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FMC > SEC Filings for FMC > Form 10-Q on 30-Jul-2013All Recent SEC Filings

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Form 10-Q for FMC CORP


30-Jul-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2 of this report contains certain forward-looking statements that are based
on our current views and assumptions regarding future events, future business conditions and the outlook for our company based on currently available information.
Whenever possible, we have identified these forward-looking statements by such words or phrases as "will likely result", "is confident that", "expects", "should", "could", "may", "will continue to", "believes", "anticipates", "predicts", "forecasts",


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"estimates", "projects", "potential", "intends" or similar expressions identifying "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including the negative of those words or phrases. Such forward-looking statements are based on our current views and assumptions regarding future events, future business conditions and the outlook for our company based on currently available information. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. These statements are qualified by reference to the section "Forward-Looking Statements" in Part II of our Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 10-K") and to similar disclaimers in all other reports and forms filed with the Securities and Exchange Commission ("SEC"). We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We further caution that the list of risk factors in Item 1A in Part I of the 2012 10-K may not be all-inclusive, and we specifically decline to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
APPLICATION OF CRITICAL ACCOUNTING POLICIES Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 1 to our consolidated financial statements included in our 2012 10-K. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our consolidated financial statements. We have reviewed these critical accounting policies with the Audit Committee of our Board of Directors. Critical accounting policies are central to our presentation of results of operations and financial condition and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors. The following is a list of those accounting policies that we have deemed most critical to the presentation and understanding of our results of operations and financial condition. See the "Application of Critical Accounting Policies" section in our 2012 10-K for a detailed description of these policies and their potential effects on our results of operations and financial condition.
Environmental obligations and related recoveries

Impairment and valuation of long-lived assets

Pensions and other postretirement benefits

Income taxes

We did not adopt any changes in the current period that had a material effect on these critical accounting policies nor did we make any changes to our accounting policies that would have changed these critical accounting policies.
RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS AND REGULATORY ITEMS See Note 2 to our condensed consolidated financial statements included in this Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.


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OVERVIEW

We are a diversified chemical company serving agricultural, consumer and industrial markets globally with innovative solutions, applications and market-leading products. We operate in four distinct business segments: FMC Agricultural Solutions, FMC Health and Nutrition, FMC Minerals and FMC Peroxygens. Our FMC Agricultural Solutions segment develops, markets and sells all three major classes of crop protection chemicals - insecticides, herbicides and fungicides - with particular strength in insecticides and herbicides. These products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects, weeds and disease, as well as pest control in non-agricultural markets. The FMC Health and Nutrition segment focuses on food ingredients that are used to enhance texture, color, structure and physical stability, pharmaceutical additives for binding, encapsulation and disintegrant applications and ultrapure biopolymers for medical devices. Our FMC Minerals segment manufactures a wide range of inorganic materials including soda ash and lithium. Soda ash is utilized in markets such as glass and detergents and lithium utilized in energy storage, specialty polymers and pharmaceutical synthesis in industrial uses. FMC Peroxygens segment manufactures hydrogen peroxide, specialty peroxygens and silicates. The products in this segment are sought by customers for their specific functionality in markets such as environmental remediation and pulp and paper. Second Quarter 2013 Highlights

The following are the more significant developments in our businesses during the three months ended June 30, 2013:
Revenue of $959.4 million for the three months ended June 30, 2013 increased $54.2 million or six percent versus the same period last year. Revenue increases are associated with sales growth in our FMC Agricultural Solutions and FMC Health and Nutrition segments, partially offset by declines in our FMC Minerals and FMC Peroxygens segment. A more detailed review of revenues by segment is discussed under the section titled "Results of Operations" . On a regional basis, sales in Latin America increased by 16 percent, sales in North America were up seven percent, sales in Asia were up six percent, while sales in Europe, Middle East and Africa declined by seven percent.

Our gross margin, excluding acquisition/divestiture related charges, increased by approximately $2 million or approximately one percent to $342.9 million versus last year's second quarter driven by higher volumes primarily in our FMC Agricultural Solutions segment partially offset by declines in pricing associated with our FMC Minerals segments - Alkali. Gross margin percent of 36 percent declined from 38 percent, primarily as a result of unfavorable geographic mix of sales in FMC Agricultural Solutions and the aforementioned declines in pricing associated with FMC Minerals - Alkali.

Selling, general and administrative expenses, excluding non-operating pension and postretirement charges and acquisition/divestiture related charges, increased by $6.4 million or five percent to $125.6 million. The increase period over period is largely due to increased spending on targeted growth initiatives to meet the growth in our business. The majority of these increases were experienced in our FMC Agricultural Solutions segment.

Research and Development expenses of $29.1 million increased $0.7 million or two percent.

Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of $128.9 million increased $2.0 million or two percent primarily due to higher operating results in FMC Agricultural Solutions and a lower effective tax rate. See the disclosure of our Adjusted Earnings Non-GAAP financial measurement below, under the section titled "Results of Operations" .

In April 2013, we made the decision to simplify our organizational structure to focus on three core business segments. The new segments better reflect the markets where we participate and lead today, and where we expect to grow in the future. We have recast all the data within this filing to reflect the above changes in our reportable segments to conform to the current year presentation. For more information on this presentation change see Note 19 to our condensed consolidated financial statements included within this Form 10-Q.


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RESULTS OF OPERATIONS
Overview
The following presents a reconciliation of our segment operating profit to net income attributable to FMC stockholders as seen through the eyes of our management. For management purposes, we report the operating performance of each of our business segments based on earnings before interest and income taxes excluding corporate expenses, other income (expense), net and corporate special income/(charges).

                                         SEGMENT RESULTS RECONCILIATION
                                                 Three Months Ended June 30          Six Months Ended June 30
(in Millions)                                      2013               2012             2013             2012
Revenue
FMC Agricultural Solutions                    $      442.6       $      393.6     $      937.8       $   847.8
FMC Health and Nutrition                             189.9              174.4            381.8           339.0
FMC Minerals                                         244.4              249.5            469.0           485.7
FMC Peroxygens (1)                                    83.6               87.8            163.2           173.7
Eliminations                                          (1.1 )             (0.1 )           (2.2 )          (0.3 )
Total                                         $      959.4       $      905.2     $    1,949.6       $ 1,845.9
Income (loss) from continuing operations
before income taxes
FMC Agricultural Solutions                    $      124.7       $      112.3     $      288.0       $   242.8
FMC Health and Nutrition                              44.3               44.9             88.0            85.7
FMC Minerals                                          35.4               44.9             64.4            92.5
FMC Peroxygens                                         4.0                7.8              9.7            14.7
Eliminations                                          (0.1 )              0.1             (0.2 )           0.1
Segment operating profit                             208.3              210.0     $      449.9       $   435.8
Corporate and other                                  (20.3 )            (16.9 )          (40.1 )         (40.4 )
Operating profit before the items listed
below                                                188.0              193.1            409.8           395.4

Interest expense, net                                (12.3 )            (11.5 )          (24.0 )         (22.8 )
Corporate special (charges) income:
Restructuring and other (charges) income              (6.5 )             (5.6 )          (16.4 )          (7.3 )
Non-operating pension and postretirement
charges (2)                                          (11.6 )             (9.1 )          (24.3 )         (18.2 )
Acquisition/divestiture related charges (3)           (1.6 )             (3.2 )           (1.6 )          (6.6 )
Provision for income taxes                           (36.7 )            (45.3 )          (84.0 )         (90.1 )
Discontinued operations, net of income taxes           1.9               (8.1 )           (3.3 )         (15.5 )
Net income attributable to noncontrolling
interests                                             (3.2 )             (5.4 )           (7.3 )         (10.9 )
Net income attributable to FMC stockholders   $      118.0       $      104.9     $      248.9       $   224.0


____________________


(1) Commencing with our September 30, 2013 condensed consolidated financial statements to be filed on Form 10-Q, our FMC Peroxygens segment will be classified as a discontinued operation and an asset held for sale. See Note 20 to our condensed consolidated financial statements included within this Form 10-Q for more information.

(2) Our non-operating pension and postretirement costs are defined as those costs related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance. We exclude these non-operating pension and postretirement costs from our segments as we believe that removing them provides a better understanding of the underlying profitability of our businesses, provides increased transparency and clarity in the performance of our retirement plans and enhances period-over-period comparability. We continue to include the service cost and amortization of prior service cost in our operating segments noted above. We believe these elements reflect the current year operating costs to our businesses for the employment benefits provided to active employees.

(3) Charges related to the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions and costs incurred associated with the potential divestiture of our FMC Peroxygens segment. Charges for the three and six months ended June 30, 2013, represented legal and professional fees directly associated with the


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potential divestiture of our FMC Peroxygens segment. The charges for three and six month period ended June 30, 2012 relate to a number of acquisitions completed in 2011 and in the second quarter of 2012. On the condensed consolidated statements of income, the charges associated with inventory fair value step-up are included in "Costs of sales and services" and charges associated with the potential divestiture of FMC Peroxygens are included in "Selling, general and administrative expenses".
The following chart, which is provided to assist the readers of our financial statements, depicts certain after-tax charges (gains). These items are excluded in the measures we use to evaluate business performance and determine certain performance-based compensation. These after-tax items are discussed in detail within the "Other results of operations" section that follows. Additionally, the chart below discloses our Non-GAAP financial measure "Adjusted after-tax earnings from continuing operations attributable to FMC stockholders" reconciled from the GAAP financial measure "Net income attributable to FMC stockholders". We believe that this measure provides useful information about our operating results to investors and securities analysts. We also believe that excluding the effect of restructuring and other income and charges, non-operating pension and postretirement charges, acquisition/divestiture related charges and certain tax adjustments from operating results allows management and investors to compare more easily the financial performance of our underlying businesses from period to period. This measure should not be considered as a substitute for net income
(loss) or other measures of performance or liquidity reported in accordance with GAAP.

                                            ADJUSTED EARNINGS RECONCILIATION
                                                        Three Months Ended June 30          Six Months Ended June 30
(in Millions)                                             2013               2012             2013             2012
Net income attributable to FMC stockholders (GAAP)   $      118.0       $      104.9     $     248.9       $     224.0
Corporate special charges (income), pre-tax                  19.7               17.9            42.3              32.1
Income tax expense (benefit) on Corporate special
charges (income)                                             (7.6 )             (6.4 )         (15.8 )           (11.7 )
Corporate special charges (income), net of income
taxes                                                        12.1               11.5            26.5              20.4
Discontinued operations, net of income taxes                 (1.9 )              8.1             3.3              15.5
Tax adjustments                                               0.7                2.4             1.7               2.4
Adjusted after-tax earnings from continuing
operations attributable to FMC stockholders
(Non-GAAP)                                           $      128.9       $      126.9     $     280.4       $     262.3

In the discussion below, please refer to our chart titled "Segment Results Reconciliation" within the Results of Operations section. All comparisons are between the periods unless otherwise noted. Segment Results
For management purposes, segment operating profit is defined as segment revenue less operating expenses (segment operating expenses consist of costs of sales and services, selling, general and administrative expenses and research and development expenses). We have excluded the following items from segment operating profit: corporate staff expense, interest income and expense associated with corporate debt facilities and investments, income taxes, gains (or losses) on divestitures of businesses, restructuring and other charges (income), non-operating pension and postretirement charges, investment gains and losses, loss on extinguishment of debt, asset impairments, Last-in, First-out ("LIFO") inventory adjustments, acquisition/divestiture related charges, and other income and expense items.
Information about how some of these items relate to our businesses at the segment level is discussed in Note 19 of our condensed consolidated financial statements filed in this Form 10-Q and in Note 19 of our 2012 consolidated financial statements in our 2012 Form 10-K.
In April 2013, we made the decision to simplify our organizational structure to focus on three core business segments. The new segments better reflect the markets where we participate and lead today, and where we expect to grow in the future. We have recast all the data within this filing to reflect the above changes in our reportable segments to conform to the current year presentation. For more information on this presentation change see Note 19 to our condensed consolidated financial statements included within this Form 10-Q. The Segment Results as discussed below for all periods presented have been updated to reflect this presentation change.


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FMC Agricultural Solutions

                       Three Months Ended June 30              Six Months Ended June 30
($ in Millions)             2013                 2012               2013               2012
Revenue          $       442.6                 $ 393.6          937.8                 847.8
Operating Profit         124.7                   112.3          288.0                 242.8

Three Months Ended June 30, 2013 vs. 2012 Revenue of $442.6 million increased approximately 12 percent versus the prior year quarter due to sales growth in Latin America, North America, Asia offset by declines in Europe/Middle East/Africa ("EMEA").
Latin America sales of $183.5 million increased 21 percent due primarily to Brazil reflecting volume growth in cotton due to increased planted area and higher herbicide and insecticide sales for soybeans. North America sales of $132.9 million increased 12 percent driven by strong demand for soybean pre-emergent herbicides and growth from new and recently introduced products. Revenue in Asia of $83.7 million increased 24 percent reflecting sales growth in Australia, China, Philippines and Thailand markets. EMEA declined 23 percent to $42.5 million primarily due to unfavorable weather conditions and lower insecticide sales to Africa.
FMC Agricultural Solutions' operating profit of $124.7 million increased approximately 11 percent compared to the year-ago quarter, reflecting the sales growth described in the preceding paragraph, partially offset by unfavorable geographic/product mix. Selling, general and administrative costs were approximately $3 million higher compared to the prior year due to increased spending on growth initiatives and higher people-related costs partially offset by favorable exchange impacts in Brazil. Six Months Ended June 30, 2013 vs. 2012
Revenue of $937.8 million increased approximately 11 percent versus the prior year quarter due to sales growth in North America and Asia, partially offset by declines in EMEA and Latin America.
Sales in North America of $359.3 million increased 32 percent driven by strong demand for pre-emergent herbicides and at-plant insecticide as well as growth from new product introductions. Revenue in Asia of $159.1 million increased 14 percent reflecting sales growth in China, Indonesia, Australia and a number of other key countries. EMEA declined 12 percent to $80.1 million primarily due to unfavorable weather conditions and lower insecticide sales. Revenue in Latin America of $339.3 million decreased two percent due mostly to a reduction in planted area for cotton for the 2012/2013 crop season and a slow start in the sugarcane segment in Brazil, partially offset by growth in Argentina and Mexico. FMC Agricultural Solutions' operating profit of $288.0 million increased approximately 19 percent compared to the year-ago quarter, reflecting the sales growth described in the preceding paragraph, a favorable geographic/product mix and selected price increases. Selling, general and administrative costs were approximately $2 million higher compared to the prior year due to increased spending on growth initiatives partially offset by favorable foreign exchange impacts in Brazil.
In 2013, we expect full-year revenue growth in the high-teens percent reflecting increased volumes due to strong market conditions and growth from new and recently introduced products, including new fungicides, as well as our direct market access initiatives in Asia and Latin America. We expect full-year segment operating profit growth in the mid- to high-teens percent driven by sales gains partially offset by increased SG&A and R&D spending to support growth. Certain Regulatory Issues
In 2009, our bifenthrin product was excluded from the European Commission's official list of approved pesticides. We submitted for reconsideration of that decision and in 2012 bifenthrin was re-approved for use in the European Union. FMC has submitted for registrations in EU Member States. We can resume selling bifenthrin in the European market once the registrations are approved by the Member States. With the exception of France, we expect that most registrations will be approved over the next 24 months; due to the continued inclusion of bifenthrin on the French "Grenelle" list of pesticides we cannot predict when we may regain a French registration. We believe that the Grenelle listing was unwarranted and contrary to French administrative law, and we challenge that decision. In July 2013, the French Conseil d' Etat court dismissed our challenge. During 2013, we will not sell any bifenthrin for agricultural use into the EU, similar to the prior year, and the absence of such sales will not have a material effect on the Company's financial condition or results of operations.
We intend to defend vigorously all our products in the U.S., EU and other countries as our pesticide products are reviewed in the ordinary course of regulatory programs during 2013 as part of the ongoing cycle of re-registration of our pesticide products around the world. In 2008, the Brazilian health surveillance agency informed us that they intend to review


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carbofuran along with 13 other major pesticides, but has yet to issue any required formal announcement that identifies their specific concerns or preliminary position on re-registration. We are cooperating and defending our product in this process. Under the Brazilian regulatory process, any recommendation would require public notice and comment as well as concurrence from the Brazilian environmental and agricultural ministries before any regulatory change is effective. Thus, we do not expect any material sales impact due to regulatory reviews in Brazil during 2013.

FMC Health and Nutrition

                       Three Months Ended June 30              Six Months Ended June 30
($ in Millions)             2013                 2012               2013               2012
Revenue          $       189.9                 $ 174.4          381.8                 339.0
Operating Profit          44.3                    44.9           88.0                  85.7

Three Months Ended June 30, 2013 vs. 2012 Revenue in FMC Health and Nutrition was $189.9 million, an increase of approximately nine percent versus the prior-year quarter. This increase was due to volume increases of four percent in all core product lines, revenue from acquisitions which increased sales by three percent and favorable pricing which increased sales by two percent. Volume growth was partially attributed to recent capacity expansions.
Segment operating profit of $44.3 million was essentially flat versus the year ago quarter as revenue growth was more than offset by increased raw material costs, higher acquisition related costs and costs to improve our manufacturing capabilities which we refer to as Manufacturing Excellence. Selling, general and administrative costs also increased approximately $1 million compared to the prior year.
Six Months Ended June 30, 2013 vs. 2012
Revenue in FMC Health and Nutrition was $381.8 million, an increase of approximately 13 percent versus the prior-year quarter. This increase was due to volume increases of seven percent in all core product lines, revenue from acquisitions which increased sales by four percent and favorable pricing which increased sales by two percent. Volume growth was partially attributed to recent capacity expansions.
Segment operating profit of $88.0 million increased by three percent versus the year ago quarter as revenue growth was partially offset by increased raw material costs, acquisition related costs and costs to improve our manufacturing capabilities which we refer to as Manufacturing Excellence. Selling, general and administrative costs also increased approximately $2 million compared to the prior year due to increased spending on growth initiatives.
In 2013, we expect full-year revenue growth of approximately mid-teens percent driven by higher volumes and growth from acquisitions. We expect full-year segment operating profit growth in the low-teens percent, with sales gains in core segment product lines and benefits from the Epax acquisition partially offset by acquisition and manufacturing excellence costs.

FMC Minerals

                       Three Months Ended June 30               Six Months Ended June 30
($ in Millions)             2013                 2012               2013                2012
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