Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Financial Information and Accounting Policies
In our opinion the condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") applicable to interim period financial statements and reflect all adjustments necessary for a fair statement of results of operations for the three months ended March 31, 2022 and 2021, cash flows for the three months ended March 31, 2022 and 2021, changes in equity for the three months ended March 31, 2022 and 2021, and our financial positions as of March 31, 2022 and December 31, 2021. All such adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the Notes. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results of operations for the full year. The condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, and the related condensed consolidated statements of income (loss) and condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2022 and 2021, condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, and condensed consolidated statements of changes in equity for the three months ended March 31, 2022 and 2021 have been reviewed by our independent registered public accountants. The review is described more fully in their report included herein. Our accounting policies are set forth in detail in Note 1 to the consolidated financial statements included with our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2021 (the "2021 Form 10-K").
Given the COVID-19 pandemic ("COVID"), 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 agriculture 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.
Note 2: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items
New accounting guidance and regulatory items
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 the 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. We are continuing to monitor for any modified or newly entered contracts and hedging relationships for accounting impacts due to reference rate reform. Currently, there are no material impacts on our consolidated financial statements related to this standard.
Recently adopted accounting guidance
There has been no recently adopted accounting guidance during the three months ended March 31, 2022 that are of significance to us.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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. Plant health, which includes biological products, is also included in the below table, because it is a growing part of our business. The disaggregated revenue tables are shown below for the three months ended March 31, 2022 and 2021.
The following table provides information about disaggregated revenue by major geographical region:
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| Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
| North America | $ | 389.8 | | | $ | 301.0 | | | | | |
| Latin America | 265.9 | | | 203.2 | | | | | |
| Europe, Middle East & Africa (EMEA) | 398.2 | | | 399.4 | | | | | |
| Asia | 296.9 | | | 292.0 | | | | | |
| Total Revenue | $ | 1,350.8 | | | $ | 1,195.6 | | | | | |
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The following table provides information about disaggregated revenue by product category: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
| Insecticides | $ | 766.7 | | | $ | 687.0 | | | | | |
| Herbicides | 404.4 | | | 361.7 | | | | | |
| Fungicides | 108.7 | | | 90.5 | | | | | |
| Plant Health | 53.4 | | | 50.2 | | | | | |
| Other | 17.6 | | | 6.2 | | | | | |
| Total Revenue | $ | 1,350.8 | | | $ | 1,195.6 | | | | | |
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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.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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 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, 2021 | | Balance as of March 31, 2022 | | Increase (Decrease) |
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Receivables from contracts with customers, net of allowances (1) | $ | 2,641.1 | | | $ | 2,936.6 | | | $ | 295.5 | |
| Contract liabilities: Advance Payments from customers | 630.7 | | | 40.0 | | | (590.7) | |
____________________ (1) Amount includes $2,868.6 million of trade receivables and $68.0 million of net long-term customer receivables as of March 31, 2022. See Note 5 for more information.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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 March 31, 2022. Refer to Note 5 for further information.
The amount of revenue recognized in the three months ended March 31, 2022 that was included in the opening contract liability balance is $590.7 million.
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 condensed 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 $630.7 million as of December 31, 2021 and $40.0 million as of March 31, 2022.
Manufacturing and Seed Supply Agreements
As part of the DuPont Crop Protection Business Acquisition, we acquired various manufacturing contracts. The manufacturing contracts have been recognized as an asset or liability to the extent the terms of the contract were favorable or unfavorable compared with market terms of the same or similar items at the date of the acquisition.
We also 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 "Accrued and other liabilities" on the condensed consolidated balance sheets and is reduced and recognized to revenues within earnings as sales are made. The amount recognized in revenue for the three months ended March 31, 2022 and 2021 was approximately $27 million and $25 million, respectively.
Note 4: Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are presented in the table below:
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| (in Millions) | | | | | | | Total |
| Balance, December 31, 2021 | | | | | | | $ | 1,463.3 | |
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Foreign currency and other adjustments | | | | | | | (0.2) | |
| Balance, March 31, 2022 | | | | | | | $ | 1,463.1 | |
There were no events or circumstances indicating that goodwill might be impaired as of March 31, 2022.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Our intangible assets, other than goodwill, consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in Millions) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Intangible assets subject to amortization (finite-lived) |
| Customer relationships | $ | 1,138.6 | | | $ | (312.7) | | | $ | 825.9 | | | $ | 1,147.1 | | | $ | (301.3) | | | $ | 845.8 | |
| Patents | 1.8 | | | (1.3) | | | 0.5 | | | 1.8 | | | (1.3) | | | 0.5 | |
Brands (1) | 16.5 | | | (10.0) | | | 6.5 | | | 17.1 | | | (9.9) | | | 7.2 | |
| Purchased and licensed technologies | 59.8 | | | (41.1) | | | 18.7 | | | 60.2 | | | (40.7) | | | 19.5 | |
| Other intangibles | 2.3 | | | (1.8) | | | 0.5 | | | 2.3 | | | (1.7) | | | 0.6 | |
| $ | 1,219.0 | | | $ | (366.9) | | | $ | 852.1 | | | $ | 1,228.5 | | | $ | (354.9) | | | $ | 873.6 | |
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| Intangible assets not subject to amortization (indefinite-lived) |
Crop Protection Brands (2) | $ | 1,259.1 | | | | | $ | 1,259.1 | | | $ | 1,259.1 | | | | | $ | 1,259.1 | |
Brands (1) | 380.3 | | | | | 380.3 | | | 389.2 | | | | | 389.2 | |
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| $ | 1,639.4 | | | | | $ | 1,639.4 | | | $ | 1,648.3 | | | | | $ | 1,648.3 | |
| Total intangible assets | $ | 2,858.4 | | | $ | (366.9) | | | $ | 2,491.5 | | | $ | 2,876.8 | | | $ | (354.9) | | | $ | 2,521.9 | |
____________________ (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.
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| Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
| Amortization expense | $ | 15.4 | | | $ | 15.8 | | | | | |
The full year estimated pre-tax amortization expense for the year ended December 31, 2022 and each of the succeeding five years is approximately $62 million, $61 million, $60 million, $60 million, $60 million, and $59 million, respectively.
Note 5: Receivables
The following table displays a roll forward of the allowance for doubtful trade receivables.
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| (in Millions) | |
| Balance, December 31, 2020 | $ | 27.9 | |
Additions - charged 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 | |
Additions - charged to expense | (0.4) | |
| Transfer from (to) allowance for credit losses (see below) | 0.5 | |
| Net recoveries, write-offs and other | 2.1 | |
| Balance, March 31, 2022 | $ | 39.6 | |
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 $68.0 million as of March 31, 2022. These long-term customer receivable balances and the corresponding allowance are included in "Other assets including long-term receivables, net" on the condensed 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 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
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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:
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(in Millions) | |
| Balance, December 31, 2020 | $ | 24.7 | |
Additions - charged 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 | |
Additions - charged to expense | (0.5) | |
| Transfer from (to) allowance for doubtful accounts (see above) | (0.5) | |
| Foreign currency adjustments | 2.0 | |
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| Balance, March 31, 2022 | $ | 28.7 | |
Note 6: Inventories
Inventories consisted of the following:
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| (in Millions) | March 31, 2022 | | December 31, 2021 |
| Finished goods | $ | 556.5 | | | $ | 559.2 | |
| Work in process | 889.6 | | | 730.8 | |
| Raw materials, supplies and other | 260.8 | | | 231.9 | |
| First-in, first-out inventory | $ | 1,706.9 | | | $ | 1,521.9 | |
| Less: Excess of first-in, first-out cost over last-in, first-out cost | (116.2) | | | (116.2) | |
| Net inventories | $ | 1,590.7 | | | $ | 1,405.7 | |
Note 7: Property, Plant and Equipment
Property, plant and equipment consisted of the following:
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| (in Millions) | March 31, 2022 | | December 31, 2021 |
| Property, plant and equipment | $ | 1,341.4 | | | $ | 1,329.5 | |
| Accumulated depreciation | (537.3) | | | (512.5) | |
| Property, plant and equipment, net | $ | 804.1 | | | $ | 817.0 | |
Note 8: Restructuring and Other Charges (Income)
Our restructuring and other charges (income) are comprised of restructuring, asset disposals and other charges (income) as noted below.
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| (in Millions) | 2022 | | 2021 | | | | |
| Restructuring charges | $ | 11.2 | | | $ | 6.3 | | | | | |
| Other charges (income), net | (2.1) | | | (3.1) | | | | | |
| Total restructuring and other charges (income) | $ | 9.1 | | | $ | 3.2 | | | | | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Restructuring charges
For detail on restructuring activities which commenced prior to 2022, see Note 9 to our consolidated financial statements included within our 2021 Form 10-K.
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| (in Millions) | Severance and Employee Benefits | | Other Charges (Income) (1) | | Asset Disposal Charges (Income) (2) | | Total |
DuPont Crop restructuring (3) | $ | — | | | $ | 0.3 | | | $ | — | | | $ | 0.3 | |
Regional realignment (4) | 2.0 | | | 0.5 | | | — | | | 2.5 | |
| Other items | (0.4) | | | 0.6 | | | 8.2 | | | 8.4 | |
| Three Months Ended March 31, 2022 | $ | 1.6 | | | $ | 1.4 | | | $ | 8.2 | | | $ | 11.2 | |
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DuPont Crop restructuring (3) | $ | 1.2 | | | $ | 1.1 | | | $ | 1.0 | | | $ | 3.3 | |
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| Other items | 2.3 | | | 0.7 | | | — | | | 3.0 | |
| Three Months Ended March 31, 2021 | $ | 3.5 | | | $ | 1.8 | | | $ | 1.0 | | | $ | 6.3 | |
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____________________
(1)Primarily represents costs associated with miscellaneous restructuring activities, including third-party costs. 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 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. The amount for the three months ended March 31, 2022 represents fixed asset charges resulting from the closure of certain manufacturing sites during the period.
(3)Restructuring charges related to DuPont Crop restructuring during the three months ended March 31, 2022 and March 31, 2021 represent the remaining in-flight restructuring charges as we completed the established DuPont Crop Restructuring program associated with integration. These charges are primarily associated with accelerated depreciation on certain fixed assets, severance, and other costs as we exit certain facilities.
(4)In January 2022, we began to consolidate our Asia Pacific operations into a single regional headquarters in Singapore. The regional realignment restructuring charges during the three months ended March 31, 2022 are primarily related to severance and other exit costs resulting from this consolidation.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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.
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| (in Millions) | Balance at 12/31/21 (4) | | Change in reserves (5) | | Cash payments (6) | | Other | | Balance at 3/31/22 (4) |
DuPont Crop restructuring (1) | $ | 8.6 | | | $ | 0.3 | | | $ | (1.9) | | | $ | — | | | $ | 7.0 | |
Regional realignment (2) | 4.0 | | | 2.5 | | | (1.2) | | | (0.1) | | | 5.2 | |
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Other workforce related and facility shutdowns (3) | 2.3 | | | 0.2 | | | (1.5) | | | — | | | 1.0 | |
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| Total | $ | 14.9 | | | $ | 3.0 | | | $ | (4.6) | | | $ | (0.1) | | | $ | 13.2 | |
____________________
(1)Primarily consists of exit costs and severance associated with DuPont Crop restructuring activities.
(2)Primarily consists of severance and employee relocation costs as well as other costs associated with the relocation of our European headquarters and the consolidation of our Asia Pacific operations into a single regional headquarters in Singapore.
(3)Primarily severance costs related to workforce reductions and facility shutdowns.
(4)Included in "Accrued and other liabilities" and "Other long-term liabilities" on the condensed consolidated balance sheets.
(5)Primarily severance and other miscellaneous exit costs. Any accelerated depreciation and impairment charges noted above that impacted our property, plant and equipment balances or other long-term assets are not included in this table.
(6)In addition to the spend above, for the three months ended March 31, 2022 there was also approximately $1.0 million of spending related to the Furadan® asset retirement obligation.
Other charges (income), net | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
| Environmental charges, net | $ | (3.3) | | | $ | (4.1) | | | | | |
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| Other items, net | 1.2 | | | 1.0 | | | | | |
| Other charges (income), net | $ | (2.1) | | | $ | (3.1) | | | | | |
Environmental charges, net
Environmental charges represent the net charges associated with environmental remediation at continuing operating sites. See Note 11 for additional details. 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.
Note 9: Debt
Debt maturing within one year:
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| (in Millions) | March 31, 2022 | | December 31, 2021 |
Short-term foreign debt (1) | $ | 101.2 | | | $ | 112.2 | |
Commercial paper (2) | 840.6 | | | 244.1 | |
| Total short-term debt | $ | 941.8 | | | $ | 356.3 | |
| Current portion of long-term debt | 98.6 | | | 84.5 | |
Total short-term debt and current portion of long-term debt (3) | $ | 1,040.4 | | | $ | 440.8 | |
____________________
(1)At March 31, 2022, the average effective interest rate on the borrowings was 13.2 percent.
(2)At March 31, 2022, the average effective interest rate on the borrowings was 1.05 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 Condensed Consolidated Financial Statements (unaudited) — (Continued)
Long-term debt: | | | | | | | | | | | | | | | | | | | | | | | |
| (in Millions) | March 31, 2022 | | | | |
| Interest Rate Percentage | | Maturity
Date | | March 31, 2022 | | December 31, 2021 |
Pollution control and industrial revenue bonds (less unamortized discounts of $0.1 and $0.1, respectively) | 6.45% | | 2032 | | $ | 49.9 | | | $ | 49.9 | |
Senior notes (less unamortized discount of $0.7 and $0.7, respectively) | 3.20% - 4.50% | | 2024 - 2049 | | 1,899.3 | | | 1,899.3 | |
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| 2021 Term Loan Facility | 1.50% | | 2024 | | 800.0 | | | 800.0 | |
Revolving Credit Facility (1) | 3.10% | | 2026 | | — | | | — | |
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| Foreign debt | 0% - 7.90% | | 2022 - 2024 | | 98.7 | | | 84.7 | |
| Debt issuance cost | | | | | (16.9) | | | (17.7) | |
| Total long-term debt | | | | | $ | 2,831.0 | | | $ | 2,816.2 | |
| Less: debt maturing within one year | | | | | 98.6 | | | 84.5 | |
| Total long-term debt, less current portion | | | | | $ | 2,732.4 | | | $ | 2,731.7 | |
____________________
(1)Letters of credit outstanding under our Revolving Credit Facility totaled $159.6 million and available funds under this facility were $499.8 million at March 31, 2022.
Covenants
Among other restrictions, our 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 March 31, 2022 was 3.07, which is below the maximum leverage of 3.50 at March 31, 2022. As amended pursuant to the Revolving Credit Agreement discussed within our 2021 Form 10-K, the maximum leverage ratio stepped down to 3.50 for the period ending December 31, 2021 and future quarters thereafter. Our actual interest coverage for the four consecutive quarters ended March 31, 2022 was 10.21, which is above the minimum interest coverage of 3.50. We were in compliance with all covenants at March 31, 2022.
Note 10: Discontinued Operations
Discontinued operations includes adjustments to retained assets and liabilities as well as provisions, net of recoveries, for environmental liabilities and legal reserves and expenses related to previously discontinued operations and retained liabilities. The primary liabilities retained include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities.
Our discontinued operations comprised the following:
| | | | | | | | | | | | | | | |
| (in Millions) | Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Adjustment for workers’ compensation, product liability, other postretirement benefits and other, net of income tax benefit (expense) of $(0.2) and $(1.0) for the three months ended March 31, 2022 and 2021, respectively | $ | (0.4) | | | $ | (1.6) | | | | | |
Provision for environmental liabilities, net of recoveries, net of income tax benefit of $0.6 and $0.8 for the three months ended March 31, 2022 and 2021, respectively | (2.1) | | | (2.3) | | | | | |
Provision for legal reserves and expenses, net of recoveries, net of income tax benefit of $3.4 and $1.1 for the three months ended March 31, 2022 and 2021, respectively | (12.7) | | | (4.2) | | | | | |
| | | | | | | |
| | | | | | | |
| Discontinued operations, net of income taxes | $ | (15.2) | | | $ | (8.1) | | | | | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 11: Environmental Obligations
We have reserves for potential environmental obligations which we consider probable and which we can reasonably estimate. The following table is a roll forward of our total environmental reserves, continuing and discontinued:
| | | | | | | | | | | | | | | | | |
| (in Millions) | Gross | | Recoveries (3) | | Net |
| Total environmental reserves at December 31, 2021 | $ | 514.6 | | | $ | (11.4) | | | $ | 503.2 | |
| Provision (Benefit) | (0.1) | | | (0.4) | | | (0.5) | |
| (Spending) Recoveries | (7.9) | | | — | | | (7.9) | |
| Foreign currency translation adjustments | (2.0) | | | — | | | (2.0) | |
| Net change | $ | (10.0) | | | $ | (0.4) | | | $ | (10.4) | |
| Total environmental reserves at March 31, 2022 | $ | 504.6 | | | $ | (11.8) | | | $ | 492.8 | |
| | | | | |
Environmental reserves, current (1) | $ | 100.1 | | | $ | (0.9) | | | $ | 99.2 | |
Environmental reserves, long-term (2) | 404.5 | | | (10.9) | | | 393.6 | |
| Total environmental reserves at March 31, 2022 | $ | 504.6 | | | $ | (11.8) | | | $ | 492.8 | |
____________________
(1)These amounts are included within "Accrued and other liabilities" on the condensed consolidated balance sheets.
(2)These amounts are included in "Environmental liabilities, continuing and discontinued" on the condensed consolidated balance sheets.
(3)These recorded recoveries represent probable realization of claims against U.S. government agencies and are recorded as an offset to our environmental reserves in the condensed consolidated balance sheets.
The estimated reasonably possible environmental loss contingencies, net of expected recoveries, exceed amounts accrued by approximately $160 million at March 31, 2022. 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. Potential environmental obligations that have not been reserved may be material to any one quarter's or year's results of operations in the future. However, we believe any such 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 provides a roll forward of our environmental recoveries representing probable realization of claims against insurance carriers and other third parties. These recoveries are recorded as "Prepaid and other current assets" and "Other assets including long-term receivables, net" in the condensed consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in Millions) | December 31, 2021 | | Increase (Decrease) in recoveries | | Cash received | | | | March 31, 2022 |
| Environmental recoveries | $ | 4.5 | | | $ | 0.1 | | | $ | — | | | | | $ | 4.6 | |
| | | | | | | | | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Our net environmental provisions relate to costs for the continued cleanup of both continuing and discontinued manufacturing operations from previous years. The net provisions are comprised as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
Environmental provisions, net - recorded to liabilities (1) | $ | (0.5) | | | $ | (0.9) | | | | | |
Environmental provisions, net - recorded to assets (2) | (0.1) | | | (0.1) | | | | | |
| Environmental provision, net | $ | (0.6) | | | $ | (1.0) | | | | | |
| | | | | | | |
Continuing operations (3) | $ | (3.3) | | | $ | (4.1) | | | | | |
Discontinued operations (4) | 2.7 | | | 3.1 | | | | | |
| Environmental provision, net | $ | (0.6) | | | $ | (1.0) | | | | | |
____________________
(1)See above roll forward of our total environmental reserves as presented on the condensed consolidated balance sheets.
(2)See above roll forward of our total environmental recoveries as presented on the condensed consolidated balance sheets.
(3)Recorded as a component of "Restructuring and other charges (income)" on the condensed consolidated statements of income (loss). See Note 8. 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.
(4)Recorded as a component of "Discontinued operations, net of income taxes" on the condensed consolidated statements of income (loss). See Note 10.
A more complete description of our environmental contingencies and the nature of our potential obligations are included in Notes 1 and 12 to our consolidated financial statements in our 2021 Form 10-K. See Note 12 to our consolidated financial statements in our 2021 Form 10-K for a description of significant updates to material environmental sites. There have been no significant updates since the information included in our 2021 Form 10-K other than the update provided below.
Note 12: 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 from continuing operations 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 three months ended March 31, 2022 and 2021 there were 0.3 million and 0.1 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 number of shares outstanding during the period.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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) | Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Earnings (loss) attributable to FMC stockholders: | | | | | | | |
| Continuing operations, net of income taxes | $ | 222.6 | | | $ | 190.7 | | | | | |
| Discontinued operations, net of income taxes | (15.2) | | | (8.1) | | | | | |
| Net income (loss) attributable to FMC stockholders | $ | 207.4 | | | $ | 182.6 | | | | | |
| Less: Distributed and undistributed earnings allocable to restricted award holders | (0.4) | | | (0.4) | | | | | |
| Net income (loss) allocable to common stockholders | $ | 207.0 | | | $ | 182.2 | | | | | |
| | | | | | | |
| Basic earnings (loss) per common share attributable to FMC stockholders: | | | | | | | |
| Continuing operations | $ | 1.77 | | | $ | 1.47 | | | | | |
| Discontinued operations | (0.12) | | | (0.06) | | | | | |
| Net income (loss) attributable to FMC stockholders | $ | 1.65 | | | $ | 1.41 | | | | | |
| | | | | | | |
| Diluted earnings (loss) per common share attributable to FMC stockholders: | | | | | | | |
| Continuing operations | $ | 1.76 | | | $ | 1.46 | | | | | |
| Discontinued operations | (0.12) | | | (0.06) | | | | | |
| Net income (loss) attributable to FMC stockholders | $ | 1.64 | | | $ | 1.40 | | | | | |
| | | | | | | |
| Shares (in thousands): | | | | | | | |
| Weighted average number of shares of common stock outstanding - Basic | 126,064 | | | 129,484 | | | | | |
| Weighted average additional shares assuming conversion of potential common shares | 775 | | | 836 | | | | | |
| Shares – diluted basis | 126,839 | | | 130,320 | | | | | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 13: Equity
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, 2021 | $ | (62.5) | | | $ | (22.2) | | | $ | (231.0) | | | $ | (315.7) | |
| 2022 Activity | | | | | | | |
| Other comprehensive income (loss) before reclassifications | (39.4) | | | (84.7) | | | — | | | (124.1) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 0.6 | | | 3.6 | | | 4.2 | |
| Net current period other comprehensive income (loss) | $ | (39.4) | | | $ | (84.1) | | | $ | 3.6 | | | $ | (119.9) | |
| | | | | | | |
| | | | | | | |
| Accumulated other comprehensive income (loss), net of tax at March 31, 2022 | $ | (101.9) | | | $ | (106.3) | | | $ | (227.4) | | | $ | (435.6) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (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, 2020 | $ | 24.0 | | | $ | (71.8) | | | $ | (234.4) | | | $ | (282.2) | |
| 2021 Activity | | | | | | | |
| Other comprehensive income (loss) before reclassifications | (49.5) | | | 40.5 | | | (0.1) | | | (9.1) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 4.1 | | | 4.4 | | | 8.5 | |
| Net current period other comprehensive income (loss) | $ | (49.5) | | | $ | 44.6 | | | $ | 4.3 | | | $ | (0.6) | |
| | | | | | | |
| | | | | | | |
| Accumulated other comprehensive income (loss), net of tax at March 31, 2021 | $ | (25.5) | | | $ | (27.2) | | | $ | (230.1) | | | $ | (282.8) | |
____________________
(1) See Note 17 for more information.
(2) See Note 15 for more information.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (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 condensed consolidated statements of income (loss) for each of the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income Components | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (1) | Affected Line Item in the Condensed Consolidated Statements of Income (Loss) |
| Three Months Ended March 31, | | | |
| (in Millions) | 2022 | | 2021 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Derivative instruments | | | | | | | | |
| Gain (loss) on foreign currency contracts | $ | (1.6) | | | $ | (4.8) | | | | | | Costs of sales and services |
| | | | | | | | |
| Gain (loss) on foreign currency contracts | 0.5 | | | 0.1 | | | | | | Selling, general and administrative expenses |
| Gain (loss) on interest rate contracts | (1.0) | | | (0.2) | | | | | | Interest expense, net |
| Total before tax | $ | (2.1) | | | $ | (4.9) | | | | | | |
| 1.5 | | | 0.8 | | | | | | Provision for income taxes |
| Amount included in net income (loss) | $ | (0.6) | | | $ | (4.1) | | | | | | |
| | | | | | | | |
Pension and other postretirement benefits (2) | | | | | | | | |
| Amortization of prior service costs | $ | — | | | $ | (0.1) | | | | | | Selling, general and administrative expenses |
| Amortization of unrecognized net actuarial and other gains (losses) | (4.2) | | | (5.4) | | | | | | Non-operating pension and postretirement charges (income) |
| Recognized loss due to curtailment and settlement | (0.4) | | | — | | | | | | Non-operating pension and postretirement charges (income); Discontinued operations, net of income taxes |
| Total before tax | $ | (4.6) | | | $ | (5.5) | | | | | | |
| 1.0 | | | 1.1 | | | | | | Provision for income taxes; Discontinued operations, net of income taxes |
| Amount included in net income (loss) | $ | (3.6) | | | $ | (4.4) | | | | | | |
| Total reclassifications for the period | $ | (4.2) | | | $ | (8.5) | | | | | | Amount included in net income |
____________________
(1)Amounts in parentheses indicate charges to the condensed 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.
Dividends and Share Repurchases
During the three months ended March 31, 2022 and March 31, 2021, we paid dividends of $66.8 million and $62.3 million, respectively. On April 21, 2022, we paid dividends totaling $66.9 million to our shareholders of record as of March 31, 2022. This amount is included in "Accrued and other liabilities" on the condensed consolidated balance sheet as of March 31, 2022.
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. During the three months ended March 31, 2022, no shares were repurchased under the publicly announced repurchase program. At March 31, 2022, $1.0 billion remained unused under our Board-authorized repurchase program. 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.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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 14: Leases
We lease office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from one 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 standard. Operating leases are included in "Other assets including long-term receivables, net", "Accrued and other liabilities", and "Other long-term liabilities" in our condensed consolidated balance sheets. 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.
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 one 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 one 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 TSA arrangements from recent acquisitions. Rental income from all subleases is not material to our business.
The ROU asset and lease liability balances as of March 31, 2022 and December 31, 2021 were as follows:
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
| | | | | | | | | | | | | | |
| (in Millions) | Classification | March 31, 2022 | | December 31, 2021 |
| Assets | | | | |
| | | | |
| Operating lease ROU assets | Other assets including long-term receivables, net | $ | 134.7 | | | $ | 135.2 | |
| | | | |
| Liabilities | | | | |
| | | | |
| Operating lease current liabilities | Accrued and other liabilities | $ | 23.5 | | | $ | 23.5 | |
| | | | |
| | | | |
| | | | |
| Operating lease noncurrent liabilities | Other long-term liabilities | 139.1 | | | 140.0 | |
| | | | |
| | | | |
The components of lease expense for the three months ended March 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| (in Millions) | Lease Cost Classification | 2022 | | 2021 | | | | |
| Lease Cost | | | | | | | | |
| Operating lease cost | Costs of sales and services / Selling, general and administrative expenses | $ | 9.0 | | | $ | 8.6 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Variable lease cost | Costs of sales and services / Selling, general and administrative expenses | 1.2 | | | 1.2 | | | | | |
| | | | | | | | |
| Total lease cost | | $ | 10.2 | | | $ | 9.8 | | | | | |
| | | | | |
| March 31, 2022 |
| Operating Lease Term and Discount Rate | |
| Weighted-average remaining lease term (years) | 9.0 |
| |
| |
| Weighted-average discount rate | 4.1 | % |
| |
| |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in Millions) | 2022 | | 2021 | | | | |
| Other Information | | | | | | | |
| | | | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
| Operating cash flows from operating leases | $ | (9.2) | | | $ | (8.9) | | | | | |
| | | | | | | |
| | | | | | | |
| 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 | $ | 7.2 | | | $ | 2.7 | | | | | |
| | | | | | | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
The following table represents our future minimum operating lease payments as of, and subsequent to, March 31, 2022 under ASC 842:
| | | | | | | | | |
| (in Millions) | | | | | Operating Leases Total |
| Maturity of Lease Liabilities | | | | | |
| 2022 (excluding the three months ending March 31, 2022) | | | | | $ | 22.4 | |
| 2023 | | | | | 24.7 | |
| 2024 | | | | | 20.4 | |
| 2025 | | | | | 19.0 | |
| 2026 | | | | | 18.0 | |
| Thereafter | | | | | 93.1 | |
| Total undiscounted lease payments | | | | | $ | 197.6 | |
| Less: Present value adjustment | | | | | (35.0) | |
| Present value of lease liabilities | | | | | $ | 162.6 | |
Note 15: Pensions and Other Postretirement Benefits
The following table summarizes the components of net annual benefit cost (income):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in Millions) | Three Months Ended March 31, | | |
| Pensions | | Other Benefits | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | |
| Service cost | $ | 1.1 | | | $ | 1.3 | | | $ | — | | | $ | — | | | | | | | | | |
| Interest cost | 7.3 | | | 6.1 | | | 0.1 | | | 0.1 | | | | | | | | | |
| Expected return on plan assets | (7.8) | | | (7.1) | | | — | | | — | | | | | | | | | |
| Amortization of prior service cost (credit) | — | | | 0.1 | | | — | | | — | | | | | | | | | |
| Recognized net actuarial and other (gain) loss | 4.5 | | | 5.9 | | | (0.2) | | | (0.2) | | | | | | | | | |
| | | | | | | | | | | | | | | |
Recognized loss due to settlement (1) | 0.4 | | | — | | | — | | | — | | | | | | | | | |
| Net periodic benefit cost (income) | $ | 5.5 | | | $ | 6.3 | | | $ | (0.1) | | | $ | (0.1) | | | | | | | | | |
____________________(1)Settlement charge relates to the U.S. nonqualified defined benefit pension plan.
Note 16: Income Taxes
Our effective income tax rates from continuing operations for the three months ended March 31, 2022 and March 31, 2021 were 15.7 percent and 14.4 percent, respectively. The increase in the effective income tax rate was primarily driven by certain provisions of the Tax Cuts and Jobs Act of 2017 that became effective in 2022 and geographic earnings mix.
We determine our interim tax provision using an Estimated Annual Effective Tax Rate methodology ("EAETR") in accordance with U.S. GAAP. The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision. The determination of the EAETR is based upon a number of estimates, including the estimated annual pretax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. 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. The tax effects of discrete items are recognized in the tax provision in the period they occur in accordance with U.S. GAAP. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter can materially impact the reported effective tax rate. As a global enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As a result, there can be significant volatility in interim tax provisions.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 17: 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 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 and commodity forward contracts are included in the tables within this Note. The estimated fair value of debt is $3,811.9 million and $3,409.8 million and the carrying amount is $3,772.8 million and $3,172.5 million as of March 31, 2022 and December 31, 2021, respectively.
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 Note 18 for more information. Decisions to extend financial guarantees to customers and the amount of collateral required under these guarantees are based on our evaluation of creditworthiness on a case-by-case basis.
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 derivative contracts, including forward contracts and purchased options, to reduce the effects of fluctuating currency exchange rates, interest rates, and commodity prices. A detailed description of these risks including a discussion on the concentration of credit risk is provided in Note 19 to our consolidated financial statements on our 2021 Form 10-K.
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.
Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
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 a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We record in accumulated other comprehensive income ("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
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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 March 31, 2022, we had open foreign currency forward contracts in AOCI in a net after tax loss position of $58.7 million designated as cash flow hedges of underlying forecasted sales and purchases. Current open contracts hedge forecasted transactions until December 31, 2022. At March 31, 2022, we had open forward contracts designated as cash flow hedges with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $2,313.0 million.
As of March 31, 2022, we had open interest rate contracts in AOCI in a net after tax gain position of $7.9 million designated as cash flow hedges of the anticipated fixed rate coupon of debt forecasted to be issued within a designated window. At March 31, 2022, we had interest rate swap contracts outstanding with a total aggregate notional value of approximately $100.0 million.
As of March 31, 2022, we had no open commodity contracts in AOCI designated as cash flow hedges of underlying forecasted purchases. At March 31, 2022, we had no mmBTUs (millions of British Thermal Units) in aggregate notional volume of outstanding natural gas commodity forward contracts to hedge forecasted purchases.
Approximately $58.7 million of the net losses after-tax, representing open foreign currency exchange and interest rate contracts, will be realized in earnings during the twelve months ending March 31, 2023 if spot rates in the future are consistent with forward rates as of March 31, 2022. The actual effect on earnings will be dependent on the actual spot rates when the forecasted transactions occur.
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 $2,573.6 million at March 31, 2022.
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Fair Value of Derivative Instruments
The following tables provide the gross fair value and net balance sheet presentation of our derivative instruments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Gross Amount of Derivatives | | | | | | |
| (in Millions) | Designated as Cash Flow Hedges | | Not Designated as Hedging Instruments | | Total Gross Amounts | | Gross Amounts Offset in the Condensed Consolidated Balance Sheet (3) | | Net Amounts |
| Foreign exchange contracts | $ | 35.7 | | | $ | 3.1 | | | $ | 38.8 | | | $ | (31.5) | | | $ | 7.3 | |
| | | | | | | | | |
| Interest rate contracts | 10.0 | | | — | | | 10.0 | | | — | | | 10.0 | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative assets (1) | $ | 45.7 | | | $ | 3.1 | | | $ | 48.8 | | | $ | (31.5) | | | $ | 17.3 | |
| | | | | | | | | |
| Foreign exchange contracts | $ | (102.4) | | | $ | (29.6) | | | $ | (132.0) | | | $ | 31.5 | | | $ | (100.5) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total derivative liabilities (2) | $ | (102.4) | | | $ | (29.6) | | | $ | (132.0) | | | $ | 31.5 | | | $ | (100.5) | |
| | | | | | | | | |
| Net derivative assets (liabilities) | $ | (56.7) | | | $ | (26.5) | | | $ | (83.2) | | | $ | — | | | $ | (83.2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 Condensed Consolidated Balance Sheet (3) | | Net Amounts |
| 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 | |
______________(1) Net balance is included in "Prepaid and other current assets" in the condensed consolidated balance sheets.
(2) Net balance is included in "Accrued and other liabilities" in the condensed consolidated balance sheets.
(3) Represents net derivatives positions subject to master netting arrangements.
The tables below 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 | | |
| Foreign Exchange | | | | Interest rate | | Total |
| Three Months Ended March 31, |
| (in Millions) | 2022 | | 2021 | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
| Unrealized hedging gains (losses) and other, net of tax | $ | (89.6) | | | $ | 33.5 | | | | | | | $ | 4.9 | | | $ | 7.0 | | | $ | (84.7) | | | $ | 40.5 | |
Reclassification of deferred hedging (gains) losses, net of tax (1) | (0.2) | | | 3.9 | | | | | | | 0.8 | | | 0.2 | | | 0.6 | | | 4.1 | |
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| | | | | | | | | | | | | | | |
| Total derivative instrument impact on comprehensive income, net of tax | $ | (89.8) | | | $ | 37.4 | | | | | | | $ | 5.7 | | | $ | 7.2 | | | $ | (84.1) | | | $ | 44.6 | |
| | | | | | | | | | | | | | | |
______________(1)See Note 13 for classification of amounts within the condensed consolidated statements of income (loss).
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | |
| | | Amount of Pre-tax Gain (Loss) Recognized in Income on Derivatives (1) |
| | | Three Months Ended March 31, | | |
| (in Millions) | | | 2022 | | 2021 | | | | |
| Foreign exchange contracts | | | $ | (16.2) | | | $ | (12.7) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total | | | $ | (16.2) | | | $ | (12.7) | | | | | |
______________ (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.
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 the condensed consolidated balance sheets. During the periods presented there were no transfers between fair value hierarchy levels.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in Millions) | March 31, 2022 | | 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) | $ | 7.3 | | | $ | — | | | $ | 7.3 | | | $ | — | |
Derivatives – Interest rate (1) | 10.0 | | | — | | | 10.0 | | | — | |
Other (2) | 20.9 | | | 20.9 | | | — | | | — | |
| Total assets | $ | 38.2 | | | $ | 20.9 | | | $ | 17.3 | | | $ | — | |
| | | | | | | |
| Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives – Foreign exchange (1) | $ | 100.5 | | | $ | — | | | $ | 100.5 | | | $ | — | |
Derivatives – Interest rate (1) | — | | | — | | | — | | | — | |
Other (3) | 26.8 | | | 26.8 | | | — | | | — | |
| Total liabilities | $ | 127.3 | | | $ | 26.8 | | | $ | 100.5 | | | $ | — | |
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | | $ | — | |
____________________
(1)See the Fair Value of Derivative Instruments table within this Note for classification on the condensed consolidated balance sheets.
(2)Consists of a deferred compensation arrangement, through which we hold various investment securities, recognized on our balance sheets. Both the asset and liability are recorded at fair value. Asset amounts are included in "Other assets including long-term receivables, net" in the condensed consolidated balance sheets.
(3)Primarily consists of a deferred compensation arrangement recognized on our balance sheets. Both the asset and liability are recorded at fair value. Liability amounts are included in "Other long-term liabilities" in the condensed consolidated balance sheets.
Nonrecurring Fair Value Measurements
There were no nonrecurring fair value measurements in the condensed consolidated balance sheets during the periods presented.
Note 18: 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.
Guarantees and Other Commitments
The following table provides the estimated undiscounted amount of potential future payments for each major group of guarantees at March 31, 2022. These guarantees arise during the ordinary course of business from relationships with customers and non-consolidated 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) | $ | 261.1 | |
| |
Other debt guarantees (2) | 3.1 | |
| Total | $ | 264.2 | |
____________________
(1)Represents guarantees to financial institutions on behalf of certain customers for their seasonal borrowing. This short-term amount is recorded within "Guarantees of vendor financing" on the condensed consolidated balance sheets.
(2)These guarantees represent support provided to third-party banks for credit extended to various customers and non-consolidated 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. We believe the fair value of these guarantees is immaterial. The majority of these guarantees have 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
FMC CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) — (Continued)
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.
Contingencies
A detailed discussion related to our outstanding contingencies can be found in Note 20 to our consolidated financial statements included within our 2021 Form 10-K. There have been no significant updates since the information included in our 2021 Form 10-K other than the updates provided below.
Note 19: Subsequent Events
As the Russia-Ukraine war continues, our values as a company and the sanctions imposed on, and cross-sanctions imposed and announced by, the Russian Federation have led us to cease operations and business in Russia. This decision was made in mid-April when we concluded that it was not sustainable to continue operations. Net assets of our Russia legal entities as of March 31, 2022 totaled approximately $70 million. As a result of our cessation decision in April 2022, we could have a charge in the second quarter of 2022 as high as the value of these net assets. The net assets are comprised mostly of working capital as well as the value of a packaging and formulation facility. The exact amount of the charge will be determined over the coming months as we evaluate information on what will be left stranded in the abandoned business. These charges will be recorded as part of the Restructuring and other charges on the Condensed Consolidated Statements of Income.
Our Russia operations were approximately 1.5 percent of our revenues and the impact to our operations both historically and projected are not material.