FMC Corporation — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013; interim financial statements are unaudited. FMC recast prior periods for its revised segment structure and the classification of FMC Peroxygens as a discontinued operation.
Business context and performance
FMC reported three continuing segments: Agricultural Solutions, Health and Nutrition, and Minerals. It agreed to pursue a sale of FMC Peroxygens, classified as held for sale and discontinued operations in 2013.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $957.4 million | $821.9 million | $2,744.1 million | $2,494.4 million |
| Gross margin | $304.4 million | $298.0 million | $985.5 million | $946.8 million |
| Income from continuing operations | $76.5 million | $105.8 million | $334.4 million | $354.2 million |
| Net income attributable to FMC stockholders | $17.9 million | $90.0 million | $266.8 million | $314.0 million |
| Diluted EPS attributable to FMC stockholders | $0.13 | $0.65 | $1.95 | $2.26 |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $110.2 million | $107.1 million | $387.1 million | $363.5 million |
Q3 gross margin was approximately 31.8% of revenue, versus 36.3% a year earlier; management cited unfavorable Agricultural Solutions geographic mix and currency effects. Q3 revenue rose 16%, with increases in all continuing segments. Agricultural Solutions grew strongly; Health and Nutrition increased revenue but had modest profit growth; Minerals profit declined. Adjusted earnings are a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
Cash flow, balance sheet, and liquidity
- Operating cash flow: Continuing operations provided $380.6 million in the first nine months, compared with $368.9 million in 2012. Discontinued operations used $31.4 million, versus $36.3 million used a year earlier.
- Investing: Continuing-operations investing used $555.3 million, including $339.6 million for acquisitions and $159.6 million in capital expenditures.
- Cash and debt: Cash was $109.6 million at September 30, versus $77.1 million at December 31, 2012. Total debt was $1,714.2 million, up from $964.4 million; short-term debt was $919.1 million, primarily commercial paper.
- Borrowing capacity: The $1.5 billion commercial paper program was supported by the revolving credit facility. Available funds under the facility were $530.8 million at quarter-end. FMC reported compliance with its financial covenants.
- Capital returns: FMC repurchased $309.9 million of shares and paid $55.6 million in dividends during the nine-month period. A $250 million accelerated share repurchase was not yet finally settled at quarter-end.
Material changes and unusual items
- Q3 discontinued operations included a $65.0 million pre-tax impairment of FMC Peroxygens held-for-sale assets ($50.8 million after tax), substantially reflecting accumulated foreign-currency translation losses in its Spanish subsidiary. This was the main reason reported net income fell sharply despite higher revenue and segment operating profit.
- Q3 restructuring and other charges were $32.1 million, versus $5.5 million a year earlier. The 2013 amount principally included charges for Agricultural Solutions licensing and collaboration rights for products still in development; these costs were expensed as incurred.
- FMC acquired Epax, a supplier of omega-3 concentrates, for net cash consideration of $339.6 million. Preliminary purchase accounting included $109.8 million of goodwill; the allocation remained subject to finalization.
- Debt increased substantially as FMC used commercial paper to support growth opportunities and working capital. The company also purchased an additional 6.25% interest in FMC Wyoming for $80 million.
- Environmental reserves were $209.7 million excluding recoveries; estimated reasonably possible environmental losses exceeded accrued amounts by approximately $160 million. FMC stated that potential liabilities may be material to a period’s results but were not expected to materially affect liquidity or financial condition, as payments could extend over many years.
Outlook, management commentary, and risks
- For 2013, management expected Agricultural Solutions revenue growth in the high teens and segment operating profit growth in the mid-to-high teens.
- Health and Nutrition guidance was mid-teens revenue growth and high-single-digit segment operating profit growth, with acquisition and manufacturing-improvement costs partly offsetting sales gains.
- Minerals guidance was flat to low-single-digit revenue growth and a low-to-mid-20% decline in segment operating profit, reflecting soda ash pricing and operating challenges, with lithium improvements expected in Q4.
- Management expected 2013 capital expenditures and contract-manufacturer spending to be approximately 35% above 2012 levels. It also projected about $40 million in net environmental remediation spending and approximately $30 million in environmental compliance costs.
- Key risks include environmental obligations and recoveries; uncertain outcomes in European and Canadian hydrogen-peroxide antitrust proceedings; asbestos claims whose future frequency and exposure FMC said it could not reasonably estimate; foreign-exchange, commodity, and interest-rate movements; and pesticide registrations and reviews. FMC reported no material expected 2013 sales impact from the Brazilian carbofuran review, while timing of French bifenthrin registration remained uncertain.
Investor facts to verify
- Whether the FMC Peroxygens sale closed as expected and whether final sale proceeds or further impairment adjustments differed from the quarter-end estimate.
- Final Epax purchase-price allocation, including working-capital adjustments and acquired-asset valuations.
- Whether commercial-paper borrowings, working-capital demands, and credit-facility availability changed materially after quarter-end.
- Actual 2013 segment results and capital spending versus management’s guidance and projected environmental costs.
- Developments in environmental contingencies, including the Pocatello and Middleport matters, and in antitrust and asbestos claims.
- Final settlement of the accelerated share repurchase and the resulting share count and capital-return impact.