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FMC > SEC Filings for FMC > Form 10-Q on 7-May-2014All Recent SEC Filings

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Form 10-Q for FMC CORP


7-May-2014

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", "expect", "expects", "should", "could", "may", "will continue to", "believe", "believes", "anticipates", "predicts", "forecasts", "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 the company based on currently available information. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. 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, 2013 (the "2013 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 2013 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 2013 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 2013 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 three distinct business segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Minerals. Our FMC Agricultural Solutions segment develops, markets and sells all three major classes of crop protection chemicals - insecticides, herbicides and fungicides. 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 in non-agricultural markets for pest control. The FMC Health and Nutrition segment focuses on food, pharmaceutical ingredients, nutraceuticals, personal care and similar markets. Our food ingredients are used to enhance texture, color, structure and physical stability. The pharmaceutical additives are used for binding, encapsulation and disintegrant applications. 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 is utilized in energy storage, specialty polymers and pharmaceutical synthesis.
First Quarter 2014 Highlights

The following are the more significant developments in our businesses during the three months ended March 31, 2014:
Revenue of $941.8 million for the three months ended March 31, 2014 increased $31.1 million or three percent versus the same period last year. Revenue increases in our FMC Health and Nutrition and FMC Minerals segments were partially offset by declines in our FMC Agricultural Solutions segment. A more detailed review of revenues by segment is discussed under the section titled "Results of Operations" . On a regional basis, sales in North America increased by three percent, sales in Asia were up 20 percent, while sales in Latin America decreased by six percent and sales in Europe, Middle East and Africa were flat period over period.

Our gross margin, excluding acquisition related charges, decreased by approximately $22 million or approximately six percent to $331.6 million versus last year's first quarter. Gross margin percent of 35 percent declined from 39 percent. The reduction in gross margin and gross margin percent was driven by unfavorable currency movements and product mix of sales in FMC Agricultural Solutions.

Selling, general and administrative expenses, excluding non-operating pension and postretirement charges increased by approximately $6 million or five percent to $115.2 million. The majority of these increases were experienced in our FMC Agricultural Solutions segment.

Research and Development expenses of $26.1 million decreased $1.9 million or seven percent.

Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of $126.9 million decreased $22.1 million or 15 percent primarily due to lower operating results in FMC Agricultural Solutions, partially offset by a higher operating results in FMC Health and Nutrition and FMC Minerals. See the disclosure of our Adjusted Earnings Non-GAAP financial measurement below, under the section titled "Results of Operations" .

Other Highlights
On February 28, 2014, we completed the previously disclosed sale of our FMC Peroxygens business for $199.1 million in cash to One Equity Partners (OEP), the private investment arm of J.P. Morgan Chase & Co.

On March 10, 2014, we announced a plan to separate into two independent public companies. One company, "New FMC," will contain our FMC Agricultural Solutions and FMC Health and Nutrition segments, while the other company, "FMC Minerals", will be comprised of our FMC Minerals segment. The official name for "New FMC" will be determined in the coming months.


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RESULTS OF OPERATIONS
Overview
The following presents a reconciliation of our segment operating profit to the 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 March 31
(in Millions)                                                        2014               2013
Revenue
FMC Agricultural Solutions                                      $      466.9       $      495.2
FMC Health and Nutrition                                               226.2              191.9
FMC Minerals                                                           248.7              224.6
Eliminations                                                               -               (1.0 )
Total                                                           $      941.8       $      910.7
Income (loss) from continuing operations before income taxes
FMC Agricultural Solutions                                      $      120.1       $      163.3
FMC Health and Nutrition                                                50.9               43.7
FMC Minerals                                                            36.8               29.0
Eliminations                                                               -               (0.1 )
Segment operating profit                                        $      207.8       $      235.9
Corporate and other                                                    (17.5 )            (19.8 )
Operating profit before the items listed below                  $      190.3       $      216.1

Interest expense, net                                                  (13.5 )            (10.5 )
Corporate special (charges) income:
Restructuring and other (charges) income (1)                            (6.7 )             (9.3 )
Non-operating pension and postretirement charges (2)                    (4.2 )            (12.7 )
Business separation costs (3)                                           (3.0 )                -
Acquisition related charges (4)                                         (3.1 )                -
Provision for income taxes                                             (39.3 )            (45.4 )
Discontinued operations, net of income taxes                           (50.1 )             (3.2 )
Net income attributable to noncontrolling interests                     (4.8 )             (4.1 )
Net income attributable to FMC stockholders                     $       65.6       $      130.9


____________________


(1) See Note 7 for details of restructuring and other charges (income). Amounts for the three months ended March 31, 2014, relate to FMC Health and Nutrition of $4.9 million, FMC Minerals of $0.1 million and Corporate of $1.7 million. Amounts for the three months ended March 31, 2013, relate to FMC Agricultural Solutions of $0.6 million, FMC Health and Nutrition of $0.6 million, FMC Minerals of $5.8 million, and Corporate of $2.3 million.

(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. These expenses are included as a component of the line item "Selling, general and administrative expenses" on our condensed consolidated statements of income.

(3) Charges are associated with our announced plan to separate into two independent public companies. See Note 3 in our condensed consolidated financial statements filed in this Form 10-Q for more detail on the business separation costs. These charges are included within "Business separation costs" on our condensed consolidated income statement. These costs were primarily related to professional fees associated with separation activities within the finance and legal functions.


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(4) Charges relate to the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions and costs incurred associated the completion of acquisitions. 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 fees associated with concluding the acquisitions are included in "Selling, general and administrative expenses". Charges for the three months ended March 31, 2014, represented amortization of inventory fair value step-up associated with our Epax acquisition within our FMC Health and Nutrition segment.

The following chart, which is provided to assist the readers of our financial statements, depicts certain after-tax charges (gains). These items are excluded by us 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, certain tax adjustments from operating results and discontinued operations 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 March 31
(in Millions)                                                           2014               2013
Net income attributable to FMC stockholders (GAAP)                 $       65.6       $      130.9
Corporate special charges (income), pre-tax                                17.0               22.0
Income tax expense (benefit) on Corporate special charges (income)         (5.8 )             (8.1 )
Corporate special charges (income), net of income taxes            $       11.2       $       13.9
Discontinued operations, net of income taxes                               50.1                3.2
Tax adjustments                                                               -                1.0
Adjusted after-tax earnings from continuing operations
attributable to FMC stockholders (Non-GAAP)                        $      126.9       $      149.0

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 related charges, and other income and expense items.
Information about how each of these items relates to our businesses at the segment level and results by segment is discussed in Note 19 of our condensed consolidated financial statements filed in this Form 10-Q and in Note 20 of our consolidated financial statements in our 2013 Form 10-K.


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FMC Agricultural Solutions

                        Three Months Ended March 31
($ in Millions)               2014                  2013
Revenue          $         466.9                  $ 495.2
Operating Profit           120.1                    163.3

Revenue of $466.9 million decreased approximately six percent versus the prior year quarter due to sales declines in North America, Europe, Middle East and Africa (EMEA) and Latin America slightly offset by growth in Asia. Latin America sales of $140.4 million decreased 10 percent due to unfavorable weather conditions impacting sugarcane plantings in Brazil. North America sales of $220.5 million decreased three percent as the extended winter throughout North America caused significant delays to the start of the 2014 season. EMEA declined 33 percent to $25.3 million primarily due to timing of herbicide sales. Revenue in Asia of $80.7 million increased seven percent reflecting sales growth in Australia, India and China markets.
FMC Agricultural Solutions' operating profit of $120.1 million decreased approximately 26 percent compared to the year-ago quarter, reflecting the sales declines described in the preceding paragraph, further impacted by unfavorable currency impacts, investments in the sales and marketing organizations and weather-related changes in product mix. Selling, general and administrative costs were approximately $5 million higher compared to the prior year due to increased spending on growth initiatives and higher people-related costs. Outlook
In 2014, we expect full-year revenue growth in the mid-teens percent reflecting increased volumes due to strong market conditions and growth from new and recently introduced products, particularly in Latin America, North America and Asia. We expect full-year segment operating profit growth in the mid-teens percent driven primarily by continued market share gains in Latin America and increased demand for resistance management products in North America. Certain Regulatory Issues
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 2014 as part of the ongoing cycle of re-registration of our pesticide products around the world. In early 2014, the Brazilian health surveillance agency informed us that they intend to complete their review of carbofuran along with several other major pesticides by the end of this year, but the agency has not yet issued any required formal announcement that identifies their specific concerns or preliminary position on re-registration. We are co-operating 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 this Brazilian regulatory review during 2014. FMC Health and Nutrition

Three Months Ended March 31

($ in Millions)               2014                  2013
Revenue          $         226.2                  $ 191.9
Operating Profit            50.9                     43.7

Revenue was $226.2 million, an increase of approximately 18 percent versus the prior-year quarter. Revenue from acquisitions in 2013 increased sales by approximately 15 percent while together favorable pricing, increased volumes and currency impacts increased sales by three percent.
Segment operating profit of $50.9 million increased 17 percent versus the year ago quarter driven by the revenue growth discussed in the preceding paragraph slightly offset by increased raw material costs. Outlook
In 2014, we expect full-year revenue growth in the mid- to high-teens percent driven by higher volumes in texture and stability solutions, natural colors and binder product lines and contributions from the omega-3 product line. We expect


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full-year segment operating profit growth in the mid-teens percent due to strong demand for functional ingredients and benefits from new omega-3 sales.

FMC Minerals

                        Three Months Ended March 31
($ in Millions)               2014                  2013
Revenue          $         248.7                  $ 224.6
Operating Profit            36.8                     29.0

Revenue of $248.7 million increased by approximately 11 percent versus the prior-year quarter. Revenue increases were driven by volume gains in our Lithium division along with favorable pricing in our Alkali division.
Alkali revenues of $184.9 million increased two percent driven by higher average prices as well as higher volumes. The most notable price increases were realized in Asian export markets.
Lithium revenues of $63.8 million increased 45 percent compared to the prior year quarter. Additional volumes due to increased demand particularly for energy storage applications represented 48 percent of the revenue increase, slightly offset by a less favorable product mix of three percent.
Segment operating profit of $36.8 million increased approximately 27 percent versus the year ago quarter. Operating profit was driven by higher volumes in both businesses and favorable pricing in Alkali. These increases were partially offset by unfavorable currency and energy costs. Outlook
In 2014, we expect full-year revenue growth in the mid- to high-single digits percent driven primarily by increased volumes in lithium and soda ash and short- and long-term contracted price increases in soda ash. We expect full-year segment operating profit growth in the high-teens percent, reflecting lithium margin improvements and more favorable contractual soda ash pricing versus 2013. Other Results of Operations
Corporate and other
Corporate and other expenses are included as a component of the line item "Selling, general and administrative expenses" except for LIFO related charges that are included as a component of "Cost of sales and services" on our condensed consolidated statements of income.
Corporate and other expenses of $17.5 million in the first quarter of 2014 decreased by $2.3 million from $19.8 million in the same period in 2013. The decrease is partially driven by a reduction in our last-in, first-out (LIFO) inventory reserve charge compared to prior period. Interest expense, net
Three Months Ended March 31, 2014 vs. 2013 Interest expense, net for the first quarter of 2014 was $13.5 million as compared to the first quarter of 2013 of $10.5 million. The increase was primarily due to higher overall debt levels driven by funding requirements for the acquisition of Epax and our share repurchases in the latter part of 2013.


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Corporate special (charges) income
Three Months Ended March 31, 2014 vs. 2013 Restructuring and other charges (income) Three Months Ended March 31 (in Millions) 2014 2013 Restructuring charges and asset disposals $ 5.3 $ 7.8 Other charges (income), net 1.4 1.5 Total restructuring and other charges $ 6.7 $ 9.3

Restructuring and asset disposal charges in 2014 of $5.3 million were primarily associated with the announced Health and Nutrition restructuring. Other charges (income) net in 2014 of $1.4 million were primarily related to corporate environmental charges.
Restructuring and asset disposal charges in 2013 of $7.8 million were primarily associated with the previously announced Lithium restructuring. Other charges (income) net in 2013 of $1.5 million were primarily related to corporate environmental charges.
The liabilities associated with the restructuring charges listed above are also included within Note 7 to our condensed consolidated financial statements included in this Form 10-Q. We believe the restructuring plans implemented are on schedule and the benefits and savings either have been or will be achieved. Non-operating pension and postretirement charges The charge for the three months ended March 31, 2014 was $4.2 million compared to $12.7 million for the three months ended March 31, 2013. The decrease was primarily the result of lower amortization of actuarial losses of $9.7 million attributable to a lengthening of the average remaining service period used for amortization purposes as a result of a completed actuarial study indicating overall decreases in retirement and termination activity. Business separation costs
Charges are associated with our announced plan to separate into two independent public companies. See Note 3 to our condensed consolidated financial statements included in this Form 10-Q for more detail on the business separation costs. Acquisition related charges
Charges for the three months ended March 31, 2014, represented amortization of inventory fair value step-up associated with our Epax acquisition within our FMC Health and Nutrition segment. No such charges existed for the three months ended March 31, 2013.
Provision for income taxes
Three Months Ended March 31, 2014 vs. 2013 Provision for income taxes was $39.3 million resulting in an effective tax rate of 24.6 percent compared to a provision of $45.4 million resulting in an effective tax rate of 24.7 percent for the three months ended March 31, 2014 and 2013, respectively.
Discontinued operations, net of income taxes Our discontinued operations represent our discontinued FMC Peroxygens business results as well as adjustments to retained liabilities from previous discontinued operations. The primary liabilities retained include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term . . .

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