conducting business in Latin America.

Environmental Obligations

FMC have been named a potentially responsible party, or PRP, at 26 sites on the federal governments NationalPriority List. In addition, FMC also has received notice from the EPA or other regulatory agencies that theymay be a PRP, at other sites, including 43 sites at which FMC has determined that it is reasonably possible that

the company has an environmental liability. In cooperation with appropriate government agencies, FMC iscurrently participating in, or has participated in, a Remedial Investigation/Feasibility Study (RI/FS) at most ofthe identified sites. At certain sites, a RI/FS has only recently begun, providing limited information, if any,relating to cost estimates, timing, or the involvement of other PRPs; whereas, at other sites, the studies arecomplete, remedial action plans have been chosen, or a Record of Decision has been issued.

FMC has provided reserves for potential environmental obligations that management considers probable and forwhich a reasonable estimate of the obligation could be made. Accordingly, reserves of $196.3 million and$223.4 million, excluding recoveries, have been provided at September 30, 2003 and December 31, 2002,respectively. FMC has estimated that possible contingent environmental losses may exceed amounts accrued byas much as $80 million at September 30, 2003 and may be satisfied over the next twenty years or longer.

Astaris Joint VentureOn October 14, 2003, Solutia, FMCs joint venture partner in Astaris, filed a lawsuit against FMC with theCircuit Court of St. Louis County, Missouri claiming that FMC had breached its joint venture agreement due tothe failure of the PPA technology FMC contributed to Astaris. Solutia may be seeking $225 million in damages.According to FMC, its Spanish subsidiary, FMC Foret S.A., has over 15 years of successful productionexperience operating its low-cost PPA technology at its facility in Huelva, Spain. It is not clear to us whetherthe case has merit or not.

Astaris History - Effective April 1, 2000, FMC and Solutia formed a joint venture that includes the NorthAmerican and Brazilian phosphorus chemical operations of both companies. The joint venture, Astaris is alimited liability company owned equally by FMC and Solutia. Solutia's equity interest in the Fosbrasil joint

venture, which is engaged in the production of purified phosphoric acid ("PPA"), was also transferred andbecame part of Astaris. Astaris also assumed all FMC/NuWest agreements relating to a PPA facility near SodaSprings, Idaho, and purchased all of the PPA output from that facility as part of those agreements. Thephosphate operations of FMC Foret were retained by FMC and were not transferred to the joint venture.Following its formation, Astaris divested certain operations in Lawrence, Kansas, and plant assets located inAugusta, Georgia.

The formation of the Astaris joint venture and several key changes in the operating processes of the jointventure, including a shift to the PPA process from the more costly elemental phosphorus process, have from


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time to time resulted in FMC recording assets and liabilities exclusive of FMC's initial equity investment inAstaris. Among these liabilities are FMC's commitments to make payments in support of earnings shortfallsunder the joint venture's debt agreement (keepwells). Assets related to Astaris include a receivable for $24.8million at September 30, 2003 for their contribution to the shutdown costs related to the closure of the jointventure's elemental phosphorus plant in Pocatello, Idaho and a receivable of $16.6 million due to Astaris'sagreement to fund an equal portion of FMC's and Solutia's future other post retirement benefit obligations toformer employees of the companies' phosphorus chemicals businesses.

Astaris Keepwells - In connection with the finalization of Astaris's external financing arrangements during thethird quarter of 2000, FMC entered into an agreement with Astaris's lenders under which FMC agreed to makepayments ("keepwell payments") sufficient to make up one-half of the shortfall in Astaris's earnings belowcertain levels. Solutia, which owns the other 50% of Astaris, provided a parallel agreement under which it

makes up the other half of any shortfall. Astaris's earnings did not meet the agreed levels for the first, secondand third quarters of 2003, and FMC does not expect that such earnings will meet the levels agreed for theremainder of 2003. FMC made keepwell payments of $47.5 million under this arrangement in the first ninemonths of 2003 compared to keepwell payments of $27.8 million in the first nine months of 2002. FMC expectsits total keepwell payments to be $63 million in 2003, depending on the financial performance of Astaris, and inthe range of $40 million to $50 million in 2004.

Astaris The Good News. At September 30, 2003, Astaris's credit facility obligations, which FMC's andSolutia's keepwell payments are intended to support, included outstanding borrowings of $95.5 million andletters of credit of $9.2 million, compared to $167.9 million of outstanding borrowings and $9.1 million ofletters of credit at December 31, 2002.

Interest Rate Risk

FMCs debt portfolio, including interest rate swap agreements, at September 30, 2003 is composed of 62%fixed-rate debt and 38% variable-rate debt. The variable-rate component of our debt portfolio principallyconsists of foreign bank borrowings, variable-rate industrial and pollution control revenue bonds, borrowingsunder our $250 million term-loan facility, and interest rate swap agreements entered into in the first quarter withan aggregate notional principal amount of $100 million. Changes in interest rates affect different portions of ourvariable-rate debt portfolio in different ways.

Based on the variable-rate debt included in our debt portfolio at September 30, 2003, a 100 basis point increaseor decrease in interest rates that remained in effect for the first nine months of 2003 would increase or decreasenet income by $1.1 million.

Commodity Price Risk

Energy costs are approximately 9% of FMCs cost of sales and services. FMC attempts to mitigate theirexposure to increasing energy costs by hedging the cost of natural gas. FMC hedges forward approximately80% of their future energy requirements.

Foreign Currency Exchange Rate Risk

The primary currency movements for which FMC has exchange-rate exposure are the U.S. dollar versus theeuro, the euro versus the Norwegian krone, the U.S. dollar versus the Japanese yen, and the U.S. dollar versus


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the Brazilian real. With foreign currency debt and forward foreign exchange contracts FMC attempts to reducetheir net asset exposure to these currency movements. FMC also uses forward foreign exchange contracts tohedge firm and anticipated foreign currency cash flows.

Premises and Product Claims

Like many industrial companies, FMC has been named as one of many defendants in asbestos related personalinjury litigation. These cases allege personal injury or death resulting from exposure to asbestos in premises ofFMC or to asbestos-containing components installed in machinery or equipment manufactured or sold bydiscontinued operations. The machinery and equipment businesses FMC owned or operated did not fabricatethe asbestos-containing component parts at issue in the litigation. The asbestos-containing materials werehoused inside of machinery and equipment and accessible only at the time of infrequent repair and maintenance.

As of December 31, 2002, there were approximately 26,000 premises and product claims pending against FMCin several jurisdictions. To date, FMC has discharged, all before trial, approximately 51,000 claims againstFMC, the overwhelming majority of which have been dismissed without any payment to the plaintiff. The costsof all settlements to date have totaled approximately $3 million.


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Important Disclosure InformationRating Key:Buy: Total return expected to appreciate 15% or more over a 12-month period. Hold: Total return expected to be between15% to -15% over a 12-month period. Sell: Total return expected to depreciate 15% or more over a 12-month period.

I hereby certify that the views expressed in the foregoing research report accurately reflect my personal views about thesubject securities and issuer(s) as of the date of this report. I further certify that no part of my compensation was, is, orwill be directly, or indirectly, related to the specific recommendations or views contained in this research report. By:Michael Judd.

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