FMC Corporation — 2015 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2015; fourth-quarter figures are noted separately. FMC is a global chemicals company with three continuing segments: Agricultural Solutions, Health and Nutrition, and Lithium. In 2015, it completed the $1.65 billion sale of FMC Alkali Chemicals and acquired Cheminova for approximately $1.2 billion, excluding assumed net debt and hedge-related costs. Alkali is reported as discontinued operations.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $3,276.5 million | $3,258.7 million |
| Gross margin, GAAP | $1,075.4 million; 32.8% of revenue | $1,210.9 million; 37.2% |
| Operating income from continuing operations before equity, interest and taxes | Loss of $50.2 million | Income of $414.8 million |
| Continuing operations attributable to FMC stockholders | Loss of $187.4 million; diluted EPS loss of $1.40 | Income of $298.2 million; diluted EPS of $2.22 |
| Net income attributable to FMC stockholders | $489.0 million; diluted EPS of $3.66 | $307.5 million; diluted EPS of $2.29 |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $332.6 million | $426.8 million |
| Cash from operating activities, continuing operations | Use of $277.1 million | Provided $284.9 million |
| Cash and total debt at year-end | $78.6 million; $2,148.9 million | $109.5 million; $1,664.1 million |
Total 2015 net income included a $702.1 million after-tax gain on the Alkali sale; continuing operations were loss-making. Operating cash use reflected, among other items, $340.3 million of net tax payments, including tax on the Alkali sale, and $264.8 million of Cheminova hedge-related cash payments. Debt covenants were met at year-end; leverage was 3.8x against a 4.5x maximum, and interest coverage was 7.6x against a 3.5x minimum. Remaining borrowing capacity under the credit facility was $1,422.4 million.
Segments and changes versus prior year
- Agricultural Solutions: Revenue $2,252.9 million, up about 4% as Cheminova contributed from April; segment operating profit fell 27% to $363.9 million. On a pro forma combined basis, revenue declined 23% and operating profit 28%, driven by Brazilian volume weakness and currency depreciation, partly offset by pricing and cost reductions.
- Health and Nutrition: Revenue fell about 5% to $785.5 million, mainly due to unfavorable currency; operating profit rose about 4% to $194.7 million on improved pricing/mix, manufacturing costs and SG&A.
- Lithium: Revenue declined about 7% to $238.1 million and operating profit declined about 15% to $23.0 million, reflecting lower upstream volumes and currency effects, partly offset by pricing and cost savings.
Consolidated revenue increased about 1%, but adjusted continuing earnings fell 22%. Reported GAAP gross margin also declined; excluding acquisition-related charges, management reported gross margin of $1,133.2 million, or 34.5% of revenue, versus 37.3% in 2014. Interest expense increased 56% to $80.1 million, largely due to acquisition financing. Restructuring and other charges rose to $244.0 million, and acquisition-related charges were $290.3 million.
Fourth-quarter 2015 revenue was $899.3 million versus $887.8 million a year earlier. Net loss attributable to FMC stockholders was $204.1 million, including a $181.7 million loss from continuing operations; significant restructuring and acquisition charges affected the quarter.
Outlook, commentary, risks and unusual items
Management forecast 2016 adjusted EPS of $2.50–$2.80 and expected earnings growth in all businesses. Segment outlook: Agricultural Solutions revenue of $2.3–$2.5 billion and earnings of $380–$420 million; Health and Nutrition revenue of $775–$825 million and earnings of $198–$208 million; Lithium revenue of $240–$260 million and operating profit of $33–$43 million. Management expected improved cash generation and working capital, while noting higher cash taxes than in 2015 excluding Alkali-sale taxes.
- Management cited difficult agriculture markets, high channel inventories, Brazil’s recession and currency weakness, and continued foreign-exchange volatility. Brazil was expected to remain a weak market in 2016.
- FMC expected Cheminova integration and planned synergies to support growth, but cautioned that integration and cost savings might not meet expectations. Brazilian restructuring included the Consagro sale, a $64.5 million loss, and a workforce reduction to about half its 2014 size.
- Health and Nutrition mothballed the Seal Sands facility after demand for its Omega-3 pharmaceutical products weakened; related charges included $70.5 million of asset write-downs, $45.8 million of accelerated depreciation, $14.4 million of inventory write-offs, and a $10.3 million intangible impairment.
- Brazilian regulator ANVISA recommended banning carbofuran; FMC disputed the recommendation and did not expect a material 2016 sales impact. Regulatory approvals, pesticide re-registration, competition from generics, weather, raw-material prices, supply interruptions and foreign-exchange movements remain material risks.
- Environmental reserves, net of recoveries, were $340.9 million; reasonably possible environmental losses exceeded accrued amounts by approximately $230 million. FMC said the additional exposure and timing could not be reliably estimated.
- Approximately 8,000 asbestos claims were pending; FMC had established a reserve but could not reasonably estimate future claims or any exposure above that reserve. Other litigation includes discontinued-business antitrust actions and environmental disputes.
Important facts for investors to verify
- Reconcile GAAP losses from continuing operations with reported net income and non-GAAP adjusted earnings, including the Alkali divestiture gain and special charges.
- Assess the sustainability of 2016 guidance against Brazil’s market conditions, currency exposure, channel inventories, and Cheminova integration progress.
- Review liquidity and debt service capacity, including floating-rate exposure, upcoming maturities, covenant step-downs and the expected cash conversion after 2015’s negative operating cash flow.
- Evaluate environmental and litigation exposures, including the approximately $230 million reasonably possible environmental loss above reserves and the unquantifiable asbestos exposure.
- Note that management and the auditor excluded Cheminova from the 2015 internal-control assessment; it represented 33% of consolidated assets and 14% of revenue. The auditor issued unqualified opinions on the financial statements and on FMC’s controls within the assessed scope.