FMC Corporation — 2013 Form 10-K Summary
Business context and reporting period
FMC is a global diversified chemicals company reporting for the fiscal year ended December 31, 2013. Continuing operations comprised Agricultural Solutions (crop protection), Health and Nutrition (food, pharmaceutical and omega-3 ingredients), and Minerals (soda ash and lithium). FMC reclassified Peroxygens as a discontinued operation and signed an agreement to sell it in December 2013, with closing expected in the first quarter of 2014. Prior periods were recast for comparability.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $3,874.8 million | $3,409.9 million |
| Gross margin | $1,340.4 million; approximately 34.6% of revenue | $1,268.3 million; approximately 37.2% |
| Continuing income attributable to FMC stockholders | $453.2 million | $443.7 million |
| Net income attributable to FMC stockholders | $293.9 million | $416.2 million |
| Diluted EPS | $2.16, including $(1.17) from discontinued operations | $3.00, including $(0.20) from discontinued operations |
| Cash from continuing operating activities | $378.8 million | $422.3 million |
| Cash and cash equivalents at year-end | $123.2 million | $77.1 million |
| Total debt at year-end | $1,851.9 million | $964.4 million |
Revenue rose 14%, while gross margin dollars increased 6%; gross margin percentage fell about 200 basis points, primarily because of lower Alkali selling prices. Adjusted after-tax earnings from continuing operations, a non-GAAP measure, increased 12% to $528.4 million from $470.1 million. Full-year net income declined mainly because of a $122.1 million after-tax impairment charge on Peroxygens held-for-sale assets.
Operating cash flow declined partly because trade receivables increased $394.5 million, reflecting higher sales, particularly in Brazil where payment terms are longer, and because cash tax payments rose. Investing activities used $628.5 million, including $339.6 million for acquisitions and $221.9 million in capital expenditures. FMC reported $770.8 million of remaining borrowing capacity under its credit facility at year-end, including commercial-paper borrowings. The balance sheet showed $697.8 million of short-term debt and current maturities.
Material changes and segment performance
- Agricultural Solutions: Revenue increased 22% to $2,145.7 million and operating profit rose 19% to $539.0 million, supported by growth in the Americas and Asia, new products, and favorable mix.
- Health and Nutrition: Revenue increased 12% to $762.0 million and operating profit increased 5% to $169.5 million. Growth included the July acquisition of Epax; profit was partly offset by integration and raw-material costs.
- Minerals: Revenue was nearly flat at $970.0 million, while operating profit fell about 25% to $128.3 million. Lower soda ash prices, difficult mine geology, lithium weather and operational issues, and unfavorable currency weighed on results.
- FMC acquired Epax, a fish-based omega-3 supplier, and increased its ownership of FMC Wyoming to 93.75%. It also invested in agricultural biological technologies and began construction of an MCC facility in Thailand.
- FMC repurchased approximately $359.9 million of shares under its public program and paid $73.6 million in dividends. It issued $400 million of 4.10% senior notes due 2024 and launched a $1.5 billion commercial-paper program.
In fourth-quarter 2013, revenue was $1,130.7 million versus $915.5 million a year earlier; gross profit was $354.9 million versus $321.5 million. Net income attributable to FMC stockholders was $27.1 million versus $102.2 million, reflecting a $(101.0) million discontinued-operations result in the quarter, including the Peroxygens sale-related impairment.
Outlook, risks and unusual items
Management expected 2014 to be another record year, with higher revenue and earnings from all three continuing segments and strong segment cash flows. It forecast Agricultural Solutions revenue and operating-profit growth in the mid-teens; Health and Nutrition revenue growth in the mid-to-high teens and operating-profit growth in the mid-teens; and Minerals revenue growth up to the mid-to-high single digits, with operating-profit growth in the high teens. Management cited product launches, customer relationships, omega-3 growth, expected better soda ash pricing, and increased volumes. These are forecasts, not guarantees.
- FMC expected 2014 capital expenditures and contract-manufacturer spending to be approximately 15% above 2013. Planned spending included about $35 million of net environmental remediation, $10 million for environmental-control capital projects, and $30 million in environmental compliance costs.
- Environmental reserves, net of recoveries, were $204.7 million at year-end; reasonably possible environmental losses exceeded accrued amounts by approximately $170 million. FMC said ultimate costs and timing are uncertain and could affect future results.
- Key risks include pesticide registration and other regulatory changes, generic competition, commodity and energy costs, weather and geological conditions, foreign exchange and economic conditions (particularly Argentina), supply disruptions, and environmental and operational hazards.
- FMC reported approximately 11,100 pending asbestos claims and said additional exposure beyond its reserve could not be reasonably estimated. A proposed EPA penalty exceeding $100,000 over pesticide advertising was disputed; FMC did not expect a material final penalty. Other disclosed proceedings include Peroxygens-related antitrust claims and Pocatello tribal litigation.
- Management expected the Peroxygens sale for $200 million; closing was pending at year-end. The company recorded the substantial held-for-sale impairment in 2013, and agreed to provide transition services for up to 18 months after closing.
Important facts for investors to verify
- Whether the Peroxygens sale closed as expected, its final proceeds, and any remaining transition or retained liabilities.
- Whether Agricultural Solutions and Health and Nutrition achieved the 2014 growth forecasts, and whether Minerals recovered margins as anticipated.
- Receivables collection and operating cash flow, especially given Brazilian customer payment terms, alongside the elevated short-term debt and total leverage.
- Actual environmental remediation costs and developments at Pocatello and Middleport, including the disclosed reasonably possible loss exposure.
- Progress in reducing Alkali pricing pressure and resolving lithium production and mine-condition issues.