FMC CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

May 03, 2022 at 01:22 pm EDT

Item 2 of this report contains certain forward-looking statements that are based
on our current views and assumptions regarding future events, future business
conditions and the outlook for our company based on currently available
information.

Whenever possible, we have identified these 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 or phrases. Such forward-looking statements are
based on our current views and assumptions regarding future events, future
business conditions and the outlook for the company based on currently available
information. The forward-looking 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. The potential adverse
effect of the 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, has been one of the most significant risk factors
for our company. Thus far, we have mitigated the risks associated with the
pandemic during the most intense periods of interruptions in global and
nationwide economic activity and now expect the pandemic to represent less of a
risk for ongoing operations. 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. Additional factors include, among other
things, the risk factors included in Part I, Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"), the
section captioned "Forward-Looking Information" in Part II of the 2021 Form 10-K
and to similar risk factors and cautionary statements in all other reports and
forms filed with the Securities and Exchange Commission ("SEC"). 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. We wish to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.

We specifically decline to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

APPLICATION OF CRITICAL ACCOUNTING POLICIES



Our consolidated financial statements are prepared in conformity with U.S.
generally accepted accounting principles. The preparation of our financial
statements requires management 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 to our consolidated financial
statements included in our 2021 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 our Board of
Directors. Critical accounting policies are central to our presentation of
results of operations and financial condition 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.

The following is a list of those accounting policies that we have deemed most
critical to the presentation and understanding of our results of operations and
financial condition. See the "Critical Accounting Policies" section in our 2021
Form 10-K for a detailed description of these policies and their potential
effects on our results of operations and financial condition.
•Revenue recognition and trade receivables
•Environmental obligations and related recoveries
•Impairment and valuation of long-lived assets and indefinite-lived assets
•Pensions and other postretirement benefits
•Income taxes

RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS AND REGULATORY ITEMS



See Note 2 to the condensed consolidated financial statements included in this
Form 10-Q for a discussion of recently adopted accounting guidance and other new
accounting guidance.


OVERVIEW

We are an agricultural sciences company, 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, crop enhancement, and professional


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pest and turf management. 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. 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. This powerful combination of advanced technologies includes
leading insect control products based on Rynaxypyr® and Cyazypyr® active
ingredients; Authority®, Boral®, Centium®, Command® and Gamit® branded
herbicides; Isoflex™ active herbicide ingredient; Talstar® and Hero® branded
insecticides; and flutriafol-based fungicides and biologicals such as Quartzo®
and Presence® bionematicides as well as crop enhancers such as Accudo®. The FMC
portfolio also includes Arc™ farm intelligence.

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. We are closely monitoring raw
material and supply chain costs including impacts by the renewed COVID
disruptions in China. 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. We have resumed in-office operations where
permitted by local authorities and extended flexible work arrangements in some
locations. In addition, we have thousands of employees who continue operating
our manufacturing sites and distribution warehouses. 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 will continue to monitor the economic environment related to the pandemic on an ongoing basis and assess the impacts on our business.

Russia-Ukraine War



In mid-April, we announced the decision to discontinue our operations and
business in Russia. Our values as a company do not allow us to operate and grow
our business in Russia. Our Russia operations were approximately 1.5 percent of
our revenues and the impact to our operations both historically and projected
are not material. See Note 19 for more information.

First Quarter 2022 Highlights

The following items are the more significant developments or financial highlights in our business during the three months ended March 31, 2022:



•Revenue of $1,350.8 million for the three months ended March 31, 2022 increased
$155.2 million or approximately 13 percent versus the same period last year. A
more detailed review of revenue is discussed under the section titled   "Results
of Operations"  . On a regional basis, sales in North America increased by
approximately 30 percent, sales in Latin America increased approximately 31
percent, sales in Europe, Middle East and Africa remained relatively flat, and
sales in Asia increased approximately 2 percent. The increase was mostly driven
by volume growth primarily in North America and Latin America and solid price
increases across all regions. Excluding foreign currency impacts, revenue
increased 16 percent during the quarter.

•Our gross margin of $572.7 million increased versus the prior year quarter by
$60.3 million driven by higher volumes in North America and Latin America and
higher prices in all regions, partially offset by higher cost of goods sold
primarily resulting from inflation. Gross margin percent of approximately 42
percent decreased slightly compared to approximately 43 percent in the prior
year period, driven by higher costs, primarily raw materials, packaging,
logistics, and labor costs.

•Selling, general and administrative expenses increased from $174.5 million to
$188.5 million, or approximately 8 percent. The increase in costs is a result of
top line higher revenues as well as investments in growth programs.

•Research and development expenses of $71.8 million were essentially flat versus prior year,

•Net income (loss) attributable to FMC stockholders increased from $182.6 million to $207.4 million which represents an increase of $24.8 million, or approximately 14 percent. The higher results were driven by our gross margin growth


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which were partially offset by higher selling, general and administrative
expenses and the provision for income taxes. Adjusted after-tax earnings from
continuing operations attributable to FMC stockholders of $238.7 million
increased compared to the prior year amount of $200.0 million. See the
disclosure of our Adjusted Earnings Non-GAAP financial measurement below, under
the section titled   "Results of Operations"  .

2022 Outlook Update



In 2022, we continue to expect the global crop protection market to be up
low-to-mid single digits, on a U.S. dollar basis. We expect Latin America, North
America, and Asia to be up mid-single digits while EMEA is now expected to be
down low single digits. The war in Ukraine may further reduce market growth in
the EMEA region. Commodity prices for many of the major crops remain elevated
and stock-to-use ratios are near historical lows, creating a favorable backdrop
for crop protection products. FX is projected to be a headwind for EMEA and Asia
markets on a U.S. dollar basis.

Despite the volatile supply and geopolitical environment, we anticipate solid
growth in 2022. Our revenue is forecasted to be in the range of approximately
$5.25 billion to $5.55 billion, up approximately 7 percent at the midpoint
versus 2021. Full year adjusted EBITDA(1) is expected to be in the range of
$1.32 billion to $1.48 billion, representing 6 percent growth at the midpoint
versus 2021 results. 2022 adjusted earnings are expected to be in the range of
$6.70 to $8.00 per diluted share(1), representing a year over year increase of 6
percent at the midpoint. Full-year earnings growth drivers include pricing
actions and strong volumes, offset by rising costs and supply disruptions.
Adjusted earnings estimates do not include the benefit of any future share
repurchases. For cash flow outlook, refer to the   "L    iquidity 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.
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RESULTS OF OPERATIONS

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. Organic Revenue Growth excludes the impacts of foreign currency
changes, which we believe is a meaningful metric to evaluate our revenue
changes. These items are discussed in detail within the "Other Results of
Operations" section that follows. 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.

                                                                      Three Months Ended March 31,
                                                                       2022                   2021
(in Millions)                                                                 (unaudited)
Revenue                                                         $       1,350.8          $    1,195.6

Costs of sales and services                                               778.1                 683.2
Gross margin                                                    $         572.7          $      512.4
Selling, general and administrative expenses                              188.5                 174.5
Research and development expenses                                          71.8                  74.0
Restructuring and other charges (income)                                    9.1                   3.2

Total costs and expenses                                        $

1,047.5 $ 934.9 Income from continuing operations before non-operating pension and postretirement charges (income), interest expense, net and income taxes (1)

303.3 $ 260.7



Non-operating pension and postretirement charges (income)                   4.3                   4.8

Interest expense, net                                                      29.9                  32.4

Income (loss) from continuing operations before income taxes $ 269.1 $ 223.5 Provision (benefit) for income taxes

                                       42.3                  32.2
Income (loss) from continuing operations                        $         226.8          $      191.3
Discontinued operations, net of income taxes                              (15.2)                 (8.1)
Net income (loss) (GAAP)                                        $         211.6          $      183.2
Adjustments to arrive at Adjusted EBITDA (Non-GAAP):
Corporate special charges (income):
Restructuring and other charges (income) (3)                    $           9.1          $        3.2
Non-operating pension and postretirement charges (income) (4)               4.3                   4.8
Total transaction-related charges (5)                                         -                   0.4
Discontinued operations, net of income taxes                               15.2                   8.1
Interest expense, net                                                      29.9                  32.4
Depreciation and amortization                                              42.4                  42.6
Provision (benefit) for income taxes                                       42.3                  32.2
Adjusted EBITDA (Non-GAAP) (2)                                  $         354.8          $      306.9


____________________

(1)Referred to as operating profit.


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(2)Adjusted EBITDA is defined as operating profit excluding corporate special charges (income) and depreciation and amortization expense.

(3)See Note 8 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)Represents transaction costs, costs for transitional employees, other acquired employees related costs, and transactional-related costs such as legal and professional third-party fees.



                                  ADJUSTED EARNINGS RECONCILIATION
                                                                    Three Months Ended March 31,
                                                                      2022                  2021
(in Millions)                                                                (unaudited)

Net income (loss) attributable to FMC stockholders (GAAP) $ 207.4 $ 182.6



Corporate special charges (income), pre-tax (1)                           13.4                 8.4

Income tax expense (benefit) on Corporate special charges (income) (2)

                                                              (0.9)               (1.6)

Corporate special charges (income), net of income taxes $ 12.5 $ 6.8 Discontinued operations attributable to FMC Stockholders, net of income taxes

                                                           15.2                 8.1
Non-GAAP tax adjustments (3)                                               3.6                 2.5

Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (Non-GAAP)

$        238.7          $    200.0


____________________

(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 (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.


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                     ORGANIC REVENUE GROWTH RECONCILIATION
                                        Three Months Ended March 31, 2022

vs. 2021


  Total Revenue Change (GAAP)                                                 13  %
  Less: Foreign Currency Impact                                               (3) %
  Organic Revenue Change (Non-GAAP)                                           16  %


Results of Operations

In the discussion below, all comparisons are between the periods unless otherwise noted.

Revenue