FMC CORPORATION 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. Currently, one of the most significant factors is the potential adverse effect of the current COVID-19 pandemic on our financial condition, results of operations, cash flows and performance, which is substantially influenced by the potential adverse effect of the pandemic on our customers and suppliers and the global economy and financial markets. The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional factors include, among other things, the risk factors included in Part II, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 (the "2019 Form 10-K"), the section captioned "Forward-Looking Information" in Part II of the 2019 Form 10-K, the risk factor in Item 1A of our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 , and to similar risk factors and cautionary statements in all other reports and forms filed with theSecurities 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-19. 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 withU.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 2019 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 2019 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 OnJanuary 1, 2020 , ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, became effective. See Note 2 for more information. Our revenue recognition and trade receivables critical accounting policy has been updated in order to comply with the accounting standard update. The updated policy refines the process of estimating the allowance for doubtful accounts receivables by incorporating past events, current business conditions, and reasonable and supportable forecasts of future economic conditions that affect the collectability of the reported amounts. 35 -------------------------------------------------------------------------------- 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. 36 --------------------------------------------------------------------------------
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, plant health, and professional pest and turf management. We operate in a single distinct business segment and develop, market and sell all three major classes of crop protection chemicals: insecticides, herbicides and fungicides. 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; Talstar® and Hero® branded insecticides; and flutriafol-based fungicides. The FMC portfolio also includes biologicals such as Quartzo® and Presence® bionematicides. COVID-19 Pandemic InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic, and the President ofthe United States declared the COVID-19 outbreak a national emergency. The rapid spread of the outbreak has caused significant disruptions in theU.S. and global economies, and economists expect the impact will continue to be significant during the remainder of 2020. 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 facilities are operational. We delivered strong financial performance and navigated the challenges posed by COVID-19 and severe foreign currency headwinds. While we have maintained business continuity and sustained our operations with safety as a priority, we do not yet know the full extent of the disruptions on either our business and operations or the global economy nor the duration of the pandemic and its adverse effects. We have implemented new procedures to support the health and safety of our employees and we are following allU.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. Although most FMC employees around the world have been working remotely during these last few months, we have implemented procedures to safely return to the workplace in regions where the pandemic is controlled and local health officials have deemed this to be safe in compliance with any government regulations. In addition, we have thousands of employeeswho continue operating our manufacturing sites and distribution warehouses. In all our facilities, we are using a variety of best practices to address COVID-19 risks, following the protocols and procedures recommended by leading health authorities. We are monitoring the situation in regions where the pandemic continues to escalate and in such regions will remain in a remote working environment until it is safe to return to the workplace. In the first half of 2020, we have made significant investments in our employees as a result of the COVID-19 pandemic, including through enhanced dependent care pay policies, recognition bonuses, increased flexibility of work schedules and hours of work to accommodate remote working arrangements, and investment in IT infrastructure to promote remote work. Through these efforts we have successfully avoided any COVID-19 related furloughs or workforce reductions to date. In addition to addressing the needs of the Company and our employees, FMC has been a leader in supporting the needs of the communities in which FMC has operations and those generally in need as a result of the pandemic. Since the advent of the pandemic, we have donated in excess of 233,000 personal protective equipment supplies, including N95 masks, surgical masks, protective cover suits, goggles and similar items. We have also donated more than 1,800 containers and canisters used to transport alcohol-based disinfecting solution. Additional efforts include financial contributions to hunger-relief organizations; assisting with disinfecting schools and other public spaces in villages; and supporting various community initiatives. In our supply chain, sourcing of raw materials and intermediates was not a significant issue, although we continued to see some logistics challenges and related higher costs. We are seeing some pockets of reduced demand, as expected, due to food chain dislocations and labor availability. We are conscious of the potential downside risks in the rest of the year and expect to continue to experience disruption caused by COVID-19 in our supply chain, logistics, and pockets of demand, as well as on farm worker labor required for planting, harvesting and packing crops (especially fruits, vegetables and other specialty crop) in the food chain going forward. As discussed in the first quarter of 2020, we implemented price increases and cost-saving measures across the company to offset impacts of the COVID-19 pandemic and related foreign currency headwinds. We amended our debt covenants with our banks onApril 22, 2020 (see Note 11 for more details) to provide significant additional headroom above any of the COVID-19 related scenarios assessed by the company. Additionally, during the second quarter we fully repaid the$500 million revolver draw made late in the first quarter at the height of the pandemic's impact on short-term financing markets. We will continue to monitor the economic environment related to the pandemic on an ongoing basis and assess the impacts on our business. 37 --------------------------------------------------------------------------------
Second Quarter 2020 Highlights
The following items are the more significant developments or financial highlights in our business during the three months endedJune 30, 2020 : •Revenue of$1,155.3 million for the three months endedJune 30, 2020 decreased$50.8 million or approximately 4 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 inNorth America decreased by approximately 6 percent, sales inLatin America increased approximately 2 percent, sales inEurope ,Middle East andAfrica decreased by approximately 13 percent, and sales inAsia increased approximately 2 percent. The decrease was mostly driven by unfavorable foreign currency headwinds. Excluding foreign currency impacts, revenue increased 3 percent during the quarter. After removing foreign currency impacts, our business saw double-digit growth inArgentina ,Brazil ,Australia ,Pakistan , andCanada . •Our gross margin of$522.7 million decreased versus the prior year quarter by$27.8 million mostly due to lower sales primarily driven by unfavorable foreign currency headwinds. Gross margin percent of approximately 45 percent slightly decreased compared to approximately 46 percent in the prior year period. •We previously implemented temporary cost-saving measures and are continuing to eliminate or delay all non-essential expenditures to offset projected headwinds from the effects of the COVID-19 pandemic. These efforts are primarily focused on selling, general and administrative expenses and research and development expenses. We are not cancelling any research and development projects, but we are phasing some differently to allow for lower costs in the current year without fundamentally impacting long-term timelines. •Selling, general and administrative expenses decreased from$196.9 million to$171.0 million . Selling, general and administrative expenses, excluding transaction-related charges, of$158.0 million also decreased approximately 11 percent compared to the prior year period primarily due to the cost-saving measures we had implemented in response to the COVID-19 pandemic. We eliminated or delayed all non-essential expenditures, froze hiring, and saw a decline in travel expenditures. •Research and development expenses of$64.3 million decreased$8.8 million or approximately 12 percent. As mentioned above, we did not cancel any research and development projects, but we phased some differently to allow lower costs this year in response to the pandemic without fundamentally impacting long-term timelines. We maintain our commitment to invest resources to discover new active ingredients and formulations that support resistance management and sustainable agriculture. •Net income (loss) attributable to FMC stockholders increased from$174.5 million to$184.4 million which represents an increase of$9.9 million , or approximately 6 percent. Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of$224.0 million increased compared to the prior year amount of$220.2 million . See the disclosure of our Adjusted Earnings Non-GAAP financial measurement below, under the section titled "Results of Operations" . Other Highlights InMay 2020 , FMC entered into a binding offer with Isagro S.p.A ("Isagro") whereby FMC will acquire Isagro's Fluindapyr active ingredient assets for approximately$60 million . InJuly 2020 , we entered into an asset sale and purchase agreement with Isagro. Fluindapyr has been jointly developed by FMC and Isagro under a 2012 research and development collaboration agreement. The transaction will provide FMC with full global rights to Fluindapyr active ingredient, including keyU.S. , European, Asian, and Latin American fungicide markets. The transaction will transfer to FMC all intellectual property, know-how, registrations, product formulations and other global assets of the proprietary broad-spectrum fungicide molecule. The transaction is expected to close in the fourth quarter of 2020.
The Fluindapyr acquisition will be treated as an asset acquisition for accounting purposes as it does not meet the definition of a business. Therefore, any acquired in-process research and development will be immediately expensed.
We launched
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--------------------------------------------------------------------------------We announced the launch of our ArcTM farm intelligence platform, an exclusive precision agriculture platform that enables growers and advisors to more accurately predict pest pressure before it becomes a problem. 2020 Outlook Update
Our current 2020 expectation for the overall global crop protection market growth is that it will be flat to down slightly, on aU.S. dollar basis, slightly worse than our previous outlook. The change is driven by a reduced outlook forEurope , where we believe the market will be flat year over year, versus up low-single digits in our prior forecast. Our views on the other regions have not changed; we expect theNorth America market to be up low-single digits, theAsia market to be down slightly, and the market in LATAM is expected to be down low- to mid-single digits, primarily driven by negative foreign exchange impacts. We expect continued headwinds from foreign currency, and to a lesser extent, from impacts related to the pandemic. At the onset of the pandemic, there were numerous contingencies to consider, but after several months of navigating in this environment, we have better insight. We are raising the midpoints of our adjusted EBITDA and adjusted EPS guidance and tightening the ranges. We now expect 2020 revenue will be in the range of approximately$4.68 billion to$4.82 billion , up approximately 3 percent at the midpoint versus 2019 or approximately 9 percent excluding the impacts of foreign currency. We also expect adjusted EBITDA(1) of$1.265 billion to$1.325 billion , which represents 6 percent growth at the midpoint versus 2019 results. 2020 adjusted earnings are expected to be in the range of$6.28 to$6.62 per diluted share(1), up 6 percent at the midpoint versus 2019. Adjusted earnings estimates do not include the benefit of any share repurchases in 2020. For cash flow outlook, refer to the liquidity and capital resources section below. (1)Although we provide forecasts for adjusted earnings per share and adjusted EBITDA (Non-GAAP financial measures), we are not able to forecast the most directly comparable measures calculated and presented in accordance withU.S. GAAP. Certain elements of the composition of theU.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, noU.S. GAAP outlook is provided. 39 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Overview The following charts provide a reconciliation of Adjusted EBITDA and Adjusted Earnings, both of which are Non-GAAP financial measures, from the most directly comparable GAAP measure. Adjusted EBITDA is provided to assist the readers of our financial statements with useful information regarding our operating results. Our operating results are presented based on how we assess operating performance and internally report financial information. For management purposes, we report operating performance based on earnings before interest, income taxes, depreciation and amortization, discontinued operations, and corporate special charges. Our Adjusted Earnings measure excludes corporate special charges, net of income taxes, discontinued operations attributable to FMC stockholders, net of income taxes, and certain Non-GAAP tax adjustments. These are excluded by us in the measure we use to evaluate business performance and determine certain performance-based compensation. These items are discussed in detail within the "Other Results of Operations" section that follows. 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 withU.S. GAAP. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in Millions) (unaudited) (unaudited) Revenue$ 1,155.3 $ 1,206.1 $ 2,405.3 $ 2,398.2 Costs of sales and services 632.6 655.6 1,321.1 1,303.0 Gross margin$ 522.7 $ 550.5 $ 1,084.2 $ 1,095.2 Selling, general and administrative expenses 171.0 196.9 360.4 380.8 Research and development expenses 64.3 73.1 131.6 144.3 Restructuring and other charges (income) 19.5 12.7 32.9 20.5 Total costs and expenses$ 887.4 $ 938.3 $ 1,846.0 $ 1,848.6 Income from continuing operations before non-operating pension and postretirement charges (income), interest expense, net and income taxes (1)$ 267.9 $ 267.8 $ 559.3 $ 549.6 Non-operating pension and postretirement charges (income) 2.2 3.3 4.4 6.7 Interest expense, net 40.7 39.5 81.5 74.0 Income (loss) from continuing operations before income taxes$ 225.0 $ 225.0 $ 473.4 $ 468.9 Provision (benefit) for income taxes 29.2 30.6 63.9 66.9 Income (loss) from continuing operations$ 195.8 $ 194.4 $ 409.5 $ 402.0 Discontinued operations, net of income taxes (10.8) (18.1) (18.3) (8.5) Net income (loss) (GAAP)$ 185.0 $ 176.3 $ 391.2 $ 393.5 Adjustments to arrive at Adjusted EBITDA: Corporate special charges (income): Restructuring and other charges (income) (3)$ 19.5 $ 12.7 $ 32.9 $ 20.5 Non-operating pension and postretirement charges (income) (4) 2.2 3.3 4.4 6.7 Transaction-related charges (5) 13.0 20.1 26.0 36.6 Discontinued operations, net of income taxes 10.8 18.1 18.3 8.5 Interest expense, net 40.7 39.5 81.5 74.0 Depreciation and amortization 40.1 37.2 79.2 74.5 Provision (benefit) for income taxes 29.2 30.6 63.9 66.9 Adjusted EBITDA (Non-GAAP) (2)$ 340.5 $ 337.8 $ 697.4 $ 681.2
____________________
(1) Referred to as operating profit.
(2) Adjusted EBITDA is defined as operating profit excluding corporate special
charges (income) and depreciation and amortization expense.
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(3) See Note 10 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. Except for the completion of certain
in-flight initiatives, primarily associated with the finalization of our
worldwide ERP system, we have completed the integration of the DuPont Crop
Protection Business as of June 30, 2020 . The TSA is now terminated and we have
completed a significant portion of the implementation of the new ERP system. The
last phase of the ERP system transition is expected to take place on November 1,
2020 with a stabilization period that will go into the first quarter of 2021. We
anticipate remaining expense of approximately $30 million to $35 million for the
completion of these defined in-flight initiatives during the remaining time
period.
Six Months Ended June
Three Months Ended June 30, 30,
(in Millions) 2020 2019 2020 2019
DuPont Crop Protection Business Acquisition
Legal and professional fees (1) $ 13.0 $ 20.1 $ 26.0 $ 36.6
Total Transaction-related charges $ 13.0 $ 20.1 $ 26.0 $ 36.6 ____________________
(1) These charges are recorded as a component of "Selling, general and
administrative expense" on the condensed consolidated statements of income
(loss).
ADJUSTED EARNINGS RECONCILIATION
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(in Millions) (unaudited) (unaudited)
Net income (loss) attributable to FMC
stockholders (GAAP) $ 184.4 $ 174.5 $ 390.6 $ 390.2
Corporate special charges (income), pre-tax (1) 34.7 36.1 63.3 63.8
Income tax (expense) benefit on Corporate
special charges (income) (2) (5.9) (7.1) (10.8) (12.8)
Corporate special charges (income), net of
income taxes $ 28.8 $ 29.0 $ 52.5 $ 51.0
Discontinued operations attributable to FMC
Stockholders, net of income taxes 10.8 18.1 18.3 8.5
Non-GAAP tax adjustments (3) - (1.4) 2.2 (0.2)
Adjusted after-tax earnings from continuing
operations attributable to FMC stockholders
(Non-GAAP) $ 224.0 $ 220.2 $ 463.6 $ 449.5
____________________
(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; and certain changes in the realizability of deferred tax
assets. 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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Results of Operations
In the discussion below, all comparisons are between the periods unless
otherwise noted.
Revenue
Three Months Ended June 30, 2020 vs. 2019
Revenue of $1,155.3 million decreased $50.8 million , or approximately 4 percent,
versus the prior year period. The decrease was mostly driven by unfavorable
foreign currency headwinds which impacted revenue by 7 percent, partially offset
by increases in volume and price which benefited revenue by approximately 2
percent and 1 percent, respectively. Excluding foreign currency impacts, revenue
increased approximately 3 percent during the quarter. After removing foreign
currency impacts, our business saw double-digit revenue growth in Argentina ,
Brazil , Australia , Pakistan , and Canada .
Six Months Ended June 30, 2020 vs. 2019
Revenue of $2,405.3 million increased $7.1 million versus the prior year period.
The increase was driven by higher volumes, which contributed approximately 4
percent to the increase, as well as favorable pricing which contributed to the
increase by approximately 2 percent. Foreign currency fluctuations had an
unfavorable impact of approximately 6 percent on revenue. See below for a
discussion of revenue by region.
Total Revenue by Region
Six Months Ended June
Three Months Ended June 30, 30,
(in Millions) 2020 2019 2020 2019
North America $ 311.9 $ 333.5 $ 639.5 $ 651.8
Latin America 261.2 256.7 520.4 463.2
Europe, Middle East & Africa (EMEA) 265.4 304.3 680.7 716.3
Asia 316.8 311.6 564.7 566.9
Total Revenue $ 1,155.3 $ 1,206.1 $ 2,405.3 $ 2,398.2
Three Months Ended June 30, 2020 vs. 2019
North America : Revenue decreased approximately 6 percent versus the prior year
period due to continued focus on drawing down inventories of our pre-emergent
herbicides at our distributors. We saw strong sales of Lucento fungicide® in our
second U.S. season and strong sales in Canada driven by herbicide blends from
our PrecisionPac® systems for use on cereals and insecticides.
Latin America : Revenue increased approximately 2 percent versus the prior year
period, or approximately 24 percent excluding foreign currency headwinds, driven
by pricing actions across the region which offset some of the currency headwind,
while underlying volume gains were very strong in Argentina and Brazil . Sales
grew fastest in Argentina , driven by herbicides sales for wheat and soybean
applications, including Finesse® herbicide. In Brazil , sales grew double digits
organically, led by continued robust demand for our products on sugarcane,
including Boral® herbicide and Altacor® insecticide.
EMEA: Revenue decreased approximately 13 percent versus the prior year period,
or approximately 10 percent excluding foreign currency headwinds, primarily due
to hot, dry conditions across Northern and Eastern Europe and Ukraine , as well
as the expected registration cancellations and product rationalizations. This
was partially offset by insecticide growth in Southern Europe for specialty
crops.
Asia : Revenue increased approximately 2 percent versus the prior year period, or
approximately 8 percent excluding foreign currency headwinds. The increase was
primarily driven by volume growth in India , Pakistan and Australia , as well as
modest pricing increases across the region, mostly offset by foreign currency
headwinds and some COVID-19 related impacts in India . Herbicide sales, including
for the newly launched Authority® NXT, were robust for soybeans in India . We
also saw strong market recovery continued in Australia with improved weather,
and record demand for Hammer® and Affinity® Force herbicides due to a strong
broadacre season.
Six Months Ended June 30, 2020 vs. 2019
North America : Revenue decreased approximately 2 percent versus the prior year
period due to continued focus on drawing down inventories of our pre-emergent
herbicides at our distributors. This was partially offset by strong demand for
Rynaxypyr® insect control, fungicides, and our new pre-emergent herbicide
Authority® Edge. Double digit growth in Canada was driven by continued adoption
of our Authority® herbicides due to resistance concerns.
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Latin America : Revenue increased approximately 12 percent versus the prior year
period, or approximately 30 percent excluding foreign currency headwinds, driven
by strong growth in Argentina and double-digit growth in Brazil . Insecticides
growth in Brazil was driven by sugarcane and soybeans, and herbicide growth was
driven by sugarcane replanting. In Argentina , insecticide and herbicide demand
drove sales for soybeans and wheat.
EMEA: Revenue decreased approximately 5 percent versus the prior year period, or
approximately 2 percent excluding foreign currency headwinds, primarily due to
hot, dry conditions across Northern and Eastern Europe and Ukraine , as well as
expected registration cancellations and product rationalizations. This was
partially offset by insecticide growth for specialty crops and newly introduced
fungicides.
Asia : Revenue remained relatively flat versus the prior year period, but
increased approximately 4 percent excluding foreign currency headwinds,
primarily driven by volume growth in India , Australia and Pakistan , as well as
modest pricing increases across the region. Herbicide sales, including for the
newly launched Authority® NXT, were robust for soybeans in India .
For 2020, full-year revenue is expected to be in the range of approximately
$4.68 billion to $4.82 billion , which represents approximately 3 percent growth
at the midpoint versus 2019 or approximately 9 percent excluding the impacts of
foreign currency. We believe the strength of our portfolio will allow us to
deliver double-digit organic growth, continuing a multi-year trend of
above-market performance.
Gross margin
Three Months Ended June 30, 2020 vs. 2019
Gross margin of $522.7 million decreased $27.8 million , or approximately 5
percent versus the prior year period. The decrease was due to lower sales
primarily driven by unfavorable foreign currency headwinds.
Gross margin percent of approximately 45 percent decreased slightly from
approximately 46 percent in the prior year period.
Six Months Ended June 30, 2020 vs. 2019
Gross margin of $1,084.2 million decreased $11 million , or approximately 1
percent versus the prior year period.
Gross margin percent of approximately 45 percent decreased slightly from
approximately 46 percent in the prior year period.
Selling, general and administrative expenses
Three Months Ended June 30, 2020 vs. 2019
Selling, general and administrative expenses of $171.0 million decreased $25.9
million , or approximately 13 percent versus the prior year period. Selling,
general and administrative expenses, excluding transaction-related charges,
decreased $18.8 million , or approximately 11 percent, versus the prior year
period due to temporary cost-saving initiatives implemented in response to the
COVID-19 pandemic. We eliminated or delayed all non-essential expenditures,
froze hiring, and saw a decline in travel expenditures.
Six Months Ended June 30, 2020 vs. 2019
Selling, general and administrative expenses of $360.4 million decreased $20.4
million , or approximately 5 percent versus the prior year period. Selling,
general and administrative expenses, excluding transaction-related charges,
decreased $9.8 million , or approximately 3 percent, versus the prior year period
due to cost-saving measures implemented in response to the pandemic, as
mentioned above.
Research and development expenses
Three Months Ended June 30, 2020 vs. 2019
Research and development expenses of $64.3 million decreased $8.8 million , or
approximately 12 percent versus the prior year period. As noted above, we
eliminated or delayed certain non-essential expenditures to offset effects of
the COVID-19 pandemic, but we did not cancel any research and development
projects. We phased some projects differently to allow lower costs this year in
response to the pandemic without fundamentally impacting long-term timelines.
Six Months Ended June 30, 2020 vs. 2019
Research and development expenses of $131.6 million decreased $12.7 million , or
approximately 9 percent versus the prior year period. As noted above, the
decrease in research and development expenditures is related to cost-saving
measures taken in response to the COVID-19 pandemic.
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Adjusted EBITDA (Non-GAAP)
Three Months Ended June 30, 2020 vs. 2019
Adjusted EBITDA of $340.5 million increased $2.7 million , or approximately 1
percent versus the prior year period. The increase was mainly driven by price
increases which contributed approximately 5 percent growth and proactive cost
control measures which contributed approximately 14 percent growth. This more
than offset unfavorable foreign currency fluctuations which impacted the change
in Adjusted EBITDA by approximately 18 percent.
Six Months Ended June 30, 2020 vs. 2019
Adjusted EBITDA of $697.4 million increased $16.2 million , or approximately 2
percent versus the prior year period. The increase was due to price and volume
increases and proactive cost control actions, as mentioned above, which
benefited growth by approximately 6 percent each. These factors more than offset
the unfavorable foreign currency fluctuations which impacted the change in
Adjusted EBITDA by approximately 16 percent.
For 2020, full-year Adjusted EBITDA is expected to be in the range of $1.265
billion to $1.325 billion , which represents approximately 6 percent growth at
the midpoint versus 2019. We expect strong pricing and higher volumes to cover
the full impact of the negative foreign currency impacts. Although we provide a
forecast for Adjusted EBITDA, a Non-GAAP financial measure, we are not able to
forecast the most directly comparable measure calculated and presented in
accordance with U.S. GAAP. See Note 1 to our 2020 Outlook Update within this
section of the Form 10-Q.
Other Results of Operations
Depreciation and amortization
Three Months Ended June 30, 2020 vs. 2019
Depreciation and amortization of $40.1 million increased $2.9 million , or
approximately 8 percent, as compared to the prior year period of $37.2 million .
The slight increase was mostly driven by the impacts of the amortization effects
of the completion of various phases of our ERP implementation.
Six Months Ended June 30, 2020 vs. 2019
Depreciation and amortization of $79.2 million increased $4.7 million , or
approximately 6 percent, as compared to the prior year period of $74.5 million .
The slight increase was mostly driven by the impacts of the amortization effects
of the completion of various phases of our ERP implementation.
Interest expense, net
Three Months Ended June 30, 2020 vs. 2019
Interest expense, net of $40.7 million increased compared to the prior year
period of $39.5 million . The increase was driven by impacts of our third quarter
2019 debt offering and higher foreign debt balances, partially offset by lower
term loan and commercial paper balances.
Six Months Ended June 30, 2020 vs. 2019
Interest expense, net of $81.5 million increased compared to the prior year
period of $74.0 million . The increase was driven by impacts of our third quarter
2019 debt offering and higher foreign debt balances, partially offset by lower
term loan and commercial paper balances.
Corporate special charges (income)
Restructuring and other charges (income)
Six Months Ended June
Three Months Ended June 30, 30,
(in Millions) 2020 2019 2020 2019
Restructuring charges $ 16.2 $ 7.1 $ 22.8 $ 12.3
Other charges (income), net 3.3 5.6 10.1 8.2
Total restructuring and other charges (income)
Three Months EndedJune 30, 2020 vs. 2019 Restructuring charges in 2020 of$16.2 million represent charges associated with the integration of the DuPont Crop Protection Business which was completed during the second quarter of 2020 except for certain in-flight initiatives. These charges include severance, accelerated depreciation on certain fixed assets, and other costs (benefits). 44 -------------------------------------------------------------------------------- Restructuring charges in 2019 of$7.1 million primarily comprised of charges associated with the integration of the DuPont Crop Protection Business. These charges include severance, accelerated depreciation on certain fixed assets, and other costs (benefits) of$4.1 million . Charges also include Corporate charges of$1.3 million . There were other miscellaneous restructuring charges of$1.7 million . Other charges, net in 2020 of$3.3 million consists of charges related to environmental sites. Other charges, net in 2019 of$5.6 million consists of charges related to environmental sites Six Months EndedJune 30, 2020 vs. 2019 Restructuring charges in 2020 of$22.8 million primarily comprised of charges associated with the integration of the DuPont Crop Protection Business which was completed during the second quarter of 2020 except for certain in-flight initiatives. These charges include severance, accelerated depreciation on certain fixed assets, and other costs (benefits) of$23.2 million as well as other miscellaneous restructuring benefits of$0.4 million . Restructuring charges in 2019 of$12.3 million primarily comprised of charges associated with the integration of the DuPont Crop Protection Business. These charges include severance, accelerated depreciation on certain fixed assets, and other costs (benefits) of$8.0 million . Charges also include Corporate charges of$2.6 million . There were other miscellaneous restructuring charges of$1.7 million . Other charges, net in 2020 of$10.1 million primarily consists of charges related to environmental sites of$9.7 million . Other charges, net in 2019 of$8.2 million consists of charges related to environmental sites. Non-operating pension and postretirement charges (income) Charges for the three months endedJune 30, 2020 were$2.2 million compared to$3.3 million for the three months endedJune 30, 2019 . Charges for the six months endedJune 30, 2020 were$4.4 million compared to$6.7 million for the six months endedJune 30, 2019 . Transaction-related charges A detailed description of the transaction-related charges is included in Note 5 to the condensed consolidated financial statements included within this Form 10-Q. Provision for income taxes A significant amount of our earnings are generated by foreign subsidiaries and taxed at lower statutory rates thanthe United States federal statutory rate (e.g.,Singapore ,Hong Kong , andSwitzerland ). Our future effective tax rates may be materially impacted by numerous items including: a future change in the composition of earnings from foreign and domestic tax jurisdictions, as earnings in foreign jurisdictions are typically taxed at more favorable rates thanthe United States federal statutory rate; accounting for uncertain tax positions; business combinations; expiration of statute of limitations or settlement of tax audits; changes in valuation allowance; changes in tax rates or laws; and the potential decision to repatriate certain future foreign earnings on whichUnited States or foreign withholding taxes have not been previously accrued. Three Months EndedJune 30, 2020 vs. 2019 Provision for income taxes for the three months endedJune 30, 2020 was$29.2 million resulting in an effective tax rate of 13.0 percent. Provision for income taxes for the three months endedJune 30, 2019 was$30.6 million resulting in an effective tax rate of 13.6 percent. Three Months Ended June 30, 2020 2019 Tax Provision Effective Tax Tax Provision Effective Tax (in Millions) Income (Expense) (Benefit) Rate Income (Expense) (Benefit) Rate
GAAP - Continuing operations
13.0 %$ 225.0 $ 30.6 13.6 % Corporate special charges (income) 34.7 5.9 36.1 7.1 Tax adjustments (1) - 1.4
Non-GAAP - Continuing operations
13.5 %$ 261.1 $ 39.1 15.0 %
_______________
(1) Refer to Note 3 of the Adjusted Earnings Reconciliation table within this section of this Form 10-Q for an explanation of tax adjustments.
45
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Six Months Ended June 30, 2020 vs. 2019
Provision for income taxes for the six months ended June 30, 2020 was $63.9
million resulting in an effective tax rate of 13.5 percent. Provision for income
taxes for the six months ended June 30, 2019 was $66.9 million resulting in an
effective tax rate of 14.3 percent.
Six Months Ended June 30,
2020 2019
Tax Provision Tax Provision Effective Tax
(in Millions) Income (Expense) (Benefit) Effective Tax Rate Income (Expense) (Benefit) Rate
GAAP - Continuing operations $ 473.4 $ 63.9 13.5 % $ 468.9 $ 66.9 14.3 %
Corporate special charges (income) 63.3 10.8 63.8 12.8
Tax adjustments (1) (2.2) 0.2
Non-GAAP - Continuing operations
13.5 %$ 532.7 $ 79.9 15.0 % _______________
(1) Refer to Note 3 of the Adjusted Earnings Reconciliation table within this section of this Form 10-Q for an explanation of tax adjustments.
The primary drivers for the decrease in the year-to-date effective tax rate for 2020 compared to 2019 are shown in the table above. The remaining changes were primarily due to the impact of geographic mix of earnings among our global subsidiaries. Discontinued operations, net of income taxes Our discontinued operations include results of our discontinued FMC Lithium segment, in periods up to its separation onMarch 1, 2019 , as well as adjustments to retained liabilities from other previously discontinued operations. The primary liabilities retained include environmental liabilities, other post-retirement benefit liabilities, stock compensation, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities. Three Months EndedJune 30, 2020 vs. 2019 Discontinued operations, net of income taxes represented a loss of$10.8 million for the three months endedJune 30, 2020 compared to a loss of$18.1 million for the three months endedJune 30, 2019 . The loss during the second quarter of 2020 was primarily related to adjustments related to the retained liabilities from our previously discontinued operations. The loss during the second quarter of 2019 was driven by higher separation-related costs and other adjustments of operations of FMC Lithium in the prior year period. Six Months EndedJune 30, 2020 vs. 2019 Discontinued operations, net of income taxes represented a loss of$18.3 million for the six months endedJune 30, 2020 compared to loss of$8.5 million for the six months endedJune 30, 2019 . The loss during the second half of 2020 was primarily related to adjustments related to the retained liabilities from our previously discontinued operations. During the six months endedJune 30, 2019 , we finalized the sale of the first of two parcels of land of our discontinued site inNewark, California and recorded a gain of approximately$21 million , net of tax. The gain on sale was partially offset by results of our discontinued FMC Lithium segment, which was a net loss due to separation-related costs, as well as charges from other previously discontinued operations. These events did not recur in the current period. Refer to Note 12 to the condensed consolidated financial statements included within this Form 10-Q for further information. Net income (loss) Three Months EndedJune 30, 2020 vs. 2019 Net income (loss) increased to$185.0 million from income of$176.3 million in the prior year period. The higher results were driven by cost containment in the current year and the absence of separation-related costs and other adjustments of operations of FMC Lithium which were included in discontinued operations in the prior year. Six Months EndedJune 30, 2020 vs. 2019 Net income (loss) decreased to$391.2 million from income of$393.5 million in the prior year period. The gain on sale of the parcel of land inNewark, California in the prior year period which was recorded in Discontinued operations, net of income taxes as discussed above was offset by higher results from continuing operations as discussed in the sections above. 46 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents atJune 30, 2020 andDecember 31, 2019 , were$342.7 million and$339.1 million , respectively. Of the cash and cash equivalents balance atJune 30, 2020 ,$332.9 million were held by our foreign subsidiaries. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operating activities and future foreign investments. We have not provided income taxes for other additional outside basis differences inherent in our investments in subsidiaries because the investments are essentially permanent in duration or we have concluded that no additional tax liability will arise upon disposal or remittance. Determining the amount of unrecognized deferred tax liability related to permanent undistributed foreign earnings is not practicable due to the complexity of the hypothetical calculation. AtJune 30, 2020 , we had total debt of$3,533.4 million as compared to$3,258.8 million atDecember 31, 2019 . Total debt included$3,027.5 million and$3,031.1 million of long-term debt (excluding current portions of$80.4 million and$82.8 million ) atJune 30, 2020 andDecember 31, 2019 , respectively. Early in the second quarter of 2020 we amended the Revolving Credit Facility and 2017 Term Loan Agreements to increase the maximum leverage ratio, in order to address potential liquidity constraints that might arise due to the COVID-19 pandemic. Although we had not then, and have not since, experienced any liquidity issues as a result of the economic impacts of the pandemic, we determined that it would be prudent to take this step, as the higher leverage ratio provides significant headroom above any of the COVID-19 related scenarios assessed by the company. Additionally, during the second quarter we fully repaid the$500 million revolver draw made late in the first quarter at the height of the pandemic's impact on short-term financing markets. AtJune 30, 2020 , our remaining borrowing capacity under our credit facility was$1,041.6 million . As ofJune 30, 2020 , we were in compliance with all of our debt covenants. See Note 11 in the condensed consolidated financial statements included in this Form 10-Q for further details. We remain committed to solid investment grade credit metrics, and expect full-year average leverage to be in line with this commitment in 2020. Short-term debt, which consists of short-term foreign borrowings and commercial paper borrowings, increased from$227.7 million atDecember 31, 2019 to$505.9 million atJune 30, 2020 . We provide parent-company guarantees to lending institutions providing credit to our foreign subsidiaries. Our commercial paper program allows us to borrow at rates generally more favorable than those available under our credit facility. AtJune 30, 2020 , we had$243.1 million borrowings under the commercial paper program at an average rate of 1.1 percent. Revolving Credit Facility and 2017 Term Loan Agreement Amendments OnApril 22, 2020 , we amended both our Revolving Credit Agreement and 2017 Term Loan Agreement which, among other things, increased the maximum leverage ratio financial covenant and added a negative covenant restricting purchases of the Company's stock if at any time the maximum leverage ratio exceeds 3.5 through the period endingJune 30, 2021 . See Note 11 for further details. 47
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