FMC Corporation — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results. Unless noted, financial amounts are in millions of U.S. dollars.
Business context
FMC operated two continuing segments: Agricultural Solutions, which develops and sells crop-protection products, and Lithium, which supplies specialty lithium products. Agricultural Solutions generated about 88% of 2017 continuing revenue; Lithium generated about 12%.
On November 1, FMC acquired certain DuPont Crop Protection assets and its research and development organization, while selling FMC Health and Nutrition to DuPont and paying DuPont $1.2 billion in cash. Health and Nutrition is presented as discontinued operations.
Key financial metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $2,878.6 | $2,538.9 |
| GAAP gross margin | $1,101.3; 38.3% of revenue | $931.2; 36.7% of revenue |
| Segment operating profit | $612.3 | $470.1 |
| Income from continuing operations attributable to FMC stockholders | $(85.9) | $128.4 |
| Net income attributable to FMC stockholders | $535.8 | $209.1 |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $368.3 | $257.7 |
| Cash from continuing operating activities | $314.5 | $368.9 |
| Cash and cash equivalents at year-end | $283.0 | $64.2 |
| Total debt at year-end | $3,185.6 | $1,893.0 |
Net income included a $727.1 million after-tax gain on the Health and Nutrition sale. Continuing-operations results included a $315.9 million provisional tax expense related to the Tax Cuts and Jobs Act; the reported effective tax rate was 146.1%. Management also reported gross margin of $1,121.5 million, or approximately 39% of revenue, excluding acquisition-related charges.
Fourth-quarter 2017 revenue was $979.6 million, versus $688.4 million in Q4 2016. Gross margin was $384.8 million versus $265.2 million. FMC stockholders’ continuing-operations result was a loss of $249.0 million, compared with income of $8.9 million; the quarter also included $779.1 million of discontinued-operations income, principally reflecting the divestiture gain.
At year-end, current assets were $3,652.7 million and current liabilities were $2,209.4 million. The company had $1,354.0 million of remaining capacity on its revolving credit facility and reported compliance with debt covenants. Continuing-operations investing cash outflow was $1,349.5 million, primarily related to the DuPont acquisition; capital expenditures were $85.7 million.
Material changes versus the prior year
- Revenue increased 13%, reflecting the acquired business and growth across regions. Agricultural Solutions revenue rose 11% to $2,531.2 million; segment operating profit rose 21% to $485.6 million.
- Lithium revenue increased 32% to $347.4 million and segment operating profit rose to $126.7 million from $70.2 million, driven mainly by improved pricing and mix and higher volumes.
- GAAP net income increased largely because of the Health and Nutrition divestiture gain, while continuing-operations income turned to a loss, primarily due to tax reform and higher acquisition-related charges. Adjusted after-tax continuing earnings increased 43%.
- Debt increased following the $1.5 billion 2017 term loan used to finance the DuPont transaction. Operating cash flow declined, with working-capital movements and acquisition-related payments among the disclosed factors.
Outlook, commentary and risks
- For 2018, management expected the crop-protection market to be flat to up by low single digits and lithium demand to continue growing significantly. It expected revenue and earnings growth in both segments.
- Agricultural Solutions 2018 guidance: revenue of approximately $3.95–$4.15 billion; EBITDA of $1.05–$1.15 billion; depreciation and amortization of approximately $145 million. Legacy-business revenue was expected to grow 2–4%, and acquired-business revenue 6–10%.
- Lithium 2018 guidance: revenue of approximately $420–$460 million; EBITDA of $180–$200 million; depreciation and amortization of approximately $20 million. FMC planned to expand lithium hydroxide capacity to 30,000 metric tons by year-end 2019 and lithium carbonate capacity in Argentina to about 40,000 metric tons annually by 2022.
- FMC announced an intention to separate Lithium into a publicly traded company during 2018. Management expected 2018 cash generation to improve, while noting higher working-capital requirements. 2018 capital expenditures and contract-manufacturer spending were projected at approximately $250 million; net environmental remediation spending was projected at $60–$65 million.
- Regulatory remedies required divestitures of acquired products. The company expected these to reduce 2018 Agricultural Solutions operating profit by approximately $20 million. A European herbicide portfolio was sold in February 2018 for approximately $85 million plus working capital; an Indian remedy divestiture was expected in the second half of 2018.
- Key risks include acquisition integration and information-system transition, execution of the Lithium separation, crop and lithium pricing and competition, weather and foreign-exchange exposure, regulatory approvals for crop-protection products, and reliance on suppliers and manufacturing sites. The acquired business’s internal controls were excluded from the 2017 control assessment; it represented 42% of consolidated assets and 7% of revenue.
- Environmental reserves were $432.1 million before recoveries; estimated reasonably possible environmental losses exceeded accruals by approximately $200 million net of expected recoveries. FMC also disclosed approximately 9,000 pending asbestos claims and stated that excess exposure could not be reasonably estimated. Brazilian matters had reasonably possible losses exceeding recorded reserves by approximately $77.1 million.
Important facts for investors to verify
- Whether the DuPont acquisition delivers the forecast growth, earnings and integration benefits, including the required product divestitures and their expected profit impact.
- Whether 2018 segment revenue and EBITDA guidance is achieved, and whether Lithium capacity expansions and the planned separation proceed as described.
- The sustainability of operating cash flow and the company’s ability to manage increased debt, working capital, capital spending and the transition-tax payments.
- Final accounting for the Tax Cuts and Jobs Act and the preliminary DuPont purchase-price allocation, both of which remained subject to further analysis at filing.
- Developments in environmental and legal exposures, including the disclosed reasonably possible losses that exceed recorded reserves.