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. 37 -------------------------------------------------------------------------------- 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, 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 and beyond. 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 fully staffed. 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 office-based employees around the world have been working remotely during this period, 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 three quarters 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. 38 -------------------------------------------------------------------------------- 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. While we saw very strong demand for our products in all four regions of the world in the third quarter, there were pockets of demand reduction related to the pandemic. This impacted certain cotton and fruit and vegetable markets. Underlying demand for our products remains healthy, supplemented by market access expansion, new registrations, and an increasing impact from our pricing actions as we enter the fourth quarter. We are conscious of the potential downside risks in the remainder 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 crops) in the food chain going forward. As discussed in the first two quarters 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. We will continue to monitor the economic environment related to the pandemic on an ongoing basis and assess the impacts on our business. Third Quarter 2020 Highlights The following items are the more significant developments or financial highlights in our business during the three months endedSeptember 30, 2020 : •Revenue of$1,084.6 million for the three months endedSeptember 30, 2020 increased$70.3 million or approximately 7 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 increased by approximately 8 percent, sales inLatin America increased approximately 1 percent, sales inEurope ,Middle East andAfrica increased by approximately 10 percent, and sales inAsia increased approximately 16 percent. The increase was mostly driven by higher volumes and pricing. Excluding foreign currency impacts, revenue increased 15 percent during the quarter and our business saw double digit growth inIndia ,Australia ,Pakistan ,Brazil ,Germany ,Italy andCanada . •Our gross margin of$466.4 million increased versus the prior year quarter by$34.0 million driven by volume growth. Gross margin percent of approximately 43 percent remained flat compared to approximately 43 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$188.3 million to$187.7 million . Selling, general and administrative expenses, excluding transaction-related charges, of$173.3 million increased approximately 1 percent compared to the prior year. •Research and development expenses of$71.7 million decreased$5.7 million or approximately 7 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$90.4 million to$111.4 million which represents an increase of$21 million , or approximately 23 percent. Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of$160.1 million increased compared to the prior year amount of$124.2 million . See the disclosure of our Adjusted Earnings Non-GAAP financial measurement below, under the section titled "Results of Operations" .
Other Highlights
OnOctober 2, 2020 , we closed on the previously disclosed transaction with Isagro S.p.A ("Isagro") for a purchase price of approximately$65 million , which will result in a charge 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. See Note 20 in the condensed consolidated financial statements included in this Form 10-Q for further details. 39 --------------------------------------------------------------------------------
2020 Outlook Update
With a few months remaining in 2020, we continue to expect the overall global crop protection market to be flat to down slightly, on aU.S. dollar basis, although our view on the regions has slightly changed. The outlook forEurope continues to worsen, following a hot and dry summer, and now we believe that market will be down low-single digits year over year, versus flat in our prior forecast. Offsetting this, we expect the Asian market to be up low-single digits, versus our prior forecast of it being down slightly. Our forecasts for the Latin American and North American markets are unchanged at down low- to mid-single digits and up low- single digits, respectively. 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 those ranges. We now expect 2020 revenue will be in the range of approximately$4.72 billion to$4.78 billion , up approximately 3 percent at the midpoint versus 2019 or approximately 9 percent excluding the impacts of foreign currency. Full year adjusted EBITDA(1) is now expected to be$1.295 billion to$1.315 billion , representing 7 percent growth at the midpoint versus 2019 results and an increase of 1 percent versus prior guidance. 2020 adjusted earnings are expected to be in the range of$6.45 to$6.57 per diluted share(1), representing a year over year increase of 7 percent at the midpoint and6 cents higher than prior forecast. Full-year earnings growth drivers include significant volume gains inLatin America andAsia , global pricing improvement and continued cost discipline. Planned fourth quarter share repurchases of$50 million are not expected to have any material impact on FMC diluted shares outstanding in the current year. 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. 40 -------------------------------------------------------------------------------- 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
2020 2019 2020 2019
(in Millions) (unaudited) (unaudited)
Revenue $ 1,084.6 $ 1,014.3 $ 3,489.9 $ 3,412.5
Costs of sales and services 618.2 581.9 1,939.3 1,884.9
Gross margin $ 466.4 $ 432.4 $ 1,550.6 $ 1,527.6
Selling, general and administrative expenses 187.7 188.3 548.1 569.1
Research and development expenses 71.7 77.4 203.3 221.7
Restructuring and other charges (income) 11.0 6.8 43.9 27.3
Total costs and expenses $ 888.6 $ 854.4 $ 2,734.6 $ 2,703.0
Income from continuing operations before
non-operating pension and postretirement charges
(income), interest expense, net and income taxes (1) $ 196.0 $
159.9
Non-operating pension and postretirement charges (income) 11.6 (1.2) 16.0 5.5 Interest expense, net 35.5 41.6 117.0 115.6 Income (loss) from continuing operations before income taxes$ 148.9 $ 119.5 $ 622.3 $ 588.4 Provision (benefit) for income taxes 18.4 8.7 82.3 75.6 Income (loss) from continuing operations$ 130.5 $ 110.8 $ 540.0 $ 512.8 Discontinued operations, net of income taxes (18.4) (21.3) (36.7) (29.8) Net income (loss) (GAAP)$ 112.1 $ 89.5 $ 503.3 $ 483.0 Adjustments to arrive at Adjusted EBITDA: Corporate special charges (income): Restructuring and other charges (income) (3)$ 11.0 $ 6.8 $ 43.9 $ 27.3 Non-operating pension and postretirement charges (income) (4) 11.6 (1.2) 16.0 5.5 Total transaction-related charges (5) 14.4 16.0 40.4 52.6 Discontinued operations, net of income taxes 18.4 21.3 36.7 29.8 Interest expense, net 35.5 41.6 117.0 115.6 Depreciation and amortization 41.5 36.6 120.7 111.1 Provision (benefit) for income taxes 18.4 8.7 82.3 75.6 Adjusted EBITDA (Non-GAAP) (2)$ 262.9 $
219.3
____________________
(1) Referred to as operating profit.
(2) Adjusted EBITDA is defined as operating profit excluding corporate special
charges (income) and depreciation and amortization expense.
41
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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 completed the integration of the DuPont Crop Protection
Business as of June 30, 2020 . The TSA is now terminated and the last phase of
the ERP system transition went live in November 2020 with a stabilization period
that will go into the first quarter of 2021. We anticipate remaining expense of
approximately $15 million to $20 million for the completion of these defined
in-flight initiatives during the remaining time period.
Three Months Ended September 30, Nine Months Ended September 30,
(in Millions) 2020 2019 2020 2019
DuPont Crop Protection Business Acquisition
Legal and professional fees (1) $ 14.4 $ 16.0 $ 40.4 $ 52.6
Total Transaction-related charges $ 14.4 $ 16.0 $ 40.4 $ 52.6 ____________________
(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 September
30, Nine Months Ended September 30,
2020 2019 2020 2019
(in Millions) (unaudited) (unaudited)
Net income (loss) attributable to FMC
stockholders (GAAP) $ 111.4 $ 90.4 Corporate special charges (income), pre-tax (1) 37.0 21.6 100.3 85.4 Income tax (expense) benefit on Corporate special charges (income) (2) (6.1) 0.8 (16.9) (12.0) Corporate special charges (income), net of income taxes$ 30.9 $ 22.4 $ 83.4 $ 73.4 Discontinued operations attributable to FMC Stockholders, net of income taxes 18.4 21.3 36.7 29.8 Non-GAAP tax adjustments (3) (0.6) (9.9) 1.6 (10.1) Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (Non-GAAP)$ 160.1 $ 124.2 $ 623.7 $ 573.7 ____________________ (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. 42 -------------------------------------------------------------------------------- Results of Operations In the discussion below, all comparisons are between the periods unless otherwise noted. Revenue Three Months EndedSeptember 30, 2020 vs. 2019 Revenue of$1,084.6 million increased$70.3 million , or approximately 7 percent, versus the prior year period. The increase was driven by higher volumes, which accounted for an approximate 12 percent increase, as well as favorable pricing which accounted for an approximate 3 percent increase. Foreign currency headwinds had an unfavorable impact of approximately 8 percent on revenue. Excluding foreign currency impacts, revenue increased approximately 15 percent during the quarter. Nine Months EndedSeptember 30, 2020 vs. 2019 Revenue of$3,489.9 million increased$77.4 million , or approximately 2 percent, versus the prior year period. The increase was driven by higher volumes, which accounted for an approximate 7 percent increase, as well as favorable pricing which accounted for an approximate 2 percent increase. Foreign currency fluctuations had an unfavorable impact of approximately 7 percent on revenue. See below for a discussion of revenue by region. Total Revenue by Region Three Months Ended September 30, Nine Months Ended September 30, (in Millions) 2020 2019 2020 2019 North America$ 212.3 $ 196.3 $ 851.8 $ 848.1 Latin America 464.9 460.2 985.3 923.4 Europe, Middle East & Africa (EMEA) 152.8 138.4 833.5 854.7 Asia 254.6 219.4 819.3 786.3 Total Revenue$ 1,084.6 $ 1,014.3 $ 3,489.9 $ 3,412.5 Three Months EndedSeptember 30, 2020 vs. 2019North America : Revenue increased approximately 8 percent versus the prior year period driven by increased planted acres in soybean, corn and rice, as well as continued market expansions of our fungicides Lucento® and Rhyme®. Sales inCanada were robust, driven by cereal herbicide blends from our patented PrecisionPac® technology and insecticides.Latin America : Revenue increased approximately 1 percent versus the prior year period, or approximately 18 percent excluding foreign currency headwinds. The beginning of the season was slow due to hot and dry weather inBrazil ,Argentina andParaguay . Pricing actions across the region offset some of the currency headwind. InBrazil , sales grew double digits organically, led by our growth in the soybean market.Mexico sales grew organically but were still impacted somewhat by COVID-19 related pressures on the growers that export fruits and vegetables. Sales in the Andean zone grew significantly as conditions in that sub-market improved. EMEA: Revenue increased approximately 10 percent versus the prior year period, with no foreign currency impact. We saw strong demand for Rynaxypyr® insect control applications for specialty crops as well as Battle® Delta herbicides for cereals, particularly inFrance andGermany .Asia : Revenue increased approximately 16 percent versus the prior year period, or approximately 19 percent excluding foreign currency headwinds, partially due to favorable weather in bothIndia andAustralia . Sales inIndia grew over 20 percent organically, as the favorable monsoon drove demand from growers of rice, soybeans, pulses, sugarcane and fruit and vegetables in the south and central markets. Herbicide sales inAustralia were up over 50 percent, led by cereals and canola.Pakistan also grew in double-digits, driven primarily by insecticides in rice and cotton. Nine Months EndedSeptember 30, 2020 vs. 2019North America : Revenue increased slightly versus the prior year period due to strong demand for our new pre-emergent herbicide Authority® Edge and fungicides. Double digit growth inCanada was driven by cereal herbicide blends from our PrecisionPac® technology and insecticides and continued adoption of our Authority® herbicides due to resistance concerns. This was partially offset by continued focus on drawing down inventories of our pre-emergent herbicides at our distributors.Latin America : Revenue increased approximately 7 percent versus the prior year period, or approximately 24 percent excluding foreign currency headwinds, driven by strong growth inArgentina and double-digit growth inBrazil . Insecticide growth inBrazil was driven by sugarcane and soybeans, and herbicide growth was driven by sugarcane replanting. InArgentina , insecticide and herbicide demand drove sales for soybeans and wheat. 43 -------------------------------------------------------------------------------- EMEA: Revenue decreased approximately 2 percent versus the prior year period, or remained flat excluding foreign currency headwinds, primarily due to hot, dry conditions across Northern andEastern Europe andUkraine , as well as expected registration cancellations and product rationalizations. This was partially offset by strong demand for Rynaxypyr® insect control applications for specialty crops as well as Battle® Delta herbicides for cereals.Asia : Revenue increased approximately 4 percent versus the prior year period, or approximately 9 percent excluding foreign currency headwinds, primarily driven by volume growth inIndia ,Australia andPakistan , as well as modest pricing increases across the region. Herbicide sales, including for the newly launched Authority® NXT, were robust for soybeans inIndia . For 2020, full-year revenue is expected to be in the range of approximately$4.72 billion to$4.78 billion , which represents approximately 3 percent growth at the midpoint versus 2019 or approximately 9 percent excluding the impacts of foreign currency. Gross margin Three Months EndedSeptember 30, 2020 vs. 2019 Gross margin of$466.4 million increased$34.0 million , or approximately 8 percent versus the prior year period. The increase was primarily due to higher revenues which were driven by volume growth. Gross margin percent of approximately 43 percent remained flat compared to approximately 43 percent in the prior year period. Nine Months EndedSeptember 30, 2020 vs. 2019 Gross margin of$1,550.6 million increased$23 million , or approximately 2 percent versus the prior year period. Gross margin percent of approximately 44 percent decreased slightly from approximately 45 percent in the prior year period. Selling, general and administrative expenses Three Months EndedSeptember 30, 2020 vs. 2019 Selling, general and administrative expenses of$187.7 million decreased$0.6 million , or remained relatively flat, versus the prior year period. Selling, general and administrative expenses, excluding transaction-related charges, increased$1.0 million , or approximately 1 percent, versus the prior year period. Nine Months EndedSeptember 30, 2020 vs. 2019 Selling, general and administrative expenses of$548.1 million decreased$21.0 million , or approximately 4 percent versus the prior year period. Selling, general and administrative expenses, excluding transaction-related charges, decreased$8.8 million , or approximately 2 percent, versus the prior year period due to cost-saving measures implemented in response to the pandemic. Research and development expenses Three Months EndedSeptember 30, 2020 vs. 2019 Research and development expenses of$71.7 million decreased$5.7 million , or approximately 7 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. Nine Months EndedSeptember 30, 2020 vs. 2019 Research and development expenses of$203.3 million decreased$18.4 million , or approximately 8 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. 44 -------------------------------------------------------------------------------- Adjusted EBITDA (Non-GAAP) Three Months EndedSeptember 30, 2020 vs. 2019 Adjusted EBITDA of$262.9 million increased$43.6 million , or approximately 20 percent versus the prior year period. The increase was mainly driven by volume increases, primarily inLatin America andAsia , which accounted for an approximate 32 percent increase. Cost control actions and price increases accounted for approximately 15 percent and 12 percent increases, respectively. These more than offset foreign currency fluctuations which had an unfavorable impact of approximately 39 percent on Adjusted EBITDA. Nine Months EndedSeptember 30, 2020 vs. 2019 Adjusted EBITDA of$960.3 million increased$59.8 million , or approximately 7 percent versus the prior year period. The increase was due to higher pricing and higher volumes which accounted for approximately 7 percent and 13 percent increases, respectively. Cost control actions accounted for an approximate 8 percent increases. These factors more than offset the foreign currency fluctuations which had an unfavorable impact of approximately 21 percent on Adjusted EBITDA. For 2020, full-year Adjusted EBITDA is expected to be in the range of$1.295 billion to$1.315 billion , which represents approximately 7 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 withU.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 EndedSeptember 30, 2020 vs. 2019 Depreciation and amortization of$41.5 million increased$4.9 million , or approximately 13 percent, as compared to the prior year period of$36.6 million . The increase was mostly driven by the impacts of the amortization effects of the completion of various phases of our ERP implementation. Nine Months EndedSeptember 30, 2020 vs. 2019 Depreciation and amortization of$120.7 million increased$9.6 million , or approximately 9 percent, as compared to the prior year period of$111.1 million . The 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 EndedSeptember 30, 2020 vs. 2019 Interest expense, net of$35.5 million decreased compared to the prior year period of$41.6 million . The decrease was driven by lower term loan and foreign debt balances, lower LIBOR rates and partially offset by the impacts of our third quarter 2019 debt offering which was settled at the end of third quarter 2019. Nine Months EndedSeptember 30, 2020 vs. 2019 Interest expense, net of$117.0 million increased compared to the prior year period of$115.6 million . The increase was driven by impacts of our third quarter 2019 debt offering partially offset by lower term loan, commercial paper and foreign debt balances and lower LIBOR rates. Corporate special charges (income) Restructuring and other charges (income) Three Months Ended September 30, Nine Months Ended September 30, (in Millions) 2020 2019 2020 2019 Restructuring charges$ 6.9 $ 2.6 $ 29.7$ 14.9 Other charges (income), net 4.1 4.2 14.2 12.4
Total restructuring and other charges (income)
43.9 $ 27.3 Three Months Ended
45
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Restructuring charges in 2020 of $6.9 million primarily 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).
Restructuring charges in 2019 of $2.6 million 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).
Other charges, net in 2020 of $4.1 million consists of charges related to
environmental sites.
Other charges, net in 2019 of $4.2 million consists of charges related to
environmental sites
Nine Months Ended September 30, 2020 vs. 2019
Restructuring charges in 2020 of $29.7 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).
Restructuring charges in 2019 of $14.9 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 $13.2 million . There were other miscellaneous
restructuring charges of $1.7 million .
Other charges, net in 2020 of $14.2 million primarily consists of charges
related to environmental sites of $13.7 million .
Other charges, net in 2019 of $12.4 million primarily consists of charges
related to environmental sites.
Non-operating pension and postretirement charges (income)
Charges for the three months ended September 30, 2020 were $11.6 million
compared to income of $1.2 million for the three months ended September 30,
2019 . The increase in non-operating pension and post retirement charges (income)
is attributable to the continued approach of using the smoothed market related
value of assets (MRVA) as opposed to the actual fair value of plan assets in the
determination of 2020 expense. This continued approach will create some
volatility in our non-operating periodic pension cost since our qualified
pension plan is 100 percent fixed income securities.
Charges for the nine months ended September 30, 2020 were $16.0 million compared
to $5.5 million for the nine months ended September 30, 2019 . As mentioned
above, the increase in non-operating pension and post retirement charges
(income) is attributable to the continued approach of using the MRVA as opposed
to the actual fair value of plan assets in determining the 2020 expense.
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
Given the geographic footprint of our operations globally, a significant amount
of our earnings are generated by foreign subsidiaries and taxed at lower
statutory rates than the United States federal statutory rate (e.g., Singapore ,
Hong Kong , and Switzerland ). 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 than the 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 which United States or
foreign withholding taxes have not been previously accrued.
Three Months Ended September 30, 2020 vs. 2019
Provision for income taxes for the three months ended September 30, 2020 was
$18.4 million resulting in an effective tax rate of 12.4 percent. Provision for
income taxes for the three months ended September 30, 2019 was $8.7 million
resulting in an effective tax rate of 7.3 percent.
46
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Three Months Ended
2020 2019
Tax Provision Effective Tax Income Tax Provision
(in Millions) Income (Expense) (Benefit) Rate (Expense) (Benefit) Effective Tax Rate
GAAP - Continuing operations $ 148.9 $ 18.4 12.4 % $ 119.5 $ 8.7 7.3 %
Corporate special charges
(income) 37.0 6.1 21.6 (0.8)
Tax adjustments (1) 0.6 9.9
Non-GAAP - Continuing operations
13.5 %$ 141.1 $ 17.8 12.6 %
_______________
(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 increase in the effective tax rate for the three months endedSeptember 30, 2020 compared to three months endedSeptember 30, 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. Nine Months EndedSeptember 30, 2020 vs. 2019 Provision for income taxes for the nine months endedSeptember 30, 2020 was$82.3 million resulting in an effective tax rate of 13.2 percent. Provision for income taxes for the nine months endedSeptember 30, 2019 was$75.6 million resulting in an effective tax rate of 12.8 percent. Nine Months Ended September 30, 2020 2019 Tax Provision Income Tax Provision (in Millions) Income (Expense) (Benefit)
Effective Tax Rate (Expense) (Benefit) Effective Tax Rate GAAP - Continuing operations
$ 622.3 $ 82.3 13.2 %$ 588.4 $ 75.6 12.8 % Corporate special charges (income) 100.3 16.9 85.4 12.0 Tax adjustments (1) (1.6) 10.1
Non-GAAP - Continuing operations
13.5 %$ 673.8 $ 97.7 14.5 %
_______________
(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 EndedSeptember 30, 2020 vs. 2019 Discontinued operations, net of income taxes represented a loss of$18.4 million for the three months endedSeptember 30, 2020 compared to a loss of$21.3 million for the three months endedSeptember 30, 2019 . The loss during both the third quarter of 2020 and 2019 was primarily related to adjustments related to the retained liabilities from our previously discontinued operations. Nine Months EndedSeptember 30, 2020 vs. 2019 Discontinued operations, net of income taxes represented a loss of$36.7 million for the nine months endedSeptember 30, 2020 compared to loss of$29.8 million for the nine months endedSeptember 30, 2019 . The loss during both the nine months endedSeptember 30, 2020 andSeptember 30, 2019 was primarily due to adjustments related to the retained liabilities from our previously discontinued operations. Additionally, during the nine months endedSeptember 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 fully 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 47 --------------------------------------------------------------------------------
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 EndedSeptember 30, 2020 vs. 2019 Net income (loss) increased to$112.1 million from income of$89.5 million in the prior year period. The higher results were driven by higher revenues and cost-saving measures in selling, general, and administrative and research and development expenses due to the pandemic. This was partially offset by higher non-operating pension charges as discussed above. Nine Months EndedSeptember 30, 2020 vs. 2019 Net income (loss) increased to$503.3 million from income of$483.0 million in the prior year period. The higher results were driven by higher revenues and reduced selling, general, and administrative and research and development expenses due to the pandemic. This was partially offset by higher non-operating pension charges as discussed above. 48 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents atSeptember 30, 2020 andDecember 31, 2019 , were$297.1 million and$339.1 million , respectively. Of the cash and cash equivalents balance atSeptember 30, 2020 ,$257.0 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. AtSeptember 30, 2020 , we had total debt of$3,222.4 million as compared to$3,258.8 million atDecember 31, 2019 . Total debt included$3,028.3 million and$3,031.1 million of long-term debt (excluding current portions of$77.9 million and$82.8 million ) atSeptember 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. AtSeptember 30, 2020 , our remaining borrowing capacity under our credit facility was$1,284.8 million . As ofSeptember 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, decreased from$227.7 million atDecember 31, 2019 to$194.1 million atSeptember 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. AtSeptember 30, 2020 , we had no borrowings under the commercial paper program. 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. 49
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