Chairman's - FMC Corporation

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<strong>FMC</strong> CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 17: FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND FAIR VALUE MEASUREMENTS Our financial instruments include cash and cash equivalents, trade receivables, other current assets, accounts payable, and amounts included in investments and accruals meeting the definition of financial instruments. These financial instruments are stated at their carrying value, which is a reasonable estimate of fair value. Financial Instrument Valuation Method Foreign Exchange Forward Contracts .............. Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies. Energy Forward and Option Contracts ............. Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices for applicable commodities. Debt ........................................ Ourestimates and information obtained from independent third parties using market data, such as bid/ask spreads for the last business day of the reporting period. The estimated fair value of the financial instruments in the above chart is based on estimated fair value amounts that have been determined using available market information and appropriate valuation methods. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a market exchange at settlement date and do not represent potential gains or losses on these agreements. The estimated fair values of foreign exchange forward contracts and energy forward and option contracts which is equivalent to their carrying amounts are included in the below tables under the “Accounting for Derivative Instruments and Hedging Activities” section. The estimated fair value of debt is $638.4 million and $566.0 million and the carrying amount is $643.9 million and $623.6 million as of December 31, 2009 and 2008, respectively. Use of Derivative Financial Instruments to Manage Risk We mitigate certain financial exposures, including currency risk, interest rate risk, and energy purchase exposures, through a program of risk management that includes the use of derivative financial instruments. We enter into foreign exchange contracts, including forward and purchased option contracts, to reduce the effects of fluctuating foreign currency exchange rates. We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively. Foreign Currency Exchange Risk Management We conduct business in many foreign countries, exposing earnings, cash flows, and our financial position to foreign currency risks. The majority of these risks arise as a result of foreign currency transactions. Our policy is to minimize exposure to adverse changes in currency exchange rates. This is accomplished through a controlled 100
<strong>FMC</strong> CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) program of risk management that includes the use of foreign currency debt and forward foreign exchange contracts. We also use forward foreign exchange contracts to hedge firm and highly anticipated foreign currency cash flows, with an objective of balancing currency risk to provide adequate protection from significant fluctuations in the currency markets. The primary currency movements for which we have exchange-rate exposure are the U.S. dollar versus the euro, the U.S. dollar versus the Chinese yuan and the U.S. dollar versus the Brazilian real. Hedge ineffectiveness related to our outstanding foreign currency exchange cash flow hedges recorded to earnings during the years ended December 31, 2009 was a loss of $(0.1) million. There was no such activity in 2008 and 2007. We hold certain forward contracts that have not been designated as hedging instruments. Contracts used to hedge the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities are not designated as hedging instruments, and changes in the fair value of these items are recorded in earnings. The net pre-tax gains (losses) recorded in earnings for contracts not designated as hedging instruments in 2009, 2008 and 2007 were $(36.9) million, $18.5 million and $(8.6) million, respectively. Commodity Price Risk We are exposed to risks in energy costs due to fluctuations in energy prices, particularly natural gas. We attempt to mitigate our exposure to increasing energy costs by hedging the cost of future deliveries of natural gas and entering into fixed-price contracts for the purchase of coal and fuel oil. Hedge ineffectiveness, related to our outstanding commodity cash flow hedges recorded to earnings for the years ended December 31, 2009, 2008 and 2007 were losses of $(0.6) million, $(0.2) million and $(0.1) million, respectively. The net pre-tax (loss) recorded in earnings for commodity contracts not designated as hedging instruments in 2009 and 2008 was $(0.2) million and $(0.5) million, respectively. There was no such activity in 2007 related to commodity contracts not designated as hedging instruments. Interest Rate Risk We use various strategies to manage our interest rate exposure, including entering into interest rate swap agreements to achieve a targeted mix of fixed and variable-rate debt. In the agreements, we exchange, at specified intervals, the difference between fixed and variable-interest amounts calculated on an agreed-upon notional principal amount. During 2009, we entered into derivatives to hedge the interest rate risk of the Senior Notes due 2019. These hedges were terminated when the Notes were issued and the loss, which was immaterial, was included in capitalized issuance costs. As of December 31, 2009 and December 31, 2008, we have no such swap agreements in place. Concentration of Credit Risk Our counterparties to derivative contracts are limited to major financial institutions and organized exchanges. We limit the dollar amount of contracts entered into with any one financial institution and monitor counterparties’ credit ratings. We also enter into master netting agreements with each financial institution, where possible, which helps mitigate the credit risk associated with our financial instruments. While we may be exposed to credit losses due to the nonperformance of counterparties, we consider this risk remote. 101
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Chairman’s LETTER Eight years ago
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from acquisitions made in 2008. Lit
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1000 800 600 400 Dollars in Million
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Dollars in Millions 800 700 600 500
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SEGMENT REVENUE AND OPERATING EARNI
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NON-GAAP RECONCILIATIONS Segment op
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UNITED STATES SECURITIES AND EXCHAN
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PART I FMC Corporation (FMC) was in
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energy storage markets to serve the
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The following table summarizes the
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Specialty Chemicals Financial Infor
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The following chart summarizes the
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Overview Our Industrial Chemicals s
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and percarbonates) also function as
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cellulose and seaweed extract as we
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• Changing regulatory environment
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ITEM 3. LEGAL PROCEEDINGS Like hund
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PART II ITEM 5. MARKET FOR THE REGI
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For the three and twelve months end
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Footnotes: (1) Discontinued operati
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driven by higher volumes in most re
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Revenue of $1,051.6 million was one
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Industrial Chemicals Revenue ......
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• $5.6 million of charges represe
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Segment Results Agricultural Produc
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Other Charges (Income), Net • Sol
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corporate purposes, including issui
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Cash required by operating activiti
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indemnification obligations with re
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On January 19, 2009, the European C
Page 63 and 64: Environmental obligations. We provi
Page 65 and 66: Sensitivity analysis related to key
Page 67 and 68: Our debt portfolio, at December 31,
Page 69 and 70: FMC CORPORATION CONSOLIDATED STATEM
Page 75 and 76: FMC CORPORATION NOTES TO CONSOLIDAT
Page 83 and 84: NOTE 3: ACQUISITIONS 2009 Acquisiti
Page 113: FMC CORPORATION NOTES TO CONSOLIDAT
Page 129 and 130: MANAGEMENT’S ANNUAL REPORT ON INT
Page 131 and 132: FMC CORPORATION SCHEDULE II—VALUA
Page 133 and 134: ITEM 13. CERTAIN RELATIONSHIPS AND
Page 135 and 136: Exhibit No. Exhibit Description *10
Page 137 and 138: Exhibit No. Exhibit Description 23.
Page 139 and 140: Signature Title Date /S/ ROBERT C.
Page 141 and 142: COMPUTATION OF RATIO OF EARNINGS TO
Page 143 and 144: The Board of Directors FMC Corporat
Page 145 and 146: I, W. Kim Foster, certify that: CHI
Page 147: CFO CERTIFICATION OF ANNUAL REPORT
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Chairman's - FMC Corporation

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