FMC Corporation

What is FMC? FMC (ticker=FMC) is a mid-sized diversified chemical company with annual sales of $2.6 billion. It operates 32 manufacturing facilities and mines in 18 countries across three segments: industrial chemicals, specialty chemicals and pesticides. Sales are geographically diverse (N. America 41%, EMEA 28%, L. America 19% Asia Pacific 12%) It is a midcap stock (S&P MidCap 400) 19%, 12%). 400). Industrial chemicals (41% of sales, primarily soda ash and hydrogen peroxide): Soda ash is primarily used for the production of glass products, soap and detergents. FMC is the largest North American producer of soda ash, and is the lowest cost provider. While FMC mines soda ash in Wyoming, the majority of soda ash manufactured in the rest of the world is produced synthetically at higher cost (costs in China and Russia are about double US costs). The soda ash industry has been operating at virtually full capacity since 2004, driven by growing export demand, allowing producers to achieve sizable price increases. Most shipments are under long-term price contracts, and allow for freight and energy surcharge pass-throughs. FMC is the leading North American producer of hydrogen peroxide. Agricultural chemicals (33% of sales, primarily insecticides and herbicides for niche markets): FMCs strategy is to source production in low cost locations (third party producers in China, India and Mexico). The company believes its proprietary, proprietary branded products are in relatively strong niches Approximately 73 niches. percent of sales our outside the US. The emergence herbicide-resistant weeds and shifts in weed populations offers growth opportunities for FMCs newly launched product formulations and proprietary herbicide chemistries. Specialty chemicals (26% of sales, primarily biopolymers and lithium): Biopolymers serves food, beverage and pharma by helping thicken and stabilize foods, for example processing seaweed for use in low-fat frozen desserts. FMC is the worlds second-leading maker of lithium compounds (for example, used in cell phones, laptops, Ipods, and electric cars). The majority of specialty chemicals are to customers in non-cyclical end markets. Why buy FMC? Businesses are generating cash and it appears to have reduced debt burden. FMC has been buying back stock and declared dividends in 2006 for the first time (currently 10.5 cents a share, quarterly). There is some thought that it might pursue some acquisitions, but if not, it looks like strong returns for shareholders. There is strong operating leverage inherent in business. FMC is in the leading market positions in industrial chemicals, growing these businesses further creates additional returns. A portion of returns are being invested in higher growth businesses. Using its profits, FMC has areas to fund innovation and acquisitions which can lead to future growth. To some extent it is a niche company. For example, it makes insecticides for crops that aren't planted in rows, like grains, while Monsanto is focused on row crops like corn. As a midcap, it is in the shadow of Dow Chemical and DuPont, each of which is 10 times bigger in market value. Even its commodity products, such as soda ash and lithium, are smaller commodity markets, which experience pricing power during supply constraints. Geographically diverse: Good diversity of sales (only 41 percent in North America), and takes advantage of low cost production opportunities in other markets. What are the risks? Economic conditions could reduce demand for industrial chemicals, e.g. construction and any slowdown to growth in China. Agricultural cycles and shifts in pests could change demand for FMC agricultural products. Competition: What are the true barriers that protect business? What if Monsanto bids up the cost of any technology that FMC might want to acquire? p y gy g q Does FMC have the scope to keep its R&D leading edge? Trade restrictions: The soda ash exports and lithium exports from South America are major products that could be affected by specific trade restrictions. Alternative sources of soda ash: Could other natural sources come on line? What if costs fall dramatically in synthetic production?

DuPont analysis and valuation

ROS NOPAT Sales
3 3% 3.3% 3.5% 4.9% 4.5% 0.6% 0.65

AT Sales Assets
0.68 0.69 0.78 0 78 0.86 0 86 0.96

Leverage Assets Equity

7.07 4.81 4 81

ROE NOPAT Equity

2.7% 2.86 2.71 2.57 -10.3% 03 04 7.7% 7.8% 11.4% 11.2%

ROTC NOPAT LTD + Equity

7.5% 8.1% 4.0% 4.7% 4 0% 4 7% 0.7%

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Gross margins g (gross profit/revenue)

0.27 0.27 0.28 0.30 0.30 0.30

Days' sales in cash y (cash and equivalents/sales per day)

38 18 11 35 26 10

Earnings fund retained earnings and debt t

NOPAT has grown faster than equity

Debt reduction gives added boost to ROTC

Long-term debt g

Sustainable growth g ROS x AT 0.05 0.86 x LEV =Sustainable x Retention growth 2.71 0.79 0.09

1,036 1,033 822

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524 420

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Margins are stable

Reduced long-term debt

R&D (R&D/revenue)

Collection period (AR/revenue)

91 0.04 0.04 0.04 91 85 84 84 83

Retained earnings (balance sheet amount)

748 775 1,166 946 1,062 -

Valuation Valuation comment from Bank of America P/E and Relative P/E Analysis FMC currently trades at 13.7x 2008E consensus EPS of $3.83, an 11% premium to its average 15-year forward P/E average of 12.3x. The company's multiple has trended upwards since mid-2006, when it was trading at 10.4x forward earnings, but still lags peers, especially those more exposed to agricultural chemicals.

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R&D has continued

Increased equity through retained earnings

Fixed asset turnover (sales/PPE net)

1.7 17 1.7 17 1.8 18 2.1 2.3 2.8

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Prior year EPS Price P/E Appreciation

Current price Target price 3.09 3.95 53.54 68.44 17.33 17.33 28%

Club target price: $68.44 (28% appreciation) Analyst estimates for 2008 EPS are $3 95 In $3.95. 2007, EPS was $3.09 excluding restructuring and other charges. If FMC achieved an EPS of $3.95, and traded at a PE ratio of 17.33, it would imply a price of $68.44.

Source: BB&T Capital Markets, February 8, 2008