ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
FMC Corporation is a global agricultural sciences company dedicated to helping growers produce food, feed, fiber and fuel for an expanding world population while adapting to a changing environment. We operate in a single distinct business segment. We develop, market and sell all three major classes of crop protection chemicals (insecticides, herbicides and fungicides) as well as biologicals, crop nutrition and seed treatment, which we group as plant health. FMC’s innovative crop protection solutions enable growers, crop advisers and turf and pest management professionals to address their toughest challenges economically without compromising safety or the environment. FMC is committed to discovering new herbicide, insecticide and fungicide active ingredients, product formulations and pioneering technologies that are consistently better for the planet.
FORWARD-LOOKING INFORMATION
Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: FMC and its representatives may from time to time make written or oral statements that are "forward-looking" and provide other than historical information, including statements contained herein, in FMC’s other filings with the SEC, and in reports or letters to FMC stockholders.
In some cases, FMC has identified 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 and phrases. Such forward-looking statements are based on management’s current views and assumptions regarding future events, future business conditions and the outlook for the company based on currently available information. These 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. Currently, one of the most significant factors is the potential adverse effect of the current COVID pandemic on our financial condition, results of
operations, cash flows and performance, which is substantially influenced by the potential adverse effect of the pandemic on our customers and suppliers and the global economy and financial markets. The extent to which COVID impacts us will depend on future developments, many of which remain uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional factors include, among other things, the risk factors and other cautionary statements filed with the SEC included within this Form 10-K as well as other SEC filings and public communications. Moreover, investors are cautioned to interpret many of these factors as being heightened as a result of the ongoing and numerous adverse impacts of COVID. FMC cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Forward-looking statements are qualified in their entirety by the above cautionary statement. FMC undertakes no obligation, and specifically disclaims any duty, to update or revise any forward-looking statements to reflect events or circumstances arising after the date on which they were made, except as otherwise required by law.
COVID-19 Pandemic
As an agricultural sciences company, we are considered an "essential" industry in the countries in which we operate; we have avoided significant plant closures and all our manufacturing facilities and distribution warehouses remain operational and properly staffed. Our research laboratories and greenhouses also have continued to operate throughout the pandemic. One of our third-party tollers experienced a short-term disruption earlier during the pandemic because of COVID-related staffing issues, which reflects one of the ongoing business risks that the pandemic creates. We are closely monitoring raw material and supply chain costs. Additionally, we are aware of the potential for disruptions or lack of availability, at any price, of critical materials. The extent to which COVID will continue to impact us will depend on future developments, many of which remain uncertain and cannot be predicted with confidence, including the duration of the pandemic, further actions to be taken to contain the pandemic or mitigate its impact, and the extent of the direct and indirect economic effects of the pandemic and containment measures, among others.
We have implemented procedures to support the health and safety of our employees and we are following all U.S. Centers for Disease Control and Prevention, as well as state and regional health department guidelines. The well-being of our employees is FMC's top priority. Earlier this year, we introduced flexible work arrangements to facilitate the return of all staff to our headquarters in Philadelphia, as well as some other locations in adherence with local guidelines. We enacted a policy that all employees, contractors and interns based in our Philadelphia headquarters, as well as visitors, must be fully vaccinated against COVID and must provide proof of their vaccination with exemptions granted in certain situations. In addition, we have thousands of employees who continue operating our manufacturing sites and distribution warehouses worldwide. In all our facilities, we are using a variety of best practices to address COVID risks, following the protocols and procedures recommended by leading health authorities. We are continuing to monitor the situation in all regions and adjust our health and safety protocols accordingly. We made significant investments in our employees as a result of the COVID pandemic, including through enhanced dependent care pay policies, recognition bonuses, increased flexibility of work schedules and hours of work to accommodate remote working arrangements, and investment in IT infrastructure to promote remote work. Through these efforts we have successfully avoided any COVID related furloughs or workforce reductions to date.
We will continue to monitor the economic environment related to the pandemic on an ongoing basis and assess the impacts on our business.
2021 Highlights
The following are the more significant developments in our businesses during the year ended December 31, 2021:
•Revenue of $5,045.2 million in 2021 increased $403.1 million or approximately 9 percent versus last year. A more detailed review of revenues is included under the section entitled "Results of Operations". On a regional basis, sales in North America increased 8 percent, driven by strong volume growth and price increases, sales in Latin America increased by 12 percent driven by strong volume growth and price increases, sales in Europe, Middle East and Africa decreased 1 percent with favorable currency and price tailwinds mostly offset by a decrease in volume due to weather challenges and sales in Asia increased 13 percent, driven by favorable currency, volume growth especially from launches, as well as price growth. Approximately $400 million in revenues came from products launched in the last five years. •Our gross margin of $2,171.7 million increased $119.7 million or approximately 6 percent versus last year. The increase in gross margin was primarily driven by top line revenue growth which was partially offset by higher costs due to rising input costs and increasing logistics expenses. Gross margin as a percent of revenue of 43 percent decreased slightly from 44 percent in the prior year period, driven by higher costs primarily increases in raw materials, packaging, and logistics.
•Selling, general and administrative expenses decreased from $729.7 million to $714.1 million due to lower transaction-related charges resulting from the finalization of our worldwide ERP system in the first quarter 2021. Selling, general and administrative expenses, excluding transaction-related charges, of $713.7 million increased $37.3 million or approximately 6 percent. The increase was the result of resuming normal spending following cost-saving measures in the prior year due to the pandemic. Transaction-related charges are presented in our adjusted earnings Non-GAAP financial measurement below under the section titled "Results of Operations". •Research and development expenses of $304.7 million increased $16.8 million or 6 percent. In the prior year, we phased some research and development projects differently to allow for lower costs in response to the pandemic without fundamentally impacting long-term timelines. In the current year, we have resumed research and development expenses related to these projects. We maintain our commitment to invest resources to discover new active ingredients and formulations that support resistance management and sustainable agriculture.
•Net income (loss) attributable to FMC stockholders of $736.5 million increased $185 million or approximately 34 percent from $551.5 million in the prior year period. The higher results were driven by our gross margin growth as well as $52.9 million in lower transaction-related charges due to the completion of our integration of the Dupont Crop Protection business in 2020. See Note 5 to the consolidated financial statements included in this Form 10-K for additional information on the Dupont Crop Protection business. Further contributing to our increase in net income was $24.2 million in lower restructuring and other charges versus prior year primarily due to the charge of $65.6 million associated with the Isagro asset acquisition in 2020 somewhat offset by the $33.5 million charge for the India indirect tax matter in 2021. Interest expense, net decreased $20.1 million compared to the prior year due to lower outstanding debt and lower rates. Additionally, the provision for income taxes was lower by $59.3 million, primarily due to the geographic mix of earnings among our global subsidiaries as well as changes in various tax reserves. Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of $894.9 million increased $85.9 million or approximately 11 percent. See the disclosure of our adjusted earnings Non-GAAP financial measurement under the section titled "Results of Operations".
Other 2021 Highlights
In March 2021, we announced our agreement with UPL Ltd. ("UPL"), a global provider of sustainable agriculture products and solutions, to expand access of Rynaxypyr® active to growers around the world and increase the manufacturing capacity for this critical molecule. Under the multi-year agreement, we will provide UPL access to products containing Rynaxypyr® active for distribution in select markets. In the future, we will supply Rynaxypyr® active to UPL for use in product formulations developed and marketed by UPL around the world. Additionally, UPL will toll manufacture Rynaxypyr® active for us in India for the India market. This arrangement will significantly increase our manufacturing footprint and capacity for Rynaxypyr® active, expanding our ability to supply the growing demand.
2022 Outlook
We expect 2022 revenue will be in the range of approximately $5.25 billion to $5.55 billion, up approximately 7 percent at the midpoint versus 2021. We also expect adjusted EBITDA(1) of $1.32 billion to $1.48 billion, which represents 6 percent growth at the midpoint versus 2021 results. Our results may be impacted if cost inflation becomes more severe, which would trend our results towards the lower end of guidance. Mid-to-high single digit price increases or the easing of foreign currency headwinds may drive our results towards the high end of the range. We are prepared to navigate certain challenges such as rising input costs, inconsistent raw material availability, increasing logistic expenses, long lead times for ocean freight, labor cost inflation and emerging currency headwinds. 2022 adjusted earnings are expected to be in the range of $6.80 to $8.10 per diluted share(1), up 8 percent at the midpoint versus 2021, excluding any impact from potential share repurchases in 2022. For cash flow outlook, refer to the liquidity and capital resources section below.
(1)Although we provide forecasts for adjusted earnings per share and adjusted EBITDA (Non-GAAP financial measures), we are not able to forecast the most directly comparable measures calculated and presented in accordance with U.S. GAAP. Certain elements of the composition of the U.S. GAAP amounts are not predictable, making it impractical for us to forecast. Such elements include, but are not limited to, restructuring, acquisition charges, and discontinued operations. As a result, no U.S. GAAP outlook is provided.
Results of Operations — 2021, 2020 and 2019
Overview
The following charts provide a reconciliation of adjusted EBITDA, adjusted earnings and organic revenue growth, all of which are Non-GAAP financial measures, from the most directly comparable GAAP measure. Adjusted EBITDA and organic revenue are provided to assist the readers of our financial statements with useful information regarding our operating results. Our operating results are presented based on how we assess operating performance and internally report financial information. For management purposes, we report operating performance based on earnings before interest, income taxes, depreciation and amortization, discontinued operations, and corporate special charges. Our adjusted earnings measure excludes corporate special charges, net of income taxes, discontinued operations attributable to FMC stockholders, net of income taxes, and certain Non-GAAP tax adjustments. These are excluded by us in the measure we use to evaluate business performance and determine certain performance-based compensation. These items are discussed in detail within the "Other Results of Operations" section that follows. Organic revenue growth excludes the impacts of foreign currency changes, which we believe is a meaningful metric to evaluate our revenue changes. In addition to providing useful information about our operating results to investors, we also believe that excluding the effect of corporate special charges, net of income taxes, and certain Non-GAAP tax adjustments from operating results and discontinued operations allows management and investors to compare more easily the financial performance of our underlying business from period to period. These measures should not be considered as substitutes for net income (loss) or other measures of performance or liquidity reported in accordance with U.S. GAAP.
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(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Revenue | $ | 5,045.2 | | | $ | 4,642.1 | | | $ | 4,609.8 | |
Costs and Expenses | | | | | |
Costs of sales and services | 2,873.5 | | | 2,590.1 | | | 2,526.2 | |
Gross Margin | $ | 2,171.7 | | | $ | 2,052.0 | | | $ | 2,083.6 | |
Selling, general and administrative expenses | 714.1 | | | 729.7 | | | 792.9 | |
Research and development expenses | 304.7 | | | 287.9 | | | 298.1 | |
Restructuring and other charges (income) | 108.0 | | | 132.2 | | | 171.0 | |
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Total costs and expenses | $ | 4,000.3 | | | $ | 3,739.9 | | | $ | 3,788.2 | |
Income from continuing operations before non-operating pension and postretirement charges (income), interest income, interest expense, and provision for income taxes (1) | $ | 1,044.9 | | | $ | 902.2 | | | $ | 821.6 | |
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Non-operating pension and postretirement charges (income) | 20.0 | | | 21.2 | | | 8.1 | |
Interest income | — | | | (0.1) | | | (1.9) | |
Interest expense | 131.1 | | | 151.3 | | | 160.4 | |
Income from continuing operations before income taxes | $ | 893.8 | | | $ | 729.8 | | | $ | 655.0 | |
Provision for income taxes | 91.6 | | | 150.9 | | | 111.5 | |
Income (loss) from continuing operations | $ | 802.2 | | | $ | 578.9 | | | $ | 543.5 | |
Discontinued operations, net of income taxes | (68.2) | | | (28.3) | | | (63.3) | |
Net income (loss) (GAAP) | $ | 734.0 | | | $ | 550.6 | | | $ | 480.2 | |
Adjustments to arrive at Adjusted EBITDA (Non-GAAP): | | | | | |
Corporate special charges (income): | | | | | |
Restructuring and other charges (income) (3) | $ | 108.0 | | | $ | 132.2 | | | $ | 171.0 | |
Non-operating pension and postretirement charges (income) (4) | 20.0 | | | 21.2 | | | 8.1 | |
Transaction-related charges (5) | 0.4 | | | 53.3 | | | 77.8 | |
Discontinued operations, net of income taxes | 68.2 | | | 28.3 | | | 63.3 | |
Interest expense, net | 131.1 | | | 151.2 | | | 158.5 | |
Depreciation and amortization | 170.9 | | | 162.7 | | | 150.1 | |
Provision (benefit) for income taxes | 91.6 | | | 150.9 | | | 111.5 | |
Adjusted EBITDA (Non-GAAP) (2) | $ | 1,324.2 | | | $ | 1,250.4 | | | $ | 1,220.5 | |
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(1)Referred to as operating profit.
(2)Adjusted EBITDA is defined as operating profit excluding corporate special charges (income) and depreciation and amortization expense.
(3)See Note 9 to the consolidated financial statements included within this Form 10-K for details of restructuring and other charges (income).
(4)Our non-operating pension and postretirement charges (income) are defined as those costs (benefits) related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These are excluded from our operating results and 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 continue to include the service cost and amortization of prior service cost in our operating results noted above. These elements reflect the current year operating costs to our business for the employment benefits provided to active employees.
(5)Charges relate to transaction costs, costs for transitional employees, other acquired employee related costs, integration related legal and professional third-party fees. We completed the integration of the DuPont Crop Protection Business in 2020, other than the completion of certain in-flight initiatives associated with the finalization of our worldwide ERP system in early 2021.
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| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
DuPont Crop Protection Business Acquisition (1) | | | | | |
Legal and professional fees (2) | $ | 0.4 | | | $ | 53.3 | | | $ | 77.8 | |
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Total transaction-related charges | $ | 0.4 | | | $ | 53.3 | | | $ | 77.8 | |
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(1)As previously disclosed, in November 2017, we acquired certain assets relating to the crop protection business of E. I. du Pont de Nemours and Company, and the related research and development organization (the "DuPont Crop Protection Business").
(2)Represents transaction costs, costs for transitional employees, other acquired employees related costs, and transactional-related costs such as legal and professional third-party fees. These charges are recorded as a component of "Selling, general and administrative expense" on the consolidated statements of income (loss).
ADJUSTED EARNINGS RECONCILIATION
| | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Net income (loss) attributable to FMC stockholders (GAAP) | $ | 736.5 | | | $ | 551.5 | | | $ | 477.4 | |
Corporate special charges (income), pre-tax (1) | 128.4 | | | 206.7 | | | 256.9 | |
Income tax expense (benefit) on Corporate special charges (income) (2) | (23.4) | | | (23.8) | | | (49.2) | |
Corporate special charges (income), net of income taxes | $ | 105.0 | | | $ | 182.9 | | | $ | 207.7 | |
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Discontinued operations attributable to FMC Stockholders, net of income taxes | 68.2 | | | 28.3 | | | 63.3 | |
Non-GAAP tax adjustments (3) | (14.8) | | | 46.3 | | | 55.3 | |
Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (Non-GAAP) | $ | 894.9 | | | $ | 809.0 | | | $ | 803.7 | |
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(1) Represents restructuring and other charges (income), non-operating pension and postretirement charges (income) and transaction-related charges.
(2) The income tax expense (benefit) on Corporate special charges (income) is determined using the applicable rates in the taxing jurisdictions in which the Corporate special charge or income occurred and includes both current and deferred income tax expense (benefit) based on the nature of the non-GAAP performance measure.
(3) We exclude the GAAP tax provision, including discrete items, from the Non-GAAP measure of income, and instead include a Non-GAAP tax provision based upon the annual Non-GAAP effective tax rate. The GAAP tax provision includes certain discrete tax items including, but not limited to: income tax expenses or benefits that are not related to current year ongoing business operations; tax adjustments associated with fluctuations in foreign currency remeasurement of certain foreign operations; certain changes in estimates of tax matters related to prior fiscal years; certain changes in the realizability of deferred tax assets; and changes in tax law. Management believes excluding these discrete tax items assists investors and securities analysts in understanding the tax provision and the effective tax rate related to ongoing operations thereby providing investors with useful supplemental information about FMC's operational performance.
ORGANIC REVENUE GROWTH RECONCILIATION
| | | | | |
| Twelve Months Ended December 31, 2021 vs. 2020 |
Total Revenue Change (GAAP) | 9 | % |
Less: Foreign Currency Impact | (1%) |
Organic Revenue Change (Non-GAAP) | 8 | % |
| |
Results of Operations
In the discussion below, all comparisons are between the periods unless otherwise noted.
Revenue
2021 vs. 2020
Revenue of $5,045.2 million increased $403.1 million, or approximately 9 percent versus the prior year period. The increase was driven by higher volumes, which accounted for an approximate 7 percent increase, as well as favorable pricing which accounted for an approximate 1 percent increase. Growth in volumes was broad-based across synthetic and biological portfolios, with North America, Latin America and Asia delivering strong results. Foreign currency tailwinds had a favorable impact of approximately 1 percent on revenue. Excluding foreign currency impacts, revenue increased approximately 8 percent.
2020 vs. 2019
Revenue of $4,642.1 million increased $32.3 million, or approximately 1 percent versus the prior year period. The increase was driven by higher volumes, primarily in Latin America and Asia, which accounted for an approximate 4 percent increase, as well as favorable pricing which accounted for an approximate 3 percent increase. Foreign currency headwinds had an unfavorable impact of approximately 6 percent on revenue. Excluding foreign currency impacts, revenue increased approximately 7 percent.
See below for a discussion of revenue by region.
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Total Revenue by Region |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
North America | $ | 1,117.2 | | | $ | 1,032.5 | | | $ | 1,121.1 | |
Latin America | 1,633.4 | | | 1,456.5 | | | 1,441.7 | |
Europe, Middle East and Africa (EMEA) | 1,040.0 | | | 1,046.3 | | | 1,001.8 | |
Asia | 1,254.6 | | | 1,106.8 | | | 1,045.2 | |
Total Revenue | $ | 5,045.2 | | | $ | 4,642.1 | | | $ | 4,609.8 | |
2021 vs. 2020
North America: Revenue increased approximately 8 percent in the year ended December 31, 2021, driven by sales growth for herbicides and diamides, and strong product launches of Xyway™ fungicide and Vantacor™ insect control. The increase was partially offset by a shift of diamide partner sales from North America to other regions.
Latin America: Revenue increased approximately 12 percent, or approximately 14 percent excluding foreign currency headwinds, for the year ended December 31, 2021 compared to the prior year period due to strong volume growth across all countries and pricing actions. Growth was broad-based across segments with insecticides, fungicides and biologicals increasing double digits.
EMEA: Revenue decreased approximately 1 percent versus the prior year period, or approximately 4 percent excluding foreign currency tailwinds, driven by a shift of diamide partner sales from EMEA to other regions. Volume and price contributed to the region’s revenue driven by diamides, herbicides, biologicals and fungicides.
Asia: Revenue increased approximately 13 percent versus the prior year period, or approximately 10 percent excluding foreign currency tailwinds, primarily driven by growth in Australia, India, ASEAN zone and Korea. We had strong sales for our new Overwatch® herbicide and Vantacor™ insect control. Sales of our diamides were robust across the region despite erratic rainfall in several countries.
For 2022, full-year revenue is expected to be in the range of approximately $5.25 billion to $5.55 billion, which represents approximately 7 percent growth at the midpoint versus 2021.
2020 vs. 2019
North America: Revenue decreased approximately 8 percent in the year ended December 31, 2020. Sales were impacted due to supply chain disruptions, including COVID-related factors associated with logistics and a tolling partner in the fourth quarter. Additionally, we had channel destocking in the first half of the year. We continued market expansion of the Lucento® fungicide, which had a strong second year, and Elevest™ insect control had a good launch year.
Latin America: Revenue increased approximately 1 percent, or approximately 17 percent excluding foreign currency headwinds, for the year ended December 31, 2020 compared to the prior year period due primarily to high-single digit volume growth and solid price increases. Brazil had robust demand for our products for soybeans and sugarcane, while there was reduced acreage for cotton.
EMEA: Revenue increased approximately 4 percent versus the prior year period, or approximately 6 percent excluding foreign currency headwinds. Demand was driven by diamides on specialty crops, Battle® Delta herbicide on cereals and Spotlight® Plus herbicide on potatoes.
Asia: Revenue increased approximately 6 percent versus the prior year period, or approximately 9 percent excluding foreign currency headwinds, primarily driven by market expansion and share gains in India and the very strong market rebound in Australia. Our diamides were in high demand throughout the region in 2020, as we continue to grow on specialty crops like rice and fruit and vegetables.
Gross margin
2021 vs. 2020
Gross margin of $2,171.7 million increased by $119.7 million, or approximately 6 percent versus the prior year period. The increase was primarily due to higher revenues driven by increased volumes, partially offset by higher cost of goods sold.
Gross margin percent of approximately 43 percent slightly decreased from 44 percent in the prior year period, driven by higher costs primarily increases in raw materials, packaging, and logistics.
2020 vs. 2019
Gross margin of $2,052.0 million decreased by $31.6 million, or approximately 2 percent versus the prior year period. The decrease was primarily due to unfavorable foreign currency impacts.
Gross margin percent of approximately 44 percent slightly decreased from approximately 45 percent in the prior year period, primarily due to unfavorable foreign currency headwinds.
Selling, general, and administrative expenses
2021 vs. 2020
Selling, general and administrative expenses of $714.1 million decreased by $15.6 million, or approximately 2 percent versus the prior year period due to lower transaction-related charges resulting from the finalization of our worldwide ERP system in the first quarter 2021. Selling, general and administrative expenses, excluding transaction-related charges, increased $37.3 million, or approximately 6 percent, versus the prior year driven by resuming normal spending following cost-saving measures taken in the prior year due to the pandemic.
2020 vs. 2019
Selling, general and administrative expenses of $729.7 million decreased by $63.2 million, or approximately 8.0 percent versus the prior year period. Selling, general and administrative expenses, excluding transaction-related charges, decreased $38.7 million, or approximately 5 percent, versus the prior year period due to cost-saving measures implemented in response to the pandemic.
Research and development expenses
2021 vs. 2020
Research and development expenses of $304.7 million increased by $16.8 million, or approximately 6 percent versus the prior year period. During 2020, we phased some research and development projects differently to allow for lower costs in response to the pandemic without fundamentally impacting long-term timelines. In the current year, we have resumed research and development expenses related to these projects.
2020 vs. 2019
Research and development expenses of $287.9 million decreased by $10.2 million, or approximately 3 percent versus the prior year period primarily due to cost-saving measures taken in response to the COVID pandemic, but we did not cancel any research and development projects. We phased some projects differently to allow lower costs in response to the pandemic without fundamentally impacting long-term timelines.
Other Results of Operations
Depreciation and amortization
2021 vs. 2020
Depreciation and amortization of $170.9 million increased $8.2 million, or approximately 5 percent, as compared to 2020 of $162.7 million. The increase was mostly driven by the impacts of the amortization effects of the completion of various phases of our ERP implementation which increased amortization expense by approximately $5 million.
2020 vs. 2019
Depreciation and amortization of $162.7 million increased $12.6 million, or approximately 8 percent, as compared to 2019 of $150.1 million. The increase was mostly driven by the impacts of the amortization effects of the completion of various phases of our ERP implementation which increased amortization expense by approximately $10 million.
Interest expense, net
2021 vs. 2020
Interest expense, net of $131.1 million decreased by $20.1 million, or approximately 13 percent, compared to $151.2 million in 2020. The decrease was driven by lower foreign debt balances and rates which decreased interest expense by approximately $9 million and, lower short term interest rates which decreased interest expense by approximately $10 million.
2020 vs. 2019
Interest expense, net of $151.2 million decreased by $7.3 million, or approximately 5 percent, compared to $158.5 million in 2019. The decrease was driven by lower term loan balances which decreased interest expense by approximately $17 million, lower LIBOR rates which decreased interest expense by approximately $20 million and partially offset by the impacts of our third quarter 2019 debt offering which increased interest expense by approximately $30 million.
Corporate special charges (income)
Restructuring and other charges (income)
Our restructuring and other charges (income) are comprised of restructuring, assets disposals and other charges (income) as described below: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Restructuring charges | $ | 41.1 | | | $ | 42.6 | | | $ | 62.2 | |
Other charges (income), net | 66.9 | | | 89.6 | | | 108.8 | |
Total restructuring and other charges (income) (1) | $ | 108.0 | | | $ | 132.2 | | | $ | 171.0 | |
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(1) See Note 9 to the consolidated financial statements included in this Form 10-K for more information.
2021
Restructuring charges in 2021 primarily consisted of $16.7 million of charges associated with the integration of the DuPont Crop Protection Business which was completed in 2020 except for certain in-flight initiatives. These charges primarily reflect non-cash charges and to a lesser extent remaining severance. Restructuring charges associated with the DuPont program are largely complete and any future charges are not expected to be material. There were other restructuring charges of $13.4 million related to various actions to improve organizational structure as well as regional alignment activities which primarily included the move of our European headquarters. Types of costs primarily relate to facility-related shut down costs including asset impairments as well as employee-related costs.
Other charges (income), net in 2021 includes $33.5 million of charges related to the establishment of reserves for certain historical India indirect tax matters that were triggered during the period of which approximately half are non-cash charges. See Note 20 to the consolidated financial statements included within this Form 10-K for further information regarding this matter. Additional charges of $27.1 million consists of charges of environmental sites.
2020
Restructuring charges in 2020 primarily consisted of $40.2 million of charges associated with the integration of the DuPont Crop Protection Business which was completed in 2020 except for certain in-flight initiatives. These charges included severance, accelerated depreciation on certain fixed assets, and other costs (benefits). There were other miscellaneous restructuring charges $2.4 million.
Other charges (income), net in 2020 includes $65.6 million of charges related to our acquisition of the remaining rights for Fluindapyr active ingredient assets from Isagro. See Note 9 to the consolidated financial statements included within this Form 10-K for further information regarding this matter. Additional charges of $24.9 million consists of charges of environmental sites.
2019
Restructuring charges in 2019 primarily consisted of $34.1 million of charges related to our decision to exit sales of all carbofuran formulations globally and $26.4 million of charges associated with the integration of the DuPont Crop Protection Business. These charges included severance, accelerated depreciation on certain fixed assets, and other costs (benefits). There were other miscellaneous restructuring charges $1.7 million.
Other charges (income), net in 2019 primarily consists of charges of environmental sites. During the fourth quarter of 2019, we recorded a charge of $72.8 million a result of an unfavorable court ruling we received in relation to the Pocatello Tribal Litigation at one of our environmental sites. See Note 12 to the consolidated financial statements included within this Form 10-K for further information regarding this matter.
Non-operating pension and postretirement charges (income)
2021 vs. 2020
The charge for 2021 was $20.0 million compared to $21.2 million in 2020 and was not a material change.
2020 vs. 2019
The charge for 2020 was $21.2 million compared to $8.1 million in 2019. The increase in non-operating pension and post retirement charges (income) is attributable to the continued approach of using the smoothed market related value of assets (MRVA) as opposed to the actual fair value of plan assets in the determination of 2020 expense. This continued approach will create some volatility in our non-operating periodic pension cost since our qualified pension plan is 100 percent fixed income securities.
Transaction-related charges
A detailed description of the transaction related charges is included in Note 5 to the consolidated financial statements included within this Form 10-K. Transaction related charges, which consisted entirely of those for the DuPont Crop acquisition, ended in early 2021.
Provision for income taxes
Provision for income taxes for 2021 was expense of $91.6 million resulting in an effective tax rate of 10.2 percent. Provision for income taxes for 2020 was expense of $150.9 million resulting in an effective tax rate of 20.7 percent. Provision for income taxes for 2019 was expense of $111.5 million resulting in an effective tax rate of 17.0 percent. Note 13 to the consolidated financial statements included in this Form 10-K includes more details on the drivers of the GAAP effective rate and year-over-year changes. We believe showing the reconciliation below of our GAAP to Non-GAAP effective tax rate provides investors with useful supplemental information about our tax rate on the core underlying business.
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| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
(in Millions) | Income (Expense) | Tax Provision (Benefit) | Effective Tax Rate | | Income (Expense) | Tax Provision (Benefit) | Effective Tax Rate | | Income (Expense) | Tax Provision (Benefit) | Effective Tax Rate |
GAAP - Continuing operations | $ | 893.8 | | $ | 91.6 | | 10.2 | % | | $ | 729.8 | | $ | 150.9 | | 20.7 | % | | $ | 655.0 | | $ | 111.5 | | 17.0 | % |
Corporate special charges (income) | 128.4 | | 23.4 | | | | 206.7 | | 23.8 | | | | 256.9 | | 49.2 | | |
Tax adjustments (1) | | 14.8 | | | | | (46.3) | | | | | (55.3) | | |
Non-GAAP - Continuing operations | $ | 1,022.2 | | $ | 129.8 | | 12.7 | % | | $ | 936.5 | | $ | 128.4 | | 13.7 | % | | $ | 911.9 | | $ | 105.4 | | 11.6 | % |
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(1)Tax adjustments in 2021, 2020, and 2019 are materially attributable to the effects of certain changes in various tax reserves. See Note 13 to the consolidated financial statements included within this Form 10-K.
The primary drivers for the fluctuations in the effective tax rate for each period are provided in the table above. Excluding the items in the table above, the changes in the non-GAAP effective tax rate were primarily due to the impact of geographic mix of earnings among our global subsidiaries. See Note 13 to the consolidated financial statements included within this Form 10-K for additional details related to the provisions for income taxes on continuing operations, as well as items that significantly impact our effective tax rate.
Discontinued operations, net of income taxes
Our discontinued operations primarily reflect adjustments to retained liabilities from previously discontinued operations and include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities. Discontinued operations also includes the results of our discontinued FMC Lithium business in periods up to its disposition on March 1, 2019. See Note 11 to the consolidated financial statements included within this Form 10-K for additional details on our discontinued operations.
2021 vs. 2020
Discontinued operations, net of income taxes represented a loss of $68.2 million in 2021 compared to a loss of $28.3 million in 2020. The loss during both periods was primarily due to adjustments related to the retained liabilities from our previously discontinued operations. Offsetting the losses in 2021 and 2020 were the gain on sales of land in our discontinued sites of $15 million and $24 million, net of taxes, respectively.
2020 vs. 2019
Discontinued operations, net of income taxes represented a loss of $28.3 million in 2020 compared to a loss of $63.3 million in 2019. The loss during both periods was primarily due to adjustments related to the retained liabilities from our previously discontinued operations. Offsetting the loss in both 2019 and 2020 were the gain on sale of two parcels of land in our discontinued site in Newark, California of $21 million and $24 million, net of taxes, respectively. Additionally, during 2019, we included the net loss from our discontinued FMC Lithium segment, primarily due to separation-related costs, up to its separation date on March 1, 2019.
Net income (loss)
2021 vs. 2020
Net income increased to $734.0 million from $550.6 million. The higher results were driven by higher revenues and margins as well as lower selling, general, and administrative costs primarily resulting from lower transaction-related charges. Additionally, we had lower restructuring and other charges of $24.2 million, interest expense, net of $20.1 million, and tax expense of $59.3 million. These reductions were offset by higher discontinued operations charges of $39.9 million resulting from higher adjustments to retained liabilities and lower gains from real estate sales.
The only difference between Net income (loss) and Net income (loss) attributable to FMC stockholders is noncontrolling interest, which period over period is immaterial.
2020 vs. 2019
Net income (loss) increased to $550.6 million from $480.2 million. The higher results were driven by a slight increase in revenue as well as cost-saving measures in selling, general, and administrative and research and development expenses in response to the pandemic. Restructuring and other charges were $38.8 million lower versus prior year and discontinued operations expense decreased $35.0 million compared to the prior year. These increases to income were partially offset by
higher tax expense and higher provision for income taxes of $39.4 million and higher non-operating pension and postretirement charges of $13.1 million.
The only difference between Net income (loss) and Net income (loss) attributable to FMC stockholders is noncontrolling interest, which period over period is immaterial.
Adjusted EBITDA (Non-GAAP)
2021 vs. 2020
Adjusted EBITDA of $1,324.2 million increased $73.8 million, or approximately 6 percent versus the prior year period. The increase was due to higher volumes and higher pricing which accounted for approximately 20 percent and 3 percent increases respectively. These factors more than offset cost increases in raw materials, packaging, and logistics costs, and to a lesser extent the reversal of some temporary cost savings in the prior year, which had an unfavorable impact of approximately 15 percent and foreign currency fluctuations which had an unfavorable impact of approximately 2 percent on adjusted EBITDA.
2020 vs. 2019
Adjusted EBITDA of $1,250.4 million increased $29.9 million, or approximately 2 percent versus the prior year period. The increase was due to higher volumes, higher pricing, and strong cost management which accounted for approximately 9 percent, 9 percent, and 6 percent increases respectively. These factors offset foreign currency fluctuations which had an unfavorable impact of approximately 22 percent on adjusted EBITDA.
Liquidity and Capital Resources
As a global agricultural sciences company, we require cash primarily for seasonal working capital needs, capital expenditures, and return of capital to shareholders. We plan to meet these liquidity needs through available cash, cash generated from operations, commercial paper issuances and borrowings under our committed revolving credit facility as well as other liquidity facilities, and in certain instances access to debt capital markets. We believe our strong financial standing and credit ratings will ensure adequate access to the debt capital markets on favorable conditions. Information involving our material cash requirements is detailed below.
Cash
Cash and cash equivalents at December 31, 2021 and 2020, were $516.8 million and $568.9 million, respectively. Of the cash and cash equivalents balance at December 31, 2021, $510.3 million was held by our foreign subsidiaries. During the third quarter of 2021, we established plans to repatriate cash from certain foreign subsidiaries with minimal tax on a go forward basis. Other cash held by foreign subsidiaries is generally used to finance subsidiaries’ operating activities and future foreign investments. See Note 13 to the consolidated financial statements included within this Form 10-K for more information on our indefinite reinvestment assertion.
Outstanding debt
At December 31, 2021, we had total debt of $3,172.5 million as compared to $3,267.8 million at December 31, 2020. Total debt included $2,731.7 million and $2,929.5 million of long-term debt (excluding current portions of $84.5 million and $93.6 million) at December 31, 2021 and 2020, respectively. On May 26, 2021, we amended our Revolving Credit Agreement. On November 22, 2021, we borrowed $1.0 billion under our previously announced senior unsecured term loan facility. The proceeds were used to pay off our 2017 Term Loan Facility and Senior Notes maturing in 2022. As of December 31, 2021, we were in compliance with all of our debt covenants. See Note 14 to the consolidated financial statements included within this Form 10-K for further details. We remain committed to solid investment grade credit metrics, and expect full-year average leverage to be in line with this commitment in 2021.
The decrease in long-term debt was primarily due to paying down $200 million of the 2021 Term Loan Facility in December.
Our short-term debt consists of foreign borrowings and borrowings under our commercial paper program. Foreign borrowings increased from $98.4 million at December 31, 2020 to $112.2 million at December 31, 2021 while outstanding commercial paper increased from $146.3 million at December 31, 2020 to $244.1 million at December 31, 2021. We provide parent-company guarantees to lending institutions providing credit to our foreign subsidiaries.
Our total debt maturities, excluding discounts, is $3,191.0 million at December 31, 2021, with $440.8 million payable in the next 12 months. As of December 31, 2021, we had contractual interest obligations of $936.5 million outstanding, with $84.2 million payable in the next 12 months. Contractual interest is the interest we are contracted to pay on our long-term debt obligations. We had $800.0 million of long-term debt subject to variable interest rates at December 31, 2021. The rate assumed for the variable interest component of the contractual interest obligation was the rate in effect at December 31, 2021. Variable rates are determined by the market and will fluctuate over time.
Access to credit and future liquidity and funding needs
At December 31, 2021, our remaining borrowing capacity under our credit facility was $1,093.4 million. See Note 14 to the consolidated financial statements included within this Form 10-K for discussion of the 2021 Term Loan Agreement as well as the amendments to the Revolving Credit Facility and Term Loan Agreements undertaken in the current year. Our commercial paper program allows us to borrow at rates generally more favorable than those available under our credit facility. At December 31, 2021, we had $244.1 million borrowings outstanding under the commercial paper program at an average borrowing rate of 0.45 percent. Our commercial paper balances fluctuate from year to year depending on working capital needs.
Working Capital Initiatives
The Company works with suppliers to optimize payment terms and conditions on accounts payable to improve working capital and cash flows. The Company offers to a select group of suppliers a voluntary Supply Chain Finance (“SCF”) program with a global financial institution. The suppliers, at their sole discretion, may sell their receivables to the financial institution based on terms negotiated between them. Our obligations to our suppliers are not impacted by our suppliers’ decisions to sell under these arrangements. Agreements under these supplier financing programs are recorded within Accounts payable in our Consolidated Balance Sheets and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows. We do not believe that changes in the availability of the supply chain finance program would have a significant impact on our liquidity.
From time to time, the Company may sell receivables on a non-recourse basis to third-party financial institutions. These sales are normally driven by specific market conditions, including, but not limited to, foreign exchange environments, customer credit management, as well as other factors where the receivables may lay.
We account for these transactions as sales which result in a reduction in accounts receivables because the agreements transfer effective control and risk related to the receivables to the buyers. The net cash proceeds received are presented within cash provided by operating activities within our Consolidated Statements of Cash Flows. The cost of factoring these accounts receivables is recorded as an expense within the Consolidated Statements of Income and has been inconsequential during each reporting period.
Commitments
We provide guarantees to financial institutions on behalf of certain customers, principally customers in Brazil, for their seasonal borrowing. The total of these guarantees was $215.9 million at December 31, 2021. These guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates. Non-performance by the guaranteed party triggers the obligation requiring us to make payments to the beneficiary of the guarantee. Based on our experience these types of guarantees have not had a material effect on our consolidated financial position or on our liquidity. Our expectation is that future payment or performance related to the non-performance of others is considered unlikely.
In connection with certain of our property and asset sales and divestitures, we have agreed to indemnify the buyer for certain liabilities, including environmental contamination and taxes that occurred prior to the date of sale. Our indemnification obligations with respect to these liabilities may be indefinite as to duration and may or may not be subject to a deductible, minimum claim amount or cap. In cases where it is not possible for us to predict the likelihood that a claim will be made or to make a reasonable estimate of the maximum potential loss or range of loss, no specific liability has been recorded. If triggered, we may be able to recover certain of the indemnity payments from third parties. In cases where it is possible, we have recorded a specific liability within our Reserve for Discontinued Operations. Refer to Note 11 to the consolidated financial statements included within this Form 10-K for further details.
Taxes, Pension, Environmental, and Other Discontinued Liabilities
As of December 31, 2021, the liability for uncertain tax positions was $45.5 million. We also have a liability attributable to the transition tax on deemed repatriated foreign earnings incurred as a result of the Act of $92.1 million. Our consolidated balance sheets contain accrued pension and other postretirement benefits, our environmental liabilities, and our other discontinued liabilities for which we are unable to make a reasonably reliable estimate of the amount and periods in which these liabilities might be paid beyond 2022. See our discussion under 2022 Cash Flow Outlook in the Free Cash Flow section within this Form 10-K for information on these liabilities and the related expected payments in 2022.
Derivatives
At times we can be in a derivative liability position that can require future cash obligations; however as of December 31, 2021, we had no such obligations.
Leases
We have lease arrangements for equipment and facilities, including office spaces, IT equipment, transportation equipment, machinery equipment, furniture and fixtures, and plant and facilities. As of December 31, 2021, we had fixed lease payment obligations of $217.2 million, with $29.2 million payable within 12 months.
Purchase obligations
Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and specify all significant terms, including fixed or minimum quantities to be purchased, price provisions and timing of the transaction. We have entered into a number of purchase obligations for the sourcing of materials and energy where take-or-pay arrangements apply. As of December our purchase obligations were $702.9 million, with $225.9 million payable in the first 12 months. The majority of the minimum obligations under these contracts are take-or-pay commitments over the life of the contract and not a year by year take-or-pay, and as such, the obligations related to these types of contacts are presented in the earliest period in which the minimum obligation could be payable under these types of contracts.
Statement of Cash Flows
Cash provided (required) by operating activities was $898.6 million, $736.8 million and $555.6 million for 2021, 2020 and 2019, respectively.
The table below presents the components of net cash provided (required) by operating activities of continuing operations.
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(in Millions) | Year ended December 31, |
2021 | | 2020 | | 2019 |
Income (loss) from continuing operations before equity in (earnings) loss of affiliates, non-operating pension expense postretirement charges, interest expense, net and income taxes (GAAP) | $ | 1,044.9 | | | $ | 902.2 | | | $ | 821.6 | |
Restructuring and other charges (income), transaction-related charges and depreciation and amortization | 279.3 | | | 348.2 | | | 398.9 | |
Operating income before depreciation and amortization | $ | 1,324.2 | | | $ | 1,250.4 | | | $ | 1,220.5 | |
Change in trade receivables, net (1) | (241.1) | | | (71.8) | | | (123.5) | |
Change in guarantees of vendor financing | 65.6 | | | 64.8 | | | 8.6 | |
Change in advance payments from customers (2) | 283.6 | | | (145.5) | | | 34.1 | |
Change in accrued customer rebates (3) | 108.7 | | | 17.2 | | | (85.8) | |
Change in inventories (4) | (331.1) | | | (59.7) | | | 6.4 | |
Change in accounts payable (5) | 144.4 | | | 61.8 | | | 103.0 | |
Change in all other operating assets and liabilities (6) | (77.6) | | | (68.2) | | | (208.5) | |
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Restructuring and other spending (7) | (34.7) | | | (17.9) | | | (18.6) | |
Environmental spending, continuing, net of recoveries (8) | (63.6) | | | (1.9) | | | (18.3) | |
Pension and other postretirement benefit contributions (9) | (5.3) | | | (4.6) | | | (13.4) | |
Net interest payments (10) | (125.8) | | | (141.8) | | | (140.9) | |
Tax payments, net of refunds (11) | (139.2) | | | (82.1) | | | (130.9) | |
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Transaction and integration costs (12) | (9.5) | | | (63.9) | | | (77.1) | |
Cash provided (required) by operating activities of continuing operations (GAAP) | $ | 898.6 | | | $ | 736.8 | | | $ | 555.6 | |
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(1)The change in trade receivables in all periods include the impacts of seasonality and the receivable build intrinsic in our business. The change in cash flows related to trade receivables in 2021 was driven by timing of collections as well as higher sales year over year. Collection timing is more pronounced in certain countries such as Brazil where there may be terms significantly longer than the rest of our business. Additionally, timing of collection is impacted as amounts for all periods include carry-over balances remaining to be collected in Latin America, where collection periods are measured in months rather than weeks. During 2021, we collected approximately $1,118 million of receivables in Brazil.
(2)Advance payments are typically received in the fourth quarter of each year, primarily in our North America operations as revenue associated with advance payments is recognized, generally in the first half of each year following the seasonality of that business, as shipments are made and title, ownership and risk of loss pass to the customer. The change in 2021 was primarily related to substantially higher overall payments received due to a strong North America season.
(3)These rebates are primarily associated within North America, and to a lesser extent Brazil, and in North America generally settle in the fourth quarter of each year given the end of the respective crop cycle. The changes in 2021 compared to 2020 are mostly associated with higher North America revenue, primarily volume related, as well as with the mix in sales eligible for rebates and incentives and timing of certain rebate payments.
(4)The change in cash flows during 2021 reflect the inventory build required to meet business demand and to help manage supply chain volatility as well as higher input costs. Changes in inventory in 2019 are a result of inventory levels being adjusted to take into consideration the change in market conditions.
(5)The change in cash flows related to accounts payable in 2021, 2020 and 2019 is primarily due to timing of payments made to suppliers and vendors as well as in 2021 in line with the inventory build.
(6)Changes in all periods presented primarily represent timing of payments associated with all other operating assets and liabilities. Additionally, the 2021, 2020 and 2019 period includes the effects of the unfavorable contracts amortization of approximately $103 million, $120 million and $116 million, respectively.
(7)See Note 9 to the consolidated financial statements included within this Form 10-K for further details.
(8)Included in our results for each of the years presented are environmental charges for environmental remediation of $27.1 million, $24.9 million and $108.7 million, respectively. The amounts in 2021 will be spent in future years. The amounts represent environmental remediation spending which were recorded against pre-existing reserves, net of recoveries.
Environmental obligations for continuing operations primarily represent obligations at shut down or abandoned facilities within businesses that do not meet the criteria for presentation as discontinued operations. Amounts in 2021 include payments of $32.2 million related to the Pocatello Tribal Litigation. Additionally, during the first quarter of 2020, we entered into a confidential insurance settlement pertaining to coverage at a legacy environmental site, which settlement resulted in a cash payment to FMC in the amount of $20.0 million. Refer to Note 12 to the consolidated financial statements included within this Form 10-K for more details.
(9)There were no voluntary contributions to our U.S. qualified defined benefit plan in 2021 or 2020. Amounts in 2019 include voluntary contributions to our U.S. qualified defined benefit plan of $7.0 million. As our U.S. qualified plan is fully funded, we do not anticipate making voluntary contributions for the next several years.
(10)Interest payments were lower during 2021 largely due to lower foreign debt balances and rates as well as lower LIBOR rates in the US.
(11)Amounts shown in the chart represent net tax payments of our continuing operations. The increase in net tax payments in 2021 is primarily attributable to the 2021 remittance of previously deferred income tax payments in various jurisdictions as a result of the COVID pandemic. Tax payments in 2019 primarily represent the payments of tax attributable to the Nufarm Limited Sale, transition tax, and tax payments related to the acquired DuPont Crop Protection Business.
(12)Represents payments for legal and professional fees associated with the DuPont Crop Protection Business Acquisition in addition to costs related to integrating the DuPont Crop Protection Business. We completed the integration of the DuPont Crop Protection Business in 2020, other than the completion of certain in-flight initiatives associated with the finalization of our worldwide ERP system in early 2021. See Note 5 to the consolidated financial statements included within this Form 10-K for more information.
Cash provided (required) by operating activities of discontinued operations was $(78.5) million, $(89.0) million and $(67.1) million for 2021, 2020 and 2019, respectively.
Cash required by operating activities of discontinued operations is directly related to environmental, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities.
Cash provided (required) by investing activities of continuing operations was $(131.7) million, $(200.4) million and $(195.9) million for 2021, 2020 and 2019, respectively.
Cash required in 2021 is primarily due to capital expenditures and spending related to our contract manufacturing arrangements. We completed the final stage of our SAP system implementation during the early part of 2021, therefore a reduction in those payments year over year.
Cash required in 2020 primarily due to capital expenditures and spending related to our contract manufacturing arrangements, as well as continued spending associated with the final stages of our new SAP system implementation. 2020 also includes payments of $65.6 million to acquire the remaining rights for Fluindapyr from Isagro S.p.A ("Isagro") in an asset acquisition.
Cash required in 2019 is primarily due to capital expenditures and spending related to our contract manufacturing arrangements, as well as continued spending during that period associated with the implementation of a new SAP system.
Cash provided (required) by investing activities of discontinued operations was $19.7 million, $31.1 million and $9.2 million for 2021, 2020 and 2019, respectively.
Cash provided by investing activities of discontinued operations in 2021 represents the proceeds from the sale of land of our discontinued sites. This resulted in a gain recognized within discontinued operations of approximately $15.4 million, net of taxes.
Cash provided by investing activities of discontinued operations in 2020 and 2019 represents the proceeds of approximately $31 million and $26 million from the sale of our two parcels of land of our discontinued site in Newark, California. These sales resulted in a gain recognized within discontinued operations in each period of approximately $24 million and $21 million, net of taxes, respectively. In 2019, this was partially offset by capital expenditures of our discontinued FMC Lithium segment.
Cash provided (required) by financing activities was $(747.9) million, $(250.3) million and $(87.0) million in 2021, 2020 and 2019, respectively.
The change in cash required by financing activities in 2021 is primarily driven due to the payment of long term debt and the increase in share repurchases under our publicly announced program.
The change in cash required by financing activities in 2020 is primarily driven by the prior year proceeds from the Senior Notes and higher dividend payments offset by a reduction in the payment of long term debt and a reduction of repurchases of common stock under our publicly announced program.
The change in cash required by financing activities in 2019 is primarily due to the proceeds from the Senior Notes offset by cash outflows including higher repurchases of common stock, repayment of long-term debt, and higher dividend payments in 2019 as compared to the prior period.
Cash provided (required) by financing activities of discontinued operations was zero , zero and $(37.2) million in 2021, 2020 and 2019, respectively.
Cash required by financing activities of discontinued operations in 2019 represents debt repayments on FMC Lithium's external debt as well as cash payments associated with its separation.
Free Cash Flow
We define free cash flow, a Non-GAAP financial measure, as all cash inflows and outflows excluding those related to financing activities (such as debt repayments, dividends, and share repurchases) and acquisition related investing activities. Free cash flow is calculated as all cash from operating activities reduced by spending for capital additions and other investing activities as well as legacy and transformation spending. Therefore, our calculation of free cash flow will almost always result in a lower amount than cash from operating activities from continuing operations, the most directly comparable U.S. GAAP measure. However, the free cash flow measure is consistent with management's assessment of operating cash flow performance and we believe it provides a useful basis for investors and securities analysts about the cash generated by routine business operations, including capital expenditures, in addition to assessing our ability to repay debt, fund acquisitions including cost and equity method investments, and return capital to shareholders through share repurchases and dividends.
Our use of free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results under U.S. GAAP. First, free cash flow is not a substitute for cash provided (required) by operating activities of continuing operations, as it is not a measure of cash available for discretionary expenditures since we have non-discretionary obligations, primarily debt service, that are not deducted from the measure. Second, other companies may calculate free cash flow or similarly titled Non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison. Additionally, the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for a given period. Because of these and other limitations, free cash flow should be considered along with cash provided (required) by operating activities of continuing operations and other comparable financial measures prepared and presented in accordance with U.S. GAAP.
The table below presents a reconciliation of free cash flow from the most directly comparable U.S. GAAP measure.
FREE CASH FLOW RECONCILIATION | | | | | | | | | | | | | | | | | |
(in Millions) | Year ended December 31, |
2021 | | 2020 | | 2019 |
Cash provided (required) by operating activities of continuing operations (GAAP) | $ | 898.6 | | | $ | 736.8 | | | $ | 555.6 | |
Transaction and integration costs (1) | 9.5 | | | 63.9 | | | 77.1 | |
Adjusted cash from operations (2) | $ | 908.1 | | | $ | 800.7 | | | $ | 632.7 | |
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Capital expenditures (3) | (100.1) | | | (67.2) | | | (93.9) | |
Other investing activities (3)(4) | (13.7) | | | (20.4) | | | (54.0) | |
Capital additions and other investing activities | $ | (113.8) | | | $ | (87.6) | | | $ | (147.9) | |
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Cash provided (required) by operating activities of discontinued operations (5) | (78.5) | | | (89.0) | | | (67.1) | |
Cash provided (required) by investing activities of discontinued operations (5) | 19.7 | | | 31.1 | | | 9.2 | |
Transaction and integration costs (1) | (9.5) | | | (63.9) | | | (77.1) | |
Investment in Enterprise Resource Planning system (3) | (12.7) | | | (47.2) | | | (48.0) | |
Legacy and transformation (6) | $ | (81.0) | | | $ | (169.0) | | | $ | (183.0) | |
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Free cash flow (Non-GAAP) | $ | 713.3 | | | $ | 544.1 | | | $ | 301.8 | |
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(1) Represents payments for legal and professional fees associated with the DuPont Crop Protection Business Acquisition in addition to costs related to integrating the DuPont Crop Protection Business. See Note 5 to the consolidated financial statements included within this Form 10-K for more information.
(2) Adjusted cash from operations is defined as cash provided (required) by operating activities of continuing operations excluding the effects of transaction-related cash flows, which are included within Legacy and transformation.
(3) Components of cash provided (required) by investing activities of continuing operations. Refer to the below discussion for further details.
(4) Cash spending associated with contract manufacturers was $18.8 million, $17.4 million and $51.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
(5) Refer to the above discussion for further details.
(6) Includes our legacy liabilities such as environmental remediation and other legal matters and our discontinued investing activities that are reported in discontinued operations. It also includes business integration costs associated with the DuPont Crop Protection Business Acquisition and the implementation of our new SAP system.
2022 Cash Flow Outlook
Our cash needs for 2022 include operating cash requirements (which are impacted by contributions to our pension plan, as well as environmental, asset retirement obligation, and restructuring spending), capital expenditures, and legacy and transformation spending, as well as mandatory payments of debt, dividend payments, and share repurchases. We plan to meet our liquidity needs through available cash, cash generated from operations, commercial paper issuances and borrowings under our committed revolving credit facility. At December 31, 2021 our remaining borrowing capacity under our credit facility was $1,093.4 million.
We expect 2022 free cash flow (Non-GAAP) to fall within a range of approximately $515 million to $735 million. At the mid-point of the range there is a reduction year over year driven by reduced adjusted cash from operations primarily due to working capital growth and higher capital expenditures. We expect a year over year increase in capital additions as we expand capacity to meet growing demand, especially for our new products.
Although we provide a forecast for free cash flow, a Non-GAAP financial measure, we are not able to forecast the most directly comparable measure calculated and presented in accordance with U.S. GAAP, which is cash provided (required) by operating activities of continuing operations. Certain elements of the composition of the U.S. GAAP amount are not predictable, making it impractical for us to forecast. Such elements include, but are not limited to, restructuring, acquisition charges, and discontinued operations. As a result, no U.S. GAAP outlook is provided.
Cash from operating activities of continuing operations
We expect equal or lower cash from operating activities, excluding the effects of transaction-related cash flows, to be in the range of approximately $750 million to $910 million. Working capital growth reflects our current expectations of a return to more normal advance payment levels in North America among other factors negatively impacting working capital in 2022. Transaction-related cash flows are included within Legacy and transformation, which is consistent with how we evaluate our business operations from a cash flow standpoint. See below for further discussion. Cash from operating activities includes cash requirements related to our pension plans, environmental sites, restructuring and asset retirement obligations, taxes and interest on borrowings.
Pension
We do not expect to make any voluntary cash contributions to our U.S. qualified defined benefit pension plan in 2022. The plan is slightly overfunded and our portfolio is comprised of 100 percent fixed income securities and cash. Our investment strategy is a liability hedging approach with an objective of maintaining the funded status of the plan such that the funded status volatility is minimized and the likelihood that we will be required to make significant contributions to the plan is limited.
Environmental
Projected 2022 spending, net of recoveries includes approximately $25 million to $35 million of net environmental remediation spending for our sites accounted for within continuing operations. Environmental obligations for continuing operations primarily represent obligations at shut down or abandoned facilities within businesses that do not meet the criteria for presentation as discontinued operations.
Projected 2022 spending, net of recoveries includes approximately $45 million to $55 million of net environmental remediation spending for our discontinued sites, which is part of legacy and transformation noted below. These projections include spending as a result of a settlement reached in the second quarter of 2019 at our Middleport, New York site. The settlement will result in spending $10 million maximum per year on average, until the remediation is complete.
Total projected 2022 environmental spending, inclusive of sites accounted for within both continuing operations and discontinued sites, is expected to be in the range of $70 million to $90 million.
Restructuring and asset retirement obligations
We expect to make payments of approximately $30 to $40 million in 2022, of which approximately $10 million is related to exit and disposal costs as a result of our previous decision in 2019 to exit sales of all carbofuran formulations (including Furadan® insecticide/nematicide, as well as Curaterr® insecticide/nematicide and any other brands used with carbofuran products).
Capital additions and other investing activities
Projected 2022 capital expenditures and expenditures related to contract manufacturers are expected to be in the range of approximately $145 million to $175 million. The spending is mainly driven by continuing to expand capacity to meet growing demand, especially for our new products. Expenditures related to contract manufacturers are included within "other investing activities".
Legacy and transformation
Projected 2022 legacy and transformation spending are expected to be in the range of approximately $30 million to $60 million. This is primarily driven by environmental remediation spending for our discontinued sites, discussed above, and other legacy liabilities. We completed the integration of the DuPont Crop Protection Business in 2020, other than the completion of certain in-flight initiatives associated with the finalization of our worldwide ERP system in early 2021. As such, transformation spending in 2022 is not expected to be material.
Share repurchases
During the year ended December 31, 2021, 4.0 million shares were repurchased under the publicly announced repurchase program for approximately $400 million. At December 31, 2021, approximately $150 million remained unused under our Board-authorized repurchase program. However, in February 2022 the Board of Directors authorized the repurchase of up to $1 billion of the Company's common stock. The $1 billion share repurchase program is replacing in its entirety the previous authorization. This repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market conditions and other factors. We also reacquire shares from time to time from employees in connections with vesting, exercise and forfeiture of awards under our equity compensation plans.
We intend to purchase between $500 million to $600 million of our common shares in 2022.
Dividends
On January 20, 2022, we paid dividends aggregating $66.8 million to our shareholders of record as of December 31, 2021. This amount is included in "Accrued and other liabilities" on the consolidated balance sheet as of December 31, 2021. For the years ended December 31, 2021, 2020 and 2019, we paid $247.2 million, $228.5 million and $210.3 million in dividends, respectively. We expect to continue to make quarterly dividend payments. Future cash dividends, as always, will depend on a variety of factors, including earnings, capital requirements, financial condition, general economic conditions and other factors considered relevant by us and is subject to final determination by our Board of Directors.
Contingencies
See Note 20 to our consolidated financial statements included within this Form 10-K.
Climate Change
As a global corporate citizen, we are concerned about the consequences of climate change and will take prudent and cost effective actions that reduce Green House Gas (GHG) emissions to the atmosphere.
FMC is committed to continuing to do its part to address climate change and its impacts. Our 2030 intensity reduction targets for energy and greenhouse gas emissions are both 25 percent from our 2018 baseline year. FMC has been reporting its GHG emissions and mitigation strategy to CDP (formerly Carbon Disclosure Project) since 2016. FMC detailed the business risks and opportunities we have due to climate change and its impacts in our CDP climate change reports. FMC received a "B" in the CDP Climate Change questionnaire in 2021. As part of FMC’s continued commitment to address climate change, in August of 2021, FMC announced its goal to achieve net-zero GHG emissions by 2035 FMC. FMC committed to the Science Based Target initiative (SBTi) Net-Zero Standard, aligned with keeping the global temperature at 1.5°C above pre-industrial times. FMC anticipates submitting targets to SBTi in the first quarter of 2022.
Even as we take action to control the release of GHGs, additional warming is anticipated. Long-term, higher average global temperatures could result in induced changes in natural resources, growing seasons, precipitation patterns, weather patterns, species distributions, water availability, sea levels, and biodiversity. These impacts could cause changes in supplies of raw materials used to maintain FMC’s production capacity and could lead to possible increased sourcing costs. Depending on how
pervasive the climate impacts are in the different geographic locations experiencing changes in natural resources, FMC’s customers could be impacted. Demand for FMC’s products could increase if our products meet our customers’ needs to adapt to climate change impacts or decrease if our products do not meet their needs. In addition, extreme weather events attributable to climate change may result in, among other things, physical damage to our property and equipment, and interruptions to our supply chain.
Though the nature of these events makes them difficult to predict, to respond to the uncertainty and better understand our risks and opportunities as they relate to climate change, we are conducting climate related scenario analyses consistent with the recommendations provided by the Taskforce for Climate-Related Financial Disclosures ("TCFD"). As part of the TCFD scenario analysis, we are currently evaluating the potential risks at operation sites, leveraging scenarios published by the International Energy Agency (IEA) and the United Nations’ Intergovernmental Panel on Climate Change (IPCC). Results of this analysis will help determine where strategic capital could be deployed to address risks and opportunities.
To lessen FMC’s overall environmental footprint, we have taken actions to increase the energy efficiency in our manufacturing sites. We have also committed to new 2030 goals to reduce our water use intensity in high-risk areas by 20 percent and to maintain our 2018 waste disposed intensity which otherwise would increase by 55 percent due to expected growth and shifts in production mix. Along with our ambitious net-zero GHG emissions goal, FMC will also be re-evaluating our waste and water reduction targets in order to set more aggressive goals.
In our product portfolio, we see market opportunities for our products to address climate change and its impacts. For example, FMC's agricultural solutions can help customers increase yield, energy and water efficiency, and decrease greenhouse gas emissions. Our solutions can also help growers adapt to more unpredictable growing conditions and the effects these types of threats have on crops. FMC has committed to invest 100 percent of our research and development pipeline budget to developing sustainable products and solutions for future use.
We are improving existing products and developing new platforms and technologies that help mitigate impacts of climate change. These opportunities could lead to new products and services for our existing and potential customers. Beyond our products and operations, FMC recognizes that energy consumption throughout our supply chain can impact climate change and product costs. FMC has committed to net-zero GHG emissions across our entire value, which includes reductions across our entire supply chain. Therefore, we will actively work with our entire value chain - suppliers, contractors, and customers - to improve their energy efficiencies and to reduce their GHG emissions.
We continue to follow legislative and regulatory developments regarding climate change because the regulation of greenhouse gases, depending on their nature and scope, could subject some of our manufacturing operations to additional costs or limits on operations. In December 2015, 195 countries at the United Nations Climate Change Conference in Paris reached an agreement to reduce GHGs. In November 2021, the above parties reconvened at the United Nations Climate Change Conference in Glasgow to reaffirm the Paris Agreement and urged countries to reach 1.5°C level reductions by the 2030s to lessen the impacts of climate change. Although it remains to be seen how and when each of these countries will implement this agreement, FMC has echoed this commitment with our net-zero by 2035 goal which allows us to do our part in reaching 1.5°C level reductions.
FMC will actively manage climate risks and incorporate them in our decision making as indicated in our responses to the CDP Climate Change Module. FMC will also use recommendations outlined in the TCFD to evaluate potential risks and opportunities and incorporate these into our overall strategy and risk management.
Some of our foreign operations are subject to national or local energy management or climate change regulation, such as our plant in Denmark that is subject to the EU Emissions Trading Scheme. At present, that plant’s emissions are below its designated cap.
In December 2019, the European Commission approved the European Green Deal, with the goal of making the EU carbon neutral by 2050. The Green Deal includes investment plans and a roadmap to fight against climate change. FMC is closely following updates and the discussion surrounding the Green Deal. The costs of complying with possible future requirements are difficult to estimate at this time.
Future GHG regulatory requirements may result in increased costs of energy, additional capital costs for emissions control or new equipment, and/or costs associated with cap and trade or carbon taxes. We are currently monitoring regulatory developments. The costs of complying with possible future climate change requirements are difficult to estimate at this time.
See Item IA. Risk Factors for additional considerations related to risks of climate change and sustainability.
Recently Adopted and Issued Accounting Pronouncements and Regulatory Items
See Note 2 "Recently Issued and Adopted Accounting Pronouncements and Regulatory Items" to our consolidated financial statements included within this Form 10-K.
Fair Value Measurements
See Note 19 to our consolidated financial statements included in this Form 10-K for additional discussion surrounding our fair value measurements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us 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 "Principal Accounting Policies and Related Financial Information" to our consolidated financial statements included in this Form 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 the Board of Directors. Critical accounting policies are central to our presentation of results of operations and financial condition in accordance with U.S. GAAP 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. Our most critical accounting estimates and assumptions, which are those that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations, include: Impairments and valuation of long-lived and indefinite-lived assets, Pension and other postretirement benefits, and the Allowance for credit losses on our trade receivables. Additional critical accounting policies are included within the list below:
Revenue recognition and trade receivables
We recognize revenue when (or as) we satisfy our performance obligation which is when the customer obtains control of the good or service. Rebates due to customers are accrued as a reduction of revenue in the same period that the related sales are recorded based on the contract terms. Refer to Note 3 to our consolidated financial statements included in this Form 10-K for more information.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements. We record a liability until remitted to the respective taxing authority.
We periodically enter into prepayment arrangements with customers and receive advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue and classified as "Advance payments from customers" on the consolidated balance sheet. Revenue associated with advance payments is recognized as shipments are made and transfer of control to the customer takes place.
Trade receivables consist of amounts owed to us from customer sales and are recorded when revenue is recognized. The allowance for trade receivables represents our best estimate of the probable losses associated with potential customer defaults. In developing our allowance for trade receivables, we use a two stage process which includes calculating a general formula to develop an allowance to appropriately address the uncertainty surrounding collection risk of our entire portfolio and specific allowances for customers where the risk of collection has been reasonably identified either due to liquidity constraints or disputes over contractual terms and conditions.
Our method of calculating the general formula consists of estimating the recoverability of trade receivables based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. Our analysis of trade receivable collection risk is performed quarterly, and the allowance is adjusted accordingly.
We also hold long-term receivables that represent long-term customer receivable balances related to past-due accounts which are not expected to be collected within the current year. Our policy for the review of the allowance for these receivables is consistent with the discussion in the preceding paragraph above on trade receivables. Therefore on an ongoing basis, we continue to evaluate the credit quality of our long-term receivables utilizing aging of receivables, collection experience and write-offs, as well as existing economic conditions, to determine if an additional allowance is necessary.
We believe our allowance for credit losses is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and potentially have a material impact on our results of operations. Based on a combination of historical trends as well as current economic factors, we apply judgment to reserve for expected credit losses in the period in which the sale is recorded. A substantial change in the operating environments in any of our key locations (driven by weather conditions, industry specific events, and macroeconomic conditions) may result in actual adjustments that differ from our original assumptions.
Environmental obligations and related recoveries
We provide for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
Estimated obligations to remediate sites that involve oversight by the United States Environmental Protection Agency ("EPA"), or similar government agencies, are generally accrued no later than when a Record of Decision ("ROD"), or equivalent, is issued, or upon completion of a Remedial Investigation/Feasibility Study ("RI/FS"), or equivalent, that is submitted by us to the appropriate government agency or agencies. Estimates are reviewed quarterly by our environmental remediation management, as well as by financial and legal management and, if necessary, adjusted as additional information becomes available. The estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties.
Our environmental liabilities for continuing and discontinued operations are principally for costs associated with the remediation and/or study of sites at which we are alleged to have released hazardous substances into the environment. Such costs principally include, among other items, RI/FS, site remediation, costs of operation and maintenance of the remediation plan, management costs, fees to outside law firms and consultants for work related to the environmental effort, and future monitoring costs. Estimated site liabilities are determined based upon existing remediation laws and technologies, specific site consultants’ engineering studies or by extrapolating experience with environmental issues at comparable sites.
Included in our environmental liabilities are costs for the operation, maintenance and monitoring of site remediation plans ("OM&M"). Such reserves are based on our best estimates for these OM&M plans. Over time we may incur OM&M costs in excess of these reserves. However, we are unable to reasonably estimate an amount in excess of our recorded reserves because we cannot reasonably estimate the period for which such OM&M plans will need to be in place or the future annual cost of such remediation, as conditions at these environmental sites change over time. Such additional OM&M costs could be significant in total but would be incurred over an extended period of years.
Included in the environmental reserve balance, other assets balance and disclosure of reasonably possible loss contingencies are amounts from third-party insurance policies, which we believe are probable of recovery.
Provisions for environmental costs are reflected in income, net of probable and estimable recoveries from named Potentially Responsible Parties ("PRPs") or other third parties. In the fourth quarter of 2019, we increased our reserves for the Pocatello Tribal Matter by $72.8 million, which represents both the historical and discounted present value of future annual use permit fees as well as the associated legal costs. See Note 12 to the consolidated financial statements included within this Form 10-K for further information. All other environmental provisions incorporate inflation and are not discounted to their present value.
In calculating and evaluating the adequacy of our environmental reserves, we have taken into account the joint and several liability imposed by Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and the analogous state laws on all PRPs and have considered the identity and financial condition of the other PRPs at each site to the extent possible. We have also considered the identity and financial condition of other third parties from whom recovery is anticipated, as well as the status of our claims against such parties. Although we are unable to forecast the ultimate contributions of PRPs and other third parties with absolute certainty, the degree of uncertainty with respect to each party is taken into account when determining the environmental reserve by adjusting the reserve to reflect the facts and circumstances on a site-by-site basis. Our liability includes our best estimate of the costs expected to be paid before the consideration of any potential recoveries from third parties. We believe that any recorded recoveries related to PRPs are realizable in all material respects. Recoveries are recorded as either an offset in "Environmental liabilities, continuing and discontinued" or as "Other assets" in our consolidated balance sheets in accordance with U.S. accounting literature.
See Note 12 to our consolidated financial statements included within this Form 10-K for changes in estimates associated with our environmental obligations.
Impairments and valuation of long-lived and indefinite-lived assets
Our long-lived assets primarily include property, plant and equipment, goodwill and intangible assets. The assets and liabilities of acquired businesses are measured at their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired, including identified intangibles, is recorded as goodwill. The determination and allocation of fair value to the assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, including estimates based on historical information, current market data and future expectations. Although the estimates were deemed reasonable by management based on information available at the dates of acquisition, those estimates are inherently uncertain.
We test for impairment whenever events or circumstances indicate that the net book value of our property, plant and equipment may not be recoverable from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets, which is based on discounted cash flows at the lowest level determinable. The estimated cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.
We perform an annual impairment test of goodwill and indefinite-lived intangible assets in the third quarter of each year, or more frequently whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. In performing our evaluation we assess qualitative factors such as overall financial performance of our reporting units, anticipated changes in industry and market structure, competitive environments, planned capacity and cost factors such as raw material prices.
We estimate the fair value of the reporting unit using a discounted cash flow model as part of the Income Approach. We assess the appropriateness of projected financial information by comparing projected revenue growth rates, profit margins and tax rates to historical performance, industry data and selected guideline companies, where applicable. Our key assumptions include future cash flow projections, tax rates, terminal growth rates and discount rates.
We employ the relief from royalty method of the Income Approach to value our brand portfolios (indefinite-lived intangible assets). The principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. Primary inputs and key assumptions include revenue forecasts attributable to each portfolio, royalty rates (considering both external market data and internal arrangements), tax rates, terminal growth rates and discount rates.
Estimating the fair value requires significant judgment and actual results may differ due to changes in the overall market conditions. We believe we have applied reasonable assumptions which considers both internal and external factors.
We believe that an accounting estimate relating to asset impairment is a critical accounting estimate because of the inherent uncertainty within the underlying assumptions. An adverse change in any of these assumptions could result in an impairment charge which would potentially have a material impact on our results of operations.
Based on the annual assessment, we concluded the fair value of the reporting unit substantially exceeded the carrying value. Additionally, the fair value of each indefinite-lived intangible asset exceeded its carrying value by at least 20%.
See Note 9 to our consolidated financial statements included within this Form 10-K for charges associated with long-lived asset disposal costs and the activity associated with the restructuring reserves.
Pension and other postretirement benefits
We provide qualified and nonqualified defined benefit and defined contribution pension plans, as well as postretirement health care and life insurance benefit plans to our employees and retirees. The costs (benefits) and obligations related to these benefits reflect key assumptions related to general economic conditions, including interest (discount) rates, healthcare cost trend rates, expected rates of return on plan assets and the rates of compensation increase for employees. The costs (benefits) and obligations for these benefit programs are also affected by other assumptions, such as average retirement age, mortality, employee turnover, and plan participation. To the extent our plans’ actual experience, as influenced by changing economic and financial market conditions or by changes to our own plans’ demographics, differs from these assumptions, the costs and obligations for providing these benefits, as well as the plans’ funding requirements, could increase or decrease. When actual results differ from our assumptions, the difference is typically recognized over future periods. In addition, the unrealized gains and losses related to our pension and postretirement benefit obligations may also affect periodic benefit costs (benefits) in future periods.
We use several assumptions and statistical methods to determine the asset values used to calculate both the expected rate of return on assets component of pension cost and to calculate our plans’ funding requirements. The expected rate of return on plan assets is based on a market-related value of assets that recognizes investment gains and losses over a five-year period. We use an actuarial value of assets to determine our plans’ funding requirements. The actuarial value of assets must be within a certain range, high or low, of the actual market value of assets, and is adjusted accordingly.
We select the discount rate used to calculate pension and other postretirement obligations based on a review of available yields on high-quality corporate bonds as of the measurement date. In selecting a discount rate as of December 31, 2021, we placed particular emphasis on a discount rate yield-curve provided by our actuary. This yield-curve, when populated with projected cash flows that represent the expected timing and amount of our plans' benefit payments, produced an effective discount rate of 2.84 percent for our U.S. qualified plan, 2.18 percent for our U.S. nonqualified, and 2.39 percent for our U.S. other postretirement benefit plans.
The discount rates used to determine projected benefit obligation at our December 31, 2021 and 2020 measurement dates for the U.S. qualified plan were 2.84 percent and 2.49 percent, respectively. The effect of the change in the discount rate from 2.49 percent to 2.84 percent at December 31, 2021 resulted in a $55.7 million decrease to our U.S. qualified pension benefit obligations. The effect of the change in the discount rate used to determine net annual benefit cost (income) from 3.22 percent at December 31, 2020 to 2.49 percent at December 31, 2021 resulted in a $4.4 million decrease to the 2021 U.S. qualified pension expense.
The change in discount rate from 2.49 percent at December 31, 2020 to 2.84 percent at December 31, 2021 was attributable to an increase in yields on high quality corporate bonds with cash flows matching the timing and amount of our expected future benefit payments between the 2020 and 2021 measurement dates. Using the December 31, 2021 and 2020 yield curves, our U.S. qualified plan cash flows produced a single weighted-average discount rate of approximately 2.84 percent and 2.49 percent, respectively.
In developing the assumption for the long-term rate of return on assets for our U.S. Plan, we take into consideration the technical analysis performed by our outside actuaries, including historical market returns, information on the assumption for long-term real returns by asset class, inflation assumptions, and expectations for standard deviation related to these best estimates. Our long-term rate of return for the fiscal year ended December 31, 2021, 2020 and 2019 was 2.25 percent, 3.00 percent and 4.25 percent, respectively.
For the sensitivity of our pension costs to incremental changes in assumptions see our discussion below.
Sensitivity analysis related to key pension and postretirement benefit assumptions.
A one-half percent increase in the assumed discount rate would have decreased pension and other postretirement benefit obligations by $66.1 million and $72.6 million at December 31, 2021 and 2020, respectively, and increased pension and other postretirement benefit costs by $0.4 million, zero and $0.6 million for 2021, 2020 and 2019, respectively. A one-half percent decrease in the assumed discount rate would have increased pension and other postretirement benefit obligations by $72.1 million and $79.3 million at December 31, 2021 and 2020, respectively, and decreased pension and other postretirement benefit costs by $0.4 million in 2021, $0.1 million in 2020, and increased costs by $0.5 million in 2019.
A one-half percent increase in the assumed expected long-term rate of return on plan assets would have decreased pension costs by $6.3 million, $6.2 million and $6.3 million for 2021, 2020 and 2019, respectively. A one-half percent decrease in the assumed long-term rate of return on plan assets would have increased pension costs by $6.3 million, $6.2 million and $6.3 million for 2021, 2020 and 2019, respectively.
Further details on our pension and other postretirement benefit obligations and net periodic benefit costs (benefits) are found in Note 15 to our consolidated financial statements in this Form 10-K.
Income taxes
We have recorded a valuation allowance to reduce deferred tax assets in certain jurisdictions to the amount that we believe is more likely than not to be realized. In assessing the need for this allowance, we have considered a number of factors including future taxable income, the jurisdictions in which such income is earned and our ongoing tax planning strategies. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Similarly, should we conclude that we would be able to realize certain deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.
Additionally, we file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Certain income tax returns for FMC entities taxable in the U.S. and significant foreign jurisdictions are open for examination and adjustment. We assess our income tax positions and record a liability for all years open to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We adjust these liabilities, if necessary, upon the completion of tax audits or changes in tax law.
See Note 13 to our consolidated financial statements included within this Form 10-K for additional discussion surrounding income taxes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
(in Millions, Except Per Share Data) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Revenue | $ | 5,045.2 | | | $ | 4,642.1 | | | $ | 4,609.8 | |
Costs and Expenses | | | | | |
Costs of sales and services | 2,873.5 | | | 2,590.1 | | | 2,526.2 | |
| | | | | |
Gross Margin | $ | 2,171.7 | | | $ | 2,052.0 | | | $ | 2,083.6 | |
| | | | | |
Selling, general and administrative expenses | 714.1 | | | 729.7 | | | 792.9 | |
Research and development expenses | 304.7 | | | 287.9 | | | 298.1 | |
Restructuring and other charges (income) | 108.0 | | | 132.2 | | | 171.0 | |
| | | | | |
Total costs and expenses | $ | 4,000.3 | | | $ | 3,739.9 | | | $ | 3,788.2 | |
Income from continuing operations, non-operating pension and postretirement charges (income), interest expense, net and income taxes | $ | 1,044.9 | | | $ | 902.2 | | | $ | 821.6 | |
| | | | | |
Non-operating pension and postretirement charges (income) | 20.0 | | | 21.2 | | | 8.1 | |
| | | | | |
Interest income | — | | | (0.1) | | | (1.9) | |
Interest expense | 131.1 | | | 151.3 | | | 160.4 | |
Income (loss) from continuing operations before income taxes | $ | 893.8 | | | $ | 729.8 | | | $ | 655.0 | |
Provision (benefit) for income taxes | 91.6 | | | 150.9 | | | 111.5 | |
Income (loss) from continuing operations | $ | 802.2 | | | $ | 578.9 | | | $ | 543.5 | |
Discontinued operations, net of income taxes | (68.2) | | | (28.3) | | | (63.3) | |
Net income (loss) | $ | 734.0 | | | $ | 550.6 | | | $ | 480.2 | |
Less: Net income (loss) attributable to noncontrolling interests | (2.5) | | | (0.9) | | | 2.8 | |
Net income (loss) attributable to FMC stockholders | $ | 736.5 | | | $ | 551.5 | | | $ | 477.4 | |
Amounts attributable to FMC stockholders: | | | | | |
Continuing operations, net of income taxes | $ | 804.7 | | | $ | 579.8 | | | $ | 540.7 | |
Discontinued operations, net of income taxes | (68.2) | | | (28.3) | | | (63.3) | |
Net income (loss) attributable to FMC stockholders | $ | 736.5 | | | $ | 551.5 | | | $ | 477.4 | |
Basic earnings (loss) per common share attributable to FMC stockholders: | | | | | |
Continuing operations | $ | 6.25 | | | $ | 4.46 | | | $ | 4.12 | |
Discontinued operations | (0.53) | | | (0.22) | | | (0.48) | |
Net income (loss) attributable to FMC stockholders | $ | 5.72 | | | $ | 4.24 | | | $ | 3.64 | |
Diluted earnings (loss) per common share attributable to FMC stockholders: | | | | | |
Continuing operations | $ | 6.23 | | | $ | 4.44 | | | $ | 4.10 | |
Discontinued operations | (0.53) | | | (0.22) | | | (0.48) | |
Net income (loss) attributable to FMC stockholders | $ | 5.70 | | | $ | 4.22 | | | $ | 3.62 | |
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Net income (loss) | $ | 734.0 | | | $ | 550.6 | | | $ | 480.2 | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency adjustments: | | | | | |
Foreign currency translation gain (loss) arising during the period | $ | (87.0) | | | $ | 102.0 | | | $ | (18.5) | |
| | | | | |
Total foreign currency adjustments (1) | $ | (87.0) | | | $ | 102.0 | | | $ | (18.5) | |
| | | | | |
Derivative instruments: | | | | | |
Unrealized hedging gains (losses) and other, net of tax of $5.4, $1.9 and $(16.7) | $ | 44.1 | | | $ | (2.5) | | | $ | (69.0) | |
Reclassification of deferred hedging (gains) losses and other, included in net income, net of tax of $1.7, $1.7 and $(3.0) (3) | 5.5 | | | (4.3) | | | (8.2) | |
Total derivative instruments, net of tax of $7.1, $3.6 and $(19.7) | $ | 49.6 | | | $ | (6.8) | | | $ | (77.2) | |
| | | | | |
Pension and other postretirement benefits: | | | | | |
Unrealized actuarial gains (losses) and prior service (costs) credits, net of tax of $(3.8), $5.2 and $(1.4) (2) | $ | (14.5) | | | $ | 18.9 | | | $ | (6.5) | |
Reclassification of net actuarial and other (gain) loss, amortization of prior service costs and settlement charges, included in net income, net of tax of $4.8, $4.2 and $2.6 (3) | 17.9 | | | 16.0 | | | 9.9 | |
Total pension and other postretirement benefits, net of tax of $1.0, $9.4 and $1.2 | $ | 3.4 | | | $ | 34.9 | | | $ | 3.4 | |
| | | | | |
Other comprehensive income (loss), net of tax | $ | (34.0) | | | $ | 130.1 | | | $ | (92.3) | |
Comprehensive income (loss) | $ | 700.0 | | | $ | 680.7 | | | $ | 387.9 | |
Less: Comprehensive income (loss) attributable to the noncontrolling interest | (3.0) | | | (0.6) | | | (0.5) | |
Comprehensive income (loss) attributable to FMC stockholders | $ | 703.0 | | | $ | 681.3 | | | $ | 388.4 | |
____________________
(1)Income taxes are not provided for foreign currency translation because the related investments are essentially permanent in duration.
(2)At December 31 of each year, we remeasure our pension and postretirement plan obligations at which time we record any actuarial gains (losses) and prior service (costs) credits to other comprehensive income. See Note 15 to the consolidated financial statements included within this Form 10-K for further details.
(3)For more detail on the components of these reclassifications and the affected line item in the consolidated statements of income (loss) see Note 17 to the consolidated financial statements included within this Form 10-K for further details.
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | |
| December 31, |
(in Millions, Except Share and Par Value Data) | 2021 | | 2020 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 516.8 | | | $ | 568.9 | |
Trade receivables, net of allowance of $37.4 in 2021 and $27.9 in 2020 | 2,583.7 | | | 2,330.3 | |
Inventories | 1,405.7 | | | 1,095.6 | |
Prepaid and other current assets | 431.4 | | | 380.8 | |
| | | |
| | | |
Total current assets | $ | 4,937.6 | | | $ | 4,375.6 | |
Investments | 9.2 | | | 3.1 | |
Property, plant and equipment, net | 817.0 | | | 771.7 | |
Goodwill | 1,463.3 | | | 1,468.9 | |
Other intangibles, net | 2,521.9 | | | 2,625.2 | |
Other assets including long-term receivables, net | 613.8 | | | 712.3 | |
Deferred income taxes | 218.5 | | | 229.6 | |
| | | |
Total assets | $ | 10,581.3 | | | $ | 10,186.4 | |
LIABILITIES AND EQUITY | | | |
Current liabilities | | | |
Short-term debt and current portion of long-term debt | $ | 440.8 | | | $ | 338.3 | |
Accounts payable, trade and other | 1,135.0 | | | 946.7 | |
Advance payments from customers | 630.7 | | | 347.1 | |
Accrued and other liabilities | 631.2 | | | 674.7 | |
Accrued customer rebates | 406.7 | | | 295.2 | |
Guarantees of vendor financing | 206.2 | | | 140.6 | |
Accrued pension and other postretirement benefits, current | 4.3 | | | 4.2 | |
Income taxes | 65.4 | | | 82.2 | |
| | | |
Total current liabilities | $ | 3,520.3 | | | $ | 2,829.0 | |
Long-term debt, less current portion | 2,731.7 | | | 2,929.5 | |
Accrued pension and other postretirement benefits, long-term | 41.8 | | | 46.4 | |
Environmental liabilities, continuing and discontinued | 415.9 | | | 443.5 | |
Deferred income taxes | 342.4 | | | 350.0 | |
| | | |
Other long-term liabilities | 477.3 | | | 603.8 | |
Commitments and contingent liabilities (Note 20) | | | |
Equity | | | |
Preferred stock, no par value, authorized 5,000,000 shares; no shares issued in 2021 or 2020 | $ | — | | | $ | — | |
Common stock, $0.10 par value, authorized 260,000,000 shares in 2021 and 2020; 185,983,792 shares issued in 2021 and 2020 | 18.6 | | | 18.6 | |
Capital in excess of par value of common stock | 880.4 | | | 860.2 | |
Retained earnings | 4,991.3 | | | 4,506.4 | |
Accumulated other comprehensive income (loss) | (315.7) | | | (282.2) | |
Treasury stock, common, at cost - 2021: 60,284,313 shares, 2020: 56,630,209 shares | (2,542.1) | | | (2,141.2) | |
Total FMC stockholders’ equity | $ | 3,032.5 | | | $ | 2,961.8 | |
Noncontrolling interests | 19.4 | | | 22.4 | |
Total equity | $ | 3,051.9 | | | $ | 2,984.2 | |
Total liabilities and equity | $ | 10,581.3 | | | $ | 10,186.4 | |
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Cash provided (required) by operating activities of continuing operations: | | | | | |
Net income (loss) | $ | 734.0 | | | $ | 550.6 | | | $ | 480.2 | |
Discontinued operations, net of income taxes | 68.2 | | | 28.3 | | | 63.3 | |
Income (loss) from continuing operations | $ | 802.2 | | | $ | 578.9 | | | $ | 543.5 | |
Adjustments from income (loss) from continuing operations to cash provided (required) by operating activities of continuing operations: | | | | | |
Depreciation and amortization | $ | 170.9 | | | $ | 162.7 | | | $ | 150.1 | |
Restructuring and other charges (income) | 108.0 | | | 132.2 | | | 171.0 | |
Deferred income taxes | 9.7 | | | 33.6 | | | 46.1 | |
Pension and other postretirement benefits | 24.9 | | | 25.8 | | | 12.6 | |
Share-based compensation | 17.8 | | | 18.9 | | | 25.6 | |
| | | | | |
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | | | | | |
Trade receivables, net | $ | (241.1) | | | $ | (71.8) | | | $ | (123.5) | |
Guarantees of vendor financing | 65.6 | | | 64.8 | | | 8.6 | |
Advance payments from customers | 283.6 | | | (145.5) | | | 34.1 | |
Accrued customer rebates | 108.7 | | | 17.2 | | | (85.8) | |
Inventories | (331.1) | | | (59.7) | | | 6.4 | |
Accounts payable, trade and other | 144.4 | | | 61.8 | | | 103.0 | |
Income taxes | (90.3) | | | 36.2 | | | (25.0) | |
Pension and other postretirement benefit contributions | (5.3) | | | (4.6) | | | (13.4) | |
Environmental spending, continuing, net of recoveries | (63.6) | | | (1.9) | | | (18.3) | |
Restructuring and other spending (1) | (34.7) | | | (17.9) | | | (18.6) | |
Transaction and integration costs | (9.5) | | | (63.9) | | | (77.1) | |
Change in other operating assets and liabilities, net (2) | (61.6) | | | (30.0) | | | (183.7) | |
Cash provided (required) by operating activities of continuing operations | $ | 898.6 | | | $ | 736.8 | | | $ | 555.6 | |
Cash provided (required) by operating activities of discontinued operations: | | | | | |
Environmental spending, discontinued, net of recoveries | $ | (57.5) | | | $ | (58.9) | | | $ | (51.7) | |
Operating activities of discontinued operations, net of divestiture costs | — | | | (0.2) | | | 9.0 | |
Other discontinued spending | (21.0) | | | (29.9) | | | (24.4) | |
Cash provided (required) by operating activities of discontinued operations | $ | (78.5) | | | $ | (89.0) | | | $ | (67.1) | |
____________________
(1)The restructuring and other spending amount includes spending of $6.0 million related to the Furadan® asset retirement obligations and also includes $4.4 million of payments for certain historical India indirect tax matters. For additional detail on restructuring and other charges activities, see Note 9 to our consolidated financial statements included within this Form 10-K.
(2)Changes in all periods represent timing of payments associated with all other operating assets and liabilities.
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
| | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Cash provided (required) by investing activities of continuing operations: | | | | | |
Capital expenditures | $ | (100.1) | | | $ | (67.2) | | | $ | (93.9) | |
| | | | | |
Investment in Enterprise Resource Planning system | (12.7) | | | (47.2) | | | (48.0) | |
Acquisitions, including cost and equity method, net (3) | (5.2) | | | (65.6) | | | — | |
| | | | | |
Other investing activities (4) | (13.7) | | | (20.4) | | | (54.0) | |
Cash provided (required) by investing activities of continuing operations | $ | (131.7) | | | $ | (200.4) | | | $ | (195.9) | |
Cash provided (required) by investing activities of discontinued operations: | | | | | |
Proceeds from disposal of property, plant and equipment | $ | 19.7 | | | $ | 31.1 | | | $ | 26.2 | |
Other discontinued investing activities | — | | | — | | | (17.0) | |
Cash provided (required) by investing activities of discontinued operations | $ | 19.7 | | | $ | 31.1 | | | $ | 9.2 | |
Cash provided (required) by financing activities of continuing operations: | | | | | |
| | | | | |
Increase (decrease) in short-term debt | $ | 104.9 | | | $ | 97.0 | | | $ | (11.9) | |
Proceeds from borrowing of long-term debt | 1,000.0 | | | 27.1 | | | 1,500.0 | |
Financing fees and interest rate swap settlements | (2.4) | | | (3.5) | | | (97.4) | |
Repayments of long-term debt | (1,203.1) | | | (100.0) | | | (901.9) | |
Acquisitions of noncontrolling interests | — | | | (7.4) | | | — | |
Distributions to noncontrolling interests | — | | | (1.3) | | | — | |
Dividends paid (5) | (247.2) | | | (228.5) | | | (210.3) | |
Issuances of common stock, net | 7.9 | | | 24.7 | | | 50.7 | |
| | | | | |
Repurchases of common stock under publicly announced program | (400.0) | | | (50.0) | | | (400.0) | |
Other repurchases of common stock | (8.0) | | | (8.4) | | | (16.2) | |
| | | | | |
Cash provided (required) by financing activities of continuing operations | $ | (747.9) | | | $ | (250.3) | | | $ | (87.0) | |
Cash provided (required) by financing activities of discontinued operations: | | | | | |
| | | | | |
Payment of Livent external debt | — | | | — | | | (27.0) | |
Cash transfer to Livent due to spin | — | | | — | | | (10.2) | |
Cash provided (required) by financing activities of discontinued operations | $ | — | | | $ | — | | | $ | (37.2) | |
Effect of exchange rate changes on cash and cash equivalents | (12.3) | | | 1.6 | | | (0.2) | |
Increase (decrease) in cash and cash equivalents | $ | (52.1) | | | $ | 229.8 | | | $ | 177.4 | |
| | | | | |
Cash and cash equivalents of continuing operations, beginning of period | $ | 568.9 | | | $ | 339.1 | | | $ | 134.4 | |
Cash and cash equivalents of discontinued operations, beginning of period (6) | — | | | — | | | 27.3 | |
Cash and cash equivalents, beginning of period | $ | 568.9 | | | $ | 339.1 | | | $ | 161.7 | |
| | | | | |
Cash and cash equivalents, end of period | $ | 516.8 | | | $ | 568.9 | | | $ | 339.1 | |
____________________
(3) The acquisitions, net amount in 2020 represents payments made on October 2, 2020 to acquire the remaining rights for Fluindapyr from Isagro S.p.A ("Isagro") in an asset acquisition. For additional detail on this transaction, see Note 9 to our consolidated financial statements included within this Form 10-K.
(4) Cash spending associated with contract manufacturers was $18.8 million, $17.4 million and $51.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
(5) See Note 17 to the consolidated financial statements included within this Form 10-K regarding our quarterly cash dividend.
(6) Reflected within "Current assets of discontinued operations" on the consolidated balance sheets.
Supplemental disclosure of cash flow information: Cash paid for interest, net of capitalized interest was $125.8 million, $141.8 million and $140.9 million, and income taxes paid, net of refunds was $139.2 million, $82.1 million and $130.9 million in December 31, 2021, 2020 and 2019, respectively. Accrued additions to property, plant and equipment and other assets at December 31, 2021, 2020 and 2019 were $45.5 million, $14.7 million and $18.2 million, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FMC Stockholders’ Equity | | | | |
(in Millions, Except Per Share Data) | Common Stock, $0.10 Par Value | | Capital In Excess of Par | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling Interest | | Total Equity |
Balance December 31, 2018 | $ | 18.6 | | | $ | 776.2 | | | $ | 4,334.3 | | | $ | (308.9) | | | $ | (1,699.1) | | | $ | 89.3 | | | $ | 3,210.4 | |
Adoption of accounting standards (Note 2) | | | | | 55.5 | | | (53.1) | | | | | | | 2.4 | |
Net income (loss) | | | | | 477.4 | | | | | | | 2.8 | | | 480.2 | |
Stock compensation plans | | | 53.5 | | | | | | | 21.6 | | | | | 75.1 | |
Shares for benefit plan trust | | | | | | | | | (1.0) | | | | | (1.0) | |
Net pension and other benefit actuarial gains (losses) and prior service cost, net of income tax | | | | | | | 3.4 | | | | | | | 3.4 | |
Net hedging gains (losses) and other, net of income tax | | | | | | | (77.2) | | | | | | | (77.2) | |
Foreign currency translation adjustments | | | | | | | (15.2) | | | | | (3.3) | | | (18.5) | |
Dividends ($1.64 per share) | | | | | (214.1) | | | | | | | | | (214.1) | |
Repurchases of common stock | | | | | | | | | (414.3) | | | | | (414.3) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Distribution of FMC Lithium (2) | | | | | (464.3) | | | 39.0 | | | | (59.7) | | | (485.0) | |
Balance December 31, 2019 | $ | 18.6 | | | $ | 829.7 | | | $ | 4,188.8 | | | $ | (412.0) | | | $ | (2,092.8) | | | $ | 29.1 | | | $ | 2,561.4 | |
| | | | | | | | | | | | | |
Net income (loss) | | | | | 551.5 | | | | | | | (0.9) | | | 550.6 | |
Stock compensation plans | | | 33.1 | | | | | | | 10.4 | | | | | 43.5 | |
Shares for benefit plan trust | | | | | | | | | (0.4) | | | | | (0.4) | |
Net pension and other benefit actuarial gains (losses) and prior service cost, net of income tax | | | | | | | 34.9 | | | | | | | 34.9 | |
Net hedging gains (losses) and other, net of income tax | | | | | | | (6.8) | | | | | | | (6.8) | |
Foreign currency translation adjustments | | | | | | | 101.7 | | | | | 0.3 | | | 102.0 | |
Dividends ($1.80 per share) | | | | | (233.9) | | | | | | | | | (233.9) | |
Repurchases of common stock | | | | | | | | | (58.4) | | | | | (58.4) | |
| | | | | | | | | | | | | |
Acquisition of noncontrolling interests (1) | | | (2.6) | | | | | | | | | (4.8) | | | (7.4) | |
Distributions to noncontrolling interests | | | | | | | | | | | (1.3) | | | (1.3) | |
| | | | | | | | | | | | | |
Balance December 31, 2020 | $ | 18.6 | | | $ | 860.2 | | | $ | 4,506.4 | | | $ | (282.2) | | | $ | (2,141.2) | | | $ | 22.4 | | | $ | 2,984.2 | |
| | | | | | | | | | | | | |
Net income (loss) | | | | | 736.5 | | | | | | | (2.5) | | | 734.0 | |
Stock compensation plans | | | 20.2 | | | | | | | 5.5 | | | | | 25.7 | |
Shares for benefit plan trust | | | | | | | | | 1.6 | | | | | 1.6 | |
Net pension and other benefit actuarial gains (losses) and prior service cost, net of income tax | | | | | | | 3.4 | | | | | | | 3.4 | |
Net hedging gains (losses) and other, net of income tax | | | | | | | 49.6 | | | | | | | 49.6 | |
Foreign currency translation adjustments | | | | | | | (86.5) | | | | | (0.5) | | | (87.0) | |
Dividends ($1.96 per share) | | | | | (251.6) | | | | | | | | | (251.6) | |
Repurchases of common stock | | | | | | | | | (408.0) | | | | | (408.0) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance December 31, 2021 | $ | 18.6 | | | $ | 880.4 | | | $ | 4,991.3 | | | $ | (315.7) | | | $ | (2,542.1) | | | $ | 19.4 | | | $ | 3,051.9 | |
____________________
(1) See Note 17 to the consolidated financial statements included within this Form 10-K for more detail on transactions with noncontrolling interest.
(2) Represents the effects of the distribution of FMC Lithium. Refer to Note 1 to the consolidated financial statements included within this Form 10-K for further information.
The accompanying notes are an integral part of these consolidated financial statements.
FMC CORPORATION
Notes to Consolidated Financial Statements
Note 1: Principal Accounting Policies and Related Financial Information
Nature of operations. We are a global agricultural sciences company dedicated to helping growers produce food, feed, fiber and fuel for an expanding world population while adapting to a changing environment. We operate in a single distinct business segment and develop, market and sell all three major classes of crop protection chemicals: insecticides, herbicides and fungicides, as well as biologicals, crop nutrition, seed treatment, which we group as plant health, and digital and precision agriculture. 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.
COVID-19. Given the COVID pandemic, many countries, including the United States, subsequently imposed restrictions on both travel and business closures in an effort to mitigate the spread of COVID. As an agricultural sciences company, we are considered an "essential" industry in the countries in which we operate and have avoided significant plant closures and all our manufacturing facilities and distribution warehouses are operational. The extent to which COVID will continue to impact us will depend on future developments, many of which remain uncertain and cannot be predicted with confidence, including the duration of the pandemic, further actions to be taken to contain the pandemic or mitigate its impact, and the extent of the direct and indirect economic effects of the pandemic and containment measures, among others.
Basis of consolidation and basis of presentation. The accompanying consolidated financial statements of FMC Corporation and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our consolidated financial statements include the accounts of FMC and all entities that we directly or indirectly control. All significant intercompany accounts and transactions are eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to current year's presentation.
Estimates and assumptions. In preparing the financial statements in conformity with U.S. GAAP we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results are likely to differ from those estimates, but we do not believe such differences will materially affect our financial position, results of operations or cash flows.
Cash equivalents. We consider investments in all liquid debt instruments with original maturities of 3 months or less to be cash equivalents.
Trade receivables, net of allowance. Trade receivables consist of amounts owed to us from customer sales and are recorded when revenue is recognized. The allowance for trade receivables represents our best estimate of the probable losses associated with potential customer defaults. In developing our allowance for trade receivables, we use a two-stage process which includes calculating a general formula to develop an allowance to appropriately address the uncertainty surrounding collection risk of our entire portfolio and specific allowances for customers where the risk of collection has been reasonably identified either due to liquidity constraints or disputes over contractual terms and conditions.
Our method of calculating the general formula consists of estimating the recoverability of trade receivables based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. Our analysis of trade receivable collection risk is performed quarterly, and the allowance is adjusted accordingly.
We also hold long-term receivables that represent long-term customer receivable balances related to past-due accounts which are not expected to be collected within the current year. Our policy for the review of the allowance for these receivables is consistent with the discussion in the preceding paragraph above on trade receivables. Therefore on an ongoing basis, we continue to evaluate the credit quality of our long-term receivables utilizing aging of receivables, collection experience and write-offs, as well as existing economic conditions, to determine if an additional allowance is necessary.
The allowance for trade receivables was $37.4 million and $27.9 million as of December 31, 2021 and 2020, respectively. The allowance for long-term receivables was $27.7 million and $24.7 million at December 31, 2021 and 2020, respectively. The provision to the allowance for receivables charged against operations was $21.1 million, $4.7 million and $21.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. See Note 10 to the consolidated financial statements included within this Form 10-K for more information.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Investments. Investments in companies in which our ownership interest is 50 percent or less and in which we exercise significant influence over operating and financial policies are accounted for using the equity method. Under the equity method, original investments are recorded at cost and adjusted by our share of undistributed earnings and losses of these investments. Majority owned investments in which our control is restricted are also accounted for using the equity method. All other investments are carried at their fair values or at cost, as appropriate and are not material to our consolidated financial statements. In June 2020, we launched FMC Ventures, our new venture capital arm targeting strategic investments in start-ups and early-stage companies that are developing and applying emerging technologies in the agricultural industry. The accounting guidance requires these nonmarketable equity securities to be recorded at cost and adjusted to fair value each reporting period. However, the guidance allows for a measurement alternative, which is to record the investment at cost, less impairment, if any, and subsequently adjust for observable price changes. Each reporting period, we review the portfolio for any observable price changes or potential indicators of impairment. At December 31, 2021, our investments made through FMC Ventures individually and in the aggregate are not significant to our financial results.
Inventories. Inventories are stated at the lower of cost or net realizable value. Inventory costs include those costs directly attributable to products before sale, including all manufacturing overhead but excluding distribution costs. All domestic inventories, excluding materials and supplies, are determined on a last-in, first-out ("LIFO") basis and our remaining inventories are recorded on a first-in, first-out ("FIFO") basis. See Note 7 to the consolidated financial statements included within this Form 10-K for more information.
Property, plant and equipment. We record property, plant and equipment, including capitalized interest, at cost. We recognize acquired property, plant and equipment, from acquisitions at its estimated fair value. Depreciation is provided principally on the straight-line basis over the estimated useful lives of the assets (land improvements — 20 years, buildings and building equipment — 15 to 40 years, and machinery and equipment — 3 to 18 years). Gains and losses are reflected in income upon sale or retirement of assets. Expenditures that extend the useful lives of property, plant and equipment or increase productivity are capitalized. Ordinary repairs and maintenance are expensed as incurred through operating expense.
Capitalized interest. We capitalized interest costs of $3.4 million, $3.5 million, and $4.7 million in 2021, 2020, and 2019, respectively. These costs were primarily associated with the construction of certain long-lived assets and have been capitalized as part of the cost of those assets. We amortize capitalized interest over the assets’ estimated useful lives.
Impairments of long-lived assets. We review the recovery of the net book value of long-lived assets whenever events and circumstances indicate that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the net book value, we recognize an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Asset retirement obligations. We record asset retirement obligations ("AROs") at fair value at the time the liability is incurred if we can reasonably estimate the settlement date. The associated AROs are capitalized as part of the carrying amount of related long-lived assets. In future periods, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. We also adjust the liability for changes resulting from the passage of time and/or revisions to the timing or the amount of the original estimate. Upon retirement of the long-lived asset, we either settle the obligation for its recorded amount or incur a gain or loss.
We have obligations at the majority of our manufacturing facilities in the event of permanent plant shutdown. For certain AROs not already accrued, we have calculated the fair value of these AROs and concluded that the present value of these obligations was inconsequential at December 31, 2021 and 2020.
The carrying amounts for the AROs for the years ended December 31, 2021 and 2020 are $24.2 million and $30.7 million, respectively. These amounts are included in "Accrued and other liabilities" and "Other long-term liabilities" on the consolidated balance sheet.
Restructuring and other charges. We continually perform strategic reviews and assess the return on our business. This sometimes results in a plan to restructure the operations of our business. We record an accrual for severance and other exit costs under the provisions of the relevant accounting guidance.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Additionally, as part of these restructuring plans, write-downs of long-lived assets may occur. Two types of assets are impacted: assets to be disposed of by sale and assets to be abandoned. Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale. Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered. The useful life of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.
Capitalized software. We capitalize the costs of internal use software in accordance with accounting literature which generally requires the capitalization of certain costs incurred to develop or obtain internal use software. We assess the recoverability of capitalized software costs on an ongoing basis and record write-downs to fair value as necessary. We amortize capitalized software costs over expected useful lives ranging from 3 to 10 years. See Note 22 to the consolidated financial statements included within this Form 10-K for the net unamortized computer software balances.
Goodwill and intangible assets. Goodwill and other indefinite life intangible assets are not subject to amortization. Instead, they are subject to at least an annual assessment for impairment by applying a fair value-based test.
We test goodwill and indefinite life intangibles for impairment annually using the criteria prescribed by U.S. GAAP accounting guidance for goodwill and other intangible assets. Based upon our annual impairment assessments conducted in 2021, 2020 and 2019, we did not record any goodwill or intangible asset impairments.
Finite-lived intangible assets consist of primarily customer relationships as well as patents, brands, registration rights, industry licenses, and other intangibles and are generally being amortized over periods of approximately 3 to 20 years. See Note 6 to the consolidated financial statements included within this Form 10-K for additional information on goodwill and intangible assets.
Revenue recognition. We recognize revenue when (or as) we satisfy our performance obligation which is when the customer obtains control of the good or service. Rebates due to customers are accrued as a reduction of revenue in the same period that the related sales are recorded based on the contract terms. Refer to Note 3 to the consolidated financial statements included within this Form 10-K for further details.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements. We record a liability until remitted to the respective taxing authority.
We periodically enter into prepayment arrangements with customers and receive advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue and classified as "Advance payments from customers" on the consolidated balance sheet. Revenue associated with advance payments is recognized as shipments are made and transfer of control to the customer takes place.
Research and development. Research and development costs are expensed as incurred. In-process research and development acquired as part of asset acquisitions, which include license and development agreements, are expensed as incurred and included as a component of "Restructuring and other charges (income)" on the consolidated statements of income (loss).
Income and other taxes. We provide current income taxes on income reported for financial statement purposes adjusted for transactions that do not enter into the computation of income taxes payable. We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. We have not provided income taxes for other outside basis differences inherent in our investments in subsidiaries because the investments and related unremitted earnings are essentially permanent in duration or we have concluded that no additional tax liability will arise upon disposal or remittance.
Foreign currency. We translate the assets and liabilities of our foreign operations at exchange rates in effect at the balance sheet date. For foreign operations for which the functional currency is not the U.S. dollar we record translation gains and losses as a component of accumulated other comprehensive income (loss) in equity. The foreign operations' income statements are translated at the monthly exchange rates for the period.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
We record remeasurement gains and losses on monetary assets and liabilities, such as accounts receivables and payables, which are not in the functional currency of the operation. These remeasurement gains and losses are recorded in income as they occur. We generally enter into foreign currency contracts to mitigate the financial risk associated with these transactions. See "Derivative financial instruments" below and Note 19 to the consolidated financial statements included within this Form 10-K.
Derivative financial instruments. We mitigate certain financial exposures, including currency risk, interest rate risk and to a lesser extent commodity price exposures, through a controlled program of risk management that includes the use of derivative financial instruments. We enter into foreign exchange contracts, including forward and purchased option contracts, to reduce the effects of fluctuating foreign currency exchange rates.
We recognize all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, we generally designate the derivative as either a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge) or a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). We record in accumulated other comprehensive income (loss) changes in the fair value of derivatives that are designated as, and meet all the required criteria for, a cash flow hedge. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. We record immediately in earnings changes in the fair value of derivatives that are not designated as cash flow hedges.
We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess, both at the inception of the hedge and throughout its term, whether each derivative is highly effective in offsetting changes in fair value or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively.
Treasury stock. We record shares of common stock repurchased at cost as treasury stock, resulting in a reduction of stockholders’ equity in the consolidated balance sheets. When the treasury shares are contributed under our employee benefit plans or issued for option exercises, we use a FIFO method for determining cost. The difference between the cost of the shares and the market price at the time of contribution to an employee benefit plan is added to or deducted from the related capital in excess of par value of common stock.
Segment information. We operate as a single business segment providing innovative solutions to growers around the world. The business is supported by global corporate staff functions. The determination of a single segment is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and both planning and forecasting future periods. Refer to Note 3 to the consolidated financial statements included within this Form 10-K for further information on product and regional revenues.
Geographic long-lived assets include goodwill and other intangibles, net, property, plant and equipment, net and other non-current assets. Refer to Note 21 to the consolidated financial statements included within this Form 10-K for further details.
Stock compensation plans. We recognize compensation expense in the financial statements for all share options and other equity-based arrangements. Share-based compensation cost is measured at the date of grant, based on the fair value of the award, and is recognized over the employee’s requisite service period. See Note 16 to the consolidated financial statements included within this Form 10-K for further discussion on our share-based compensation.
Environmental obligations. We provide for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
Estimated obligations to remediate sites that involve oversight by the United States Environmental Protection Agency ("EPA"), or similar government agencies, are generally accrued no later than when a Record of Decision ("ROD"), or equivalent, is issued, or upon completion of a Remedial Investigation/Feasibility Study ("RI/FS"), or equivalent, that is submitted by us and the appropriate government agency or agencies. Estimates are reviewed quarterly and, if necessary, adjusted as additional information becomes available. The estimates can change substantially as additional information becomes available regarding
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties.
Our environmental liabilities for continuing and discontinued operations are principally for costs associated with the remediation and/or study of sites at which we are alleged to have released hazardous substances into the environment. Such costs principally include, among other items, RI/FS, site remediation, costs of operation and maintenance of the remediation plan, management costs, fees to outside law firms and consultants for work related to the environmental effort, and future monitoring costs. Estimated site liabilities are determined based upon existing remediation laws and technologies, specific site consultants’ engineering studies or by extrapolating experience with environmental issues at comparable sites.
Included in our environmental liabilities are costs for the operation, maintenance and monitoring ("OM&M") of site remediation plans. Such reserves are based on our best estimates for these OM&M plans. Over time we may incur OM&M costs in excess of these reserves. However, we are unable to reasonably estimate an amount in excess of our recorded reserves because we cannot reasonably estimate the period for which such OM&M plans will need to be in place or the future annual cost of such remediation, as conditions at these environmental sites change over time. Such additional OM&M costs could be significant in total but would be incurred over an extended period of years.
Included in the environmental reserve balance, other assets balance and disclosure of reasonably possible loss contingencies are amounts from third-party insurance policies which we believe are probable of recovery.
Provisions for environmental costs are reflected in income, net of probable and estimable recoveries from named Potentially Responsible Parties ("PRPs") or other third parties. In the fourth quarter of 2019, we increased our reserves for the Pocatello Tribal Matter by $72.8 million, which represents both the historical and discounted present value of future annual use permit fees as well as the associated legal costs at the time the charge was recorded. We remeasure this discounted liability balance according to current interest rates. See Note 12 to the consolidated financial statements included within this Form 10-K for further information. All other environmental provisions incorporate inflation and are not discounted to their present value.
In calculating and evaluating the adequacy of our environmental reserves, we have taken into account the joint and several liability imposed by Comprehensive Environmental Remediation, Compensation and Liability Act ("CERCLA") and the analogous state laws on all PRPs and have considered the identity and financial condition of the other PRPs at each site to the extent possible. We have also considered the identity and financial condition of other third parties from whom recovery is anticipated, as well as the status of our claims against such parties. Although we are unable to forecast the ultimate contributions of PRPs and other third parties with absolute certainty, the degree of uncertainty with respect to each party is taken into account when determining the environmental reserve on a site-by-site basis. Our liability includes our best estimate of the costs expected to be paid before the consideration of any potential recoveries from third parties. We believe that any recorded recoveries related to PRPs are realizable in all material respects. Recoveries are recorded as either an offset in "Environmental liabilities, continuing and discontinued" or as "Other assets including long-term receivables, net" in our consolidated balance sheets in accordance with U.S. accounting literature.
Pension and other postretirement benefits. We provide qualified and nonqualified defined benefit and defined contribution pension plans, as well as postretirement health care and life insurance benefit plans to our employees and retirees. The costs (or benefits) and obligations related to these benefits reflect key assumptions related to general economic conditions, including interest (discount) rates, healthcare cost trend rates, expected rates of return on plan assets and the rates of compensation increase for employees. The costs (or benefits) and obligations for these benefit programs are also affected by other assumptions, such as average retirement age, mortality, employee turnover, and plan participation. To the extent our plans’ actual experience, as influenced by changing economic and financial market conditions or by changes to our own plans’ demographics, differs from these assumptions, the costs and obligations for providing these benefits, as well as the plans’ funding requirements, could increase or decrease. When actual results differ from our assumptions, the difference is typically recognized over future periods. In addition, the unrealized gains and losses related to our pension and postretirement benefit obligations may also affect periodic benefit costs (or benefits) in future periods. See Note 15 to the consolidated financial statements included within this Form 10-K for additional information relating to pension and other postretirement benefits.
Discontinued operations. In March 2017, we announced our intention to separate our FMC Lithium segment (subsequently renamed Livent Corporation, or "Livent") into a publicly traded company. The initial step of the separation, the initial public offering ("IPO") of Livent, closed on October 15, 2018. On March 1, 2019, we completed the previously announced distribution of 123 million shares of common stock of Livent as a pro rata dividend on shares of FMC common stock outstanding at the close of business on the record date of February 25, 2019. We have recast all the relevant data within
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
this filing to present FMC Lithium as a discontinued operation, retrospectively for all periods through its full distribution on March 1, 2019.
Note 2: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items
New accounting guidance and regulatory items
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for contracts and hedging relationships affected by reference rate reform. This applies to contracts that reference LIBOR or another rate that is expected to be discontinued as a result of rate reform and have modified terms that affect or have the potential to affect the amount and timing of contractual cash flows resulting from the discontinuance of reference rate. The new standard is currently effective and upon adoption may be applied prospectively through December 31, 2022. We are evaluating the impacts this standard will have on accounting for contracts and hedging relationships but do not believe it will have a material impact on our consolidated financial statements.
Recently adopted accounting guidance
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and simplification in several other areas. The new standard is effective for fiscal years beginning after December 15, 2020 (i.e., a January 1, 2021 effective date). There were no material impacts to the consolidated financial statements upon adoption, but amendments will be applied prospectively if applicable to FMC.
In August 2018, the FASB issued ASU No. 2018-14, Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new standard is effective for fiscal years ending after December 15, 2020. There was no impact to our consolidated financial statements upon adoption, however, we have updated our disclosures within to comply with the ASU.
In August 2018, the FASB issued ASU No. 2018-15, Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard became effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date). There was no material impact to our consolidated financial statements upon adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU changes the subsequent measurement of goodwill impairment by eliminating Step 2 from the impairment test. Under the new guidance, an entity will measure impairment using the difference between the carrying amount and the fair value of the reporting unit. The new standard became effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date), with early adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. There was no material impact to our consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss impairment methodology with a current expected credit loss ("CECL") model that immediately recognizes an estimate of credit losses that are expected to occur over the life of the financial instrument, including trade receivables. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The new standard became effective January 1, 2020. As a result of the adoption, we have refined our allowance for doubtful trade receivables methodology which considers current economic conditions as well as forward-looking expectations about expected credit losses. The adoption of the new standard did not result in a material impact to our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This new standard permits a company to reclassify the income tax effects of the change in the U.S federal corporate income tax rate on the gross deferred tax amounts
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
and related valuation allowances as well as other income tax effects related to the application of the Tax Cuts and Jobs Act (the "Act") within accumulated other comprehensive income ("AOCI") to retained earnings. The new standard also requires certain disclosures about stranded tax effects. The new standard is effective for fiscal years beginning after December 15, 2018 (i.e., a January 1, 2019 effective date), and interim periods within those fiscal years, with early adoption permitted. We adopted this standard prospectively as of January 1, 2019 and reclassified $53.1 million of the stranded income tax effects from accumulated other comprehensive income (loss) to retained earnings. The reclassification was related to the change in the U.S. federal corporate tax rate and the effect of the Act on our pension plans and derivative instruments. This reclassification is reflected within the consolidated statements of changes in equity for the current period.
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) ("ASC 842"). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use ("ROU") asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The new standard, including related amendments, is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., a January 1, 2019 effective date). In adopting this standard, we performed a detailed review of contracts of our business and assessed the terms under ASC 842. Additionally, we assessed potential impacts on our internal controls and processes related to both the implementation and ongoing compliance of the new guidance.
We have adopted this standard as of January 1, 2019 utilizing a modified retrospective approach and have elected the transition practical expedient package. Under this transition practical expedient package, ASC 842 was only applied to contracts that existed as of, or were entered into on or after, January 1, 2019, and a cumulative effect adjustment was made as of January 1, 2019. All comparative periods prior to January 1, 2019 will retain the financial reporting and disclosure requirements of ASC 840. The adoption of ASC 842 had a material impact on our consolidated balance sheet but did not have a material impact on the consolidated statement of income (loss), consolidated statement of comprehensive income (loss), consolidated statement of cash flows, or consolidated statement of changes in equity. As a result of adoption, we recorded additional ROU lease assets and lease liabilities of $185.3 million and $215.9 million, respectively. ROU lease assets includes a reclassification of $30.6 million of prepaid rent, accrued rent, and lease incentives previously recorded under ASC 840. Additionally, we recorded a retained earnings impact of $2.4 million as of January 1, 2019. Refer to Note 4 to the consolidated financial statements included within this Form 10-K for further information.
The expedient package allowed us not to reassess whether existing contracts contain a lease under the new definition of a lease, the lease classification of existing leases, and initial direct cost for existing leases including whether such costs would qualify for capitalization under the standard. Additionally, we elected the practical expedient to not separate non-lease components from lease components. In addition to these practical expedients, we elected the following exemption permissible under ASC 842: the exclusion of leases with terms 12 months or less that do not have a purchase option or extension that is reasonably certain to exercise.
The adoption of ASC 842 required adjustments to record our initial ROU asset and lease liability on the balance sheet. The initial right of use asset and lease liability are presented on a discounted basis by our incremental borrowing rate at transition.
Note 3: Revenue Recognition
Disaggregation of revenue
We disaggregate revenue from contracts with customers by geographical areas and major product categories. We have three major agricultural product categories: insecticides, herbicides, and fungicides. Additionally, this table includes plant health, which is a growing part of our business. The disaggregated revenue tables are shown below for the years ended December 31, 2021, 2020 and 2019.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table provides information about disaggregated revenue by major geographical region:
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| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
North America (1) | $ | 1,117.2 | | | $ | 1,032.5 | | | $ | 1,121.1 | |
Latin America (1) | 1,633.4 | | | 1,456.5 | | | 1,441.7 | |
Europe, Middle East & Africa | 1,040.0 | | | 1,046.3 | | | 1,001.8 | |
Asia | 1,254.6 | | | 1,106.8 | | | 1,045.2 | |
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Total Revenue | $ | 5,045.2 | | | $ | 4,642.1 | | | $ | 4,609.8 | |
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(1)Countries with sales in excess of 10 percent of consolidated revenue consisted of the U.S. and Brazil. Sales for the years ended December 31 2021 , 2020, and 2019 for the U.S. totaled $1,018.1 million, $941.2 million and $1,044.1 million , respectively, and for Brazil totaled $1,224.4 million, $1,083.4 million and $1,094.1 million, respectively.
The following table provides information about disaggregated revenue by major product category: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Insecticides | $ | 3,020.0 | | | $ | 2,836.8 | | | $ | 2,773.6 | |
Herbicides | 1,375.3 | | | 1,187.2 | | | 1,228.8 | |
Fungicides | 325.5 | | | 275.5 | | | 271.4 | |
Plant Health | 216.8 | | | 180.2 | | | 168.8 | |
Other | 107.6 | | | 162.4 | | | 167.2 | |
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Total Revenue | $ | 5,045.2 | | | $ | 4,642.1 | | | $ | 4,609.8 | |
We earn revenue from the sale of a wide range of products to a diversified base of customers around the world. We develop, market and sell all three major classes of crop protection chemicals (insecticides, herbicides and fungicides) as well as biologicals, crop nutrition, and seed treatment, which we group as plant health. 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 majority of our product lines consist of insecticides and herbicides, with a smaller portfolio of fungicides mainly used in high value crop segments. We are investing in plant health which includes our growing biological products. Our insecticides are used to control a wide spectrum of pests, while our herbicide portfolio primarily targets a large variety of difficult-to-control weeds. Products in the other category include various agricultural products such as smaller classes of pesticides, growth promoters, and other miscellaneous revenue sources.
Sale of Goods
Revenue from product sales is recognized when (or as) we satisfy a performance obligation by transferring the promised goods to a customer, that is, when control of the good transfers to the customer. The customer is then invoiced at the agreed-upon price with payment terms generally ranging from 30 to 90 days, with some regions providing terms longer than 90 days. We do not typically give payment terms that exceed 360 days; however, in certain geographical regions such as Latin America, these terms may be given in limited circumstances. Additionally, a timing difference of over one year can exist between when products are delivered to the customer and when payment is received from the customer in these regions; however, the effect of these sales is not material to the financial statements as a whole. Furthermore, we have assessed the circumstances and arrangements in these regions and determined that the contracts with these customers do not contain a significant financing component.
In determining when the control of goods is transferred, we typically assess, among other things, the transfer of risk and title and the shipping terms of the contract. The transfer of title and risk typically occurs either upon shipment to the customer or upon receipt by the customer. As such, we typically recognize revenue when goods are shipped based on the relevant Incoterm for the product order, or in some regions, when delivery to the customer’s requested destination has occurred. When we perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
recognized. For FOB shipping point terms, revenue is recognized at the time of shipment since the customer gains control at this point in time.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements. We record a liability until remitted to the respective taxing authority.
Sales Incentives and Other Variable Considerations
As a part of our customary business practice, we offer a number of sales incentives to our customers including volume discounts, retailer incentives, and prepayment options. The variable considerations given can differ by products, support levels and other eligibility criteria. For all such contracts that include any variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Although determining the transaction price for these considerations requires significant judgment, we have significant historical experience with incentives provided to customers and estimate the expected consideration considering historical patterns of incentive payouts. These estimates are reassessed each reporting period as required.
In addition to the variable considerations described above, in certain instances, we may require our customers to meet certain volume thresholds within their contract term. We estimate what amount of variable consideration should be included in the transaction price at contract inception and continually reassess this estimation each reporting period to determine situations when the minimum volume thresholds will not be met.
Right of Return
We extend an assurance warranty offering customers a right of refund or exchange in case delivered product does not conform to specifications. Additionally, in certain regions and arrangements, we may offer a right of return for a specified period. Both instances are accounted for as a right of return and transaction price is adjusted for an estimate of expected returns. Replacement products are accounted for under the warranty guidance if the customer exchanges one product for another of the same kind, quality, and price. We have significant experience with historical return patterns and use this experience to include returns in the estimate of transaction price.
Contract Asset and Contract Liability Balances
We satisfy our obligations by transferring goods and services in exchange for consideration from customers. The timing of performance sometimes differs from the timing the associated consideration is received from the customer, thus resulting in the recognition of a contract asset or contract liability. We recognize a contract liability if the customer's payment of consideration is received prior to completion of our related performance obligation.
The following table presents the opening and closing balances of our receivables, net of allowances and contract liabilities from contracts with customers:
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(in Millions) | Balance as of December 31, 2020 | | Balance as of December 31, 2021 | | Increase (Decrease) |
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Receivables from contracts with customers, net of allowances | $ | 2,433.8 | | | $ | 2,641.1 | | | $ | 207.3 | |
Contract liabilities: Advance payments from customers | 347.1 | | | 630.7 | | | 283.6 | |
The amount of revenue recognized in the year ended December 31, 2021 that was included in the opening contract liability balance was $347.1 million.
The balance of receivables from contracts with customers listed in the table above include both current trade receivables and long-term receivables, net of allowance for doubtful accounts. The allowance for receivables represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. The change in allowance for doubtful accounts for both current trade receivables and long-term receivables is representative of the impairment of receivables as of December 31, 2021. Refer to Note 10 to the consolidated financial statements included within this Form 10-K for further information.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
We periodically enter into prepayment arrangements with customers and receive advance payments for product to be delivered in future periods. Prepayment terms are extended to customers/distributors in order to capitalize on surplus cash with growers. Growers receive bulk payments for their produce, which they leverage to buy our products from distributors through prepayment options. This in turn creates opportunity for distributors to make large prepayments to us for securing the future supply of products to be sold to growers. Prepayments are typically received in the fourth quarter of the fiscal year, and are for the following marketing year indicating that the time difference between prepayment and performance of corresponding performance obligations does not exceed one year.
We recognize these prepayments as a liability under "Advance payments from customers" on the consolidated balance sheets when they are received. Revenue associated with advance payments is recognized as shipments are made and transfer of control to the customer takes place. Advance payments from customers was $347.1 million as of December 31, 2020 and $630.7 million as of December 31, 2021.
Performance Obligations
At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. Based on our evaluation, we have determined that our current contracts do not contain more than one performance obligation. Revenue is recognized when (or as) the performance obligation is satisfied, which is when the customer obtains control of the good or service.
Periodically, we may enter into contracts with customers which require them to submit a forecast of non-binding purchase obligations to us. These forecasts are typically provided by the customer to us in good faith, and there are no penalties or obligations if the forecasts are not met. Accordingly, we have determined that these are optional purchases and do not represent material rights and are not considered as unsatisfied (or partially satisfied) performance obligations for the purposes of this disclosure.
In separate and less common circumstances, we may have contracts with customers which have binding purchase requirements for just one quarter of their annual forecasts. Additionally, as noted in the Contract Liabilities section above, we periodically enter into agricultural prepayment arrangements with customers, and receive advance payments for product to be delivered in future periods within one year. We have elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for these two types of contracts as they have an expected duration of one year or less and the revenue is expected to be recognized within the next year.
Other Arrangements
Data Licensing
We sometimes grant to third parties a license and right to rely upon pesticide regulatory data filed with government agencies. Such licenses allow a licensee to cite and rely upon our data in connection with the licensee’s application for pesticide registrations as required by law; these licenses can be granted through contract or through a mandatory statutory license, depending on circumstances. In the most common occurrence, when a license is embedded in a contract for supply of pesticide active ingredient from us to the licensee, the license grant is not considered as distinct from other promised goods or services. Accordingly, all promises are treated as a single performance obligation and revenue is recognized at a point when the control of the pesticide products is transferred to the licensee-customer. In the less frequent occurrence, when the license and right to use data is granted without a supply contract, we account for the revenue attributable to the data license as a performance obligation satisfied at a single point in time and recognize revenue on the effective date of such contract. Finally, in those circumstance of mandatory data licensing by statute, such as under U.S. pesticide law, we recognize the data compensation upon the effective date of the data compensation settlement agreement. Payment terms for these arrangements may vary by contract.
Service Arrangements
In limited cases, we engage in providing certain tolling services, such as filling and packing services using raw and packing materials supplied by the customer. However, as a result of the DuPont Crop Protection Business Acquisition, on November 1, 2017, we entered into an agreement with DuPont to provide tolling services to one another for up to five years from the acquisition date. Depending on the nature of the tolling services, we determine the appropriate method of satisfaction of the performance obligation, which may be the input or output method. Compared to other goods and services provided by us, service arrangements do not represent a significant portion of sales each year. Payment terms for service arrangements may vary by contract; however, payment is typically due within 30 days of the invoice date.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Practical Expedients and Exemptions
We have elected the following practical expedients following the adoption of ASC 606:
a.Costs of obtaining a contract: FMC incurs certain costs such as sales commissions which are incremental to obtaining the contract. We have taken the practical expedient of expensing such costs to obtain a contract, as and when they are incurred, as their expected amortization period is one year or less.
b.Significant financing component: We elected not to adjust the promised amount of consideration for the effects of a significant financing component if FMC expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
c.Remaining performance obligations: We elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within one year. Additionally, we have elected not to disclose information about variable considerations for remaining, wholly unsatisfied performance obligations for which the criteria in paragraph 606-10-32-40 have been met.
d.Shipping and handling costs: We elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.
e.Measurement of transaction price: We have elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer.
Note 4: Leases
We lease office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from 1 to 20 years, with some leases having terms greater than 20 years. Our lease portfolio includes agreements with renewal options, purchase options and clauses for early termination based on the terms specific to the agreement.
At contract inception, we review the facts and circumstances of the arrangement to determine if the contract is a lease. We follow the guidance in ASC 842-10-15 and consider the following: whether the contract has an identified asset; if we have the right to obtain substantially all economic benefits from the asset; and if we have the right to direct the use of the underlying asset. When determining if a contract has an identified asset, we consider both explicit and implicit assets, and whether the supplier has the right to substitute the asset. When determining if we have the right to obtain substantially all economic benefits from the asset, we consider the primary outputs of the identified asset throughout the period of use and determine if we receive greater than 90 percent of those benefits. When determining if we have the right to direct the use of an underlying asset, we consider if we have the right to direct how and for what purpose the asset is used throughout the period of use and if we control the decision-making rights over the asset. All leased assets are classified as operating or finance under ASC 842. The lease term is determined as the non-cancellable period of the lease, together with all of the following: periods covered by an option to extend the lease which are reasonably certain to be exercised, periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor. At commencement, we assess whether any options included in the lease are reasonably certain to be exercised by considering all economic factors relevant including, contract-based, asset-based, market-based, and company-based factors.
To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable or our incremental borrowing rate at the lease commencement date. When determining our incremental borrowing rate, we consider our centralized treasury function and our current credit profile. We then make adjustments to this rate for securitization, the length of the lease term, and leases denominated in foreign currencies. Minimum lease payments are expensed over the term of the lease on a straight-line basis. Some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments for which we are typically responsible for include payment of vehicle insurance, real estate taxes, and maintenance expenses.
Most leases within our portfolio are classified as operating leases under the new standard. Operating leases are included in "Other assets including long-term receivables, net", "Accrued and other liabilities", and "Other long-term liabilities" in our consolidated balance sheet. Operating lease right-of-use ("ROU") assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of any lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Operating leases relate to office spaces, IT equipment, transportation equipment, machinery equipment, furniture and fixtures, and plant and facilities under non-cancellable lease agreements. Leases primarily have fixed rental periods, with many of the real estate leases requiring additional payments for property taxes and occupancy-related costs. Leases for real estate typically have initial terms ranging from 1 to 20 years, with some leases having terms greater than 20 years. Leases for non-real estate (transportation, IT) typically have initial terms ranging from 1 to 10 years. We have elected not to record short-term leases on the balance sheet whose term is 12 months or less and does not include a purchase option or extension that is reasonably certain to be exercised.
We rent or sublease a small number of assets including equipment and office space to third-party companies. These third-party arrangements include a small number of transition service arrangements from recent acquisitions. Rental income from all subleases is not material to our business.
The ROU asset and lease liability balances as of December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | |
(in Millions) | | Classification | | December 31, 2021 | | December 31, 2020 |
Assets | | | | | | |
| | | | | | |
Operating lease ROU assets | | Other assets including long-term receivables, net | | $ | 135.2 | | | $ | 147.3 | |
| | | | | | |
Liabilities | | | | | | |
| | | | | | |
Operating lease current liabilities | | Accrued and other liabilities | | $ | 23.5 | | | $ | 25.6 | |
| | | | | | |
| | | | | | |
| | | | | | |
Operating lease noncurrent liabilities | | Other long-term liabilities | | 140.0 | | | 151.1 | |
| | | | | | |
| | | | | | |
The components of lease expense for the year ended December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | |
(in Millions) | Lease Cost Classification | | 2021 | | 2020 | | 2019 |
Lease Cost | | | | | | | |
Operating lease cost | Costs of sales and services / Selling, general and administrative expenses | | $ | 33.9 | | | $ | 39.5 | | | $ | 41.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Variable lease cost | Costs of sales and services / Selling, general and administrative expenses | | 4.7 | | | 4.7 | | | 5.2 | |
| | | | | | | |
Total lease cost | | | $ | 38.6 | | | $ | 44.2 | | | $ | 46.5 | |
| | | | | | | | | | |
| | December 31, 2021 | | |
Operating Lease Term and Discount Rate | | | | |
Weighted-average remaining lease term (years) | | 9.2 | | |
| | | | |
| | | | |
Weighted-average discount rate | | 4.1 | % | | |
| | | | |
| | | | |
| | | | | | | | |
(in Millions) | Year ended December 31, 2021 | Year ended December 31, 2020 |
Other Information | | |
| | |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows from operating leases | $ | (33.1) | | $ | (40.8) | |
| | |
| | |
Supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets: | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 18.4 | | $ | 8.4 | |
| | |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table represents our future minimum operating lease payments as of, and subsequent to, December 31, 2021 under ASC 842:
| | | | | | | | | |
(in Millions) | | | | | Operating Leases Total |
Maturity of Lease Liabilities | | | | | |
2022 | | | | | $ | 29.2 | |
2023 | | | | | 23.6 | |
2024 | | | | | 19.4 | |
2025 | | | | | 18.3 | |
2026 | | | | | 17.4 | |
Thereafter | | | | | 109.3 | |
Total undiscounted lease payments | | | | | $ | 217.2 | |
Less: Present value adjustment | | | | | (53.7) | |
Present value of lease liabilities | | | | | $ | 163.5 | |
Note 5: Acquisitions
DuPont Crop Protection Business
On November 1, 2017, pursuant to the terms and conditions set forth in the Transaction Agreement entered into with E. I. du Pont de Nemours and Company ("DuPont"), we completed the acquisition of certain assets relating to DuPont's Crop Protection business and research and development ("R&D") organization (the "DuPont Crop Protection Business") (collectively, the "DuPont Crop Protection Business Acquisition"). In connection with this transaction, we sold to DuPont our FMC Health and Nutrition segment and paid DuPont $1.2 billion in cash which was funded with the 2017 Term Loan Facility which was secured for the purposes of the Acquisition.
The DuPont Crop Protection Business has been integrated into our business and has been included within our results of operations since the date of acquisition.
We entered into supply agreements with DuPont, with terms of up to five years, to supply technical insecticide products required for their retained seed treatment business at cost. The unfavorable liability is recorded within both "Accrued and other liabilities" and "Other long-term liabilities" on the consolidated balance sheets and is reduced and recognized to revenues within earnings as sales are made. The amount recognized in revenue for the years ended December 31, 2021, 2020, and 2019 was approximately $103 million, $111 million, and $105 million, respectively.
Transaction-related charges
Pursuant to U.S. GAAP, costs incurred associated with acquisition activities are expensed as incurred. Historically, these costs have primarily consisted of legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of these activities. Given the significance and complexity around the integration of the DuPont Crop Protection Business, we have incurred costs associated with integrating the DuPont Crop Protection Business, which included planning for the termination of the transitional service agreement ("TSA") as well as implementation of a new worldwide Enterprise Resource Planning ("ERP") system in connection with the termination of the TSA, of which the majority of costs were capitalized in accordance with the relevant accounting literature. Transaction-related charges were not material in 2021.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the costs incurred associated with these activities:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
| | | | | |
DuPont Crop Protection Business Acquisition | | | | | |
Legal and professional fees (1) | $ | 0.4 | | | $ | 53.3 | | | $ | 77.8 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total transaction-related charges | $ | 0.4 | | | $ | 53.3 | | | $ | 77.8 | |
Restructuring charges | | | | | |
DuPont Crop restructuring (2) | $ | 16.7 | | | $ | 40.2 | | | $ | 26.4 | |
| | | | | |
Total restructuring charges | $ | 16.7 | | | $ | 40.2 | | | $ | 26.4 | |
____________________
(1)Represents transaction costs, costs for transitional employees, other acquired employees related costs, and transactional-related costs such as legal and professional third-party fees. These charges are recorded as a component of "Selling, general and administrative expense" on the consolidated statements of income (loss).
(2)See Note 9 to the consolidated financial statements included within this Form 10-K for more information. These charges are recorded as a component of "Restructuring and other charges (income)" on the consolidated statements of income (loss).
We completed the integration of the DuPont Crop Protection Business in 2020, other than the completion of certain in-flight initiatives associated with the finalization of our worldwide ERP system in early 2021. Restructuring charges associated with the DuPont program are largely complete as of December 31, 2021 and any future charges are not expected to be material. Refer to Note 9 to the consolidated financial statements included within this Form 10-K for further information.
Note 6: Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 are presented in the table below:
| | | | | | | | | |
(in Millions) | | | | | Total |
Balance, December 31, 2019 | | | | | $ | 1,467.5 | |
| | | | | |
Foreign currency and other adjustments | | | | | 1.4 | |
| | | | | |
Balance, December 31, 2020 | | | | | $ | 1,468.9 | |
| | | | | |
| | | | | |
Foreign currency and other adjustments | | | | | (5.6) | |
Balance, December 31, 2021 | | | | | $ | 1,463.3 | |
Our fiscal year 2021 annual goodwill and indefinite life impairment test was performed during the third quarter ended September 30, 2021. We determined no goodwill impairment existed and that the fair value was substantially in excess of the carrying value. There were no events or circumstances indicating that goodwill might be impaired as of December 31, 2021. Additionally, the estimated fair values also substantially exceeded the carrying value for each of our indefinite-lived intangible assets.
Our intangible assets, other than goodwill, consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
(in Millions) | Weighted avg. useful life remaining at December 31, 2021 | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization (finite life) | | | | | | | | | | | | |
Customer relationships | 15 years | $ | 1,147.1 | | | $ | (301.3) | | | $ | 845.8 | | | $ | 1,169.4 | | | $ | (249.7) | | | $ | 919.7 | |
Patents | 5 years | 1.8 | | | (1.3) | | | 0.5 | | | 1.9 | | | (1.2) | | | 0.7 | |
Brands (1) | 7 years | 17.1 | | | (9.9) | | | 7.2 | | | 18.3 | | | (8.9) | | | 9.4 | |
Purchased and licensed technologies | 8 years | 60.2 | | | (40.7) | | | 19.5 | | | 61.1 | | | (38.1) | | | 23.0 | |
Other intangibles | 1 year | 2.3 | | | (1.7) | | | 0.6 | | | 3.4 | | | (2.6) | | | 0.8 | |
| | $ | 1,228.5 | | | $ | (354.9) | | | $ | 873.6 | | | $ | 1,254.1 | | | $ | (300.5) | | | $ | 953.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intangible assets not subject to amortization (indefinite life) | | | | | | | | | | | | |
Crop Protection Brands (2) | | $ | 1,259.1 | | | | | $ | 1,259.1 | | | $ | 1,259.1 | | | | | $ | 1,259.1 | |
Brands (1) | | 389.2 | | | | | 389.2 | | | 412.5 | | | | | 412.5 | |
| | | | | | | | | | | | |
| | $ | 1,648.3 | | | | | $ | 1,648.3 | | | $ | 1,671.6 | | | | | $ | 1,671.6 | |
Total intangible assets | $ | 2,876.8 | | | $ | (354.9) | | | $ | 2,521.9 | | | $ | 2,925.7 | | | $ | (300.5) | | | $ | 2,625.2 | |
____________________
(1) Represents trademarks, trade names and know-how.
(2) Represents proprietary brand portfolios, consisting of trademarks, trade names and know-how, of our crop protection brands.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Amortization expense | $ | 62.7 | | | $ | 61.9 | | | $ | 62.6 | |
The estimated pre-tax amortization expense for each of the five years ending December 31, 2022 to 2026 is $62.1 million, $61.8 million, $60.9 million, $60.5 million, and $60.4 million, respectively.
Note 7: Inventories
Inventories consisted of the following: | | | | | | | | | | | |
| December 31, |
(in Millions) | 2021 | | 2020 |
Finished goods | $ | 559.2 | | | $ | 434.6 | |
Work in process | 730.8 | | | 621.9 | |
Raw materials, supplies and other | 231.9 | | | 165.7 | |
FIFO inventory | $ | 1,521.9 | | | $ | 1,222.2 | |
Less: Excess of FIFO cost over LIFO cost | (116.2) | | | (126.6) | |
Net inventories | $ | 1,405.7 | | | $ | 1,095.6 | |
Approximately 41 percent and 33 percent of our inventories in 2021 and 2020, respectively, were recorded on the LIFO basis.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Note 8: Property, Plant and Equipment
Property, plant and equipment consisted of the following: | | | | | | | | | | | |
| December 31, |
(in Millions) | 2021 | | 2020 |
Land and land improvements | $ | 103.8 | | | $ | 103.1 | |
| | | |
Buildings and building equipment | 528.4 | | | 513.7 | |
Machinery and equipment | 551.4 | | | 501.1 | |
Construction in progress | 145.9 | | | 73.6 | |
Total cost | $ | 1,329.5 | | | $ | 1,191.5 | |
Accumulated depreciation | (512.5) | | | (419.8) | |
Property, plant and equipment, net | $ | 817.0 | | | $ | 771.7 | |
____________________
Depreciation expense was $70.8 million, $71.5 million, and $69.7 million in 2021, 2020 and 2019, respectively.
Note 9: Restructuring and Other Charges (Income)
The following table shows total restructuring and other charges (income) included in the respective line items of the consolidated statements of income (loss):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Restructuring charges | $ | 41.1 | | | $ | 42.6 | | | $ | 62.2 | |
Other charges (income), net | 66.9 | | | 89.6 | | | 108.8 | |
Total restructuring and other charges (income) | $ | 108.0 | | | $ | 132.2 | | | $ | 171.0 | |
Restructuring charges | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(in Millions) | Severance and Employee Benefits | | Other Charges (Income) (1) | | Asset Disposal Charges (2) | | Total |
DuPont Crop restructuring | $ | 1.2 | | | $ | 4.5 | | | $ | 11.0 | | | $ | 16.7 | |
Regional realignment | 5.5 | | | 5.3 | | | 0.2 | | | 11.0 | |
Other items | 6.0 | | | 0.5 | | | 6.9 | | | 13.4 | |
Year ended December 31, 2021 | $ | 12.7 | | | $ | 10.3 | | | $ | 18.1 | | | $ | 41.1 | |
DuPont Crop restructuring | $ | 9.2 | | | $ | 3.8 | | | $ | 27.2 | | | $ | 40.2 | |
Other items | 2.8 | | | — | | | (0.4) | | | 2.4 | |
Year ended December 31, 2020 | $ | 12.0 | | | $ | 3.8 | | | $ | 26.8 | | | $ | 42.6 | |
DuPont Crop restructuring | $ | 9.1 | | | $ | 5.2 | | | $ | 12.1 | | | 26.4 | |
Furadan® product exit | — | | | — | | | 34.1 | | | 34.1 | |
Other items | 1.7 | | | — | | | — | | | 1.7 | |
Year ended December 31, 2019 | $ | 10.8 | | | $ | 5.2 | | | $ | 46.2 | | | $ | 62.2 | |
____________________
(1)Primarily represents third-party costs associated with miscellaneous restructuring activities. Other income, if applicable, primarily represents favorable developments on previously recorded exit costs and recoveries associated with restructuring.
(2)Primarily represents asset write-offs (recoveries), and accelerated depreciation and impairment charges on long-lived assets, which were or are to be abandoned. To the extent incurred, the acceleration effect of re-estimating settlement dates and revised cost estimates associated with asset retirement obligations due to facility shutdowns, are also included within the asset disposal charges.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Regional realignment
In April 2021, we began to consolidate our EMEA regional headquarters to a new office location in Geneva, Switzerland. Restructuring charges related to regional realignment activities are primarily related to severance and employee relocation costs as well as other costs associated with the European headquarter relocation.
Furadan® Product Exit
During the fourth quarter of 2019, we decided to exit sales of all carbofuran formulations (including Furadan® insecticide/nematicide, Curaterr® insecticide/nematicide and any other brands used with carbofuran products) globally effective December 31, 2019. As a result of this decision, we accelerated the recognition of asset retirement obligations and asset write offs associated with the exit.
DuPont Crop Restructuring
On November 1, 2017, we completed the acquisition of the DuPont Crop Protection Business. See Note 5 "Acquisitions" to the consolidated financial statements included within this Form 10-K for more details. As also discussed in Note 5, we completed the integration of the DuPont Crop Protection Business as of June 30, 2020 except for the completion of certain in-flight initiatives including the DuPont Crop restructuring program. For the year ended December 31, 2021, we incurred restructuring charges of $16.7 million, which primarily reflects non-cash charges and to a lesser extent remaining severance. For the year ended December 31, 2020, we incurred restructuring charges of $40.2 million, which primarily represented severance and other employee related costs as well as accelerated depreciation on fixed assets for the planned exit of certain facilities. Restructuring charges associated with the DuPont program are largely complete and any future charges are not expected to be material.
Roll forward of restructuring reserves
The following table shows a roll forward of restructuring reserves that will result in cash spending. These amounts exclude asset retirement obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | Balance at 12/31/19 | | Change in reserves (3) | | Cash payments | | Other (4) | | Balance at 12/31/20 (6) | | Change in reserves (3) | | Cash payments (5) | | Other (4) | | Balance at 12/31/21 (6) |
DuPont Crop restructuring (1) | $ | 14.5 | | | $ | 13.0 | | | $ | (14.2) | | | $ | 0.3 | | | $ | 13.6 | | | $ | 5.7 | | | $ | (10.5) | | | $ | (0.2) | | | $ | 8.6 | |
Regional realignment | — | | | — | | | — | | | — | | | — | | | 10.8 | | | (6.8) | | | — | | | 4.0 | |
| | | | | | | | | | | | | | | | | |
Other workforce related and facility shutdowns (2) | 0.1 | | | 2.8 | | | (0.1) | | | — | | | 2.8 | | | 6.5 | | | (7.0) | | | — | | | 2.3 | |
| | | | | | | | | | | | | | | | | |
Total | $ | 14.6 | | | $ | 15.8 | | | $ | (14.3) | | | $ | 0.3 | | | $ | 16.4 | | | $ | 23.0 | | | $ | (24.3) | | | $ | (0.2) | | | $ | 14.9 | |
____________________
(1)Primarily consists of real estate exit costs and severance associated with DuPont Crop restructuring activities.
(2)Primarily severance costs related to workforce reductions and facility shutdowns described in the Other items section of the Restructuring charges table above.
(3)Primarily severance, exited lease, contract termination and other miscellaneous exit costs. The accelerated depreciation and impairment charges noted above impacted our property, plant and equipment or intangible balances and are not included in this table.
(4)Primarily foreign currency translation adjustments.
(5)In addition to the spend above there was also $3.6 million and $6.0 million spending related to the Furadan® asset retirement obligation for the years ended December 31, 2020 and 2021 and also includes $4.4 million of payments for certain historical India indirect tax matters for the year ended December 31, 2021.
(6)Included in "Accrued and other liabilities" and "Other long-term liabilities" on the consolidated balance sheets.
Other charges (income), net
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Environmental charges, net | $ | 27.1 | | | $ | 24.9 | | | $ | 108.7 | |
| | | | | |
Isagro Fluindapyr Acquisition | — | | | 65.6 | | | — | |
| | | | | |
Other items, net | 39.8 | | | (0.9) | | | 0.1 | |
Other charges (income), net | $ | 66.9 | | | $ | 89.6 | | | $ | 108.8 | |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Environmental charges, net
Environmental charges represent the net charges associated with environmental remediation at continuing operating sites. Environmental obligations for continuing operations primarily represent obligations at shut down or abandoned facilities within businesses that do not meet the criteria for presentation as discontinued operations. During the fourth quarter of 2019, we recorded a charge of $72.8 million as a result of an unfavorable court ruling we received in relation to the Pocatello Tribal Litigation at one of our environmental sites. We remeasure our discounted liability balance associated with this matter according to current interest rates. See Note 12 to the consolidated financial statements included within this Form 10-K for further information regarding this matter.
Isagro Fluindapyr Acquisition
In May 2020, we entered into a binding offer with Isagro S.p.A ("Isagro") to acquire the remaining rights for Fluindapyr active ingredient assets from Isagro. In July 2020, we entered into an asset sale and purchase agreement with Isagro. On October 2, 2020, we closed on the transaction with a purchase price of approximately $65 million. Fluindapyr has been jointly developed by FMC and Isagro under a 2012 research and development collaboration agreement. The transaction provided us with full global rights to the Fluindapyr active ingredient, including key U.S., European, Asian, and Latin American fungicide markets. The transaction transfers to FMC all intellectual property, know-how, registrations, product formulations and other global assets of the proprietary broad-spectrum fungicide molecule.
The Fluindapyr acquisition did not meet the criteria within ASC 805 to qualify as a business and as a result it was treated as an asset acquisition. Based on the current development stage of the technology, the acquired assets have been classified as in-process research and development. As part of our evaluation, we consider the current development phase of the molecule being acquired. Molecules that have not received formal regulatory approval are still considered in process due to the inherent uncertainty with the approval process. As a result, these assets were immediately expensed. While this transaction resulted in an immediate expense of the purchase price under the accounting rules, this acquisition expands our fungicide portfolio by giving us full global rights to the Fluindapyr active ingredient and is an important strategic addition to our product line. We recorded charges totaling $65.6 million in 2020, including transaction costs.
Other items, net
Other items, net in 2021 includes $33.5 million of charges for the establishment of reserves for certain historical India indirect tax matters that were triggered during the period. See Note 20 to the consolidated financial statements included within this Form 10-K for further information. Other items, net in 2020 and 2019 were not material.
Note 10: Receivables
The following table displays a roll forward of the allowance for doubtful trade receivables for fiscal years 2020 and 2021: | | | | | |
(in Millions) | |
Balance, December 31, 2019 | $ | 26.3 | |
Additions — charged (credited) to expense | 8.2 | |
Transfer from (to) allowance for credit losses (see below) | (2.9) | |
Net recoveries, write-offs and other | (3.7) | |
Balance, December 31, 2020 | $ | 27.9 | |
Additions — charged (credited) to expense | 17.2 | |
Transfer from (to) allowance for credit losses (see below) | (0.6) | |
Net recoveries, write-offs and other | (7.1) | |
Balance, December 31, 2021 | $ | 37.4 | |
We have non-current receivables that represent long-term customer receivable balances related to past due accounts which are not expected to be collected within the current year. The net long-term customer receivables were $57.4 million as of December 31, 2021. These long-term customer receivable balances and the corresponding allowance are included in "Other assets including long-term receivables, net" on the consolidated balance sheets.
A portion of these long-term receivables have payment contracts. We have no reason to believe payments will not be made based upon the credit quality of these customers. Additionally, we also hold significant collateral against these customers
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
including rights to property or other assets as a form of credit guarantee. If the customer does not pay or gives indication that they will not pay, these guarantees allow us to start legal action to block the sale of the customer’s harvest. On an ongoing basis, we continue to evaluate the credit quality of our non-current receivables using aging of receivables, collection experience and write-offs, as well as evaluating existing economic conditions, to determine if an additional allowance is necessary.
The following table displays a roll forward of the allowance for credit losses related to long-term customer receivables for fiscal years 2020 and 2021:
| | | | | |
(in Millions) | |
Balance, December 31, 2019 | $ | 61.1 | |
Additions — charged (credited) to expense | (3.5) | |
Transfer from (to) allowance for doubtful accounts (see above) | 2.9 | |
Foreign currency adjustments | (7.6) | |
Net recoveries, write-offs and other | (28.2) | |
Balance, December 31, 2020 | $ | 24.7 | |
Additions — charged (credited) to expense | 3.9 | |
Transfer from (to) allowance for doubtful accounts (see above) | 0.6 | |
Foreign currency adjustments | (1.5) | |
Net recoveries, write-offs and other | — | |
Balance, December 31, 2021 | $ | 27.7 | |
Note 11: Discontinued Operations
FMC Lithium (Livent Corporation):
On March 1, 2019, we completed the previously announced distribution of 123 million shares of common stock of Livent as a pro rata dividend on shares of FMC common stock outstanding at the close of business on the record date of February 25, 2019.
The results of our discontinued FMC Lithium operations are summarized below:
| | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Revenue | $ | — | | | $ | — | | | $ | 52.1 | |
Costs of sales and services | — | | | — | | | 41.3 | |
| | | | | |
Income (loss) from discontinued operations before income taxes | $ | — | | | $ | — | | | $ | 1.1 | |
Provision (benefit) for income taxes | — | | | — | | | 6.0 | |
Total discontinued operations of FMC Lithium, net of income taxes, before separation-related costs | $ | — | | | $ | — | | | $ | (4.9) | |
Separation-related costs and other adjustments of discontinued operations of FMC Lithium, net of income taxes | — | | | — | | | (16.4) | |
Discontinued operations of FMC Lithium, net of income taxes | $ | — | | | $ | — | | | $ | (21.3) | |
Less: Discontinued operations of FMC Lithium attributable to noncontrolling interests | — | | | — | | | — | |
Discontinued operations of FMC Lithium, net of income taxes, attributable to FMC Stockholders | $ | — | | | $ | — | | | $ | (21.3) | |
In addition to our discontinued FMC Lithium segment, our discontinued operations in our financial statements include adjustments to retained liabilities from previous discontinued operations. The primary liabilities retained include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Our discontinued operations comprised the following: | | | | | | | | | | | | | | | | | |
(in Millions) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Adjustment for workers’ compensation, product liability, and other postretirement benefits and other, net of income tax benefit (expense) of $(10.2), $(3.7) and $(18.6), respectively | $ | (8.3) | | | $ | 1.0 | | | $ | (15.9) | |
Provision for environmental liabilities, net of recoveries, net of income tax benefit (expense) of $8.2, $6.0 and $6.3, respectively (1) | (29.7) | | | (24.1) | | | (23.5) | |
Provision for legal reserves and expenses, net of recoveries, net of income tax benefit (expense) of $12.2, $7.6 and $6.3, respectively | (45.6) | | | (28.9) | | | (23.3) | |
Gain on sales of land, net of income tax benefit (expense) of $(4.1), $(6.3) and $(5.5), respectively (2) | 15.4 | | | 23.7 | | | 20.7 | |
Discontinued operations of FMC Lithium, net of income tax benefit (expense) of zero, zero, and $(12.3), respectively | — | | | — | | | (21.3) | |
Discontinued operations, net of income taxes | $ | (68.2) | | | $ | (28.3) | | | $ | (63.3) | |
____________________
(1)See a roll forward of our environmental reserves as well as discussion on significant environmental issues that occurred during the year in Note 12 to the consolidated financial statements included within this Form 10-K.
(2)This represents the gain on sale of land at various discontinued sites.
Reserves for Discontinued Operations, other than Environmental at December 31, 2021 and 2020 | | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Workers’ compensation, product liability, and indemnification reserves | $ | 10.2 | | | $ | 12.9 | |
Postretirement medical and life insurance benefits reserve, net | 4.7 | | | 5.5 | |
Reserves for legal proceedings | 93.4 | | | 58.2 | |
Reserve for discontinued operations (1) | $ | 108.3 | | | $ | 76.6 | |
____________________
(1)Included in "Other long-term liabilities" on the consolidated balance sheets. See Note 12 to the consolidated financial statements included within this Form 10-K on discontinued environmental reserves.
The discontinued postretirement medical and life insurance benefits liability equals the accumulated postretirement benefit obligation. Associated with this liability is a net pre-tax actuarial gain and prior service credit of $3.6 million ($2.2 million after-tax) and $4.4 million ($3.6 million after-tax) at December 31, 2021 and 2020, respectively.
Net spending in 2021, 2020 and 2019 was $1.6 million, $1.0 million and $3.8 million, respectively, for workers’ compensation, product liability and other claims; $0.4 million, $0.5 million and $0.4 million, respectively, for other postretirement benefits; and $19.0 million, $28.4 million and $20.2 million, respectively, related to reserves for legal proceedings associated with discontinued operations.
Note 12: Environmental Obligations
We are subject to various federal, state, local and foreign environmental laws and regulations that govern emissions of air pollutants, discharges of water pollutants, and the manufacture, storage, handling and disposal of hazardous substances, hazardous wastes and other toxic materials and remediation of contaminated sites. We are also subject to liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances, and on current and previous owners and operators of a facility for the clean-up of hazardous substances released from the facility into the environment. We are also subject to liabilities under the Resource Conservation and Recovery Act ("RCRA") and analogous state laws that require owners and operators of facilities that have treated, stored or disposed of hazardous waste pursuant to a RCRA permit to follow certain waste management practices and to clean up releases of hazardous substances into the environment associated with past or present practices. In addition, when deemed appropriate, we enter certain sites with potential liability into voluntary remediation compliance programs, which are also subject to guidelines that require owners and operators, current and previous, to clean up releases of hazardous substances into the environment associated with past or present practices.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Environmental liabilities consist of obligations relating to waste handling and the remediation and/or study of sites at which we are alleged to have released or disposed of hazardous substances. These sites include current operations, previously operated sites, and sites associated with discontinued operations. We have provided reserves for potential environmental obligations that we consider probable and for which a reasonable estimate of the obligation can be made. Accordingly, total reserves of $514.6 million and $574.7 million, respectively, before recoveries, existed at December 31, 2021 and 2020.
The estimated reasonably possible environmental loss contingencies, net of expected recoveries, exceed amounts accrued by approximately $160 million at December 31, 2021. This reasonably possible estimate is based upon information available as of the date of the filing but the actual future losses may be higher given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of potentially responsible parties, technology and information related to individual sites.
Additionally, although potential environmental remediation expenditures in excess of the reserves and estimated loss contingencies could be significant, the impact on our future consolidated financial results is not subject to reasonable estimation due to numerous uncertainties concerning the nature and scope of possible contamination at many sites, identification of remediation alternatives under constantly changing requirements, selection of new and diverse clean-up technologies to meet compliance standards, the timing of potential expenditures and the allocation of costs among Potentially Responsible Parties ("PRPs") as well as other third parties. The liabilities arising from potential environmental obligations that have not been reserved for at this time may be material to any one quarter's or year's results of operations in the future. However, we believe any liability arising from such potential environmental obligations is not likely to have a material adverse effect on our liquidity or financial condition as it may be satisfied over many years.
The table below is a roll forward of our total environmental reserves, continuing and discontinued, from December 31, 2018 to December 31, 2021.
| | | | | |
(in Millions) | Operating and Discontinued Sites Total |
Total environmental reserves, net of recoveries at December 31, 2018 | $ | 521.5 | |
2019 | |
Provision | 138.8 | |
Spending, net of recoveries | (73.8) | |
| |
Foreign currency translation adjustments | (0.7) | |
Net Change | $ | 64.3 | |
Total environmental reserves, net of recoveries at December 31, 2019 | $ | 585.8 | |
| |
2020 | |
Provision | 53.2 | |
Spending, net of recoveries | (81.1) | |
| |
Foreign currency translation adjustments | 6.5 | |
Net Change | $ | (21.4) | |
Total environmental reserves, net of recoveries at December 31, 2020 | $ | 564.4 | |
| |
2021 | |
Provision | 65.8 | |
Spending, net of recoveries | (121.8) | |
| |
Foreign currency translation adjustments and other adjustments | (5.2) | |
Net Change | $ | (61.2) | |
Total environmental reserves, net of recoveries at December 31, 2021 | $ | 503.2 | |
To ensure we are held responsible only for our equitable share of site remediation costs, we have initiated, and will continue to initiate, legal proceedings for contributions from other PRPs. At December 31, 2021 and 2020, we have recorded recoveries representing probable realization of claims against U.S. government agencies, insurance carriers and other third parties. Recoveries are recorded as either an offset to the "Environmental liabilities, continuing and discontinued" or as "Other assets including long-term receivables, net" on the consolidated balance sheets.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The table below is a roll forward of our total recorded recoveries from December 31, 2019 to December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2019 | | Increase (Decrease) in Recoveries | | Cash Received (2) | | Other | | December 31, 2020 | | Increase (Decrease) in Recoveries | | Cash Received | | | | December 31, 2021 |
Environmental liabilities, continuing and discontinued | $ | 10.0 | | | $ | 0.9 | | | $ | (0.6) | | | $ | — | | | $ | 10.3 | | | $ | 1.8 | | | $ | (0.7) | | | | | $ | 11.4 | |
Other assets (1) | 27.3 | | | (1.8) | | | (21.1) | | | — | | | 4.4 | | | 0.8 | | | (0.7) | | | | | 4.5 | |
Total | $ | 37.3 | | | $ | (0.9) | | | $ | (21.7) | | | $ | — | | | $ | 14.7 | | | $ | 2.6 | | | $ | (1.4) | | | | | $ | 15.9 | |
______________
(1) The amounts are included within "Prepaid and other current assets" and "Other assets including long-term receivables, net" on the consolidated balance sheets. See Note 22 to the consolidated financial statements included within this Form 10-K for more details.
(2) During the first quarter of 2020, we entered into a confidential insurance settlement pertaining to coverage at a legacy environmental site, which settlement resulted in a cash payment to FMC in the amount of $20.0 million.
The table below provides detail of current and long-term environmental reserves, continuing and discontinued. | | | | | | | | | | | |
| December 31, |
(in Millions) | 2021 | | 2020 |
Environmental reserves, current, net of recoveries (1) | $ | 87.3 | | | $ | 120.9 | |
Environmental reserves, long-term continuing and discontinued, net of recoveries (2) | 415.9 | | | 443.5 | |
Total environmental reserves, net of recoveries | $ | 503.2 | | | $ | 564.4 | |
______________
(1)These amounts are included within "Accrued and other liabilities" on the consolidated balance sheets.
(2)These amounts are included in "Environmental liabilities, continuing and discontinued" on the consolidated balance sheets.
Our net environmental provisions relate to costs for the continued remediation of both operating sites and for certain discontinued manufacturing operations from previous years. The net provisions are comprised as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Continuing operations (1) | $ | 27.1 | | | $ | 24.9 | | | $ | 108.7 | |
Discontinued operations (2) | 37.9 | | | 30.1 | | | 29.8 | |
Net environmental provision | $ | 65.0 | | | $ | 55.0 | | | $ | 138.5 | |
______________
(1)Recorded as a component of "Restructuring and other charges (income)" on our consolidated statements of income. See Note 9 to the consolidated financial statements included within this Form 10-K. Environmental obligations for continuing operations primarily represent obligations at shut down or abandoned facilities within businesses that do not meet the criteria for presentation as discontinued operations.
(2)Recorded as a component of "Discontinued operations, net of income taxes" on our consolidated statements of income (loss). See Note 11 to the consolidated financial statements included within this Form 10-K for further details.
On our consolidated balance sheets, the net environmental provisions affect assets and liabilities as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Environmental reserves (1) | $ | 65.8 | | | $ | 53.2 | | | $ | 138.8 | |
Other assets (2) | (0.8) | | | 1.8 | | | (0.3) | |
Net environmental provision | $ | 65.0 | | | $ | 55.0 | | | $ | 138.5 | |
______________
(1)See above roll forward of our total environmental reserves as presented on our consolidated balance sheets.
(2)Represents certain environmental recoveries. See Note 22 to the consolidated financial statements included within this Form 10-K for details of "Other assets including long-term receivables, net" as presented on our consolidated balance sheets.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Significant Environmental Sites
Pocatello
From 1949 until 2001, we operated the world's largest elemental phosphorus plant in Power County, Idaho, just outside the city of Pocatello. Since the plant's closure, FMC has worked with the EPA, the State of Idaho, and the Shoshone-Bannock Tribes ("Tribes") to develop a proposed cleanup plan for the property. In September 2012, the EPA issued an Interim Record of Decision ("IROD") that is environmentally protective and that ensures the health and safety of both workers and the general public. Since the plant's closure, we have successfully decommissioned our Pocatello plant, completed closure of the RCRA ponds and formally requested that the EPA acknowledge completion of work under a June 1999 RCRA Consent Decree. Future remediation costs include completion of the IROD that addresses groundwater contamination and existing waste disposal areas on the Pocatello plant portion of the Eastern Michaud Flats Superfund Site. In June 2013, the EPA issued a Unilateral Administrative Order to us under which we will implement the IROD remedy. Our current reserves factor in the estimated costs associated with implementing the IROD. In addition to implementing the IROD, we continue to conduct work pursuant to CERCLA unilateral administrative orders to address air emissions from beneath the cap of several of the closed RCRA ponds. Actions also involve impacts of the Tribal Litigation discussed below.
The amount of the reserve for this site, which includes the Pocatello Tribal Litigation described below, was $79.3 million and $117.8 million at December 31, 2021 and 2020, respectively.
Pocatello Tribal Litigation
For a number of years, we engaged in disputes with the Tribes concerning their attempts to regulate our activities on the reservation. In 1998, we entered into an agreement that required us to pay the Tribes $1.5 million per year for waste generated from operating our Pocatello plant and stored on site. We paid $1.5 million per year until December 2001 when the plant closed. In our view the agreement was terminated, as the plant was no longer generating waste. The Tribes claimed that the 1998 Agreement has no end date.
On April 25, 2006, the Tribes' Land Use Policy Commission issued us a Special Use Permit for the "disposal and storage of waste" at the Pocatello plant and imposed a $1.5 million per annum permit fee.
FMC challenged this fee at various levels of the Tribal Court system and subsequently before the U.S. District Court and the United States Court of Appeals for the Ninth Circuit.
On November 15, 2019, the Ninth Circuit affirmed the District Court's decision that the Tribal Court has jurisdiction over FMC to require FMC to pay the $1.5 million per year fee to the Tribes. As a result of the unfavorable court decision issued on November 15, 2019, we increased our reserves by $72.8 million, which represents both the historical and discounted present value of future annual use permit fees as well as the associated legal costs incurred through December 31, 2019.
On March 16, 2020, FMC filed a petition in the United States Supreme Court to review the Ninth Circuit’s decision and on January 11, 2021, FMC’s petition was denied. Expenditures in 2021 totaled $32.2 million. This includes a $21.4 million payment to the Tribes for attorney's fees and unpaid permit fees incurred from 2002 to 2014 plus another payment of $10.8 million for incurred past years' permit fees from 2015 through 2021 plus interest associated with these payments. There was no change to our existing reserves as a result of our denied petition.
In calculating the net present value of future annual permit fees, we used a discount rate of 1.94%, which represents the appropriate risk-free rate. We believe that the application of this rate produces a result which approximates the amount that would hypothetically satisfy our liability in an arms-length transaction. Estimates for expenditures for 2022 and beyond are $1.5 million in annual fees payable each year thereafter. The expected aggregate undiscounted amount related to this matter is $75.0 million of which $$47.7 million, on a discounted basis, has been recognized in environmental liabilities on the balance sheet.
Middleport
Our Middleport, NY facility is currently a formulation and packaging plant that formerly manufactured arsenic-based and other products. As a result of past manufacturing operations and waste disposal practices at this facility, releases of hazardous substances have occurred at the site that have affected soil, sediment, surface water and groundwater at the facility's property and also in adjacent off-site areas. The impact of our discontinued operations was the subject of an Administrative Order on Consent ("1991 AOC") entered into with the EPA and New York State Department of Environmental Conservation ("NYSDEC", and collectively with EPA, the "Agencies") in 1991, which was replaced by a New Order on Consent and Administrative Settlement with the NYSDEC, effective June 6, 2019 ("2019 Order"). Like the 1991 AOC, the 2019 Order
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
requires us to (1) define the nature and extent of contamination caused by our historical plant operations, (2) take interim corrective measures and (3) evaluate Corrective Measure Alternatives ("CMA") for discrete contaminated areas, known as "operable units" of which there are 11.
We have defined the nature and extent of the contamination in certain areas, have constructed an engineered cover, taken certain closure actions regarding RCRA regulated surface water impoundments and are collecting and treating both surface water runoff and ground water. To date, we have evaluated and proposed CMAs for six of the 11 identified operable units.
Middleport Reserves
In the fourth quarter of 2018, we increased the reserve by $106.3 million, which included our best estimate for remediation costs for OUs 2,4 and 5 in line with the drafted settlement terms between FMC and NYSDEC. Of the $106.3 million reserve increase, $60.6 million related to our best estimate for remediation costs associated with the operable unit that comprises the southern portion of the tributary ("OU 6") plus the impact of inflation. The $60.6 million increase was in addition to a previously established reserve of $29.1 million related to this operable unit.
The remaining $45.7 million reserve increase related to costs associated with the implementation and completion of NYSDEC’s selected remedy for OUs 2,4, and 5. Prior to settlement discussions, our reserve balance for OUs 2,4, and 5 of $31.1 million included the estimated liability for clean-up to reflect the costs associated with our recommended CMAs. Our total reserve for all of Middleport is $114.5 million and $142.7 million at December 31, 2021 and 2020, respectively. FMC is in various stages of evaluating the remaining operable units.
In 2021 and 2020, the Middleport settlement resulted in cash outflows of $14.2 million and $17.9 million respectively. In 2021, the final payment to reimburse past costs was made. In 2022 and beyond, in accordance with the settlement agreement, cash outflows will not exceed an average of $10 million per year until the remediation is complete.
Portland Harbor
FMC is listed as a PRP is the Portland Harbor Superfund Site ("Portland Harbor"), that consists of the river sediment and upland area of a 10 mile section of the Lower Willamette River in Portland, Oregon that runs through an industrialized area. Portland Harbor is listed on the NPL. FMC formerly owned and operated a manufacturing site adjacent to this section of the river and has since sold its interest in this business.
FMC and several other parties have been sued by the Confederated Bands and Tribes of the Yakama Nation for reimbursement of cleanup costs and the costs of performing a natural damage assessment. Based on the information known to date, we are unable to develop a reasonable estimate of our potential exposure of loss at this time. We intend to defend this matter. In addition, the Portland Harbor Natural Resource Trustee Council ("Trustee Council"), composed of federal, state and tribal trustees, was formed in 2002 to develop and coordinate an assessment of injury to natural resources associated with the Portland Harbor Superfund Site, the restoration of injured natural resources associated with Portland Harbor, and pursue the recovery of natural resources damages associated with Portland Harbor. The Trustee Council has advised the Company that it intends to pursue litigation for the recovery of natural resources damages and of the costs of assessment. To date no lawsuit has been filed by the Trustee Council against the Company.
On January 6, 2017, the U.S. Environmental Protection Agency ("EPA") issued its Record of Decision ("ROD") for Portland Harbor. On December 30, 2019, FMC and EPA entered into an Administrative Settlement Agreement and Order on Consent to perform the remedial design for the area at and around FMC's former operations. The cost of performing predesign investigation work and preparing the basis of design report is included in our reserves. Based on the current information available in the ROD as well as the large number of responsible parties for Portland Harbor, we are unable to develop a reasonable estimate of our potential exposure of loss for Portland Harbor at this time.
Currently, FMC and approximately 100 other parties are involved in a non-judicial allocation process to determine each party’s respective share of the cleanup costs. Briefing on the allocation process has begun in November 2021 and the allocation process will be ongoing for the next two years or more under the current schedule. We intend to continue defending this matter vigorously. Because of this uncertainty related to the cost of the remedy and the potential share allocable to FMC, we cannot say whether the ultimate resolution of our potential obligations at Portland Harbor will have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, adverse results in the outcome of the allocation could have a material adverse effect on our consolidated financial position, results of operations in any one reporting period, or liquidity.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Other Potentially Responsible Party ("PRP") Sites
In addition to Portland Harbor, we have been named a PRP at 28 sites on the federal government’s National Priorities List ("NPL"), at which our potential liability has not yet been settled. We have received notice from the EPA or other regulatory agencies that we may be a PRP, or PRP equivalent, at other sites, including 47 sites at which we have determined that it is probable that we have an environmental liability for which we have recorded an estimate of our potential liability in the consolidated financial statements. In cooperation with appropriate government agencies, we are currently participating in, or have participated in, a Remedial Investigation/Feasibility Study ("RI/FS"), or equivalent, at most of the identified sites, with the status of each investigation varying from site to site. At certain sites, a RI/FS has only recently begun, providing limited information, if any, relating to cost estimates, timing, or the involvement of other PRPs; whereas, at other sites, the studies are complete, remedial action plans have been chosen, or a ROD has been issued.
Note 13: Income Taxes
Domestic and foreign components of income (loss) from continuing operations before income taxes are shown below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Domestic | $ | (61.5) | | | $ | (36.5) | | | $ | (227.4) | |
Foreign | 955.3 | | | 766.3 | | | 882.4 | |
Total | $ | 893.8 | | | $ | 729.8 | | | $ | 655.0 | |
The provision (benefit) for income taxes attributable to income (loss) from continuing operations consisted of:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Current: | | | | | |
Federal | $ | (15.1) | | | $ | 24.9 | | | $ | (12.0) | |
Foreign | 96.6 | | | 91.7 | | | 77.0 | |
State | 0.4 | | | 0.7 | | | 0.4 | |
Total current | $ | 81.9 | | | $ | 117.3 | | | $ | 65.4 | |
Deferred: | | | | | |
Federal | $ | 17.5 | | | $ | 15.0 | | | $ | (1.2) | |
Foreign | (7.1) | | | 7.7 | | | 42.7 | |
State | (0.7) | | | 10.9 | | | 4.6 | |
Total deferred | $ | 9.7 | | | $ | 33.6 | | | $ | 46.1 | |
Total | $ | 91.6 | | | $ | 150.9 | | | $ | 111.5 | |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The effective income tax rate applicable to income from continuing operations before income taxes was different from the statutory U.S. federal income tax rate due to the factors listed in the following table:
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
(in Millions) | 2021 | | 2020 | | 2019 | | | | |
U.S. Federal statutory rate | $ | 187.7 | | | $ | 153.3 | | | $ | 137.5 | | | | | |
| | | | | | | | | |
Foreign earnings subject to different tax rates (1) | (182.4) | | | (127.6) | | | (137.7) | | | | | |
| | | | | | | | | |
State and local income taxes, less federal income tax benefit | 7.6 | | | 2.7 | | | (2.9) | | | | | |
Research and development and miscellaneous tax credits | (8.6) | | | (6.2) | | | (3.8) | | | | | |
Tax on dividends, deemed dividends, and GILTI (2) | 44.5 | | | 46.5 | | | 46.8 | | | | | |
Changes to unrecognized tax benefits | (28.7) | | | 5.8 | | | (5.4) | | | | | |
Nondeductible expenses | 11.5 | | | 5.5 | | | 3.5 | | | | | |
Change in valuation allowance (3) | 84.7 | | | 52.1 | | | 49.9 | | | | | |
Exchange gains and losses (4) | (8.6) | | | (2.1) | | | (2.1) | | | | | |
Other (5) | (16.1) | | | 20.9 | | | 25.7 | | | | | |
Total Tax Provision | $ | 91.6 | | | $ | 150.9 | | | $ | 111.5 | | | | | |
____________________
(1) A significant amount of our earnings is generated by our foreign subsidiaries (e.g., Singapore, Hong Kong, and Switzerland), which tax earnings at lower statutory rates than the United States federal statutory rate. Our future effective tax rates may be materially impacted by a future change in the composition of earnings from foreign and domestic tax jurisdictions.
(2) The years ended December 31, 2021, 2020 and 2019 includes tax expense of $36.2 million, $40.7 million and $41.6 million, respectively, associated with the global intangible low-taxed income (GILTI) provisions.
(3) The year ended December 31, 2021 is primarily related to net operating losses and other deferred tax assets within our Brazil and Luxembourg operations. The year ended December 31, 2020 is primarily related to net operating losses within our Brazil operations. The year ended December 31, 2019 is primarily related to net operating losses with limited carryforward associated within our India operations.
(4) Includes the impact of transaction gains or losses on net monetary assets for which no corresponding tax expense or benefit is realized and the tax provision for statutory taxable gains or losses in foreign jurisdictions for which there is no corresponding amount in income before taxes.
(5) 2021 includes a $37.1 million decrease related to deferred tax liabilities associated with intercompany investments in foreign subsidiaries.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Significant components of our deferred tax assets and liabilities were attributable to:
| | | | | | | | | | | |
| December 31, |
(in Millions) | 2021 | | 2020 |
Reserves for discontinued operations, environmental and restructuring | $ | 107.5 | | | $ | 161.7 | |
Accrued pension and other postretirement benefits | 5.8 | | | 1.8 | |
| | | |
Capital loss, foreign tax and other credit carryforwards | 11.1 | | | 5.5 | |
Net operating loss carryforwards | 294.5 | | | 311.4 | |
Deferred expenditures capitalized for tax | 41.1 | | | 39.6 | |
Other accruals and reserves | 216.7 | | | 163.3 | |
Deferred tax assets | $ | 676.7 | | | $ | 683.3 | |
Valuation allowance, net | (398.7) | | | (335.6) | |
Deferred tax assets, net of valuation allowance | $ | 278.0 | | | $ | 347.7 | |
Intangibles, Property, plant and equipment, and Investments, net | 401.9 | | | 468.1 | |
Deferred tax liabilities | $ | 401.9 | | | $ | 468.1 | |
Net deferred tax assets (liabilities) | $ | (123.9) | | | $ | (120.4) | |
We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. GAAP accounting guidance requires companies to assess whether valuation allowances should be established against deferred tax assets based on all available evidence, both positive and negative, using a "more likely than not" standard. In assessing the need for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of deferred tax assets. This assessment considers, among other matters, the nature and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and tax planning alternatives. We operate and derive income across multiple jurisdictions. As our business experiences changes in operating results across its geographic footprint, we may encounter losses in jurisdictions that have been historically profitable, and as a result might require additional valuation allowances to be recorded. We are committed to implementing tax planning actions, when deemed appropriate, in jurisdictions that experience losses in order to realize deferred tax assets prior to their expiration.
At December 31, 2021, we had net operating loss and tax credit carryforwards as follows: U.S. state net operating loss carryforwards of $27.0 million (tax-effected) expiring in future tax years through 2040, foreign net operating loss carryforwards of $267.5 million (tax-effected) expiring in various future years, and other tax credit carryforwards of $11.1 million expiring in various future years.
During the third quarter of 2021, we changed our indefinite reinvestment assertion in connection with plans to repatriate cash in 2021 and subsequent years, contingent upon earnings from certain foreign subsidiaries, and recorded tax of $1.6 million for the year ended December 31, 2021. Additional income taxes have not been provided for certain other remaining outside basis differences inherent in our investments in foreign subsidiaries because the investments and related unremitted earnings are essentially permanent in duration. Determining the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings of our foreign subsidiaries is not practicable due to the complexity of the multi-jurisdictional tax environment in which we operate.
Uncertain Income Tax Positions
U.S. GAAP accounting guidance for uncertainty in income taxes prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition.
We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The income tax returns for FMC entities taxable in the U.S. and significant foreign jurisdictions are open for examination and adjustment. As of December 31, 2021, the U. S. federal and state income tax returns are open for examination and adjustment for the years 2017 - 2021 and 2001 - 2021, respectively. Our significant foreign jurisdictions, which total 10, are open for examination and adjustment during varying periods from 2011 - 2021.
As of December 31, 2021, we had total unrecognized tax benefits of $41.9 million, of which $23.6 million would favorably impact the effective tax rate from continuing operations if recognized. As of December 31, 2020, we had total unrecognized tax benefits of $76.2 million, of which $34.6 million would favorably impact the effective tax rate if recognized. Interest and penalties related to unrecognized tax benefits are reported as a component of income tax expense. For the years ended December 31, 2021, 2020 and 2019, we had interest and penalties for a net expense (benefit) of $(4.5) million, $(1.5) million,
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
and $1.4 million, respectively, in the consolidated statements of income (loss). As of December 31, 2021 and 2020, we have accrued interest and penalties in the consolidated balance sheets of $9.4 million and $13.9 million, respectively.
Due to the potential for resolution of federal, state, or foreign examinations, and the expiration of various jurisdictional statutes of limitation, it is reasonably possible that our liability for unrecognized tax benefits will decrease within the next 12 months by a range of $2.6 million to $22.2 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | |
(in Millions) | 2021 | | 2020 | | 2019 |
Balance at beginning of year | $ | 76.2 | | | $ | 68.2 | | | $ | 79.1 | |
Increases related to positions taken in the current year | 2.4 | | | 1.1 | | | 4.1 | |
| | | | | |
Increases and decreases related to positions taken in prior years | (26.4) | | | 25.7 | | | 3.4 | |
Decreases related to lapse of statutes of limitations | (10.3) | | | (18.8) | | | (13.0) | |
Settlements during the current year | — | | | — | | | (2.8) | |
Decreases for tax positions on dispositions | — | | | — | | | (2.6) | |
Balance at end of year (1) | $ | 41.9 | | | $ | 76.2 | | | $ | 68.2 | |
____________________
(1) At December 31, 2021, 2020, and 2019 we recognized an offsetting non-current asset of $14.4 million, $27.4 million, and $34.0 million respectively, relating to the indirect income tax benefits associated with specific uncertain tax positions presented above.
Note 14: Debt
Debt maturing within one year:
Debt maturing within one year consists of the following: | | | | | | | | | | | |
| December 31, |
(in Millions) | 2021 | | 2020 |
Short-term foreign debt (1) | $ | 112.2 | | | $ | 98.4 | |
Commercial paper (2) | 244.1 | | | 146.3 | |
Total short-term debt | $ | 356.3 | | | $ | 244.7 | |
Current portion of long-term debt | 84.5 | | | 93.6 | |
Total Short-term debt and current portion of long-term debt (3) | $ | 440.8 | | | $ | 338.3 | |
____________________
(1) At December 31, 2021, the average effective interest rate on the borrowings was 12.4 percent.
(2) At December 31, 2021, the average effective interest rate on the borrowings was 0.45 percent.
(3) Based on cash generated from operations, our existing liquidity facilities, which includes the revolving credit agreement with the option to increase capacity up to $2.25 billion, and our continued access to debt capital markets, we have adequate liquidity to meet any of the company's debt obligations in the near term.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Long-term debt:
Long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2021 | | December 31, |
Interest Rate Percentage | | Maturity Date | | 2021 | | 2020 |
Pollution control and industrial revenue bonds (less unamortized discounts of $0.1 and $0.1, respectively) | 6.45% | | 2032 | | $ | 49.9 | | | $ | 51.6 | |
Senior notes (less unamortized discounts of $0.7 and $1.0, respectively) | 3.20% - 4.50% | | 2024 - 2049 | | 1,899.3 | | | 2,199.0 | |
| | | | | | | |
2017 Term Loan Facility | N/A | | N/A | | — | | | 700.0 | |
2021 Term Loan Facility | 1.1% | | 2024 | | 800.0 | | | — | |
Revolving Credit Facility (1) | 2.8% | | 2026 | | — | | | — | |
| | | | | | | |
Foreign debt | 0% - 7.9% | | 2022 - 2024 | | 84.7 | | | 92.3 | |
Debt issuance cost | | | | | (17.7) | | | (19.8) | |
Total long-term debt | | | | | $ | 2,816.2 | | | $ | 3,023.1 | |
Less: debt maturing within one year | | | | | 84.5 | | | 93.6 | |
Total long-term debt, less current portion | | | | | $ | 2,731.7 | | | $ | 2,929.5 | |
____________________
(1)Letters of credit outstanding under the Revolving Credit Facility totaled $162.5 million and available funds under this facility were $1,093.4 million at December 31, 2021.
Revolving Credit Facility Amendment
On May 26, 2021, we amended our Revolving Credit Facility. The Credit Facility Amendment primarily extended the maturity date by an additional two years to May 26, 2026 and adjusted the maximum leverage ratio. See below for additional information on covenants. The borrowing capacity under the credit facility was not affected by the amendment and remains unchanged.
Deferred financing fees totaling $1.7 million associated with the amendment has been deferred and is being recognized to interest expense over the life of the agreement.
2021 Term Loan Facility
On November 22, 2021, we borrowed $1.0 billion under our previously announced senior unsecured term loan facility ("2021 Term Loan Facility"). The proceeds of the borrowing were used to pay off the 2017 Term Loan Facility and Senior Notes maturing in 2022. The scheduled maturity of the 2021 Term Loan Facility is on the third anniversary of this closing date. The 2021 Term Loan Facility contains financial and other covenants, which are consistent with those in the covenants of the Revolving Credit Facility, including a maximum leverage ratio of 3.5 and minimum interest coverage ratio of 3.5 as of the last day of each fiscal quarter.
Maturities of long-term debt
Maturities of long-term debt outstanding, excluding discounts, at December 31, 2021, are $84.5 million in 2022, $0.0 million in 2023, $1,200.2 million in 2024, $0.0 million in 2025, $500.0 million in 2026 and $1,050.0 million thereafter.
Covenants
Among other restrictions, the Revolving Credit Facility and 2021 Term Loan Facility contain financial covenants applicable to FMC and its consolidated subsidiaries related to leverage (measured as the ratio of debt to adjusted earnings) and interest coverage (measured as the ratio of adjusted earnings to interest expense). Our actual leverage for the four consecutive quarters ended December 31, 2021 was 2.57 which is below the maximum leverage of 3.5. Pursuant to the Revolving Credit Amendment and the 2021 Term Loan Facility discussed above, the maximum leverage ratio stepped down to 3.50 for the period ending December 31, 2021 and for future quarters. Our actual interest coverage for the four consecutive quarters ended December 31, 2021 was 9.53 which is above the minimum interest coverage of 3.5. We were in compliance with all covenants at December 31, 2021.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Note 15: Pension and Other Postretirement Benefits
The funded status of our U.S. qualified and nonqualified defined benefit pension plans, our Germany, France, and Belgium defined benefit pension plans, plus our U.S. other postretirement healthcare and life insurance benefit plans for continuing operations, together with the associated balances and net periodic benefit cost recognized in our consolidated financial statements as of December 31, are shown in the tables below.
We are required to recognize in our consolidated balance sheets the overfunded and underfunded status of our defined benefit postretirement plans. The overfunded or underfunded status is defined as the difference between the fair value of plan assets and the projected benefit obligation. We are also required to recognize as a component of other comprehensive income the actuarial gains and losses and the prior service costs and credits that arise during the period.
The following table summarizes the weighted-average assumptions used to determine the benefit obligations at December 31 for the U.S. Plans:
| | | | | | | | | | | |
| Pensions and Other Benefits |
| December 31, |
| 2021 | | 2020 |
Discount rate qualified | 2.84 | % | | 2.49 | % |
Discount rate nonqualified plan | 2.18 | % | | 1.62 | % |
Discount rate other benefits | 2.39 | % | | 1.91 | % |
Rate of compensation increase | 3.10 | % | | 3.10 | % |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the components of our defined benefit postretirement plans and reflect a measurement date of December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pensions | | Other Benefits (1) |
| | | | December 31, |
(in Millions) | | | | 2021 | | 2020 | | 2021 | | 2020 |
Change in projected benefit obligation | | | | | | | | | | |
Projected benefit obligation at January 1 | | | | $ | 1,450.3 | | | $ | 1,379.1 | | | $ | 15.3 | | | $ | 15.8 | |
Service cost | | | | 4.7 | | | 4.4 | | | — | | | — | |
Interest cost | | | | 24.5 | | | 36.7 | | | 0.3 | | | 0.4 | |
Actuarial loss (gain) (2) | | | | (38.6) | | | 115.5 | | | (0.6) | | | 0.3 | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign currency exchange rate changes and other | | | | (0.5) | | | — | | | — | | | — | |
Plan participants’ contributions | | | | — | | | — | | | 0.4 | | | 0.5 | |
| | | | | | | | | | |
Settlements | | | | (2.5) | | | (1.5) | | | — | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
Benefits paid | | | | (83.9) | | | (83.9) | | | (1.7) | | | (1.7) | |
Projected benefit obligation at December 31 | | | | $ | 1,354.0 | | | $ | 1,450.3 | | | $ | 13.7 | | | $ | 15.3 | |
Change in plan assets | | | | | | | | | | |
Fair value of plan assets at January 1 | | | | $ | 1,484.6 | | | $ | 1,390.6 | | | $ | — | | | $ | — | |
Actual return on plan assets | | | | (26.2) | | | 176.5 | | | — | | | — | |
Foreign currency exchange rate changes | | | | (0.3) | | | — | | | — | | | — | |
Company contributions | | | | 3.8 | | | 2.9 | | | 1.3 | | | 1.2 | |
Plan participants’ contributions | | | | — | | | — | | | 0.4 | | | 0.5 | |
| | | | | | | | | | |
Settlements | | | | (6.0) | | | (1.5) | | | — | | | — | |
| | | | | | | | | | |
Benefits paid | | | | (83.9) | | | (83.9) | | | (1.7) | | | (1.7) | |
Fair value of plan assets at December 31 | | | | $ | 1,372.0 | | | $ | 1,484.6 | | | $ | — | | | $ | — | |
Funded Status | | | | | | | | | | |
U.S. plans with assets | | | | $ | 50.4 | | | $ | 69.5 | | | $ | — | | | $ | — | |
U.S. plans without assets | | | | (22.1) | | | (23.9) | | | (13.7) | | | (15.3) | |
Non-U.S. plans with assets | | | | (2.8) | | | (3.0) | | | — | | | — | |
All other plans | | | | (7.5) | | | (8.3) | | | — | | | — | |
Net funded status of the plan (liability) | | | | $ | 18.0 | | | $ | 34.3 | | | $ | (13.7) | | | $ | (15.3) | |
Amount recognized in the consolidated balance sheets: | | | | | | | | | | |
Pension asset (3) | | | | $ | 50.4 | | | $ | 69.5 | | | $ | — | | | $ | — | |
Accrued benefit liability (4) | | | | (32.4) | | | (35.2) | | | (13.7) | | | (15.3) | |
Total | | | | $ | 18.0 | | | $ | 34.3 | | | $ | (13.7) | | | $ | (15.3) | |
____________________
(1) Refer to Note 11 to the consolidated financial statements included within this Form 10-K for information on our discontinued postretirement benefit plans.
(2) The actuarial gain in 2021 and loss in 2020 was primarily driven by the change in discount rate on the U.S. qualified plan. Additionally, the Society of Actuaries released an updated mortality table projection scale for measurement of retirement program obligations in both 2021 and 2020. Adoption of the most recent projection scale for each applicable year increased the U.S. defined benefit obligations by approximately $3 million and $10 million at December 31, 2021 and 2020, respectively.
(3) Recorded as "Other assets including long-term receivables, net" on the consolidated balance sheets.
(4) Recorded as "Accrued pension and other postretirement benefits, current" and "Accrued pension and other postretirement benefits, long-term" on the consolidated balance sheets.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The amounts in accumulated other comprehensive income (loss) that have not yet been recognized as components of net periodic benefit cost are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pensions | | Other Benefits (1) |
| December 31, |
(in Millions) | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
| | | | | | | |
Prior service (cost) credit | $ | (0.5) | | | $ | (0.7) | | | $ | — | | | $ | — | |
Net actuarial (loss) gain | (315.9) | | | (321.9) | | | 4.0 | | | 4.2 | |
Accumulated other comprehensive income (loss) – pretax | $ | (316.4) | | | $ | (322.6) | | | $ | 4.0 | | | $ | 4.2 | |
Accumulated other comprehensive income (loss) – net of tax | (235.7) | | | (240.7) | | | 2.5 | | | 2.7 | |
____________________
(1) Refer to Note 11 to the consolidated financial statements included within this Form 10-K for information on our discontinued postretirement benefit plans.
The accumulated benefit obligation for all pension plans was $1,340.8 million and $1,435.9 million at December 31, 2021 and 2020, respectively.
| | | | | | | | | | | |
(in Millions) | December 31 |
Information for pension plans with projected benefit obligation in excess of plan assets | 2021 | | 2020 |
Projected benefit obligations | $ | 36.2 | | | $ | 42.9 | |
Accumulated benefit obligations | 36.2 | | | 43.3 | |
Fair value of plan assets | 3.8 | | | 7.7 | |
| | | | | | | | | | | |
(in Millions) | December 31 |
Information for pension plans with accumulated benefit obligation in excess of plan assets | 2021 | | 2020 |
Projected benefit obligations | $ | 36.2 | | | $ | 42.9 | |
Accumulated benefit obligations | 36.2 | | | 43.3 | |
Fair value of plan assets | 3.8 | | | 7.7 | |
Other changes in plan assets and benefit obligations for continuing operations recognized in other comprehensive loss (income) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pensions | | Other Benefits (1) |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2021 | | 2020 |
Current year net actuarial loss (gain) | $ | 18.4 | | | $ | (23.5) | | | $ | (0.6) | | | $ | 0.4 | |
| | | | | | | |
Amortization of net actuarial (loss) gain | (23.4) | | | (21.3) | | | 0.8 | | | 0.9 | |
Amortization of prior service (cost) credit | (0.2) | | | (0.2) | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Settlement loss | (1.0) | | | (0.6) | | | — | | | — | |
| | | | | | | |
Total recognized in other comprehensive (income) loss, before taxes | $ | (6.2) | | | $ | (45.6) | | | $ | 0.2 | | | $ | 1.3 | |
Total recognized in other comprehensive (income) loss, after taxes | (5.0) | | | (36.5) | | | 0.2 | | | 1.0 | |
____________________
(1) Refer to Note 11 to the consolidated financial statements included within this Form 10-K for information on our discontinued postretirement benefit plans.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the weighted-average assumptions used for and the components of net annual benefit cost (income):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Pensions | | Other Benefits (1) |
(in Millions, except for percentages) | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Discount rate | 2.49 | % | | 3.22 | % | | 4.36 | % | | 1.91 | % | | 2.89 | % | | 4.08 | % |
Expected return on plan assets | 2.25 | % | | 3.00 | % | | 4.25 | % | | — | | | — | | | — | |
Rate of compensation increase | 3.10 | % | | 3.10 | % | | 3.10 | % | | — | | | — | | | — | |
Components of net annual benefit cost: | | | | | | | | | | | |
Service cost | $ | 4.7 | | $ | 4.4 | | $ | 4.2 | | $ | — | | $ | — | | $ | — |
Interest cost | 24.5 | | 36.7 | | 47.6 | | 0.3 | | 0.4 | | 0.6 |
Expected return on plan assets | (28.2) | | (37.1) | | (53.4) | | — | | — | | — |
| | | | | | | | | | | |
Amortization of prior service cost | 0.2 | | 0.2 | | 0.2 | | — | | — | | 0.1 |
Amortization of net actuarial and other (gain) loss | 23.2 | | 21.4 | | 12.9 | | (0.8) | | (0.9) | | (1.0) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Recognized (gain) loss due to settlement | 1.0 | | 0.7 | | 1.4 | | — | | — | | — |
Net annual benefit cost (income) | $ | 25.4 | | $ | 26.3 | | $ | 12.9 | | $ | (0.5) | | $ | (0.5) | | $ | (0.3) |
___________________
(1) Refer to Note 11 to the consolidated financial statements included within this Form 10-K for information on our discontinued postretirement benefit plans.
Our U.S. qualified defined benefit pension plan ("U.S. Plan") holds the majority of our pension plan assets. The expected long-term rate of return on these plan assets was 2.25 percent for the year ended December 31, 2021, 3.00 percent for the year ended December 31, 2020, and 4.25 percent for the year ended December 31, 2019. The expected long-term rate of return on these plan assets decreased by 0.75 percent in 2021 compared to 2020 primarily due to fluctuating yields on corporate bonds. In developing the assumption for the long-term rate of return on assets for our U.S. Plan, we take into consideration the technical analysis performed by our outside actuaries, including historical market returns, information on the assumption for long-term real returns by asset class, inflation assumptions and expectations for standard deviation related to these best estimates. Given an actively managed investment portfolio, the expected annual rates of return by asset class for our portfolio, assuming an estimated inflation rate of approximately 2.2 percent, is in line with our assumption for the rate of return on assets. The target asset allocation at December 31, 2021 by asset category continues to be 100 percent fixed income investments.
Our U.S. Plan has been fully funded for the last several years and as such, the primary investment strategy is a liability hedging approach with an objective of maintaining the funded status of the plan such that the volatility is minimized and the likelihood that we will be required to make significant contributions to the plan is also limited. The portfolio is comprised of 100 percent fixed income securities and cash. Investment performance and related risks are measured and monitored on an ongoing basis through monthly liability measurements, periodic asset liability studies, and quarterly investment portfolio reviews. The fluctuation in our non-operating pension and post retirement charges (income) is attributable to the continued approach of using the smoothed market related value of assets (MRVA) as opposed to the actual fair value of plan assets in the determination of pension expense. This continued approach will create some volatility in our non-operating periodic pension cost since our qualified pension plan is 100 percent fixed income securities.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following tables present our fair value hierarchy for our major categories of pension plan assets by asset class. See Note 19 to the consolidated financial statements included within this Form 10-K for the definition of fair value and the descriptions of Level 1, 2 and 3 in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash and short-term investments | $ | 32.7 | | | $ | 32.2 | | | $ | 0.5 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fixed income investments: | | | | | | | |
Investment contracts | 144.7 | | | — | | | 144.7 | | | — | |
U.S. Government Securities | 309.5 | | | 309.5 | | | — | | | — | |
Mutual funds | 41.5 | | | 41.5 | | | — | | | — | |
Corporate debt instruments | 843.6 | | | — | | | 843.6 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total assets | $ | 1,372.0 | | | $ | 383.2 | | | $ | 988.8 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash and short-term investments | $ | 24.7 | | | $ | 24.6 | | | $ | 0.1 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fixed income investments: | | | | | | | |
Investment contracts | 151.4 | | | — | | | 151.4 | | | — | |
U.S. Government Securities | 307.0 | | | 297.9 | | | 9.1 | | | — | |
Mutual funds | 70.5 | | | 70.5 | | | — | | | — | |
Corporate debt instruments | 931.0 | | | — | | | 931.0 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total assets | $ | 1,484.6 | | | $ | 393.0 | | | $ | 1,091.6 | | | $ | — | |
We made the following contributions to our pension and other postretirement benefit plans:
| | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 |
U.S. qualified pension plan | $ | — | | | $ | — | |
U.S. nonqualified pension plan | 3.8 | | | 2.9 | |
Non-U.S. plans | 0.2 | | | 0.5 | |
Other postretirement benefits | 1.3 | | | 1.2 | |
Total | $ | 5.3 | | | $ | 4.6 | |
The following table reflects the estimated future benefit payments for our pension and other postretirement benefit plans. These estimates take into consideration expected future service, as appropriate:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Net Future Benefit Payments |
(in Millions) | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 - 2031 |
Pension Benefits | $ | 86.8 | | | $ | 86.4 | | | $ | 86.8 | | | $ | 85.1 | | | $ | 85.1 | | | $ | 397.3 | |
Other Benefits | 1.6 | | | 1.5 | | | 1.4 | | | 1.3 | | | 1.2 | | | 4.6 | |
FMC Corporation Savings and Investment Plan. The FMC Corporation Savings and Investment Plan is a qualified salary-reduction plan under Section 401(k) of the Internal Revenue Code in which substantially all of our U.S. employees may participate by contributing a portion of their compensation. For eligible employees participating in the Plan, except for those employees covered by certain collective bargaining agreements, the Company makes matching contributions of 80 percent of the portion of those contributions up to 5 percent of the employee’s compensation. Eligible employees participating in the Plan
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
that do not participate in the U.S. qualified pension plan are entitled to receive an employer contribution of 5 percent of the employee’s eligible compensation. Charges against income for all contributions were $15.6 million in 2021, $16.6 million in 2020, and $15.3 million in 2019.
Note 16: Share-based Compensation
Stock Compensation Plans
We have a share-based compensation plan, which has been approved by the stockholders, for certain employees, officers and directors. This plan is described below.
FMC Corporation Incentive Compensation and Stock Plan
The FMC Corporation Incentive Compensation and Stock Plan (the "Plan") provides for the grant of a variety of cash and equity awards to officers, directors, employees and consultants, including stock options, restricted stock, performance units (including restricted stock units), stock appreciation rights, and multi-year management incentive awards payable partly in cash and partly in common stock. The Compensation and Organization Committee of the Board of Directors (the "Committee"), subject to the provisions of the Plan, approves financial targets, award grants, and the times and conditions for payment of awards to employees. The total number of shares of common stock authorized for issuance under the Plan is 30.2 million of which approximately 2.6 million shares of common stock are available for future grants of share based awards under the Plan as of December 31, 2021. The FMC Corporation Non-Employee Directors’ Compensation Policy, administered by the Nominating and Corporate Governance Committee of the Board of Directors, sets forth the compensation to be paid to the directors, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based restricted stock units, and cash awards to be made to directors under the Plan.
Stock options granted under the Plan may be incentive or nonqualified stock options. The exercise price for stock options may not be less than the fair market value of the stock at the date of grant. Awards granted under the Plan vest or become exercisable or payable at the time designated by the Committee, which has generally been three years from the date of grant. Incentive and nonqualified options granted under the Plan expire no later than 10 years from the grant date.
Under the Plan, awards of restricted stock and restricted stock units may be made to selected employees. The awards vest over periods designated by the Committee, which has generally been three years, with vesting conditional upon continued employment. Compensation cost is recognized over the vesting periods based on the market value of the stock on the date of the award. Restricted stock units granted to directors under the Plan vest immediately if granted as part of, or in lieu of, the annual retainer; other restricted stock units granted to directors vest at the Annual Meeting of Shareholders in the calendar year following the May 1 annual grant date (but are subject to forfeiture on a pro rata basis if the director does not serve the full year except under certain circumstances).
At December 31, 2021 and 2020, there were restricted stock units representing an aggregate of 267,524 shares and 267,988 shares of common stock, respectively, credited to the directors’ accounts.
Stock Compensation
We recognized the following stock compensation expense: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Stock option expense, net of taxes of $1.0, $1.1 and $1.5 (1) | $ | 3.7 | | | $ | 4.0 | | | $ | 5.7 | |
Restricted stock expense, net of taxes of $1.9, $2.0 and $2.2 (2) | 7.2 | | | 7.4 | | | 8.2 | |
Performance based expense, net of taxes of $0.8, $0.9 and $1.7 | 3.2 | | | 3.5 | | | 6.3 | |
| | | | | |
Total stock compensation expense, net of taxes of $3.7, $4.0 and $5.4 (3) | $ | 14.1 | | | $ | 14.9 | | | $ | 20.2 | |
____________________
(1) We applied an estimated forfeiture rate of 4.0% per stock option grant in the calculation of the expense.
(2) We applied an estimated forfeiture rate of 2.0% of outstanding grants in the calculation of the expense.
(3) This expense is classified as "Selling, general and administrative expenses" in our consolidated statements of income (loss). Total stock compensation expense, net of tax, not included in the above table of zero , $2.2 million, and $0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, is included in "Discontinued operations, net of income taxes" in the consolidated statements of income (loss).
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
We received $7.9 million, $24.7 million and $50.7 million in cash related to stock option exercises for the years ended December 31, 2021, 2020 and 2019, respectively. The shares used for the exercise of stock options occurring during the years ended December 31, 2021, 2020 and 2019 came from treasury shares.
Impacts of Livent Distribution
On March 1, 2019, we completed the previously announced distribution of 123 million shares of common stock of Livent as a pro rata dividend on shares of FMC common stock outstanding at the close of business on the record date of February 25, 2019. All outstanding and nonvested equity awards relating to FMC’s stock immediately prior to the effective date were generally converted into FMC and Livent units pursuant to the employee matters agreement.
Stock Options
The grant-date fair values of the stock options we granted in the years ended December 31, 2021, 2020 and 2019 were estimated using the Black-Scholes option valuation model, the key assumptions for which are listed in the table below. The dividend yield assumption reflects anticipated dividends on our common stock. The expected volatility assumption is based on the actual historical experience of our common stock. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on U.S. Treasury securities with terms equal to the expected timing of stock option exercises as of the grant date. Employee stock options generally vest after a three year period and expire ten years from the date of grant.
Black Scholes valuation assumptions for stock option grants:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Expected dividend yield | 1.83% | | 1.91% | | 1.83% |
Expected volatility | 32.75% | | 26.60% | | 26.07% |
Expected life (in years) | 6.5 | | 6.5 | | 6.5 |
Risk-free interest rate | 0.92% | | 1.19% | | 2.53% |
The weighted-average grant-date fair value of options granted during the years ended December 31, 2021, 2020 and 2019 was $28.31, $20.28 and $18.66 per share, respectively.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following summary shows stock option activity for employees under the Plan for the three years ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
(Shares in Thousands) | Number of Options Granted But Not Exercised | | Weighted-Average Remaining Contractual Life | | Weighted-Average Exercise Price Per Share | | Aggregate Intrinsic Value (in Millions) |
December 31, 2018 (1,044 shares exercisable and 1,287 shares expected to vest or be exercised) | 2,364 | | | 6.0 years | | $ | 52.87 | | | $ | 52.5 | |
Granted | 380 | | | | | 75.76 | | | |
Conversion impact from Livent spin (1) | 210 | | | | | 53.09 | | | |
Exercised | (1,414) | | | | | 39.17 | | | 67.2 | |
Forfeited | (36) | | | | | 67.82 | | | |
December 31, 2019 (628 shares exercisable and 835 shares expected to vest or be exercised) | 1,504 | | | 6.5 years | | $ | 58.06 | | | $ | 62.8 | |
Granted | 302 | | | | | 92.24 | | | |
Exercised | (549) | | | | | 48.02 | | | 31.3 | |
Forfeited | (22) | | | | | 81.84 | | | |
December 31, 2020 (388 shares exercisable and 818 shares expected to vest or be exercised) | 1,235 | | | 7.0 years | | $ | 70.44 | | | $ | 54.9 | |
Granted | 235 | | | | | 105.00 | | | |
| | | | | | | |
Exercised | (166) | | | | | 49.56 | | | 9.8 | |
Forfeited | (50) | | | | | 89.18 | | | |
December 31, 2021 (605 shares exercisable and 622 shares expected to vest or be exercised) | 1,254 | | | 6.2 years | | $ | 78.95 | | | $ | 38.8 | |
____________________
(1)Awards converted as a result of March 1, 2019 Livent separation.
The number of stock options indicated in the above table as being exercisable as of December 31, 2021, had an intrinsic value of $26.6 million, a weighted-average remaining contractual term of 4.2 years, and a weighted-average exercise price of $65.97.
As of December 31, 2021, we had total remaining unrecognized compensation cost related to unvested stock options of $5.2 million which will be amortized over the weighted-average remaining requisite service period of approximately 1.79 years.
Restricted and Performance Based Equity Awards
The grant-date fair value of restricted stock awards and stock units under the Plan is based on the market price per share of our common stock on the date of grant. The related compensation cost is amortized to expense on a straight-line basis over the vesting period during which the employees perform related services, which is typically three years except for those eligible for retirement prior to the stated vesting period as well as non-employee directors.
Starting in 2015, we began granting performance based restricted stock awards. The performance based share awards represent a number of shares of common stock to be awarded upon settlement based on the achievement of a total shareholder return ("TSR") relative to peer companies over a three year period. These awards generally vest upon the completion of a three year period from the date of grant; however, starting with the 2016 grants, certain performance criteria is measured on an annual basis. Starting with the 2019 grants, vesting was based on a TSR relative to peer companies and a cumulative operating cash flow metric. The fair value of the equity classified performance-based share awards is determined based on the number of shares of common stock expected to be awarded and a Monte Carlo valuation model.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following table shows our employee restricted award activity for the three years ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Equity | | Performance Based Equity |
(Number of Awards in Thousands) | Number of awards | | Weighted-Average Grant Date Fair Value Per Share | | Number of awards | | Weighted-Average Grant Date Fair Value Per Share |
Nonvested at December 31, 2018 | 459 | | | $ | 55.75 | | | 335 | | | $ | 56.42 | |
Granted | 108 | | | 76.22 | | | 106 | | | 83.89 | |
Conversion impact from Livent spin (1) | (29) | | | 67.46 | | | (12) | | | 84.58 | |
Vested | (223) | | | 37.54 | | | (222) | | | 42.18 | |
Forfeited | (13) | | | 69.69 | | | (1) | | | 78.92 | |
Nonvested at December 31, 2019 | 302 | | | $ | 67.89 | | | 206 | | | $ | 72.06 | |
Granted | 92 | | | 91.83 | | | 111 | | | 108.74 | |
Vested | (84) | | | 50.14 | | (115) | | | 58.37 |
Forfeited | (12) | | | 77.42 | | | — | | | — | |
Nonvested at December 31, 2020 | 298 | | | $ | 79.91 | | | 202 | | | $ | 88.48 | |
Granted | 95 | | | 102.10 | | | 79 | | | 103.26 | |
| | | | | | | |
Vested | (108) | | | 73.82 | | | (86) | | | 77.44 | |
Forfeited | (15) | | | 90.05 | | | — | | | — | |
Nonvested at December 31, 2021 | 270 | | | $ | 89.56 | | | 195 | | | $ | 96.18 | |
____________________
(1)Awards transferred to Livent employees as a result of March 1, 2019 Livent separation.
As of December 31, 2021, we had total remaining unrecognized compensation cost related to unvested restricted awards of $13.0 million which will be amortized over the weighted-average remaining requisite service period of approximately 1.84 years.
Note 17: Equity
The following is a summary of our capital stock activity over the past three years: | | | | | | | | | | | |
| Common Stock Shares | | Treasury Stock Shares |
December 31, 2018 | 185,983,792 | | | 53,702,178 | |
Stock options and awards | — | | | (1,563,307) | |
Repurchases of common stock, net | — | | | 4,720,627 | |
December 31, 2019 | 185,983,792 | | | 56,859,498 | |
Stock options and awards | — | | | (677,827) | |
Repurchases of common stock, net | — | | | 448,538 | |
December 31, 2020 | 185,983,792 | | | 56,630,209 | |
Stock options and awards | — | | | (300,594) | |
Repurchases of common stock, net | — | | | 3,954,698 | |
December 31, 2021 | 185,983,792 | | | 60,284,313 | |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Accumulated other comprehensive income (loss)
Summarized below is the roll forward of accumulated other comprehensive income (loss), net of tax. | | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | Foreign currency adjustments | | Derivative Instruments (1) | | Pension and other postretirement benefits (2) | | Total |
Accumulated other comprehensive income (loss), net of tax at December 31, 2018 | $ | (101.5) | | | $ | 11.2 | | | $ | (218.6) | | | $ | (308.9) | |
2019 Activity | | | | | | | |
Other comprehensive income (loss) before reclassifications | $ | (15.2) | | | $ | (69.0) | | | $ | (6.5) | | | $ | (90.7) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (8.2) | | | 9.9 | | | 1.7 | |
Net current period other comprehensive income (loss) | $ | (15.2) | | | $ | (77.2) | | | $ | 3.4 | | | $ | (89.0) | |
Adoption of accounting standard (Note 2) | — | | | 1.0 | | | (54.1) | | | (53.1) | |
Distribution of FMC Lithium (3) | 39.0 | | | — | | | — | | | 39.0 | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2019 | $ | (77.7) | | | $ | (65.0) | | | $ | (269.3) | | | $ | (412.0) | |
2020 Activity | | | | | | | |
Other comprehensive income (loss) before reclassifications | $ | 101.7 | | | $ | (2.5) | | | $ | 18.9 | | | $ | 118.1 | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (4.3) | | | 16.0 | | | 11.7 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2020 | $ | 24.0 | | | $ | (71.8) | | | $ | (234.4) | | | $ | (282.2) | |
2021 Activity | | | | | | | |
Other comprehensive income (loss) before reclassifications | $ | (86.5) | | | $ | 44.1 | | | $ | (14.5) | | | $ | (56.9) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 5.5 | | | 17.9 | | | 23.4 | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2021 | $ | (62.5) | | | $ | (22.2) | | | $ | (231.0) | | | $ | (315.7) | |
____________________
(1)See Note 19 to the consolidated financial statements included within this Form 10-K for more information.
(2)See Note 15 to the consolidated financial statements included within this Form 10-K for more information.
(3)Represents the effects of the distribution of FMC Lithium.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Reclassifications of accumulated other comprehensive income (loss)
The table below provides details about the reclassifications from accumulated other comprehensive income (loss) and the affected line items in the consolidated statements of income (loss) for each of the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (1) | | Affected Line Item in the Consolidated Statements of Income (Loss) |
| | Year Ended December 31, | | |
(in Millions) | | 2021 | | 2020 | | 2019 | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivative instruments: | | | | | | | | |
Foreign currency contracts | | $ | (4.7) | | | $ | 24.6 | | | $ | 10.0 | | | Costs of sales and services |
| | | | | | | | |
Foreign currency contracts | | 1.7 | | | (19.3) | | | 1.9 | | | Selling, general and administrative expenses |
Interest rate contracts | | (4.2) | | | (2.7) | | | (0.7) | | | Interest expense |
Total before tax | | $ | (7.2) | | | $ | 2.6 | | | $ | 11.2 | | | |
| | 1.7 | | | 1.7 | | | (3.0) | | | Provision for income taxes |
Amount included in net income | | $ | (5.5) | | | $ | 4.3 | | | $ | 8.2 | | | |
| | | | | | | | |
Pension and other postretirement benefits (2): | | | | | | | | |
Amortization of prior service costs | | $ | (0.2) | | | $ | (0.3) | | | $ | (0.3) | | | Selling, general and administrative expenses |
Amortization of unrecognized net actuarial and other gains (losses) | | (21.5) | | | (19.2) | | | (10.8) | | | Non-operating pension and postretirement charges (income) |
Recognized loss due to settlement/curtailment | | (1.0) | | | (0.7) | | | (1.4) | | | Non-operating pension and postretirement charges (income); Discontinued operations, net of income taxes |
Total before tax | | $ | (22.7) | | | $ | (20.2) | | | $ | (12.5) | | | |
| | 4.8 | | | 4.2 | | | 2.6 | | | Provision for income taxes; Discontinued operations, net of income taxes |
Amount included in net income | | $ | (17.9) | | | $ | (16.0) | | | $ | (9.9) | | | |
| | | | | | | | |
Total reclassifications for the period | | $ | (23.4) | | | $ | (11.7) | | | $ | (1.7) | | | Amount included in net income |
____________________
(1)Amounts in parentheses indicate charges to the consolidated statements of income (loss).
(2)Pension and other postretirement benefits amounts include the impact from both continuing and discontinued operations. For detail on the continuing operations components of pension and other postretirement benefits, see Note 15 to the consolidated financial statements included within this Form 10-K.
Transactions with Noncontrolling Interest
In July 2020, we purchased the remaining 49 percent ownership interest in our Indonesia joint venture, PT Bina Guna Kimia ("BGK"), for $7.4 million which increased our ownership from 51 percent to 100 percent.
As a result of the IPO and underwriters' exercise to purchase additional shares of common stock in the fourth quarter of 2018, our controlling interest in FMC Lithium was approximately 84 percent. On March 1, 2019, we completed the previously announced distribution of the remaining shares of common stock of Livent. See Note 1 to the consolidated financial statements included within this Form 10-K for further information.
Dividends and Share Repurchases
On January 20, 2022, we paid dividends totaling $66.8 million to our shareholders of record as of December 31, 2021. This amount is included in "Accrued and other liabilities" on the consolidated balance sheets as of December 31, 2021. For the years ended December 31, 2021, 2020 and 2019, we paid $247.2 million, $228.5 million and $210.3 million in dividends, respectively.
In 2021, 4.0 million shares were repurchased under the publicly announced repurchase program. At December 31, 2021, approximately $150 million remained unused under our Board-authorized repurchase program. However, in February 2022, the Board of Directors authorized the repurchase of up to $1 billion of the Company's common stock. The $1 billion share repurchase program is replacing in its entirety the previous authorization. This repurchase program does not include a specific
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
timetable or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market conditions and other factors. We also reacquire shares from time to time from employees in connection with the vesting, exercise and forfeiture of awards under our equity compensation plans.
Note 18: Earnings Per Share
Earnings per common share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding during the period on a basic and diluted basis.
Our potentially dilutive securities include potential common shares related to our stock options, restricted stock and restricted stock units. Diluted earnings per share ("Diluted EPS") considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an antidilutive effect. Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period. For the years ended December 31, 2021, 2020 and 2019 there were 0.2 million, 0.2 million and 0.3 million potential common shares excluded from Diluted EPS, respectively.
Our non-vested restricted stock awards contain rights to receive non-forfeitable dividends, and thus, are participating securities requiring the two-class method of computing EPS. The two-class method determines EPS by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In calculating the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.
Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:
| | | | | | | | | | | | | | | | | |
(in Millions, Except Share and Per Share Data) | Year Ended December 31, |
2021 | | 2020 | | 2019 |
Earnings (loss) attributable to FMC stockholders: | | | | | |
Continuing operations, net of income taxes | $ | 804.7 | | | $ | 579.8 | | | $ | 540.7 | |
Discontinued operations, net of income taxes | (68.2) | | | (28.3) | | | (63.3) | |
Net income (loss) attributable to FMC stockholders | $ | 736.5 | | | $ | 551.5 | | | $ | 477.4 | |
Less: Distributed and undistributed earnings allocable to restricted award holders | (1.8) | | | (1.4) | | | (1.5) | |
Net income (loss) allocable to common stockholders | $ | 734.7 | | | $ | 550.1 | | | $ | 475.9 | |
| | | | | |
Basic earnings (loss) per common share attributable to FMC stockholders: | | | | | |
Continuing operations | $ | 6.25 | | | $ | 4.46 | | | $ | 4.12 | |
Discontinued operations | (0.53) | | | (0.22) | | | (0.48) | |
Net income (loss) | $ | 5.72 | | | $ | 4.24 | | | $ | 3.64 | |
| | | | | |
Diluted earnings (loss) per common share attributable to FMC stockholders: | | | | | |
Continuing operations | $ | 6.23 | | | $ | 4.44 | | | $ | 4.10 | |
Discontinued operations | (0.53) | | | (0.22) | | | (0.48) | |
Net income (loss) | $ | 5.70 | | | $ | 4.22 | | | $ | 3.62 | |
| | | | | |
Shares (in thousands): | | | | | |
Weighted average number of shares of common stock outstanding - Basic | 128,403 | | | 129,701 | | | 130,761 | |
Weighted average additional shares assuming conversion of potential common shares | 743 | | | 883 | | | 1,241 | |
Shares – diluted basis | 129,146 | | | 130,584 | | | 132,002 | |
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Note 19: Financial Instruments, Risk Management and Fair Value Measurements
Our financial instruments include cash and cash equivalents, trade receivables, other current assets, certain receivables classified as other long-term assets, accounts payable, and amounts included in investments and accruals meeting the definition of financial instruments. The carrying value of these financial instruments approximates their fair value. Our other financial instruments include the following:
| | | | | | | | |
Financial Instrument | | Valuation Method |
| | |
Foreign exchange forward contracts | | Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies. |
| | |
Commodity forward and option contracts | | Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices for applicable commodities. |
| | |
Debt | | Our estimates and information obtained from independent third parties using market data, such as bid/ask spreads for the last business day of the reporting period. |
The estimated fair value of the financial instruments in the above table have been determined using standard pricing models which take into account the present value of expected future cash flows discounted to the balance sheet date. These standard pricing models utilize inputs derived from, or corroborated by, observable market data such as interest rate yield curves and currency and commodity spot and forward rates. In addition, we test a subset of our valuations against valuations received from the transaction's counterparty to validate the accuracy of our standard pricing models. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a market exchange at settlement date and do not represent potential gains or losses on these agreements. The estimated fair values of foreign exchange forward contracts, commodity forward and option contracts, and interest rate contracts are included in the tables within this Note. The estimated fair value of debt is $3,409.8 million and $3,640.0 million and the carrying amount is $3,172.5 million and $3,267.8 million as of December 31, 2021 and 2020, respectively.
Use of Derivative Financial Instruments to Manage Risk
We mitigate certain financial exposures, including currency risk, commodity purchase exposures and interest rate risk through a program of risk management that includes the use of derivative financial instruments. We enter into foreign exchange contracts, including forward and purchased option contracts, to reduce the effects of fluctuating foreign currency exchange rates.
We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively.
Foreign Currency Exchange Risk Management
We conduct business in many foreign countries, exposing earnings, cash flows, and our financial position to foreign currency risks. The majority of these risks arise as a result of foreign currency transactions. Our policy is to minimize exposure to adverse changes in currency exchange rates. This is accomplished through a controlled program of risk management that includes the use of foreign currency debt and forward foreign exchange contracts. We also use forward foreign exchange contracts to hedge firm and highly anticipated foreign currency cash flows, with an objective of balancing currency risk to provide adequate protection from significant fluctuations in the currency markets.
The primary currencies for which we have exchange rate exposure are the U.S. dollar versus the Brazilian real, Chinese yuan, Indian rupee, euro, Mexican peso and Argentine peso.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Commodity Price Risk
We are exposed to risks in energy costs due to fluctuations in energy prices, particularly natural gas. Though our current and expected future annual exposure is insignificant, we attempt to mitigate our exposure to increasing energy costs by hedging the cost of future deliveries of natural gas.
Interest Rate Risk
We use various strategies to manage our interest rate exposure, including entering into interest rate swap agreements to achieve a targeted mix of fixed and variable-rate debt. In the agreements we exchange, at specified intervals, the difference between fixed and variable-interest amounts calculated on an agreed-upon notional principal amount.
Concentration of Credit Risk
Our counterparties to derivative contracts are primarily major financial institutions. We limit the dollar amount of contracts entered into with any one financial institution and monitor counterparties’ credit ratings. We also enter into master netting agreements with each financial institution, where possible, which helps mitigate the credit risk associated with our financial instruments. While we may be exposed to credit losses due to the nonperformance of counterparties, we consider this risk remote.
Financial Guarantees and Letter-of-Credit Commitments
We enter into various financial instruments with off-balance sheet risk as part of the normal course of business. These off-balance sheet instruments include financial guarantees and contractual commitments to extend financial guarantees under letters of credit and other assistance to customers. See Notes 1 and 20 to the consolidated financial statements included within this Form 10-K for more information. Decisions to extend financial guarantees to customers, and the amount of collateral required under these guarantees, is based on our evaluation of creditworthiness on a case-by-case basis.
Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
We recognize all derivatives on the balance sheet at fair value. On the date we enter into the derivative instrument, we generally designate the derivative as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We record in AOCI changes in the fair value of derivatives that are designated as, and meet all the required criteria for, a cash flow hedge. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In contrast we immediately record in earnings changes in the fair value of derivatives that are not designated as cash flow hedges.
As of December 31, 2021, we had open foreign currency forward contracts in AOCI in a net after-tax gain position of $31.1 million designated as cash flow hedges of underlying forecasted sales and purchases. Current open contracts hedge forecasted transactions until December 31, 2022. At December 31, 2021, we had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $2,015.4 million.
As of December 31, 2021, we had open interest rate contracts in AOCI in a net after-tax gain position of $3.0 million designated as cash flow hedges of the anticipated fixed rate coupon of debt forecasted to be issued within a designated window. At December 31, 2021 we had interest rate swap contracts outstanding with a total aggregate notional value of approximately $100.0 million.
In conjunction with the issuance of the Senior Notes, on September 20, 2019 we settled on various interest rate swap agreements which were entered into to hedge the variability in treasury rates. This settlement resulted in a loss of $83.1 million which was recorded in other comprehensive income and will be amortized over the various terms of the Senior Notes. Refer to Note 14 to the consolidated financial statements included within this Form 10-K for further details on the Senior Notes.
As of December 31, 2021, we had no open commodity contracts in AOCI designated as cash flow hedges of underlying forecasted purchases. At December 31, 2021, we had no mmBTUs (millions of British Thermal Units) in aggregate notional volume of outstanding natural gas commodity forward contracts.
Approximately $31.1 million of net after-tax gains, representing open foreign currency exchange contracts will be realized in earnings during the twelve months ending December 31, 2022 if spot rates in the future are consistent with forward rates as of December 31, 2021. The actual effect on earnings will be dependent on the actual spot rates when the forecasted transactions
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
occur. We recognize derivative gains and losses in the "Costs of sales and services" line in the consolidated statements of income (loss).
Derivatives Not Designated As Hedging Instruments
We hold certain forward contracts that have not been designated as cash flow hedging instruments for accounting purposes. Contracts used to hedge the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities are not designated as cash flow hedging instruments, and changes in the fair value of these items are recorded in earnings.
We had open forward contracts not designated as cash flow hedging instruments for accounting purposes with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $2,321.4 million at December 31, 2021.
Fair Value of Derivative Instruments
The following tables provide the gross fair value and net balance sheet presentation of our derivative instruments as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Amount of Derivatives | | | | | | |
(in Millions) | Designated as Cash Flow Hedges | | Not Designated as Hedging Instruments | | Total Gross Amounts | | Gross Amounts Offset in the Consolidated Balance Sheet (3) | | Net Amounts |
Derivatives | | | | | | | | | |
Foreign exchange contracts | $ | 35.9 | | | $ | 5.7 | | | $ | 41.6 | | | $ | (21.9) | | | $ | 19.7 | |
Interest rate contracts | 3.7 | | | — | | | 3.7 | | | — | | | 3.7 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative assets (1) | $ | 39.6 | | | $ | 5.7 | | | $ | 45.3 | | | $ | (21.9) | | | $ | 23.4 | |
| | | | | | | | | |
Foreign exchange contracts | $ | (16.2) | | | $ | (9.7) | | | $ | (25.9) | | | $ | 21.9 | | | $ | (4.0) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative liabilities (2) | $ | (16.2) | | | $ | (9.7) | | | $ | (25.9) | | | $ | 21.9 | | | $ | (4.0) | |
| | | | | | | | | |
Net derivative assets (liabilities) | $ | 23.4 | | | $ | (4.0) | | | $ | 19.4 | | | $ | — | | | $ | 19.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Amount of Derivatives | | |
(in Millions) | Designated as Cash Flow Hedges | | Not Designated as Hedging Instruments | | Total Gross Amounts | | Gross Amounts Offset in the Consolidated Balance Sheet (3) | | Net Amounts |
Derivatives | | | | | | | | | |
Foreign exchange contracts | $ | 19.4 | | | $ | 1.9 | | | $ | 21.3 | | | $ | (21.1) | | | $ | 0.2 | |
Interest rate contracts | 0.1 | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative assets (1) | $ | 19.5 | | | $ | 1.9 | | | $ | 21.4 | | | $ | (21.1) | | | $ | 0.3 | |
| | | | | | | | | |
Foreign exchange contracts | $ | (42.7) | | | $ | (3.1) | | | $ | (45.8) | | | $ | 21.1 | | | $ | (24.7) | |
Interest rate contracts | (0.9) | | | — | | | (0.9) | | | — | | | (0.9) | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative liabilities (2) | $ | (43.6) | | | $ | (3.1) | | | $ | (46.7) | | | $ | 21.1 | | | $ | (25.6) | |
| | | | | | | | | |
Net derivative assets (liabilities) | $ | (24.1) | | | $ | (1.2) | | | $ | (25.3) | | | $ | — | | | $ | (25.3) | |
____________________
(1) Net balance is included in "Prepaid and other current assets" in the consolidated balance sheets.
(2) Net balance is included in "Accrued and other liabilities" in the consolidated balance sheets.
(3) Represents net derivatives positions subject to master netting arrangements.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
The following tables summarize the gains or losses related to our cash flow hedges and derivatives not designated as hedging instruments:
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | | | | | | |
| Contracts | | | | |
(in Millions) | Foreign exchange | | Interest rate | Total | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2018 | $ | 10.4 | | | $ | 0.8 | | $ | 11.2 | | | | |
2019 Activity | | | | | | | |
Unrealized hedging gains (losses) and other, net of tax | $ | (3.1) | | | $ | (65.9) | | $ | (69.0) | | | | |
Reclassification of deferred hedging (gains) losses, net of tax (1) | (8.7) | | | 0.5 | | (8.2) | | | | |
Total derivative instrument impact on comprehensive income, net of tax | $ | (11.8) | | | $ | (65.4) | | $ | (77.2) | | | | |
Adoption of accounting standard (Note 2) | $ | — | | | $ | 1.0 | | $ | 1.0 | | | | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2019 | $ | (1.4) | | | $ | (63.6) | | $ | (65.0) | | | | |
2020 Activity | | | | | | | |
Unrealized hedging gains (losses) and other, net of tax | $ | (3.8) | | | $ | 1.3 | | $ | (2.5) | | | | |
Reclassification of deferred hedging (gains) losses, net of tax (1) | (6.4) | | | 2.1 | | (4.3) | | | | |
Total derivative instrument impact on comprehensive income, net of tax | $ | (10.2) | | | $ | 3.4 | | $ | (6.8) | | | | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2020 | $ | (11.6) | | | $ | (60.2) | | $ | (71.8) | | | | |
2021 Activity | | | | | | | |
Unrealized hedging gains (losses) and other, net of tax | $ | 40.5 | | | $ | 3.6 | | $ | 44.1 | | | | |
Reclassification of deferred hedging (gains) losses, net of tax (1) | 2.2 | | | 3.3 | | 5.5 | | | | |
Total derivative instrument impact on comprehensive income, net of tax | $ | 42.7 | | | $ | 6.9 | | $ | 49.6 | | | | |
| | | | | | | |
Accumulated other comprehensive income (loss), net of tax at December 31, 2021 | $ | 31.1 | | | $ | (53.3) | | $ | (22.2) | | | | |
____________________
(1)Amounts are included in "Costs of sales and services", "Selling, general and administrative expenses", and "Interest expense" on the consolidated statements of income (loss).
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | |
| Amount of Pre-tax Gain (Loss) Recognized in Income on Derivatives (1) |
| Year Ended December 31, |
(in Millions) | 2021 | | 2020 | | 2019 |
Foreign exchange contracts | $ | (47.7) | | | $ | (62.9) | | | $ | (26.7) | |
| | | | | |
Total | $ | (47.7) | | | $ | (62.9) | | | $ | (26.7) | |
____________________
(1) Amounts in the columns represent the gain or loss on the derivative instrument offset by the gain or loss on the hedged item. These amounts are included in "Costs of sales and services" on the consolidated statements of income (loss).
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers or sellers in the principle or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable and able and willing to transact for the asset or liability.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Fair Value Hierarchy
We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Recurring Fair Value Measurements
The following tables present our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis in our consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives – Foreign exchange (1) | $ | 19.7 | | | $ | — | | | $ | 19.7 | | | $ | — | |
Derivatives - Interest Rate (1) | 3.7 | | | — | | | 3.7 | | | — | |
Other (2) | 21.1 | | | 21.1 | | | — | | | — | |
Total Assets | $ | 44.5 | | | $ | 21.1 | | | $ | 23.4 | | | $ | — | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives – Foreign exchange (1) | $ | 4.0 | | | $ | — | | | $ | 4.0 | | | $ | — | |
Derivatives - Interest Rate (1) | — | | | — | | | — | | | — | |
Other (3) | 26.2 | | | 26.2 | | | — | | | — | |
Total Liabilities | $ | 30.2 | | | $ | 26.2 | | | $ | 4.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in Millions) | December 31, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives – Foreign exchange (1) | $ | 0.2 | | | $ | — | | | $ | 0.2 | | | $ | — | |
Derivatives - Interest Rate (1) | 0.1 | | | — | | | 0.1 | | | — | |
Other (2) | 24.1 | | | 24.1 | | | — | | | — | |
Total Assets | $ | 24.4 | | | $ | 24.1 | | | $ | 0.3 | | | $ | — | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives – Foreign exchange (1) | $ | 24.7 | | | $ | — | | | $ | 24.7 | | | $ | — | |
Derivatives - Interest Rate (1) | 0.9 | | | — | | | 0.9 | | | — | |
Other (3) | 35.2 | | | 35.2 | | | — | | | — | |
Total Liabilities | $ | 60.8 | | | $ | 35.2 | | | $ | 25.6 | | | $ | — | |
____________________
(1)See the Fair Value of Derivative Instruments table within this Note for classifications on our consolidated balance sheets.
(2)Consists of a deferred compensation arrangement, through which we hold various investment securities, recognized on our balance sheet. Both the asset and liability are recorded at fair value. Asset amounts included in "Other assets including long-term receivables, net" in the consolidated balance sheets.
(3)Primarily consists of a deferred compensation arrangement recognized on our balance sheet. Both the asset and liability are recorded at fair value. Liability amounts included in "Other long-term liabilities" in the consolidated balance sheets.
Nonrecurring Fair Value Measurements
There were no non-recurring fair value measurements in the consolidated balance sheets during the periods presented.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Note 20: Guarantees, Commitments and Contingencies
We continue to monitor the conditions that are subject to guarantees and indemnifications to identify whether a liability must be recognized in our financial statements.
The following table provides the estimated undiscounted amount of potential future payments for each major group of guarantees at December 31, 2021. These guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates. Non-performance by the guaranteed party triggers the obligation requiring us to make payments to the beneficiary of the guarantee. Based on our experience these types of guarantees have not had a material effect on our consolidated financial position or on our liquidity. Our expectation is that future payment or performance related to the non-performance of others is considered unlikely.
| | | | | |
(in Millions) | |
Guarantees: | |
Guarantees of vendor financing - short term (1) | $ | 206.2 | |
| |
Other debt guarantees (2) | 9.7 | |
Total | $ | 215.9 | |
____________________
(1)Represents guarantees to financial institutions on behalf of certain customers for their seasonal borrowing. The short-term amount is recorded as "Guarantees of vendor financing" on the consolidated balance sheets.
(2)These guarantees represent support provided to third-party banks for credit extended to various customers and nonconsolidated affiliates. The liability for the guarantees is recorded at an amount that approximates fair value (i.e. representing the stand-ready obligation) based on our historical collection experience and a current assessment of credit exposure. In the past, the fair value of these guarantees has been immaterial and the majority of these guarantees have had an expiration date of less than one year.
Excluded from the chart above are parent-company guarantees we provide to lending institutions that extend credit to our foreign subsidiaries. Since these guarantees are provided for consolidated subsidiaries, the consolidated financial position is not affected by the issuance of these guarantees. Also excluded from the chart, in connection with our property and asset sales and divestitures, we have agreed to indemnify the buyer for certain liabilities, including environmental contamination and taxes that occurred prior to the date of sale or provided guarantees to third parties relating to certain contracts assumed by the buyer. Our indemnification or guarantee obligations with respect to certain liabilities may be indefinite as to duration and may or may not be subject to a deductible, minimum claim amount or cap. As such, it is not possible for us to predict the likelihood that a claim will be made or to make a reasonable estimate of the maximum potential loss or range of loss. If triggered, we may be able to recover some of the indemnity payments from third parties. Therefore, we have not recorded any specific liabilities for these guarantees. For certain obligations related to our divestitures for which we can make a reasonable estimate of the maximum potential loss or range of loss and is probable, a liability in those instances has been recorded.
Commitments
Purchase Obligations
Our minimum commitments under our take-or-pay purchase obligations associated with the sourcing of materials and energy total approximately $702.9 million. Since the majority of our minimum obligations under these contracts are over the life of the contract on a year-by-year basis, we are unable to determine the periods in which these obligations could be payable under these contracts. However, we intend to fulfill the obligations associated with these contracts through our purchases associated with the normal course of business.
Contingencies
Livent Corporation class action. On October 28, 2020, Defendants entered into a stipulation of settlement with the state court plaintiffs in which Livent, on behalf of the Defendants, will pay $7.4 million to resolve all claims related to the IPO. The court approved the settlement following a hearing on April 15, 2021 and final order and judgment was entered on April 26, 2021. The settlement resolves all pending litigation relating to the Livent IPO, including the claims in both the state and federal actions. There is no financial impact to FMC as a result of the settlement.
Asbestos claims. Like hundreds of other industrial companies, we have been named as one of many defendants in asbestos-related personal injury litigation. Most of these cases allege personal injury or death resulting from exposure to asbestos in premises of FMC or to asbestos-containing components installed in machinery or equipment manufactured or sold by discontinued operations.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
We intend to continue managing these asbestos-related cases in accordance with our historical experience. We have established a reserve for this litigation within our discontinued operations and believe that any exposure of a loss in excess of the established reserve cannot be reasonably estimated. Our experience has been that the overall trends in asbestos litigation have changed over time. Over the last several years, we have seen changes in the jurisdictions where claims against FMC are being filed and changes in the mix of products named in the various claims. Because these claim trends have yet to form a predictable pattern, we are presently unable to reasonably estimate our asbestos liability with respect to claims that may be filed in the future.
Other contingent liabilities. In addition to the matters disclosed above, we have certain other contingent liabilities arising from litigation, claims, products we have sold, guarantees or warranties we have made, contracts we have entered into, indemnities we have provided, and other commitments or obligations incident to the ordinary course of business.
In Brazil, we are subject to claims from various governmental agencies regarding alleged additional indirect (non-income) taxes or duties as well as product liability matters and labor cases related to our operations. These disputes take many years to resolve as the matters move through administrative or judicial courts. We have provided reserves for such Brazilian matters that we consider probable and for which a reasonable estimate of the obligation can be made in the amount of $3.3 million and $4.1 million as of December 31, 2021 and 2020, respectively. The aggregate estimated reasonably possible loss contingencies related to such Brazilian matters exceed amounts accrued by approximately $77 million at December 31, 2021. This reasonably possible estimate is based upon information available as of the date of the filing and the actual future losses may be higher given the uncertainties regarding the ultimate decision by administrative or judicial authorities in Brazil.
In India, we are subject to audits or other proceedings by tax authorities regarding certain alleged additional indirect taxes related to our operations. Indian tax authorities have recently begun auditing or investigating many companies, including our FMC subsidiary in India, on the goods and service tax ("GST") indirect tax law which came into force in 2017. Such proceedings and potential future litigations, in which the tax authorities are challenging the technical tax position taken by the Company, take many years to resolve as the matters are heard and decided upon by tax authorities or courts. We have provided reserves for such historical Indian tax matters that we consider probable and a reasonable estimate of the obligation can be made in the amount of approximately $33.5 million, as of December 31, 2021.
Regarding other contingencies arising from operations, some of these contingencies are known - for example pending product liability litigation or claims - but are so preliminary that the merits cannot be determined, or if more advanced, are not deemed material based on current knowledge. Some contingencies are unknown - for example, claims with respect to which we have no notice or claims which may arise in the future, resulting from products we have sold, guarantees or warranties we have made, or indemnities we have provided. Therefore, we are unable to develop a reasonable estimate of our potential exposure of loss for these contingencies, either individually or in the aggregate, at this time. Based on information currently available and established reserves, we have no reason to believe that the ultimate resolution of our known contingencies, including the matters described in this Note, will have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, there can be no assurance that the outcome of these contingencies will be favorable, and adverse results in certain of these contingencies could have a material adverse effect on our consolidated financial position, results of operations in any one reporting period, or liquidity.
See Note 12 to the consolidated financial statements included within this Form 10-K for the Pocatello Tribal litigation, Middleport litigation, and Portland Harbor site for legal proceedings associated with our environmental contingencies.
Note 21: Segment Information
As discussed in Note 1 to the consolidated financial statements included within this Form 10-K, we operate as a single business segment providing innovative solutions to growers around the world with a robust product portfolio fueled by a market-driven discovery and development pipeline in crop protection, plant health, and professional pest and turf management.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
For revenue by major geographical region, refer to Note 3 to the consolidated financial statements included within this Form 10-K. The following table provides our long-lived assets by major geographical region:
| | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Long-lived assets (1) | | | |
North America (2) | $ | 1,091.3 | | | $ | 1,230.2 | |
Latin America | 742.6 | | | 792.7 | |
Europe, Middle East, and Africa (2) | 1,499.0 | | | 1,513.9 | |
Asia (2) | 2,092.3 | | | 2,044.4 | |
Total | $ | 5,425.2 | | | $ | 5,581.2 | |
____________________
(1)Geographic long-lived assets exclude long-term deferred income taxes and assets of discontinued operations on the consolidated balance sheets.
(2)The countries with long-lived assets in excess of 10 percent of consolidated long-lived assets at December 31, 2021 and 2020 are Singapore, which totaled $1,622.8 million and $1,582.5 million, the U.S., which totaled $1,083.8 million and $1,221.3 million and Denmark, which totaled $1,081.9 million and $1,104.6 million, respectively.
Note 22: Supplemental Information
The following tables present details of prepaid and other current assets, other assets including long-term receivables, net, accrued and other liabilities and other long-term liabilities as presented on the consolidated balance sheets:
| | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Prepaid and other current assets | | | |
Prepaid insurance | $ | 12.0 | | | $ | 11.1 | |
| | | |
| | | |
Tax related items including value added tax receivables | 226.2 | | | 197.7 | |
Refund asset (1) | 36.4 | | | 28.4 | |
Environmental obligation recoveries (Note 12) | 2.2 | | | 0.8 | |
Derivative assets (Note 19) | 23.4 | | | 0.3 | |
| | | |
Acquisition related items | 3.0 | | | 3.0 | |
| | | |
Other prepaid and current assets | 128.2 | | | 139.5 | |
Total | $ | 431.4 | | | $ | 380.8 | |
| | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Other assets including long-term receivables, net | | | |
Non-current receivables (Note 10) | $ | 57.4 | | | $ | 103.5 | |
Advance to contract manufacturers | 129.0 | | | 122.2 | |
Capitalized software, net | 143.8 | | | 158.0 | |
Environmental obligation recoveries (Note 12) | 2.3 | | | 3.6 | |
| | | |
Income taxes indirect benefits | 33.4 | | | 37.9 | |
Operating lease ROU asset (Note 4) | 135.2 | | | 147.3 | |
Deferred compensation arrangements (Note 19) | 21.1 | | | 24.1 | |
Pension and other postretirement benefits (Note 15) | 50.4 | | | 69.5 | |
Other long-term assets | 41.2 | | | 46.2 | |
Total | $ | 613.8 | | | $ | 712.3 | |
(1) In accordance with revenue standard requirements, a sales return liability is recognized for the consideration paid by a customer to which FMC does not expect to be entitled, together with a corresponding refund asset to recover the product from the customer. See (2) below.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Accrued and other liabilities | | | |
Restructuring reserves (Note 9) | $ | 10.4 | | | $ | 11.9 | |
Dividend payable (Note 17) | 66.8 | | | 62.3 | |
Accrued payroll | 89.8 | | | 87.0 | |
| | | |
Environmental reserves, current, net of recoveries (Note 12) | 87.3 | | | 120.9 | |
Derivative liabilities (Note 19) | 4.0 | | | 24.8 | |
Furadan® product exit asset retirement obligations | 10.0 | | | 10.0 | |
Unfavorable contracts (1) | 82.0 | | | 105.8 | |
Operating lease current liabilities (Note 4) | 23.5 | | | 25.6 | |
Other accrued and other liabilities (2) | 257.4 | | | 226.4 | |
Total | $ | 631.2 | | | $ | 674.7 | |
| | | | | | | | | | | |
(in Millions) | December 31, |
2021 | | 2020 |
Other long-term liabilities | | | |
Restructuring reserves (Note 9) | $ | 4.5 | | | $ | 4.5 | |
Asset retirement obligations, long-term (Note 1) | 14.2 | | | 20.7 | |
Transition tax related to Tax Cuts and Jobs Act (3) | 92.1 | | | 107.8 | |
Contingencies related to uncertain tax positions (Note 13) | 45.5 | | | 83.1 | |
Deferred compensation arrangements (Note 19) | 26.2 | | | 35.2 | |
Derivative liabilities (Note 19) | — | | | 0.8 | |
Self-insurance reserves (primarily workers' compensation) | 6.1 | | | 1.9 | |
Lease obligations (Note 4) | 140.0 | | | 151.1 | |
Reserve for discontinued operations (Note 11) | 108.3 | | | 76.6 | |
| | | |
Unfavorable contracts (1) | 10.3 | | | 89.4 | |
Other long-term liabilities | 30.1 | | | 32.7 | |
Total | $ | 477.3 | | | $ | 603.8 | |
____________________
(1) The amount presented within accrued and other liabilities primarily represents the technical insecticide product supply agreements with DuPont for use in their retained seed treatment business for 2021 and 2020. The 2020 amount presented within other long-term liabilities primarily represents the technical insecticide product supply agreements with DuPont for use in their retained seed treatment business. Refer to Note 5 to the consolidated financial statements included within this Form 10-K for more details.
(2) Other accrued and other liabilities includes our estimated liability for sales returns.
(3) Represents noncurrent portion of overall transition tax to be paid over the next four years.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Note 23: Quarterly Financial Information (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in Millions, Except Share and Per Share Data) | 2021 | | 2020 |
1Q | | 2Q | | 3Q | | 4Q | | 1Q | | 2Q | | 3Q | | 4Q |
Revenue | $ | 1,195.6 | | | $ | 1,242.0 | | | $ | 1,194.0 | | | $ | 1,413.6 | | | $ | 1,250.0 | | | $ | 1,155.3 | | | $ | 1,084.6 | | | $ | 1,152.2 | |
Gross margin | 512.4 | | | 531.8 | | | 512.8 | | | 614.7 | | | 561.5 | | | 522.7 | | | 466.4 | | | 501.4 | |
Income (loss) from continuing operations before equity in (earnings) loss of affiliates, non-operating pension and postretirement charges (income), interest expense, net and income taxes | 260.7 | | | 288.6 | | | 217.0 | | | 278.6 | | | 291.4 | | | 267.9 | | | 196.0 | | | 146.9 | |
Income (loss) from continuing operations | 191.3 | | | 217.8 | | | 170.1 | | | 223.0 | | | 213.7 | | | 195.8 | | | 130.5 | | | 38.9 | |
Discontinued operations, net of income taxes | (8.1) | | | (14.6) | | | (9.7) | | | (35.8) | | | (7.5) | | | (10.8) | | | (18.4) | | | 8.4 | |
Net income (loss) | $ | 183.2 | | | $ | 203.2 | | | $ | 160.4 | | | $ | 187.2 | | | $ | 206.2 | | | $ | 185.0 | | | $ | 112.1 | | | $ | 47.3 | |
Less: Net income (loss) attributable to noncontrolling interests | 0.6 | | | 0.3 | | | 2.5 | | | (5.9) | | | — | | | 0.6 | | | 0.7 | | | (2.2) | |
Net income (loss) attributable to FMC stockholders | $ | 182.6 | | | $ | 202.9 | | | $ | 157.9 | | | $ | 193.1 | | | $ | 206.2 | | | $ | 184.4 | | | $ | 111.4 | | | $ | 49.5 | |
Amounts attributable to FMC stockholders: | | | | | | | | | | | | | | | |
Continuing operations, net of income taxes | $ | 190.7 | | | $ | 217.5 | | | $ | 167.6 | | | $ | 228.9 | | | $ | 213.7 | | | $ | 195.2 | | | $ | 129.8 | | | $ | 41.1 | |
Discontinued operations, net of income taxes | (8.1) | | | (14.6) | | | (9.7) | | | (35.8) | | | (7.5) | | | (10.8) | | | (18.4) | | | 8.4 | |
Net income (loss) | $ | 182.6 | | | $ | 202.9 | | | $ | 157.9 | | | $ | 193.1 | | | $ | 206.2 | | | $ | 184.4 | | | $ | 111.4 | | | $ | 49.5 | |
Basic earnings (loss) per common share attributable to FMC stockholders (1): | | | | | | | | | | | | | | | |
Continuing operations | $ | 1.47 | | | $ | 1.68 | | | $ | 1.30 | | | $ | 1.80 | | | $ | 1.65 | | | $ | 1.50 | | | $ | 1.00 | | | $ | 0.32 | |
Discontinued operations | (0.06) | | | (0.11) | | | (0.08) | | | (0.28) | | | (0.06) | | | (0.08) | | | (0.14) | | | 0.06 | |
Basic net income (loss) per common share | $ | 1.41 | | | $ | 1.57 | | | $ | 1.22 | | | $ | 1.52 | | | $ | 1.59 | | | $ | 1.42 | | | $ | 0.86 | | | $ | 0.38 | |
Diluted earnings (loss) per common share attributable to FMC stockholders (1): | | | | | | | | | | | | | | | |
Continuing operations | $ | 1.46 | | | $ | 1.67 | | | $ | 1.30 | | | $ | 1.80 | | | $ | 1.64 | | | $ | 1.49 | | | $ | 0.99 | | | $ | 0.32 | |
Discontinued operations | (0.06) | | | (0.11) | | | (0.08) | | | (0.28) | | | (0.06) | | | (0.08) | | | (0.14) | | | 0.06 | |
Diluted net income (loss) per common share | $ | 1.40 | | | $ | 1.56 | | | $ | 1.22 | | | $ | 1.52 | | | $ | 1.58 | | | $ | 1.41 | | | $ | 0.85 | | | $ | 0.38 | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | |
Basic | 129.5 | | | 129.1 | | | 128.3 | | | 126.6 | | | 129.5 | | | 129.7 | | | 129.9 | | | 129.8 | |
Diluted | 130.3 | | | 129.9 | | | 129.0 | | | 127.4 | | | 130.5 | | | 130.6 | | | 130.8 | | | 130.7 | |
____________________ (1)The sum of quarterly earnings per common share may differ from the full-year amount.
FMC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
FMC Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of FMC Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), changes in equity, and cash flows for each of the years in the three‑year period ended December 31, 2021, and the related notes and schedule II – valuation and qualifying accounts and reserves (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the allowance for trade receivables and long-term receivables associated with customers located in Brazil
As discussed in Notes 1 and 10 to the consolidated financial statements, the Company develops an analysis of trade receivables and long-term receivables to determine its best estimate of the probable losses associated with potential customer defaults. The most significant portion of the allowance for trade receivables and long-term receivables is related to customers located in Brazil.
We identified the evaluation of the allowance for trade receivables and long-term receivables associated with customers located in Brazil as a critical auditing matter. Specifically, the length of standard credit terms offered and customer liquidity may be significantly influenced by economic conditions and unfavorable weather conditions impacting crop quality. This increased the need for subjective judgment and knowledge in assessing customer liquidity constraints to estimate probable losses.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s collectability determination process, including controls over the identification of at-risk trade receivables and long-term receivables balances and related estimate of probable losses associated with such balances. We inspected underlying documentation for collateral
arrangements, legal disputes, and historical trends and analysis performed by the Company for historical collection results. The Company’s assumptions underlying the collectability of trade receivables and long-term receivables were tested by evaluating:
•The Company’s rationale for and appropriateness of changes in assumptions from those used in the prior year related to its expected collection period for specific customers;
•Local Brazil economic and weather conditions that might impact the assumptions;
•Adjustments to the prior period reserve and assessing if those adjustments provided information that was contradictory to the current year’s assumptions; and
•Deterioration of trade receivables and long-term receivables balances subsequent to year-end, to identify the presence of trends not considered by the Company when it developed its assumptions.
Evaluation of unrecognized tax benefits
As discussed in Note 13, the Company has $41.9 million of unrecognized tax benefits as of December 31, 2021. The Company recognizes the largest amount of tax benefit that it believes is more than 50 percent likely to be sustained. A significant amount of the Company’s earnings are generated by certain foreign subsidiaries whose earnings are taxed at lower rates than the United States federal statutory rate.
We identified the evaluation of the Company’s unrecognized tax benefits related to the earnings of certain foreign subsidiaries as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s interpretation of tax law, the transfer pricing structure, and its analysis of the recognition of its tax benefits.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the unrecognized tax benefits process, including controls related to the transfer pricing structure which affects the determination of earnings of certain foreign subsidiaries. We also involved tax and transfer pricing professionals with specialized skills and knowledge, who assisted in:
•Examining the Company’s tax positions, including the methodology for evaluating unrecognized tax benefits;
•Assessing transfer pricing studies with applicable laws and regulations;
•Evaluating the Company’s interpretation of tax laws and income tax consequences of intercompany transactions;
•Considering applicable settlements with taxing authorities; and
•Evaluating the Company’s determination of unrecognized tax benefits.
/s/ KPMG LLP
We have served as the Company's auditor since 1928.
Philadelphia, Pennsylvania
February 25, 2022
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). FMC’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those written policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of FMC;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles;
•provide reasonable assurance that receipts and expenditures of FMC are being made only in accordance with authorization of management and directors of FMC; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. We based this assessment on criteria for effective internal control over financial reporting described in "Internal Control—Integrated Framework (COSO 2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. We reviewed the results of our assessment with the Audit Committee of our Board of Directors.
Based on this assessment, we determined that, as of December 31, 2021, FMC has effective internal control over financial reporting.
KPMG LLP, our independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2021, which appears on the following page.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
FMC Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited FMC Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and schedule II – valuation and qualifying accounts and reserves (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 25, 2022