fmc-20231231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-K
__________________________________________________________________________
For the fiscal year ended December 31, 2023
or
For the transition period from _______ to _______
Commission File Number 1-2376
__________________________________________________________________________
FMC CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________________________
2929 Walnut Street Philadelphia Pennsylvania 19104
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 215-299-6000
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.10 per share FMC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yesx No ̈
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesx No ̈
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yesx No ̈
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2023, the last day of the registrant’s second fiscal quarter was $12,949,980,232. The market value of voting stock held by non-affiliates excludes the value of those shares held by executive officers and directors of the registrant.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of December 31, 2023, there were 124,760,760 of the registrant's common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K REFERENCE
Portions of Proxy Statement for 2024 Annual Meeting of Stockholders Part III
Table of Contents
FMC Corporation
2023 Form 10-K
Table of Contents
Page
PART I
Item 1. Business 4
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 18
Item 1C. Cybersecurity 18
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosures 20
Item 4A. Information about our Executive Officers 21
PART II
Item 6. [Reserved] 23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47
Item 8. Financial Statements and Supplementary Data 48
Item 9A. Controls and Procedures 112
Item 9B. Other Information 112
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 113
PART III
Item 10. Directors, Executive Officers and Corporate Governance 114
Item 11. Executive Compensation 114
Item 14. Principal Accountant Fees and Services 114
PART IV
Item 15. Exhibits and Financial Statement Schedules 115
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PART I
FMC Corporation was incorporated in 1928 under Delaware law and has its principal executive offices at 2929 Walnut Street, Philadelphia, Pennsylvania 19104. Throughout this annual report on Form 10-K, except where otherwise stated or indicated by the context, "FMC", the "Company", "We," "Us," or "Our" means FMC Corporation and its consolidated subsidiaries and their predecessors. Copies of the annual, quarterly and current reports we file with the Securities and Exchange Commission ("SEC"), and any amendments to those reports, are available on our website at www.fmc.com as soon as practicable after we furnish such materials to the SEC.
ITEM 1. BUSINESS
General
FMC Corporation is a global agricultural sciences company dedicated to helping growers produce food, feed, fiber and fuel for an expanding world population while adapting to a changing environment. FMC’s innovative crop protection solutions enable growers, crop advisers and turf and pest management professionals to address their toughest challenges economically without compromising safety or the environment. FMC is committed to discovering new insecticide, herbicide and fungicide active ingredients, product formulations and pioneering technologies that are consistently better for the planet.
FMC Strategy
We are a tier-one leader and the fifth largest global innovator in the agrochemicals/crop protection market. Our strong competitive position is driven by our technology and innovation, as well as our geographic balance and crop diversity.
Our leading conventional and biological technologies that farmers rely on to protect their crops from disease and pests were produced at five active ingredient plants, 16 formulation and packaging sites and sold in approximately 110 countries. Helping farmers grow more food sustainably on less arable land requires a continual stream of new products and technologies. We are investing in one of the agricultural industry’s most productive crop protection pipeline, featuring over 20 new active areas in discovery and 18 new active ingredients in development. More than 25 of these molecules feature new modes of action. In addition, we are focused on strengthening our relationship to the grower as a trusted advisor in order to increase awareness of our products and educate growers on the value these products can provide.
In response to improved security of supply and increased carrying cost of inventory, distributors, retailers and growers rapidly reduced purchases across all four regions beginning in the latter half of the second quarter of 2023 and persisting through the remainder of the year. This inventory destocking has affected the industry broadly and we do not believe it is specific to our products as grower consumption remained steady during 2023. We have experienced a slower sell-through of our inventory due to inventory destocking, and, as a result, volumes were down significantly driving a decline in our revenues, results of operations and cash flows as compared to the prior year.
FMC revenues year over year declined approximately 23 percent during 2023, or 22 percent organically(1) excluding the impacts of foreign currency. While market conditions negatively impacted our results, sales of our newer and more differentiated products, including diamides, outperformed the overall portfolio demonstrating the resilience of these products. Approximately $590 million in 2023 sales came from products launched in the last five years, representing 14 percent of the total revenue. In 2023, we had new product launches in Brazil, including Premio®Star insecticide based on Rynaxypyr® active, and in the United States, including our new insecticide for tree nuts, Altacor® Evo. Products launched in 2023 accounted for approximately $146 million in sales. Our diamides, Rynaxypyr® and Cyazypyr® active ingredients, continued to be a significant part of our portfolio, representing approximately $1.8 billion in combined sales and approximately 39 percent of the total revenue in 2023.
_________________
(1)Organic revenue growth is a non-GAAP term which excludes the impact of foreign currency changes. Refer to the "Results of Operations" section of our Management's Discussion and Analysis in Item 7 for our organic revenue non-GAAP reconciliation.
Acquisitions and Divestitures
We continued to make investments through FMC Ventures, our venture capital arm targeting strategic investments in start-ups and early-stage companies that are developing and applying emerging technologies in the agricultural industry.
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Financial Information About Our Business
(Financial Information in Millions)
The following table shows the principal products produced by our business, its raw materials and uses:
Product Raw Materials Uses
The following charts detail our sales by major geographic region and major product category.
The following table provides our long-lived assets by major geographical region:
(in Millions) December 31,
Long-lived assets
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Products and Markets
Our portfolio is comprised of three major pesticide categories: insecticides, herbicides and fungicides. The majority of our product lines consist of insecticides and herbicides, and we have a growing portfolio of fungicides mainly used in high value crop segments. Our insecticides are used to control a wide spectrum of pests, while our herbicide portfolio primarily targets a large variety of difficult-to-control weeds. In addition, we are also investing substantially in our Plant Health program which includes biologicals, crop nutrition, and seed treatment products. Biological technologies offer excellent sustainability profiles and serve as strong complements to our synthetic products. Our biologicals feature attributes that exceed the competition, such as high stability, long shelf life, low use rates and compatibility with other chemistries.
We have our own sales and marketing organizations and access the market through a combination of distributors, retailers and co-ops in all four regions. In addition, we sell directly to large growers in select countries such as Brazil. Through these and other alliances, along with our own targeted marketing efforts, access to novel technologies and our innovation initiatives, we expect to maintain and enhance our access in key agricultural and non-crop markets and develop new products that will help us continue to compete effectively.
Industry Overview
The three principal categories of agricultural and non-crop chemicals are: herbicides, insecticides, and fungicides, representing approximately 42 percent, 29 percent and 26 percent of global agricultural crop protection market value, respectively.
The agrochemicals industry is more consolidated following several mergers of the leading crop protection companies, which now include FMC, ChemChina (owner of Syngenta Group, which includes the former Syngenta and Adama), Bayer AG (acquired Monsanto in 2018), BASF AG and Corteva Agriscience. These five innovation companies currently represent approximately 73 percent of the crop protection industry’s global sales. The next group of agrochemical producers include UPL Ltd., Sumitomo Chemical Company Ltd., and Nufarm Ltd. FMC employs various differentiated strategies and competes with unique technologies focusing on certain crops, markets and geographies, while also being supported by a low-cost manufacturing model.
Growth
We are among the leading agrochemical producers in the world. Several products from our portfolio are based on patent-protected active ingredients and position us to grow well above market patterns. Our complementary technologies combine improved formulation capabilities and a broader innovation pipeline, resulting in new and differentiated products. We continue to take advantage of enhanced market access positions and an expanded portfolio to deliver near-term growth.
We have a growth strategy driven by obtaining new and improved uses for existing product lines and acquiring, accessing, developing, marketing, distributing and/or selling complementary chemistries, biologicals, and related technologies in order to strengthen our product portfolio and our capabilities to effectively service our target markets and customers.
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Our growth efforts focus on developing environmentally compatible and sustainable solutions that can effectively increase farmers’ yields and provide alternatives to products which may be prone to resistance. We are committed to providing unique, differentiated products to our customers by acquiring and further developing technologies as well as investing in innovation to extend product life cycles. Our external growth efforts include product acquisitions, in-licensing of chemistries and technologies and alliances that bolster our market access, complement our existing product portfolio or provide entry into adjacent spaces. We have entered into a range of development and distribution agreements with other companies that provide access to new technologies and products which we can subsequently commercialize.
In FMC Precision Agriculture, we are broadening our award-winning ArcTM farm intelligence platform, a proprietary mobile solution that helps farmers better understand and manage pest pressure through predictive modeling based on real-time and historical data, entomological models, hyper-local weather information and in-field sensors. ArcTM farm intelligence, which is now available in over 25 countries across 20 million acres, allows growers to address pest pressure more efficiently, manage infestations before they escalate and target applications in a more sustainable manner.
Our venture capital arm, FMC Ventures, continued to build its portfolio in 2023 with new collaborations and strategic investments in start-ups and early stage companies working on new or disruptive technologies. These engagements, which support or augment our internal capabilities, span several important technology segments, including robotics, drone technology, Ag-FinTech, pathogen detection, soil health, peptides and pheromones. FMC Ventures continues to scout for and invest in game changing innovations that will shape the future of crop protection.
Diamide Growth Strategy
Our product portfolio features two key diamide-class molecules – Rynaxypyr® (chlorantraniliprole) and Cyazypyr® (cyantraniliprole) actives – with combined annual revenues of approximately $1.8 billion in 2023. These two molecules are industry-leading in terms of performance, combining highly effective low dose rates with fast-acting, systemic, long residual control. These attributes quickly established Rynaxypyr® active as the world’s leading insect control technology and we expect it to continue a strong growth trajectory notwithstanding the expiration of composition of matter patents covering Rynaxypyr® active in certain countries which started in late 2022. Our Cyazypyr® active, a second-generation diamide, is growing quickly as we obtain more product registrations. We expect Cyazypyr® active to continue to grow strongly notwithstanding the expiration of its active ingredient composition of matter patents starting in early 2024. This expectation is based not only on our broad patent estate and the timing of key patent milestones, but also on other critical elements that we believe will allow FMC to continue to profitably grow the diamide franchise well beyond the expiration of key patents. Some of the critical elements supporting our view of diamide growth include development of new formulations, registration and data protection, commercial strategies, brand recognition, as well as manufacturing and supply chain complexity and FMC efficiencies.
Patents and Trade Secrets. The FMC diamide insect control patent estate is made up of many different patent families which cover: Composition of matter – both active ingredients and certain intermediates; Manufacturing processes – both active ingredients and certain intermediates; Formulations; Uses; and Applications. For Rynaxypyr® and Cyazypyr® actives related patents, as of December 31, 2023, we had 42 families with granted patents filed in up to 76 countries, with a total of 755 active granted patents as well as numerous pending patent applications. See "Patents, Trademarks and Licenses" within this Item 1 for more details. FMC’s process patents cover the manufacturing processes for both active ingredients – chlorantraniliprole and cyantraniliprole – as well as key intermediates that are used to make the final products. Chlorantraniliprole is a complex molecule to produce, requiring 16 separate steps; FMC owns granted patents covering many of these 16 process steps and several of the intermediate chemicals, and we protect other aspects of the manufacturing processes by trade secret. Cyantraniliprole is similarly complex and covered by a comparable range of intellectual property. Many of these intermediate process patents run well past the expiration of the active ingredient composition of matter patents, and in some cases stretch until the end of this decade. Third parties that intend to manufacture and sell generic chlorantraniliprole or cyantraniliprole and rely on FMC’s extensive product safety data will be required to demonstrate that their product has an equivalent regulatory safety profile as FMC's Rynaxypyr® and Cyazypyr® actives. To meet regulatory requirements for such difficult-to-manufacture molecules, we believe that third parties will likely have to produce these active ingredients using the same processes that are patented by FMC and if so, would be infringing before patent expiration and subject to our challenge for infringement. FMC also owns formulation patents which cover the use of chlorantraniliprole or cyantraniliprole in specific formulations found in commercially important end-use products.
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Regulatory Requirements. In addition to the patent estate, various pesticide laws and regulations around the world offer added protection to the initial active ingredient registrant in the form of data protection that can extend after the composition or process patents have expired. These rules can effectively provide a product innovator and initial active ingredient registrant such as FMC with a further period of exclusive use of the key reference data even after the applicable active ingredient composition of matter patents have expired. Further, in certain countries, even after the period of exclusive use has expired, a generic entrant seeking to rely on the initial registrant’s reference data may have to pay compensation to the initial registrant. For FMC’s diamide products, such rights apply in key markets including United States and the European Union.
We also have actively advocated with regulatory agencies who are reviewing the applications of generic producers to ensure that regulators are aware of relevant regulatory considerations, such as the legal production status of the producing company, applicable FMC patents, and evidence of potential impurities or other data that are inconsistent with the FMC-registered product safety profile. In some countries, we have initiated administrative proceedings regarding compliance with applicable regulations.
Growing the FMC Diamide Franchise. FMC is executing a strategy to supply end-use products containing Rynaxypyr® and Cyazypyr® actives to a broad range of companies prior to patent expiration, and in return establishing long-term purchase commitments from these companies. These arrangements may also include limited patent, data and/or trademark licenses. Such partner relationships allow us to grow our business by having others develop and sell diamide-based products to meet farmers' needs not within our current portfolio, offering those farmers a better alternative to competing insecticides with product safety or efficacy profiles which are less attractive than Rynaxypyr® or Cyazypyr® actives. These agreements can require the third-party to use the well-known and trusted Rynaxypyr® or Cyazypyr® brand names on the end-use products formulated with active ingredient supplied by FMC. As of December 31, 2023, we had global agreements with five major multinational companies and approximately 56 separate local-country agreements covering over 19 countries. We are continuing to explore opportunities with additional companies beyond those with whom we are already engaged. Furthermore, FMC is developing an extensive portfolio of new diamide-containing products to address grower needs around the world. The first of these Rynaxypyr® active containing products, under the trademarks Elevest®, Vantacor®, and Altacor® eVo, were launched in the US and other countries, including Canada and Australia, starting in late 2020 through 2023 and will be launched in additional countries in 2024 onward. In 2023, Premio® Star insect control formulation was launched in Brazil and launches in other Latin American countries starting in 2025. Cyazypyr® active containing brands, under the trademarks Verimark®, Benevia®, and Exirel® were launched in certain southern European countries starting in 2023. Our current diamide pipeline contains approximately 20 new products to be launched this decade and we continue to explore further innovations based on the diamide chemistry.
Complexity of manufacturing. Today FMC manufactures all the required intermediates in the multi-step processes, as well as the final Rynaxypyr® and Cyazypyr® actives, at our own active ingredient manufacturing plants or through key contract manufacturers who produce under long-term exclusive technology-license agreements. Given our manufacturing know-how, scale of our operations, and continual investment in manufacturing process improvement, we believe FMC’s manufacturing costs will be substantially lower than any other party seeking to produce these diamide products at scale and in compliance with all applicable laws.
Collectively, these four factors – deep patent estate, proprietary regulatory data and regulatory advocacy, strong commercial approach leveraging our brand recognition, and capabilities of managing large scale manufacturing complexity – provide the basis for our expectation that FMC will be the company of choice to supply chlorantraniliprole and cyantraniliprole products to third-party partners, and ultimately to farmers, well into the future.
Source and Availability of Raw Materials
We utilize numerous vendors to supply raw materials and intermediate chemicals to support operations. These materials are sourced on a global basis to strategically balance FMC’s vendor portfolio.
Patents, Trademarks and Licenses
As an agricultural sciences company, FMC believes in innovation and in protecting that innovation through intellectual property rights. We own and license a significant number of U.S. and foreign patents, trademarks, trade secrets and other intellectual property that are cumulatively important to our business. In addition, we seek to license our proprietary technologies through partnering arrangements that effectively allow us to capitalize from our intellectual property. The FMC intellectual property estate provides us with a significant competitive advantage which we seek to expand and renew on a continual basis. We manage our technology investment to discover and develop new active ingredients and biological products, as well as to continue to improve manufacturing processes and existing active ingredients through new formulations, mixtures or other concepts. FMC’s technology innovation processes capture those innovations and protect them through the most appropriate form of intellectual property rights. We also in-license certain active ingredients and other technologies under patents held by third parties, and have granted licenses to certain of our patents to third parties.
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Our patents cover many aspects of our business, including our chemical and biological active ingredients, intermediate chemicals, manufacturing processes to produce such active ingredients or intermediates, formulations, and product uses, as well as many aspects of our research and development activities that support the FMC new product pipeline. Patents are granted by individual jurisdictions and the duration of our patents depends on their respective jurisdictions and payment of annuities.
As of December 31, 2023, the Company owned a total of approximately 200 active granted U.S. patents and 2,800 active granted foreign patents (includes Supplemental Patent Certificates); we also have approximately 2,300 patent applications pending globally.
In our current product portfolio, our diamide insect control products based on Rynaxypyr® (Chlorantraniliprole) and Cyazypyr® (Cyantraniliprole) active ingredients have a substantial patent estate which will remain in force well into the future. More details regarding our diamide granted patent estate are set forth in the tables below:
United States Foreign
Active Ingredients 2 169
Intermediates and Methods of Manufacturing 21 245
Formulations/Mixtures/Applications 7 311
*Patent families were only placed under one type but may cover several types.
United States Foreign
We also own many trademarks that are well recognized by customers or product end-users. Unlike patents, ownership rights in trademarks can be continued indefinitely so long as the trademarks are properly used and renewal fees are paid.
We actively monitor and manage our patents and trademarks to maintain our rights in these assets and we strategically take aggressive action when we believe our intellectual property rights are being infringed. Since 2022, continuing through 2023 and into 2024, we initiated proceedings to enforce several of our patents and trademarks against generic producers and infringers, resulting in multiple favorable judgments and settlements in several countries, including in the United States, India, and China. Patent challenges in response to enforcement efforts is expected as an ordinary defense tactic in patent enforcement cases, and have been raised in several of our enforcement cases to date; we intend to defend vigorously any diamide patents that are challenged. While we believe that the invalidity or loss of any particular patent, trademark or license after appeal would be an unlikely possibility, our patent and trademark estate related to our diamide insect control products based on Rynaxypyr® and Cyazypyr® active ingredients in the aggregate are of material importance to our operations.
The composition of matter patent that covers chlorantraniliprole (also known as Rynaxypyr® active) expired in a number of countries in August 2022; this patent will continue to remain in force in other countries throughout the world, expiring on a country-by-country basis at various dates through 2027. The composition of matter patent that covers cyantraniliprole (also known as Cyazypyr® active) expired in a number of countries starting in January 2024; this patent will continue to remain in force in other countries throughout the world, expiring on a country-by-country basis at various dates through January 2029.
Since expiration of the composition of matter patent on chlorantraniliprole in late 2022, generic competitors have, in some countries, registered and launched generic versions of our Rynaxypyr®-based products. We continue to deploy a multi-pronged strategy to defend that business after active ingredient patent expiration, including enforcement of our patents in many countries which continue to cover chemical intermediates and manufacturing processes that are essential in the production of chlorantraniliprole. Patents involve complex factual and legal issues and thus each case is being litigated on the merits; we often seek preliminary injunctive relief to stop sales of products which we believe to be infringing – since equitable relief at the early stage of a litigation is subject to a higher standard of proof than decisions made after a trial on the merits, we may have
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difficulty prevailing in all cases at that preliminary stage, and in a number of cases in India and China, we have not obtained that requested relief, allowing products to be launched while the underlying cases on the merits continue. Even in situations in which we are not able to prevail on interim relief, we intend to continue litigating in such cases and seek permanent injunctive relief and recovery of damages after a full trial. Patent challenges in response to enforcement efforts are expected as an ordinary defense tactic in patent enforcement cases; we intend to defend vigorously any diamide patents that are challenged.
In early 2022, we received notice that certain third parties were seeking to invalidate our Chinese patents on a certain intermediate involved in producing chlorantraniliprole and a process to produce chlorantraniliprole. During the third quarter of 2022, the China Patent Review Board ("Review Board") issued rulings which held that the two challenged patents were not valid in China. We believe the Review Board’s decisions are seriously flawed both on procedural and substantive grounds and we have appealed the Review Board's decision to the Beijing IP Court. Under Chinese law, the patents remain valid but are not enforceable pending appeal. As of the date of this Form 10-K, we are awaiting a decision from the Beijing IP Court. Given the unique and specific Chinese patent law issues at issue in that situation, we do not believe that the Review Board’s decisions would materially adversely impact our enforcement of similar patents in other countries.
In several of our pending India patent enforcement cases, defendant infringers have sought to invalidate the asserted FMC patent(s), but as of the date of this Form 10-K no such infringer has prevailed in an invalidation claim.
Seasonality
The seasonal nature of the crop protection market and the geographic spread of our business can result in significant variations in quarterly earnings among geographic locations. Our products sold in the northern hemisphere (North America, Europe and parts of Asia) serve seasonal agricultural markets from March through September, generally resulting in significant earnings in the first and second quarters, and to a lesser extent in the fourth quarter. Markets in the southern hemisphere (Latin America and parts of the Asia Pacific region, including Australia) are served from July through February, generally resulting in earnings in the third, fourth and first quarters.
Competition
We encounter substantial competition in our business. We market our products through our own sales organization and through alliance partners, independent distributors and sales representatives. The number of our principal competitors varies from market to market. In general, we compete by providing advanced technology, high product quality, reliability, quality customer and technical service, and by operating in a cost-efficient manner.
Our business competes primarily in the global crop protection market for insecticides, herbicides and fungicides. Industry products include crop protection chemicals and biologicals, for certain major competitors, genetically engineered (crop biotechnology) products. Competition from generic agrochemical producers is significant as a number of key product patents have expired in the last two decades. In general, we compete as an innovator by focusing on product development, including novel formulations, proprietary mixes, and advanced delivery systems and by acquiring or licensing (mostly) proprietary chemistries or technologies that complement our product and geographic focus. We also differentiate ourselves by our global cost-competitiveness through our manufacturing strategies, establishing effective product stewardship programs and developing strategic alliances that strengthen market access in key countries and regions.
Research and Development Expense
The R&D efforts in our business focus on discovering and developing environmentally sound solutions — both new active ingredients and new product formulations — that meet the needs of farmers to maximize yields and control pests. We are continuously investing into our FMC Stine Research Center in Newark, Delaware, to upgrade the site infrastructure and equipment.
Environmental Laws and Regulations
A discussion of environmental related factors can be found in Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Note 11 "Environmental Obligations" in the notes to our consolidated financial statements included in this Form 10-K.
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Human Capital
At FMC, employees are guided by our purpose: Innovation for agriculture; Solutions for the planet. We provide farmers innovative solutions that increase the productivity and resilience of their land. From our industry-leading discovery pipeline to novel biologicals and precision technologies, we are passionate about the power of science to solve agriculture's biggest challenges. Our employees’ belief in this purpose and commitment to our core values are key to the company’s success.
Employees
We employ approximately 6,600 people, which is split across our major geographical regions with 24 percent in North America, 12 percent in Latin America, 24 percent in Europe, Middle East & Africa, and 40 percent in Asia as of December 31, 2023.
Approximately 3 percent of our U.S.-based and 31 percent of our foreign-based employees, respectively, are represented by collective bargaining agreements. We have successfully concluded our recent contract negotiations without any material work stoppages. We cannot predict, however, the outcome of future contract negotiations. In 2024, 6 foreign collective-bargaining agreements will be expiring. These contracts affect approximately 21 percent of our foreign-based employees. There are no U.S. collective-bargaining agreements expiring in 2024.
Talent Development and Retention
At FMC, it is important that we focus our programs and initiatives on sustaining strong leaders who are committed to engaging and developing employees, so they can lead competitively, innovate change, improve business performance, and successfully maintain a competitive advantage. FMC provides leadership development through structured leadership programs worldwide. FMC’s program components include in-class and self-paced learning, development planning and stretch assignments, project-based action learning and rotational learning, mentoring and coaching, and leadership and functional assessments. Our programs are designed to provide engaging, collaborative, and creative learning environments. Employees leverage their experiences in these programs to develop leadership abilities to their highest levels, enabling them to deliver innovative solutions, strong results and continued growth.
FMC continually strives to meet the needs of our employees, shareholders, and customers through competitive rewards, policies, and practices that support the company as an employer of choice in every market where we compete for talent. FMC compensates employees through total reward programs that are aligned with performance and competencies. Performance-based direct pay programs include competitive base pay, annual bonus opportunities, sales incentive plans, and long-term incentives. These compensation elements along with benefits, work-life flexibility, recognition awards, talent and career development, enable FMC to offer a comprehensive total reward package designed for employees throughout their career.
Diversity, Equity and Inclusion
An important element of our company’s growth strategy is our commitment to Diversity Equity & Inclusion ("DEI"). As we continue to evolve as a company, one of our guiding principles is to ensure everyone can be themselves authentically, feel supported, have a sense of belonging, and be treated fairly in opportunities to succeed.
The impact of our global DEI program extends beyond the four walls of FMC, as evidenced in our strategic investments in external partnerships and community outreach. We support STEM education in minority and underrepresented communities and sponsor scholarships for college students in STEM-based career majors at Historically Black Colleges & Universities ("HBCUs") in the United States and scholarships for women in agriculture career tracks at colleges/universities in other countries (e.g., Australia, India, etc.). We also support internship and apprenticeship programs, as well as early career development initiatives at the high school and lower levels, to expose students early to career opportunities in the field of agriculture.
Strong employee engagement is pivotal to fostering an inclusive culture at FMC. This is enabled by our Regional Inclusion Councils which include workstreams that represent our Employee Resource Groups. These employee-led teams provide and host impactful learning and awareness initiatives that help provide stronger allyship & advocacy for employees through informal connections, engagement, and support across various dimensions of diversity. For the fourth year in a row, FMC earned top score in the Human Rights Campaign Foundation’s 2023-2024 Corporate Equality Index, receiving a 100 percent score in the nation’s foremost benchmarking survey and report measuring corporate policies and practices related to LGBTQ+ workplace equality.
FMC tracks gender and racial representation as part of its recruitment, performance, and development processes to ensure equitable processes and to build a more representative leadership pipeline. Management is expected to actively support diversity initiatives for their respective geographies and business, as applicable, in order to build a more inclusive environment.
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Safety
Safety is a core value of FMC. We strive for an injury-free workplace, where every person returns home the same way they arrived. We encourage a culture of open reporting, to learn from our mistakes and work towards continuous improvement in behaviors and processes. As a result of our firm commitment to safety, our Total Recordable Incident Rate of 0.0547 continues to be among the lowest in the industry globally and in the top decile of peer companies in North America, placing our company among the safest organizations in the chemical industry. This level of performance underscores our collective commitment to work safely every day. We empower our people to always put safety first at work and at home.
Sustainability
We are committed to delivering products that improve agricultural productivity protecting the environment for future generations. To reflect this commitment, we established sustainability goals to challenge ourselves and ensure that we are helping to create a better world. We recognize that sustainability goes beyond reducing emissions, it also encompasses human rights, the importance of nature, including biodiversity and how we utilize scarce resources such as water. FMC is aligned with the UN Sustainable Development Goals #2 (Zero Hunger), #8 (Decent Work and Economic Growth), #13 (Climate Action) and #15 (Life on Land). FMC has established 2025 and 2035 sustainability goals. Our 2025 goals include: 100 percent research and development spend on sustainable products, a total recordable incident rate of less than 0.1, and a score of 100 on the Community Engagement Index. Our 2035 goals include: 100 percent implementation of sustainable water practices, 100 percent waste to beneficial reuse, and net-zero greenhouse gas (“GHG”) emissions across the value chain (Scopes 1, 2 and 3). FMC is committed to the Science Based Target initiative ("SBTi"), Net-Zero Standard, in line with keeping the global temperature at 1.5°C above pre-industrial time and is in alignment with the Paris Agreement. FMC received validation on its near-term and net-zero targets in March of 2023. We are committed to a 42% reduction in Scopes 1 and 2, and 25% reduction in Scope 3 by 2030, with a net-zero target across the value chain by 2035. FMC continues to make progress towards achieving our 2025 and 2035 environmental goals and our progress is reported annually in our sustainability report.
FMC developed and utilizes its Sustainability Assessment Tool to determine the sustainability of new active ingredients and formulated products in the research and development pipeline. This assessment, along with other product stewardship processes and tools, promotes the introduction and use of environmentally sustainable agricultural solutions.
At FMC, we embed stewardship at each stage of the product life cycle, and stewardship priorities are built into the core of research and development, portfolio and marketing strategies. We continue to strive for open and transparent communications about our product stewardship successes and challenges. FMC is continuing to phase out Highly Hazardous Pesticides (“HHPs”) from our product portfolio. In 2023, HHPs accounted for approximately 0.1 percent of our total sales. This reduction of HHPs in our portfolio can be attributed to our internal processes which include continuous evaluation, close monitoring and subsequent phase out along with strong stewardship actions.
SEC Filings
SEC filings are available free of charge on our website, www.fmc.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are posted as soon as practicable after we furnish such materials to the SEC.
REGULATION FD DISCLOSURES
The Company’s investor relations website, located at https://investors.fmc.com, should be considered as a recognized channel of distribution, and the Company may periodically post important information to the web site for investors, including information that the Company may wish to disclose publicly for purposes of complying with the federal securities laws and our disclosure obligations under the SEC's Regulation FD. We encourage investors and others interested in the Company to monitor our investor relations website for material disclosures. Our website address is included in this Form 10-K as a textual reference only and the information on the website is not incorporated by reference into this Form 10-K.
ITEM 1A. RISK FACTORS
Among the factors that could have an impact on our ability to achieve operating results and meet our other goals are:
Industry Risks:
Pricing and volumes in our markets are sensitive to a number of industry specific and global issues and events including:
•Competition and new agricultural technologies - Our business faces competition, which could affect our ability to maintain or raise prices, successfully enter certain markets or retain our market position. Competition for our business
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includes not only generic suppliers of the same pesticidal active ingredients but also alternative proprietary pesticide chemistries and crop protection technologies that are bred into or applied onto seeds. Increased generic presence in agricultural chemical markets has been driven by the number of significant product patents and product data protections that have expired in the last decade, and this trend is expected to continue. Also, there are changing competitive dynamics in the agrochemical industry as some of our competitors have consolidated, resulting in them having greater scale and diversity, as well as market reach. These competitive differences may not be overcome and may erode our business. Agriculture in many countries is changing and new technologies (e.g., precision pest prediction or application, data management) continue to emerge. At this time, the scope and potential impact of these technologies are largely unknown but could have the potential to disrupt our business.
•Climate conditions - Our markets are affected by climatic conditions, both chronic and acute, which could adversely impact crop yields, pricing and pest infestations. For example, drought may reduce the need for fungicides, which could result in fewer sales and greater unsold inventories in the market, whereas excessive rain could lead to increased plant disease or weed growth requiring growers to purchase and use more pesticides. Drought and/or increased temperatures may change insect pest pressures, requiring growers to use more, less, or different insecticides. Natural disasters can impact production at our facilities in various parts of the world. The nature of these events makes them difficult to predict.
•Geographic cyclicality - While our business is well balanced geographically, in any given calendar quarter a certain geography(ies) may predominate the demand for our products in light of seasonal variations typically associated with the crop protection market and the geographic regions in which we operate. Unexpected market conditions in any such predominating geography, such as adverse weather, pest pressures, or other risks described herein, may impact our business if occurring during a calendar quarter in which such geography is predominating.
•Changing regulatory environment and public perception - Changes in the regulatory environment, particularly in the U.S., Brazil, China, India, Argentina and the European Union, could adversely impact our ability to continue producing and/or selling certain products in our domestic and foreign markets or could increase the cost of doing so. We are sensitive to regulatory risk given the need to obtain and maintain pesticide registrations in every country in which we sell our products. Moreover, we are required to comply with protocols or applicable regulatory requirements of biological products. Protocols and regulations may change, or regulatory agencies may determine that a biological product is not approvable. There is a risk that future regulatory requirements may lead to delays in development of biologicals or limit growth from biologicals. Many countries require re-registration of pesticides to meet new and more challenging requirements; while we defend our products vigorously, these re-registration processes may result in significant additional data costs, reduced number of permitted product uses, or potential product cancellation. Compliance with changing laws and regulations may involve significant costs or capital expenditures or require changes in business practice that could result in reduced profitability. In the European Union, the regulatory risk specifically includes the chemicals regulation known as REACH (Registration, Evaluation, and Authorization of Chemicals), which requires manufacturers to verify through a special registration system that their chemicals can be marketed safely. Changes to the regulatory environment may be influenced by non-government public pressure as a result of negative perception regarding the use of our crop protection products. Products reviewed by regulators and labeled safe for use may still be challenged by others which could lead to negative public perception or regulatory action. Competing products labeled safe for use were subject to lawsuits or claims, and a similar situation for our products could result in negative impacts. In addition, climate change may result in changes to the governmental policy around greenhouse gases, including emission caps, trade regulations and other mechanisms to promote reduction of carbon emissions. Depending on their nature and scope, this could subject our manufacturing operations and suppliers to significant additional costs or limits on operations and affect the sources and supply of energy. In addition, corporate Environmental Social and Governance (“ESG”) commitments and shifting market pressures in response to climate regulation and consumer expectations mayinfluence demand of crop protection products.
•Geographic presence outside of U.S. - We have a strong presence in Latin America, Europe and Asia, as well as in the U.S. We have continued to grow our geographic footprint particularly in Europe and key Asian countries such as India, which means that developments outside the U.S. will generally have a more significant effect on our operations than in the past. Our operations outside the U.S. are subject to special risks and restrictions, including: fluctuations in currency values; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions or tariffs; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad.
•Climate change and land use impacts - Climate change may impact markets in which we sell our products, where, for example, a prolonged drought may result in decreased demand for our products. The more gradual effects of persistent temperature change in geographies with significant agricultural lands may result in changes in lands suitable for agriculture or changes in the mix of crops suitable for cultivation and the pests that may be present in such geographies. These shifts in pests may become more rapid and persistent with rising temperatures and increasing GHG
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levels. For example, prolonged increase in average temperature may make northern lands suitable for growing crops not grown historically in such climates, leading growers to shift from crops such as wheat to soybean. It may also result in new or different weed, plant disease or insect pressures and such changes could impact the mix of crop protection products growers would purchase and, depending on the local market and our product offering, may be adverse for us. Growers may need to implement regenerative practices and shift to more climate-adaptive products as climate change impacts global crop yields and shifts harvestable regions and pest pressures.
•Fluctuations in commodity prices - Our operating results could be significantly affected by the cost of commodities such as chemical raw material commodities, energy commodities, and harvested crop commodities. We may not be able to raise prices or improve productivity sufficiently to offset future increases in chemical raw material or energy commodity pricing. Accordingly, increases in such commodity prices may negatively affect our financial results. We use hedging strategies, where available on reasonable terms, to address energy and material commodity price risks. However, we are unable to avoid the risk of medium- and long-term increases. Additionally, fluctuations in harvested crop commodity prices could negatively impact our customers' ability to sell their products at previously forecasted prices resulting in reduced customer liquidity. Inadequate customer liquidity could affect our customers’ abilities to pay for our products and, therefore, affect existing and future sales or our ability to collect on customer receivables.
•Supply arrangements - Certain raw materials are critical to our production processes and our purchasing strategy and supply chain design are complex. We are closely monitoring raw material and supply chain costs. While we have made supply arrangements to meet planned operating requirements, an inability to obtain the critical raw materials or operate under contract manufacturing arrangements would adversely impact our ability to produce certain products and could lead to operational disruption and increase uncertainties around business performance. We source critical intermediates and finished products from a number of suppliers, largely outside of the U.S. and principally in China and India. An inability to obtain these products or execute under contract sourcing arrangements would adversely impact our ability to sell products. Our supply chain and business operations could be disrupted from the temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply or restrictions on the export or shipment of our products. Any disruption of our suppliers and contract manufacturers could impact our sales and operating results. In recent years, we have seen some logistics challenges, pointed supply chain shortages, and increased cost of goods due to disruptions in energy markets (such as that caused by the Russian war on Ukraine) and inflation.
Operational Risks:
•Global catastrophic events - A global catastrophic event (e.g., nuclear incident, pandemic, natural disaster) could endanger the lives and safety of our employees, limit market access, constrain supply and would require high levels of cross-functional coordination to maintain business continuity. If not properly managed, FMC could suffer substantial financial losses should the event negatively impact our operations or those of our customers. Global catastrophic events could also result in social, economic, and labor instability in the countries in which we or our customers and suppliers operate. These uncertainties could have a material adverse effect on our business and our results of operation and financial condition. A widespread health crisis could adversely affect the global economy, resulting in an economic downturn that could impact demand for our products. For example, the COVID-19 pandemic caused significant disruptions in the U.S. and global economies and resulted in persistent uncertainties throughout the duration of the pandemic.
•Business disruptions - We produce products through a combination of owned facilities and contract manufacturers. We own and operate large-scale active ingredient manufacturing facilities in the U.S. (Mobile), Puerto Rico (Manati), China (Jinshan), Denmark (Ronland), and India (Panoli). Our operating results are dependent in part on the continued operation of these production facilities. Interruptions at these facilities may materially reduce the productivity of a particular manufacturing facility, or the profitability of our business as a whole. Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations and those of our contract manufacturers are subject to hazards inherent in chemical manufacturing and the related storage and transportation of raw materials, products and waste. These potential hazards include explosions, fires, mechanical failure, unscheduled downtimes, supplier disruptions, labor shortages or other labor difficulties, information technology systems outages, disruption in our supply chain or manufacturing and distribution operations, transportation interruptions, chemical spills, discharges or releases of toxic or hazardous substances or gases, shipment of contaminated or off-specification product to customers, storage tank leaks, other environmental risks, cyberattacks, or other sudden disruption in business operations beyond our control as a result of events such as acts of sabotage, terrorism or war, civil or political unrest, severe weather and natural disasters, large scale power outages and public health epidemics and pandemics. Some of these hazards may cause severe damage to or destruction of property and equipment or personal injury and loss of life and may result in suspension of operations or the shutdown of affected facilities.
•Climate change and physical risk to operation sites - The acute and chronic effects of climate change such as rising sea levels, drought, flooding, hurricanes, excessive heat and general volatility in seasonal temperatures could adversely affect our operations globally. Extreme weather events attributable to climate change may result in, among other
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things, physical damage to our property and equipment, increased resource scarcity, including water, and interruptions to our supply chain. All of these items may have significant costs or capital expenditures.
•Litigation and environmental risks - Current reserves relating to our ongoing litigation and environmental liabilities may ultimately prove to be inadequate, which may have a material adverse impact on our results of operations. Products reviewed by regulators and labeled safe for use may still be challenged by others which could result in lawsuits or claims.
•Hazardous materials - We manufacture and transport certain materials that are inherently hazardous due to their toxic or volatile nature. While we take precautions to handle and transport these materials in a safe manner, if they are mishandled or released into the environment, they could cause property damage or result in personal injury claims against us.
•Environmental compliance - We are subject to extensive federal, state, local, and foreign environmental and safety laws, regulations, directives, rules and ordinances concerning, among other things, emissions in the air, discharges to land and water, and the generation, handling, treatment, disposal and remediation of hazardous waste and other materials. We may face liability arising out of the normal course of business or now discontinued operations, including alleged personal injury or property damage due to exposure to chemicals or other hazardous substances at our current or former facilities or chemicals that we manufacture, handle or own. We take our environmental responsibilities very seriously, but there is a risk of environmental impact inherent in our manufacturing operations and transportation of chemicals. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.
Portfolio Management Risks:
•Portfolio management risks - We continuously review our portfolio which includes the evaluation of potential business acquisitions that may strategically fit our business and strategic growth initiatives. If we are unable to successfully integrate and develop our acquired businesses, we could fail to achieve anticipated synergies including expected cost savings and revenue growth. Failure to achieve these anticipated synergies could materially and adversely affect our financial results. In addition to strategic acquisitions we evaluate the diversity of our portfolio in light of our objectives and alignment with our growth strategy, which may result in divestiture of underperforming or non-strategic assets. In implementing this strategy, we may not be successful and the gains or losses on the divestiture of, or lost operating income from, such assets may affect the Company’s earnings and debt levels. Moreover, we may incur asset impairment charges related to acquisitions or divestitures that negatively impact earnings and our financial position.
•Technological and new product discovery/development - Our ability to compete successfully depends in part upon our ability to maintain a superior technological capability and to continue to identify, develop and commercialize new and innovative, high value-added products for existing and future customers. Our investment in the discovery and development of new pesticidal active ingredients relies on discovery of new chemical molecules, biological strains or formulations. Such discovery processes depend on our scientists being able to find new molecules, strains and formulations, which are novel and outside of patents held by others, and such molecules/strains/formulations being efficacious against target pests. Our process also depends on our ability to develop those molecules, strains and formulations into new products without creating an undue risk to human health and the environment as well as meeting applicable regulatory criteria. The timeline from active ingredient discovery through full development and product launch averages 8-10 years depending on local regulatory requirements; the complexity and duration of developing new products create risks that product concepts may fail during development or, when launched, may not meet then-current market needs or competitive conditions.
•Innovation and intellectual property - Our innovation efforts are protected by patents, trade secrets and other intellectual property rights that cover many of our current products, manufacturing processes, and product uses, as well as many aspects of our research and development activities supporting our new product pipeline. Trademarks protect valuable brands associated with our products. Patents and trademarks are granted by individual jurisdictions and the duration of our patents depends on their respective jurisdictions and payment of annuities. Our future performance will depend on our ability to address expiration of active ingredient composition of matter patents. We address patent expirations through effective enforcement of our patents that continue to cover key chemical intermediates and process patents, as well as portfolio life cycle management, particularly for our high value diamide insecticides (see "Diamide Growth Strategy" and "Patents, Trademarks and Licenses" in Item 1 for more details). If our innovation efforts fail to result in process improvements to reduce costs, such conditions could impede our competitive position. Some of our competitors may secure patents on production methods or uses of products that may limit our ability to compete cost-effectively.
•Enforcement of intellectual property rights - The composition of matter patents on our Rynaxypyr® active ingredient are expiring in several key countries. We have a broad estate of additional patents regarding the production of Rynaxypyr® active ingredient, as well as trademark and data exclusivity protection in certain countries that extend well beyond the scope of the active ingredient composition of matter patents. (See "Diamide Growth Strategy" and "Patents, Trademarks and Licenses" in Item 1). We intend to strategically and vigorously enforce our patents and other
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forms of intellectual property and have done so already against several third parties. Other third parties may seek to enter markets with infringing products or may find alternative production methods that avoid infringement. We may not be successful in litigating to enforce our patents due to the risks inherent in any litigation. Patents involve complex factual and legal issues and, thus, the scope, validity or enforceability of any patent claims we have or may obtain cannot be clearly predicted. Patents may be challenged in the courts, as well as in various administrative proceedings before U.S. or foreign patent offices, and may be deemed unenforceable, invalidated or circumvented. We are currently and may in the future be a party to various lawsuits or administrative proceedings involving our patents. (See "Patents, Trademarks and Licenses" in Item 1). Such challenges can result in some or all of the claims of the asserted patent being invalidated or deemed unenforceable. As noted in Item 1 "Business," two such patents have been ruled invalid in China and are currently on appeal. In such circumstances, an adverse patent enforcement decision could lead to the entry of competing chlorantraniliprole products in relevant markets and may result in a material adverse impact our financial results.
•ERP governance - We operate on a single global instance of SAP. Unmanaged or poorly managed system and hardware changes across the enterprise may disrupt operations, introduce vulnerabilities, and result in increased maintenance.
•Potential tax implications of FMC Lithium separation - We received an opinion from outside counsel to the effect that the spin-off of FMC Lithium as a distribution to our stockholders, completed in March 2019, qualified as a non-taxable transaction for U.S. federal income tax purposes. The opinion is based on certain assumptions and representations as to factual matters from both FMC and FMC Lithium, as well as certain covenants by those parties. The opinion cannot be relied upon if any of the assumptions, representations or covenants is incorrect, incomplete or inaccurate or is violated in any material respect. The opinion of counsel is not binding upon the IRS or the courts and there is no assurance that the IRS or a court will not take a contrary position. It is possible that the IRS or a state or local taxing authority could take the position that the aforementioned transaction results in the recognition of significant taxable gain by FMC, in which case FMC may be subject to material tax liabilities.
Financial Risks:
•Foreign exchange rate risks - We are an international company operating in many countries around the world, and thus face foreign exchange rate risks in the normal course of business. We are particularly sensitive to the movements of the Brazilian real, Chinese yuan, Indian rupee, Euro, Mexican peso and Argentine peso. While we engage in hedging and other strategies to mitigate these risks, unexpected severe changes in foreign exchange may create risks that could materially and adversely affect our expected performance.
•Uncertain tax rates - Our future effective tax rates may be materially impacted by numerous items such as: a future change in the composition of earnings from foreign and domestic tax jurisdictions, as earnings in foreign jurisdictions are typically taxed at different statutory rates than the U.S. 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 law; currency gains and losses; and decisions to repatriate certain future foreign earnings on which U.S. or foreign withholding taxes have not been previously accrued.
•Uncertain recoverability of investments in long-lived assets - We have significant investments in long-lived assets and continually review the carrying value of these assets for recoverability in light of changing market conditions and alternative product sourcing opportunities. We may recognize future impairments of long-lived assets, which could adversely affect our results of operations.
•Pension and postretirement plans - Our U.S. Qualified Plan has been fully funded for the last several years and as such, the primary investment strategy is a liability hedging approach with an objective of maintaining the funded status of the plan such that the funded status volatility is minimized and the likelihood that we will be required to make significant contributions to the plan is limited. The portfolio is comprised of 100 percent fixed income securities and cash. Our plan assets and obligation under our U.S. Qualified Plan is in excess of $1 billion. Additionally, obligations related to our pension and postretirement plans reflect certain assumptions. To the extent actual experience differs from these assumptions, our costs and funding obligations could increase or decrease significantly. While we provide other defined benefit, defined contribution and postretirement benefits to our employees and retirees, our risk is focused on our U.S. Qualified Plan given its size to our consolidated financial position.
General Risk Factors:
•Market access risk - Our results may be affected by changes in distribution channels, which could impact our ability to access the market. Consolidation of the value chain may limit FMC’s access in certain markets. Acquisition of retailers and wholesalers, particularly by competitors, could restrict FMC’s distribution footprint. Failure to adapt to similar trends in business to business and business to consumer could place FMC at a competitive disadvantage.
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•Compliance with laws and regulations - The global regulatory environment is becoming increasingly complex and requires more resources to effectively manage, which may increase the potential for misunderstanding or misapplication of regulatory standards.
•Talent engagement and ethics/culture - The inability to recruit and retain key personnel, the unexpected loss of key personnel, or other external and internal factors and events could culminate in employee attrition and may adversely affect our operations. In addition, our future success depends in part on our ability to identify and develop talent to succeed senior management and other key members of the organization. We operate in markets where business ethics and local customs may differ from our company standards, increasing the risk of impropriety and regulatory enforcement. Significant effort will likely be required to ensure that the right mix of resources are trained, engaged and focused on achieving business objectives while adhering to our core values of safety, ethics and compliance.
•Economic and geopolitical change - Our business has been and could continue to be adversely affected by economic and political changes in the markets where we compete including: trade restrictions, tariff increases or potential new tariffs, foreign ownership restrictions and economic embargoes imposed by the U.S. or any of the foreign countries in which we do business; changes in laws, taxation, and regulations and the interpretation and application of these laws, taxes, and regulations; restrictions imposed by the U.S. government or foreign governments through exchange controls or taxation policy; nationalization or expropriation of property, undeveloped property rights, and legal systems or political instability; other governmental actions; inflation rates and inflationary pressures leading to higher input costs, recessions; and other external factors over which we have no control. Continued inflationary pressures may negatively impact our revenue, gross and operating margins, and net income. For additional details, refer to the "Inflation" section of our Management's Discussion and Analysis in Item 7. Economic and political conditions within the U.S. and foreign jurisdictions or strained relations between countries could result in fluctuations in demand, price volatility, loss of property, state sponsored cyberattacks, supply disruptions, or other disruptions. An open conflict or war across any region significant to our business could result in plant closures, employee displacement, and an inability to obtain key supplies and materials. In mid-April 2022, we announced the decision to discontinue our operations and business in Russia, as a result of their invasion of Ukraine, which resulted in a charge to our results of operations related to noncash asset write offs. Our values as a company did not allow us to operate and grow our business in Russia. The current military conflict between Russia and Ukraine could disrupt or otherwise adversely impact our operations in Ukraine; and related sanctions, export controls or other actions that may be initiated by nations including the U.S., the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.) could adversely affect our business and/or our supply chain, business partners or customers in other countries beyond Ukraine. In Argentina, continued inflation and foreign exchange controls could adversely affect our business. Losses may be incurred as a result of various government actions in the country such as the devaluation of the Argentine peso, changes in tax policies, and changes in capital controls/policies. Realignment of change in regional economic arrangements could have an operational impact on our businesses. Our enforcement of intellectual property rights in jurisdictions outside of the United States may be impacted by geopolitical tensions between the United States and those other countries. In China, unpredictable enforcement of environmental regulations could result in unanticipated shutdowns in broad geographic areas, impacting our contract manufacturers and raw material suppliers.
•Information technology security and data privacy risks - As with all enterprise information systems, our information technology systems and systems operated by our vendors and third parties could be penetrated by outside parties’ intent on observing or gathering information, extracting information, corrupting information, deploying ransomware, or disrupting business processes. Remote and other work arrangements may leave the Company more vulnerable to a cyberattack. Our systems have in the past been, and likely will in the future be, subject to unauthorized access attempts. Implementing system updates or security patches in an untimely manner could leave our company exposed to security breaches. Unauthorized access to our networks or systems could disrupt our business operations and potentially result in failures or interruptions in our information systems, lockouts due to ransomware, or in the loss of assets and could have a material adverse effect on our business, financial condition or results of operations. We engage in response planning, simulations, trainings, tabletop exercises, and other efforts to mitigate risks associated with cybersecurity. Breaches of our security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary, sensitive, or confidential information about the Company, our employees, our vendors, or our customers, could result in litigation, violations of various data privacy regulations in some jurisdictions, and potentially result in a liability. We have not experienced a significant or material impact from these events to date and we may need to expend significant resources to maintain or continue to mature our protective and preventative measures to stay abreast of the ever-changing cybersecurity threat. We maintain a multifaceted cybersecurity program designed to identify, protect, detect, respond, and recover from a cybersecurity event. We ensure that the program is aligned with the National Institute of Standards and Technology ("NIST") Cybersecurity Framework. Additionally, we continually engage in response planning, simulations, trainings, tabletop exercises, and other efforts to mitigate risk and prepare for a rapid response to any cybersecurity events. While we have taken measures to assess the requirements of, and to comply with the rapidly growing cybersecurity and data privacy regulations in multiple jurisdictions, these measures may be challenged by authorities that regulate cybersecurity and data-related compliance. We could incur
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significant expense in facilitating and responding to investigations and if the measures we have taken prove to be inadequate, we could face fines or penalties. This could damage our reputation, or otherwise harm our business, financial condition, or results of operations.
•Access to debt and capital markets - We rely on cash generated from operations and external financing to fund our growth and working capital needs. Limitations on access to external financing could adversely affect our operating results. Moreover, interest payments, dividends and the expansion of our business or other business opportunities may require significant amounts of capital. We believe that our cash from operations and available borrowings under our revolving credit facility will be sufficient to meet these needs in the foreseeable future. However, if we need external financing, our access to credit markets and pricing of our capital will be dependent upon maintaining sufficient credit ratings from credit rating agencies and the state of the capital markets generally. There can be no assurances that we would be able to obtain equity or debt financing on terms we deem acceptable, and it is possible that the cost of any financings could increase significantly, thereby increasing our expenses and decreasing our net income. If we are unable to generate sufficient cash flow or raise adequate external financing, including as a result of significant disruptions in the global credit markets, we could be forced to restrict our operations and growth opportunities, which could adversely affect our operating results.
•Credit default risks - We may use our existing revolving credit facility to meet our cash needs, to the extent available. In the event of a default in this credit facility or any of our senior notes, we could be required to immediately repay all outstanding borrowings and make cash deposits as collateral for all obligations the facility supports, which we may not be able to do. Any default under any of our credit arrangements could cause a default under many of our other credit agreements and debt instruments. Without waivers from lenders party to those agreements, any such default could have a material adverse effect on our ability to continue to operate.
•Exposure to global economic conditions - Deterioration in the global economy and worldwide credit and foreign exchange markets could adversely affect our business. A worsening of global or regional economic conditions or financial markets could adversely affect both our own and our customers' ability to meet the terms of sale or our suppliers' ability to perform all their commitments to us. A slowdown in economic growth in our international markets, or a deterioration of credit or foreign exchange markets could adversely affect customers, suppliers and our overall business there. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell their commodities at prevailing international prices, and we may be unable to collect receivables from such customers.
•Restructuring – On December 15, 2023, the Board of Directors authorized management to proceed with a global restructuring plan which is referred to as “Project Focus.” Project Focus is designed to right-size our cost base and optimize our footprint and organizational structure with a focus on driving significant cost improvement and productivity in light of the precipitous drop in demand across the crop protection industry in 2023. We cannot guarantee that the activities under the restructuring program will result in the desired efficiencies and estimated cost savings, if any. In addition, our failure to effectively manage organizational changes as part of the restructuring program may lead to increased attrition and harm our ability to attract and retain key talent. Failure to successfully execute and realize the expected synergies from the restructuring program could materially and adversely affect our expected performance.
•Channel inventory behavior – The Company relies in many countries and in varying degrees on distribution channels to access the market and reach farmers or other end use customers. An abrupt and widespread shift in purchasing behaviors (e.g., the current inventory destocking phenomenon) by channel partners and end use customers has and may continue to negatively and materially impact the Company’s volumes across important markets, which has adversely affected and may continue to adversely affect our results of operations. Such adverse effects could include but not be limited to materially reduced volumes purchased by customers, resulting in not only reduced sales, but also the Company bearing higher volumes of unsold product inventory, excess raw materials, and correspondingly increased carrying costs.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
Cybersecurity Processes
As noted in Item 1A. Risk Factors, FMC recognizes that the threat of cybersecurity breaches may create significant risks for the Company. Accordingly, we are committed to an ongoing and comprehensive program to protect all company data, as well as data in our supply chain, from these threats. Our cybersecurity program includes governance defined by IT policies and standards and a robust IT risk management program. FMC uses several tools and controls to manage IT risk including, but not limited to, controls for the management of privileged access, anti-malware tools, required trainings for employees including an annual training module, simulated email phishing attacks, and other email security tools to detect and prevent intrusions as well as monitor threats. FMC employees have access to formal IT policies that define and clarify expected behaviors with respect to IT resources in various areas. The Company has a Cyber Incident Response Plan, which establishes procedures to prepare for and respond to a variety of cyber incidents, and continuously engages in response planning, simulations, trainings, tabletop exercises, and other efforts to mitigate risk and prepare for a rapid response to any incidents should they occur. Additionally, our contracts with third-party providers require those organizations to notify FMC of any cyber incident that occurs when our information has been impacted. FMC frequently communicates with our third-party service providers to ensure timely notification of any matters that may impact our data security.
Periodically, the Company has its cybersecurity programs audited by independent third parties using the NIST Cybersecurity Framework, which provides guidance to organizations on how to identify, prevent, detect, respond, and recover from cybersecurity threats. The most-recent audit was performed in 2022 over the Company’s 2021 cybersecurity program. The audit results showed that FMC has a mature and robust cybersecurity program that is rated at or above peer industry benchmarks and also provided insight for areas of future improvement in risk mitigation and further program development.
Management Oversight in Cybersecurity Governance
FMC’s senior management Operating Committee, which includes the Chief Executive Officer and all Company vice presidents, is responsible for review and oversight of the Company’s cybersecurity programs and risk assessment as well as the strategic direction of the program to address evolving risks. Specifically, David Kotch, Vice President and Chief Information Officer, serves as management’s expert in cybersecurity management. He has held various positions within the Company's IT department, has an educational background in Information Systems, and contributes technical expertise to the Company’s Operating Committee. He serves as a member of the Chemical Information Technology Center’s CIO organization and the CIO Executive Summit. Mr. Kotch also belongs to various business associations, including industry and government associations, to ensure timely receipt of critical threat information as well as access resources useful in developing cost-effective security solutions to protect the Company's personnel and information. Additionally, Andrew Sandifer, Executive Vice President and Chief Financial Officer, has completed continuing professional education courses covering the role of management and the board of directors in cybersecurity governance. Members of the management team are encouraged to engage in education opportunities related to cybersecurity.
FMC has established a process to assess the nature, scope and timing of a cyber incident and communicate the facts of the incident to management and the board of directors and, if needed, investors. In the event of a cybersecurity incident, the incident response team, which is managed by IT personnel, is responsible for ensuring the Chief Executive Officer and Operating Committee are notified in a timely manner. For any cybersecurity incident, there will be a cross-functional review, including the IT, legal, and finance teams, to evaluate qualitative and quantitative factors related to the incident to determine if the impact of the event is material. Individuals from other departments may be involved in this review depending on the facts and circumstances of the incident. These individuals will be responsible for responding to the event and monitoring the impacts on the Company’s operations, financial position, and results of operations. This team will also evaluate cyber incidents in the aggregate if related events occur. During the response and recovery related to a cyber incident, this team will meet daily or weekly depending on the severity of the event and continuously evaluate the nature, scope, and timing of the event. Members of the senior management Operating Committee, including the Chief Information Officer, Chief Financial Officer, Chief Accounting Officer, and General Counsel will be briefed as to the facts and circumstances of a cyber incident and determine if the event is considered material to the business. If such determination is made, the matter will be escalated to Board of Directors. For material incidents, the Company will provide information regarding the nature and scope of the incident to investors in compliance with SEC regulations. Throughout this process and the recovery following an incident, the Company is focused on considering the ever-changing facts and circumstances of the event and remaining as transparent with the investment community as possible.
During 2023, FMC did not directly experience a cybersecurity breach in any FMC system. During 2023, we did receive notification of cybersecurity breaches affecting third-party vendors, but none were material in nature for FMC.
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Board of Directors Oversight in Cybersecurity Governance
FMC’s Board of Directors oversees the Company’s cybersecurity program primarily through its Audit Committee, which is comprised of independent directors whose prior work experience provides them with insights as to potential cybersecurity risks and mitigation strategies. Company executives along with external and internal cybersecurity experts update the Audit Committee at least quarterly on risks related to cybersecurity and the steps taken to monitor and control risk exposure. Additionally, the results of periodic audits performed on the Company’s cybersecurity programs, described above, are communicated to the Audit Committee upon completion.
In addition to the routine updates provided to the Audit Committee, FMC has an established policy for communication of cybersecurity incidents with the Board of Directors and, if material, the investor community. Refer to the discussion above for further details of this policy.
ITEM 2. PROPERTIES
FMC leases executive offices in Philadelphia, Pennsylvania and operates 21 manufacturing facilities in 16 countries. Our major research and development facilities are in Newark, Delaware; Shanghai, China and Copenhagen, Denmark.
We believe our facilities are in good operating condition. The number and location of our owned or leased production properties for continuing operations are as follows:
North America Latin America Europe, Middle East and Africa Asia Total
ITEM 3. LEGAL PROCEEDINGS
Like hundreds of other industrial companies, we have been named as one of many defendants in asbestos-related personal injury litigation. Most of these cases allege personal injury or death resulting from exposure to asbestos in premises of FMC or to asbestos-containing components installed in machinery or equipment manufactured or sold by discontinued operations. The machinery and equipment businesses we owned or operated did not fabricate the asbestos-containing component parts at issue in the litigation. Further, the asbestos-containing parts for this machinery and equipment were accessible only at the time of infrequent repair and maintenance. A few jurisdictions have permitted claims to proceed against equipment manufacturers relating to insulation installed by other companies on such machinery and equipment. We believe that, overall, the claims against FMC are without merit.
As of December 31, 2023, there were approximately 10,976 premises and product asbestos claims pending against FMC in several jurisdictions. Since the 1980s, approximately 122,000 asbestos claims against FMC have been discharged, the overwhelming majority of which have been dismissed without any payment to the claimant. Since the 1980s, settlements with claimants have totaled approximately $207 million.
We intend to continue managing these asbestos-related cases in accordance with our historical experience. We have established a reserve for this litigation within our discontinued operations and believe that any exposure of a loss in excess of the established reserve cannot be reasonably estimated. Our experience has been that the overall trends in asbestos litigation have changed over time. Over the last several years, we have seen changes in the jurisdictions where claims against FMC are being filed and changes in the mix of products named in the various claims. Because these claim trends have yet to form a predictable pattern, we are presently unable to reasonably estimate our asbestos liability with respect to claims that may be filed in the future.
Please see Note 1 "Principal Accounting Policies and Related Financial Information" - Environmental obligations, Note 11 "Environmental Obligations" and Note 20 "Guarantees, Commitments and Contingencies" in the notes to our consolidated financial statements included in this Form 10-K, the content of which are incorporated by reference to this Item 3.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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ITEM 4A. INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The executive officers of FMC Corporation, the offices they currently hold, their previous business experience and their ages as of December 31, 2023, are as follows.
Name Age Office and year of election
All officers are elected to hold office for one year or until their successors are elected and qualified. No family relationships exist among any of the above-listed officers, and there are no arrangements or understandings between any of the above-listed officers and any other person pursuant to which they serve as an officer. The above-listed officers have not been involved in any legal proceedings during the past ten years of a nature for which the SEC requires disclosure that are material to an evaluation of the ability or integrity of any such officer.
Executive Officer Diversity
Gender: Male Female
Number of executive officers based on gender identity 4 2
Ethnically/Racially diverse 1 0
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
FMC common stock of $0.10 par value is traded on the New York Stock Exchange (Symbol: FMC). There were 2,101 registered common stockholders as of December 31, 2023.
FMC’s annual meeting of stockholders will be held at 2:00 p.m. on Tuesday, April 30, 2024 via live webcast at https://www.virtualshareholdermeeting.com/FMC2024. Notice of the meeting, together with instructions on how to access proxy materials, will be mailed approximately five weeks prior to the meeting to stockholders of record as of March 4, 2024.
Transfer Agent and Registrar of Stock:
EQ Shareowner Services
https://equiniti.com/us/
Stockholder Return Performance Presentation
The graph that follows shall not be deemed to be incorporated by reference into any filing made by FMC under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The following Stockholder Performance Graph compares the five-year cumulative total return on FMC’s Common Stock with the S&P 500 Index and the S&P 500 Chemicals Index. The comparison assumes $100 was invested on December 31, 2018, in FMC’s Common Stock and in both of the indices, and the reinvestment of all dividends.
The following table summarizes information with respect to the purchase of our common stock during the three months ended December 31, 2023:
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ISSUER PURCHASES OF EQUITY SECURITIES
Publicly Announced Program
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(1) Includes shares purchased in open market transactions by the independent trustee of the FMC Corporation Non-Qualified Savings and Investment Plan ("NQSP").
In February 2022, the Board of Directors authorized the repurchase of up to $1 billion of the Company's common stock. The $1 billion share repurchase program replaced in its entirety the previous authorization. In 2023, 651,052 shares were repurchased under the publicly announced repurchase program. At December 31, 2023, approximately $825 million remained unused under our Board-authorized repurchase program. This repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market conditions and other factors. We also reacquire shares from time to time from employees in connection with the vesting, exercise and forfeiture of awards under our equity compensation plans. In addition, the independent trustee of our non-qualified deferred compensation plan reacquires shares from time to time through open-market purchases relating to investments by employees in our common stock, one of the investment options available under the Plan.
As disclosed in more detail under the Outstanding debt caption in the Liquidity and Capital Resources section of this Form 10-K, in connection with an amendment to the Company's credit agreement, the Company agreed that it shall not repurchase shares until September 30, 2025, with the exception of share repurchases under our equity compensation plans.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
FMC Corporation is a global agricultural sciences company dedicated to helping growers produce food, feed, fiber and fuel for an expanding world population while adapting to a changing environment. We operate in a single distinct business segment. We develop, market and sell all three major classes of crop protection chemicals (insecticides, herbicides and fungicides) as well as biologicals, crop nutrition, and seed treatment products, which we group as plant health. FMC’s innovative crop protection solutions enable growers, crop advisers and turf and pest management professionals to address their toughest challenges economically without compromising safety or the environment. FMC is committed to discovering new insecticide, herbicide, and fungicide active ingredients, product formulations and pioneering technologies that are consistently better for the planet.
FORWARD-LOOKING INFORMATION
Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: FMC and its representatives may from time to time make written or oral statements that are "forward-looking" and provide other than historical information, including statements contained herein, in FMC’s other filings with the SEC, and in reports or letters to FMC stockholders.
In some cases, FMC has identified forward-looking statements by such words or phrases as "will likely result," "is confident that," "expect," "expects," "should," "could," "may," "will continue to," "believe," "believes," "anticipates," "predicts," "forecasts," "estimates," "projects," "potential," "intends" or similar expressions identifying "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including the negative of those words and phrases. Such forward-looking statements are based on management’s current views and assumptions regarding future events, future business conditions and the outlook for the company based on currently available information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. Additional factors include, among other things, the risk factors and other cautionary statements filed with the SEC included within this Form 10-K as well as other SEC filings and public communications. FMC cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Forward-looking statements are qualified in their entirety by the above cautionary statement. FMC undertakes no obligation, and specifically disclaims any duty, to update or revise any forward-looking statements to reflect events or circumstances arising after the date of such statements or to reflect the occurrence of anticipated events, except as otherwise required by law.
Inflation
Current global inflationary pressures have affected our business, primarily due to higher than normal input costs, specifically raw materials, resulting in pressure on our operating margins. Costs impacted by inflation include labor and overhead costs, costs of certain raw materials, freight and logistics costs, tolling services, and equipment costs. We have partially mitigated inflation headwinds through pricing actions, cost saving initiatives, and alternate sourcing options. Costs, specifically input costs, became a tailwind during the third quarter of 2023 representing the peak of inflationary headwinds.
2023 Highlights
The following are the more significant developments in our businesses during the year ended December 31, 2023:
•As a result of increased inventory carrying costs and improved security of supply, distributors, retailers and growers rapidly reduced purchases across all four regions beginning in the latter half of the second quarter of 2023 and persisting through the remainder of the year. While grower consumption remained steady during 2023, volumes were down significantly driving a decline in results compared to the prior year. As a result of the destocking conditions and the related volume pressure, we initiated a global restructuring plan during the fourth quarter of 2023, which we refer to as "Project Focus" and discuss further under the section titled "Results of Operations."
•Revenue of $4,486.8 million in 2023 decreased $1,315.5 million or approximately 23 percent versus last year. A more detailed review of revenues is included under the section entitled "Results of Operations". On a regional basis, sales in Latin America decreased by 33 percent, sales in Asia decreased 21 percent, sales in North America decreased 16 percent, and sales in Europe, Middle East and Africa decreased by 14 percent. Volume was negatively impacted by channel destocking across all four regions. Despite the challenging environment, revenues from products launched in the last five years were down only 2 percent, while our branded diamides were only down by 7 percent, outperforming the rest of our portfolio.
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•Our gross margin, excluding the $25.8 million charge related to the application of the PAIS tax in Argentina, of $1,856.8 million decreased $470.0 million or approximately 20 percent versus last year as a result of a decrease in volumes across all regions as well as a decrease in prices in Latin America. Positive input cost improvement partially offset by unfavorable foreign currency movements also contributed to the change in gross margin during the period. Gross margin as a percent of revenue, excluding the impact of the Argentine PAIS tax, of 41.4 percent slightly increased compared to gross margin of 40.1 percent in the prior year period. Refer to Note 8 to the consolidated financial statements included within this Form 10-K for further details of the Argentine PAIS tax.
•Selling, general and administrative expenses decreased from $775.2 million to $734.3 million, or approximately 5 percent. The decrease in selling, general and administrative expenses is a result of the operating cost mitigation actions implemented beginning in the second quarter as a result of the lower business performance.
•Research and development expenses of $328.8 million increased $14.6 million or 5 percent. The increase in research and development expenditures is related to continued investment in our new active ingredient pipeline, including our acquired pheromones business, as well as inflation and labor cost increases. However, inflationary conditions improved in the second half of the year indicating the peak of inflationary headwinds.
•Net income (loss) attributable to FMC stockholders of $1,321.5 million increased $585.0 million from $736.5 million in the prior year period. As discussed further under the section titled "Results of Operations", the change in the provision (benefit) for income taxes was the primary driver of the increase in net income (loss) attributable to FMC stockholders. During the fourth quarter, we recognized significant one-time tax benefits related to new tax incentives granted to the Company's Swiss subsidiaries. In addition, we released our FMC Brazil valuation allowance as a result of new tax laws enacted in the country, resulting in the recognition of additional tax benefit. The increase in the benefit for income taxes was partially offset by the unprecedented decline in volumes as the distribution channel focused on channel destocking which significantly impacted our results. Additionally, we incurred severance and employee separation costs associated with Project Focus in 2023 as well as $101.0 million in currency related charges primarily driven by the significant actions taken by the Argentine Government during the fourth quarter of 2023. Interest expense, net increased $85.4 million compared to the prior year due to higher interest rates during the period. Adjusted after-tax earnings from continuing operations attributable to FMC stockholders of $474.5 million decreased $463.9 million or approximately 49 percent. See the disclosure of our adjusted earnings Non-GAAP financial measurement under the section titled "Results of Operations".
2024 Outlook
We expect 2024 revenue will be in the range of approximately $4.50 billion to $4.70 billion, up approximately 2.5 percent at the midpoint versus 2023. The increase is largely driven by growth of new products, primarily in the second half, and assumes the crop protection market is flat-to-down low-single digits as modest market growth during the second half is offset by market contraction in the first half. We expect adjusted EBITDA(1) of $900 million to $1.05 billion, essentially flat vs the midpoint versus 2023 results. Headwinds to adjusted EBITDA in the first half are expected from continued destocking, higher inventory costs and modest pricing pressure. Tailwinds in the second half are expected from sales growth of new products, a greater portion of savings from restructuring actions and some benefit from market recovery. 2024 adjusted earnings are expected to be in the range of $3.23 to $4.41 per diluted share(1), up approximately 1 percent at the midpoint versus 2023, due to lower interest expense and depreciation and amortization. The estimate for adjusted earnings excludes any impact from potential share repurchases in 2024. For cash flow outlook, refer to the liquidity and capital resources section below.
(1)Although we provide forecasts for adjusted earnings per share and adjusted EBITDA (Non-GAAP financial measures), we are not able to forecast the most directly comparable measures calculated and presented in accordance with U.S. GAAP. Certain elements of the composition of the U.S. GAAP amounts are not predictable, making it impractical for us to forecast. Such elements include, but are not limited to, restructuring, acquisition charges, and discontinued operations. As a result, no U.S. GAAP outlook is provided.
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Results of Operations — 2023, 2022 and 2021
Overview
The following charts provide a reconciliation of adjusted EBITDA, adjusted earnings and organic revenue growth, all of which are Non-GAAP financial measures, from the most directly comparable GAAP measure. Adjusted EBITDA and organic revenue are provided to assist the readers of our financial statements with useful information regarding our operating results. Our operating results are presented based on how we assess operating performance and internally report financial information. For management purposes, we report operating performance based on earnings before interest, income taxes, depreciation and amortization, discontinued operations, and corporate special charges. Our adjusted earnings measure excludes corporate special charges, net of income taxes, discontinued operations attributable to FMC stockholders, net of income taxes, and certain Non-GAAP tax adjustments. These are excluded by us in the measure we use to evaluate business performance and determine certain performance-based compensation. Organic revenue growth excludes the impacts of foreign currency changes, which we believe is a meaningful metric to evaluate our revenue changes. These items are discussed in detail within the "Other Results of Operations" section that follows. In addition to providing useful information about our operating results to investors, we also believe that excluding the effect of corporate special charges, net of income taxes, and certain Non-GAAP tax adjustments from operating results and discontinued operations allows management and investors to compare more easily the financial performance of our underlying business from period to period. These measures should not be considered as substitutes for net income (loss) or other measures of performance or liquidity reported in accordance with U.S. GAAP.
(in Millions) Year Ended December 31,
Costs and Expenses
Selling, general and administrative expenses 734.3 775.2 714.1
Restructuring and other charges (income) 212.3 93.1 108.0
Non-operating pension and postretirement charges (income) 18.2 8.6 5.6
Income (loss) from continuing operations $ 1,419.5 $ 838.7 $ 805.3
Discontinued operations, net of income taxes (98.5) (97.2) (68.2)
Adjustments to arrive at Adjusted EBITDA (Non-GAAP):
Corporate special charges (income):
Restructuring and other charges (income) (3) $ 238.1 $ 93.1 $ 108.0
Non-operating pension and postretirement charges (income) (4) 18.2 8.6 5.6
Transaction-related charges (5) — — 0.4
Discontinued operations, net of income taxes 98.5 97.2 68.2
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(1)Referred to as operating profit.
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(2)Adjusted EBITDA is defined as operating profit excluding corporate special charges (income) and depreciation and amortization expense.
(3)See Note 8 to the consolidated financial statements included within this Form 10-K for details of restructuring and other charges (income). Includes $25.8 million of charges related to the expansion of the scope and rates of the existing Impuesto PAIS tax ("PAIS") in Argentina, which was recorded to "Cost of Sales and services" on the consolidated statements of income (loss), as well as $212.3 million shown as Restructuring and other charges (income) on the consolidated statements of income (loss) for the twelve months ended December 31, 2023.
(4)Our non-operating pension and postretirement charges (income) are defined as those costs (benefits) related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These are excluded from our operating results and are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance. We continue to include the service cost and amortization of prior service cost in our operating results noted above. These elements reflect the current year operating costs to our business for the employment benefits provided to active employees.
(5)Charges relate to transaction costs, costs for transitional employees, other acquired employee related costs, integration related legal and professional third-party fees. These charges are recorded as a component of "Selling, general and administrative expense" on the consolidated statements of income (loss).
ADJUSTED EARNINGS RECONCILIATION
(in Millions) Year Ended December 31,
Corporate special charges (income), net of income taxes $ 223.5 $ 103.2 $ 93.7
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(1)Represents restructuring and other charges (income), non-operating pension and postretirement charges (income) and transaction-related charges. Includes $25.8 million of charges related to the PAIS tax which was recorded to "Cost of Sales and services" on the consolidated statements of income (loss) as well as $212.3 million shown as Restructuring and other charges (income) on the consolidated statements of income (loss) for the twelve months ended December 31, 2023.
(2)The income tax expense (benefit) on Corporate special charges (income) is determined using the applicable rates in the taxing jurisdictions in which the Corporate special charge or income occurred and includes both current and deferred income tax expense (benefit) based on the nature of the non-GAAP performance measure.
(3)We exclude the GAAP tax provision, including discrete items, from the Non-GAAP measure of income, and instead include a Non-GAAP tax provision based upon the annual Non-GAAP effective tax rate. The GAAP tax provision includes, and the Non-GAAP tax provision excludes, certain discrete tax items including, but not limited to: income tax expenses or benefits that are not related to current year ongoing business operations; tax adjustments associated with fluctuations in foreign currency remeasurement of certain foreign operations; certain changes in estimates of tax matters related to prior fiscal years; certain changes in the realizability of deferred tax assets; and changes in tax law. Management believes excluding these discrete tax items assists investors and securities analysts in understanding the tax provision and the effective tax rate related to ongoing operations thereby providing investors with useful supplemental information about FMC's operational performance. Refer to the explanation below on the provision for income taxes for further detail of the increase in non-GAAP tax adjustments for the twelve months ended December 31, 2023.
ORGANIC REVENUE GROWTH RECONCILIATION
Total Revenue Change (GAAP) (23) %
Less: Foreign Currency Impact (1) %
Organic Revenue Change (Non-GAAP) (22) %
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Results of Operations
In the discussion below, all comparisons are between the periods unless otherwise noted.
Revenue
2023 vs. 2022
Revenue of $4,486.8 million decreased $1,315.5 million, or approximately 23 percent versus the prior year period. The decrease was primarily driven by a 22 percent decrease from volumes, which were down across all four regions due to the channel destocking by growers and the distribution channel. The decrease in revenues was also due to an unfavorable foreign currency impact of approximately 1 percent.
2022 vs. 2021
Revenue of $5,802.3 million increased $757.1 million, or approximately 15 percent versus the prior year period. The increase was driven by higher volumes, which accounted for an approximate 11 percent increase, as well as favorable pricing which accounted for an approximate 7 percent increase. Volume growth was primarily driven by Latin America and North America. Foreign currency tailwinds had an unfavorable impact of approximately 3 percent on revenue. Excluding foreign currency impacts, revenue increased approximately 18 percent.
See below for a discussion of revenue by region.
Total Revenue by Region
Year Ended December 31,
2023 vs. 2022
North America: Revenue decreased approximately 16 percent in the year ended December 31, 2023. The significant decrease in volumes period over period was due to the channel destocking by growers and the distribution channel. The decrease in volumes was partially offset by improved product mix in the region due to new branded products launched within the last five years as well as positive pricing actions.
Latin America: Revenue decreased approximately 33 percent, or approximately 35 percent organically, for the year ended December 31, 2023 compared to the prior year period driven primarily by the pressure on volumes due to channel destocking as well as drought conditions in Brazil. Additionally, pricing actions were a headwind during the period. The decreases in volumes and pricing were partially offset by positive FX movements during the period. During the fourth quarter, we successfully launched Premio® Star insecticide in Brazil contributing to branded diamide sales in Latin America.
EMEA: Revenue decreased approximately 14 percent, or approximately 10 percent organically, versus the prior year period as a result of the decline in volumes due to a channel destocking as well as adverse weather conditions in the region partially offset by positive pricing actions and strong diamides sales in the region.
Asia: Revenue decreased approximately 21 percent, or approximately 16 percent organically, versus the prior year period caused by channel destocking during the period resulting in a decline in volumes during the period. FX continued to be a headwind in the region.
For 2024, full-year revenue is expected to be in the range of approximately $4.50 billion to $4.70 billion, which represents an increase of approximately 2.5 percent at the midpoint versus 2023.
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2022 vs. 2021
North America: Revenue increased approximately 29 percent in the year ended December 31, 2022, driven by strong volumes and pricing actions. In the US, growth was driven by sales of herbicides, insecticides, and fungicides. In Canada our results were driven by low channel inventory of insecticides, strength in selective herbicides, and the successful launch of Coragen® MaX insecticide.
Latin America: Revenue increased approximately 28 percent, or approximately 25 percent excluding foreign currency tailwinds, for the year ended December 31, 2022 compared to the prior year period, driven by strong volumes and price increases. Growth in the region was primarily driven by Brazil and Argentina. Double digit gains across all segments were driven by commodity price and acreage increases. Our investments in market access also contributed to growth in the region.
EMEA: Revenue remained flat versus the prior year period; however, revenue increased approximately 12 percent excluding foreign currency headwinds. The lack of growth from prior year was largely impacted by foreign currency headwinds as well as weather in Southern Europe and the absence of Russian sales. Results were driven by strong pricing actions as well as volume growth, led by Northern Europe, Germany, and Turkey, demand for selective herbicides on cereals and other crops, and demand for our diamides on fruits and vegetables.
Asia: Revenue decreased approximately 1 percent versus the prior year period, however revenue increased approximately 5 percent excluding foreign currency headwinds. The change in revenue from prior year was primarily impacted by foreign currency headwinds, a reduction in rice acres in India, and weather conditions, particularly in India and Pakistan. These impacts were partially offset by price actions and strong performance in Australia.
Gross margin
2023 vs. 2022
Gross margin of $1,831.0 million decreased by $495.8 million, or approximately 21 percent versus the prior year period resulting from a 29 percent decrease in volumes caused by a significant channel destocking partially offset by a 10 percent increase due to positive input cost improvement. Unfavorable foreign currency impacts of 2 percent also contributed to the decline in gross margin during the period. Gross margin, excluding the $25.8 million charge related to the application of the PAIS tax in Argentina, of $1,856.8 million decreased $470.0 million or approximately 20 percent versus last year.
Gross margin percent of approximately 40.8 percent remained consistent with gross margin percent of 40.1 percent in the prior year period. Gross margin as a percent of revenue, excluding the impact of the Argentine PAIS tax, was 41.4 percent.
Refer to Note 8 to the consolidated financial statements included within this Form 10-K for further details of the Argentine PAIS tax.
2022 vs. 2021
Gross margin of $2,326.8 million increased by $165.5 million, or approximately 8 percent versus the prior year period. The increase was primarily due to top line revenue growth which was partially offset by higher costs due to rising input costs from inflationary pressures and foreign currency headwinds.
Gross margin percent of approximately 40 percent slightly decreased from approximately 43 percent in the prior year period, driven by significant cost headwinds, primarily due to input cost inflation, and foreign currency headwinds.
Selling, general and administrative expenses
2023 vs. 2022
Selling, general and administrative expenses of $734.3 million decreased by $40.9 million, or approximately 5 percent versus the prior year period. The decrease in selling, general and administrative expenses is a result of the operating cost mitigation actions we undertook beginning in the latter half second quarter in response to the volume pressures.
2022 vs. 2021
Selling, general and administrative expenses of $775.2 million increased by $61.1 million, or approximately 9 percent versus the prior year period. Spending increased globally to support our revenue growth. Additionally, spending was driven by inflation from labor costs and third party spend, as well as market access expansion.
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Research and development expenses
2023 vs. 2022
Research and development expenses of $328.8 million increased by $14.6 million, or approximately 5 percent versus the prior year period. The increase in research and development expenditures is related to continued investment in our new active ingredient pipeline, including our recently acquired pheromones business, as well as inflation and labor cost increases. However, inflation conditions improved in the second half of the year indicating the peak of inflationary headwinds.
2022 vs. 2021
Research and development expenses of $314.2 million increased by $9.5 million, or approximately 3 percent versus the prior year period. The increase in research and development expenditures is related to continued investment in our new active ingredient pipeline as well as inflation and labor cost increases.
Other Results of Operations
Depreciation and amortization
2023 vs. 2022
Depreciation and amortization of $184.3 million increased $14.9 million, or approximately 9 percent, as compared to 2022 of $169.4 million. The increase was driven by additional assets placed into service during 2023 and accelerated depreciation associated with certain assets at one of our research facilities.
2022 vs. 2021
Depreciation and amortization of $169.4 million decreased $1.5 million, or approximately 1 percent, as compared to 2021 of $170.9 million.
Interest expense, net
2023 vs. 2022
Interest expense, net of $237.2 million increased by $85.4 million, or approximately 56 percent, compared to $151.8 million in 2022. The increase was primarily driven by higher interest rates and, to a lesser extent, higher debt balances in our portfolio. Specifically, higher domestic interest rates increased interest expense by approximately $63 million and higher domestic short-term balances increased interest expense by approximately $18 million during the period. Higher foreign interest rates and debt balances also contributed to the increase by approximately $7 million.
2022 vs. 2021
Interest expense, net of $151.8 million increased by $20.7 million, or approximately 16 percent, compared to $131.1 million in 2021. The increase was driven by higher interest rates and higher debt balances which increased interest expense by approximately $28 million for domestic debt and $7 million for foreign debt, partially offset by the benefits of the refinancing activity completed in the fourth quarter of 2021 which decreased interest expense by approximately $12 million.
Corporate special charges (income)
Restructuring and other charges (income)
Our restructuring and other charges (income) are comprised of restructuring, assets disposals and other charges (income) as described below:
Year Ended December 31,
Total restructuring and other charges (income) (1) $ 212.3 $ 93.1 $ 108.0
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(1) See Note 8 to the consolidated financial statements included in this Form 10-K for more information.
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2023
Restructuring and other charges (income) includes $40.1 million of severance and employee separation costs and $5.4 million of provider costs associated with the Project Focus restructuring initiative. In connection with Project Focus, the Company expects to incur pre-tax restructuring charges in the range of approximately $180 to $215 million, inclusive of charges incurred during 2023. This estimate, which is subject to future changes, includes severance and related benefit costs in the range of $85 to $100 million, asset write-off charges of approximately $80 to $90 million, consulting and other professional service fees in the range of $5 to $15 million, and other charges of up to $10 million. We may incur additional asset write-off charges, inventory and other working capital charges, primarily associated with the liquidation of excess inventory in select markets, relocation charges, and contract termination charges in connection with Project Focus and will provide an estimate of charges when known.
Other restructuring costs of $8.7 million relate to employee separation and asset impairment costs incurred as part of various ongoing initiatives. These restructuring charges were offset by a $5.8 million gain recognized on the disposition of land related to a previously closed manufacturing facility.
Other charges (income) of $163.9 million is comprised of $75.2 million in currency related charges primarily driven by the significant actions taken by the Argentine Government during the 4th quarter of 2023. We incurred $63.4 million related to the adjustment of the official exchange rate in Argentina announced during December 2023. Additionally, similar devaluation actions in Argentina and Pakistan during previous quarters resulted in $11.8 million of currency related charges. Other charges (income) also includes $13.0 million in charges primarily resulting from the third quarter acquisition of in-process research and development assets that do not meet the criteria for capitalization. We also incurred $66.9 million in environmental charges associated with remediation and other miscellaneous charges of $8.8 million.
2022
Restructuring and other charges (income) is primarily comprised of a gain of $50.5 million recognized on the disposition of land related to a closed manufacturing facility. Restructuring and other charges (income) is also comprised of charges of $5.9 million of severance and employee separation costs, $11.2 million related to fixed asset charges, and $7.3 million of other restructuring related charges incurred as part of various restructuring initiatives disclosed in previous periods.
Other charges (income) is primarily comprised of $76.8 million in exit charges related to our decision to cease operations and business in Russia. Additional charges of $42.4 million relate primarily to environmental charges, which were impacted by higher inflation rates.
2021
Restructuring charges in 2021 primarily consisted of $16.7 million of charges associated with the integration of the DuPont Crop Protection Business which was completed in 2020 except for certain in-flight initiatives. These charges primarily reflect non-cash charges and to a lesser extent remaining severance. Restructuring charges associated with the DuPont program were largely complete. There were other restructuring charges of $13.4 million related to various actions to improve organizational structure as well as regional alignment activities which primarily included the move of our European headquarters. Types of costs primarily relate to facility-related shut down costs including asset impairments as well as employee-related costs.
Other charges (income), net in 2021 includes $33.5 million of charges related to the establishment of reserves for certain historical India indirect tax matters that were triggered during the period of which approximately half are non-cash charges. See Note 20 to the consolidated financial statements included within this Form 10-K for further information regarding this matter. Additional charges of $27.1 million consists of charges of environmental sites.
Non-operating pension and postretirement charges (income)
2023 vs. 2022
The charge for 2023 was $18.2 million compared to $8.6 million in 2022. Higher interest rates during the period resulted in an increase to interest costs for pension and other postretirement benefits.
2022 vs. 2021
The charge for 2022 was $8.6 million compared to $5.6 million in 2021. The increase is primarily due to rising interest rates during 2022 compared to 2021 partially offset by higher expected return on plan assets.
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Provision for income taxes
Provision for income taxes for 2023 was a benefit of $1,119.3 million resulting in an effective tax rate of negative 372.9 percent. Provision for income taxes for 2022 was expense of $145.2 million resulting in an effective tax rate of 14.8 percent. Provision for income taxes for 2021 was expense of $92.5 million resulting in an effective tax rate of 10.3 percent. Note 12 to the consolidated financial statements included in this Form 10-K includes more details on the drivers of the GAAP effective rate and year-over-year changes.
We believe showing the reconciliation below of our GAAP to Non-GAAP effective tax rate provides investors with useful supplemental information about our tax rate on the core underlying business.
Year Ended December 31,
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(1)Primarily our decision to cease operations and business in Russia in 2022. As a result, we recorded a pre-tax charge of $76.8 million with minimal tax benefit.
(2)Refer to note 3 of the Adjusted Earnings Reconciliation table within this section of this Form 10-K for an explanation of tax adjustments.
The primary drivers for the fluctuations in the effective tax rate for each period are provided in the table above. During the three months ended December 31, 2023, the Company’s Swiss subsidiaries were granted ten-year tax incentives effective for 2023 and retroactively for 2021 and 2022. The tax incentives were awarded for the Company’s commitment to invest in additional headcount and transfer significant intellectual property, which is planned for 2024, as well as commitment to establish a new global technology and innovation center in Switzerland. Deferred tax benefits of $1,149 million and related valuation allowances of $318 million were recorded during the three months ended December 31, 2023 to reflect the net estimated future reductions in tax of $831 million associated with the incentives.
Historically, FMC’s Brazil valuation allowance position was based on long-standing local transfer pricing rules, as well as certain material favorable permanent statutory tax deductions available to FMC Brazil as part of local tax law. During the three months ended June 30, 2023, Brazil passed legislation to conform to Organization for Economic Cooperation and Development ("OECD") transfer pricing rules effective in 2024. Conformity to OECD transfer pricing rules favorably impacts the statutory income level of FMC Brazil. In 2023, the Company continued to monitor its valuation allowance throughout the third and fourth quarters considering this law change. Further, on December 29, 2023, the Brazilian Government enacted new tax law that significantly limits FMC Brazil’s ability to benefit in the future from the material favorable permanent statutory tax deductions previously available as part of local tax law. During the three months ended December 31, 2023, the Company released its FMC Brazil valuation allowance and recorded a tax benefit of approximately $223 million.
Excluding the items in the table above, changes in the non-GAAP effective tax rate were primarily due to the impact of geographic mix of earnings among our global subsidiaries. See Note 12 to the consolidated financial statements included within this Form 10-K for additional details related to the provisions for income taxes on continuing operations, as well as items that significantly impact our effective tax rate.
Discontinued operations, net of income taxes
Our discontinued operations primarily reflect adjustments to retained liabilities from previously discontinued operations and include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities. See Note 10 to the consolidated financial statements included within this Form 10-K for additional details on our discontinued operations.
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2023 vs. 2022
Discontinued operations, net of income taxes represented a loss of $98.5 million in 2023 compared to a loss of $97.2 million in 2022. The loss during both periods was primarily due to adjustments related to the retained liabilities from our previously discontinued operations.
2022 vs. 2021
Discontinued operations, net of income taxes represented a loss of $97.2 million in 2022 compared to a loss of $68.2 million in 2021. The loss during both periods was primarily due to adjustments related to the retained liabilities from our previously discontinued operations. Higher inflation rates negatively impacted adjustments to our environmental and other retained liabilities in 2022. Offsetting the losses in 2021 was the gain on sales of land in our discontinued sites of $15 million, net of taxes.
Net income (loss)
2023 vs. 2022
Net income increased to $1,321.0 million from $741.5 million. Results in the current year period were higher than the prior year period primarily as a result of a decrease to our provision for income taxes of $1,264.5 million resulting in an income tax benefit for the year. During the fourth quarter, we recognized significant one-time tax benefits related to new tax incentives granted to the Company's Swiss subsidiaries. In addition, we released our FMC Brazil valuation allowance as a result of new tax laws enacted in the country, resulting in the recognition of additional tax benefit. The increase in the benefit for income taxes was partially offset by the unprecedented decline in volumes as the distribution channel focused on channel destocking significantly decreasing our revenues and gross margin as discussed above. Additionally, an increase in interest expense of $85.4 million, primarily driven by higher interest rates, also offset the increase in net income as well as higher restructuring and other charges.
The only difference between Net income (loss) and Net income (loss) attributable to FMC stockholders is noncontrolling interest.
2022 vs. 2021
Net income increased to $741.5 million from $737.1 million. The higher results were driven by higher revenues and margins. However, these increases were mainly offset by higher selling, general and administrative costs, interest expense, income taxes, and discontinued operations expenses.
The only difference between Net income (loss) and Net income (loss) attributable to FMC stockholders is noncontrolling interest. The 2022 noncontrolling interest includes the portion of the $50.5 million gain on the land disposition (see Corporate special charges (income) section above) attributable to the other partner.
Adjusted EBITDA (Non-GAAP)
2023 vs. 2022
Adjusted EBITDA of $978.0 million decreased $428.8 million, or approximately 30 percent versus the prior year period. The decrease was due to lower volumes impacting adjusted EBITDA by 48 percent as well as unfavorable foreign currency impacts of approximately 2 percent. The decrease was partially offset by cost and price movements, which both increased adjusted EBITDA by approximately 18 percent and 2 percent, respectively.
2022 vs. 2021
Adjusted EBITDA of $1,406.8 million increased $93.0 million, or approximately 7 percent versus the prior year period. The increase was due to higher pricing and higher volume which accounted for approximately 28 percent and 20 percent increases respectively. These factors more than offset significant cost increases, primarily attributable to raw materials, which had an unfavorable impact of approximately 35 percent and foreign currency fluctuations which had an unfavorable impact of approximately 6 percent on adjusted EBITDA.
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Liquidity and Capital Resources
As a global agricultural sciences company, we require cash primarily for seasonal working capital needs, capital expenditures, and return of capital to shareholders. We plan to meet these liquidity needs through available cash, cash generated from operations, commercial paper issuances and borrowings under our committed revolving credit facility as well as other liquidity facilities, and in certain instances access to debt capital markets. We believe our strong financial standing and credit ratings will ensure adequate access to the debt capital markets on favorable conditions. Information involving our material cash requirements is detailed below.
Cash
Cash and cash equivalents at December 31, 2023 and 2022, were $302.4 million and $572.0 million, respectively. Of the cash and cash equivalents balance at December 31, 2023, $286.9 million was held by our foreign subsidiaries. We have established plans to repatriate cash from certain foreign subsidiaries with minimal tax on a go forward basis. Other cash held by foreign subsidiaries is generally used to finance subsidiaries’ operating activities and future foreign investments. See Note 12 to the consolidated financial statements included within this Form 10-K for more information on our indefinite reinvestment assertion.
Outstanding debt
At December 31, 2023, we had total debt of $3,957.6 million as compared to $3,274.0 million at December 31, 2022. Total debt included $3,023.6 million and $2,733.2 million of long-term debt (excluding current portions of $96.5 million and $88.5 million) at December 31, 2023 and 2022, respectively. Our short-term debt consists of foreign borrowings and borrowings under our commercial paper program. Foreign borrowings increased from $81.8 million at December 31, 2022 to $98.0 million at December 31, 2023 while outstanding commercial paper increased from $370.5 million at December 31, 2022 to $739.5 million at December 31, 2023. We provide parent-company guarantees to lending institutions providing credit to our foreign subsidiaries.
On May 18, 2023, we issued $500.0 million aggregate principal amount of 5.150% Senior Notes due 2026, $500.0 million aggregate principal amount of 5.650% Senior Notes due 2033 and $500.0 million aggregate principal amount of 6.375% Senior Notes due 2053. The net proceeds from the offering were used to pay down both outstanding commercial paper and the 2021 Term Loan Facility as well as for general corporate purposes. Fees incurred to secure the Senior Notes have been deferred and will be amortized over the terms of the arrangement. In conjunction with the issuance of the Senior Notes, we settled on various interest rate swap agreements, which were entered into to hedge the variability in treasury rates. See Note 19 for details on the interest rate swap settlement, which will be amortized over the terms of the arrangement.
In June 2023, the Company entered into Amendment No. 1 to that certain Fifth Amended and Restated Credit Agreement, dated as of June 17, 2022. In November 2023, the Company further amended its credit agreement to provide additional financial flexibility given current market challenges, which are expected to persist during the covenant relief period. As defined in the amendment, the maximum leverage ratio is increased to 6.50 through the period ending June 30, 2024. The maximum leverage ratio will incrementally step down during the covenant relief period ending at 3.75 for the quarter ended September 30, 2025. The amendment also lowers the minimum interest coverage ratio to 2.50 beginning with the quarter ended December 31, 2023 and then incrementally increases during the covenant relief period. The minimum interest coverage ratio will return to the current level of 3.50 beginning with the quarter ended September 30, 2025. Additionally, the Company shall not repurchase shares during the covenant relief period, with the exception of share repurchases under our equity compensation plans.
As of December 31, 2023, we were in compliance with all of our debt covenants. See Note 13 to the consolidated financial statements included within this Form 10-K for further details. We remain committed to solid investment grade credit metrics.
Our total debt maturities, excluding discounts, is $3,984.0 million at December 31, 2023, with $934.0 million payable in the next 12 months. As of December 31, 2023, we had contractual interest obligations of $2,017.1 million outstanding, with $144.9 million payable in the next 12 months. Contractual interest is the interest we are contracted to pay on our long-term debt obligations. We do not have any long-term debt subject to variable interest rates at December 31, 2023.
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Access to credit and future liquidity and funding needs
At December 31, 2023, our remaining borrowing capacity under our credit facility was $1,009.0 million. Our commercial paper program allows us to borrow at rates generally more favorable than those available under our credit facility. At December 31, 2023, we had $739.5 million borrowings outstanding under the commercial paper program at an average borrowing rate of 6.11 percent. Our commercial paper balances fluctuate from year to year depending on working capital needs. Based on cash generated from operations, our existing liquidity facilities, which includes the revolving credit agreement with the option to increase capacity up to $2.75 billion, and our continued access to debt capital markets, we have adequate liquidity to meet any of the company's debt obligations in the near term including any current portion of long-term debt.
Working Capital Initiatives
We offer to a select group of suppliers a voluntary supply chain finance program as part of our continued efforts to improve our working capital efficiency. We do not believe that changes in the availability of the supply chain finance program would have a significant impact on our liquidity. See Note 2 for more information on the key terms and balances of the program.
From time to time, the Company may sell receivables on a non-recourse basis to third-party financial institutions. These sales are normally driven by specific market conditions, including, but not limited to, foreign exchange environments, customer credit management, as well as other factors where the receivables may lay. See Note 9 for more information on receivables factoring.
Commitments
We provide guarantees to financial institutions on behalf of certain customers, principally customers in Brazil for their seasonal borrowing. The total of these guarantees was $137.5 million at December 31, 2023. These guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates. Non-performance by the guaranteed party triggers the obligation requiring us to make payments to the beneficiary of the guarantee. Based on our experience these types of guarantees have not had a material effect on our consolidated financial position or on our liquidity. Our expectation is that future payment or performance related to the non-performance of others is considered unlikely.
In connection with certain of our property and asset sales and divestitures, we have agreed to indemnify the buyer for certain liabilities, including environmental contamination and taxes that occurred prior to the date of sale. Our indemnification obligations with respect to these liabilities may be indefinite as to duration and may or may not be subject to a deductible, minimum claim amount or cap. In cases where it is not possible for us to predict the likelihood that a claim will be made or to make a reasonable estimate of the maximum potential loss or range of loss, no specific liability has been recorded. If triggered, we may be able to recover certain of the indemnity payments from third parties. In cases where it is possible, we have recorded a specific liability within our Reserve for Discontinued Operations. Refer to Note 10 to the consolidated financial statements included within this Form 10-K for further details.
Taxes, Pension, Environmental, and Other Discontinued Liabilities
As of December 31, 2023, the liability for uncertain tax positions was $62.4 million. We also have a liability attributable to the transition tax on deemed repatriated foreign earnings incurred as a result of the Tax Cuts and Jobs Act (the "Act") of $62.6 million. Our consolidated balance sheets contain accrued pension and other postretirement benefits, our environmental liabilities, and our other discontinued liabilities for which we are unable to make a reasonably reliable estimate of the amount and periods in which these liabilities might be paid beyond 2024. See our discussion under 2024 Cash Flow Outlook in the Free Cash Flow section within this Form 10-K for information on these liabilities and the related expected payments in 2024.
Derivatives
At times we can be in a derivative liability position that can require future cash obligations. As of December 31, 2023, we had derivative contract obligations of $11.4 million, with the full amount payable in the next 12 months.
Leases
We have lease arrangements for equipment and facilities, including office spaces, IT equipment, transportation equipment, and machinery equipment. As of December 31, 2023, we had fixed lease payment obligations of $173.8 million, with $29.9 million payable within 12 months.
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Purchase obligations
Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and specify all significant terms, including fixed or minimum quantities to be purchased, price provisions and timing of the transaction. We have entered into a number of purchase obligations for the sourcing of materials and energy where take-or-pay arrangements apply. As of December our purchase obligations were $325.4 million, with $150.3 million payable in the first 12 months. The majority of the minimum obligations under these contracts are take-or-pay commitments over the life of the contract and not a year by year take-or-pay, and as such, the obligations related to these types of contacts are presented in the earliest period in which the minimum obligation could be payable under these types of contracts.
Statement of Cash Flows
Cash provided (required) by operating activities was $(300.3) million, $660.0 million and $898.6 million for 2023, 2022 and 2021, respectively.
The table below presents the components of net cash provided (required) by operating activities of continuing operations.
(in Millions) Year ended December 31,
Change in guarantees of vendor financing (72.4) (64.2) 65.6
Change in advance payments from customers (2) (199.1) 52.1 283.6
Change in all other operating assets and liabilities (6) (13.7) (10.3) (77.6)
Restructuring and other spending (7) (30.3) (35.2) (34.7)
Environmental spending, continuing, net of recoveries (8) (34.5) (26.9) (63.6)
Pension and other postretirement benefit contributions (9) (2.4) (4.5) (5.3)
Transaction and integration costs (12) — (0.5) (9.5)
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(1)The change in trade receivables in all periods include the impacts of seasonality and the receivable build intrinsic in our business. The change in cash flows related to trade receivables in 2023 was driven by timing of collections as well as lower volumes for revenue year over year. Collection timing is more pronounced in certain countries such as Brazil where there may be terms significantly longer than the rest of our business. Additionally, timing of collection is impacted as amounts for all periods include carry-over balances remaining to be collected in Latin America, where collection periods are measured in months rather than weeks. During 2023, we collected approximately $1.1 billion of receivables in Brazil.
(2)Advance payments are typically received in the fourth quarter of each year, primarily in our North America operations as revenue associated with advance payments is recognized, generally in the first half of each year following the seasonality of that business, as shipments are made and title, ownership and risk of loss pass to the customer. The change in 2023 was driven by lower advance payments received during 2023 compared to the same period in 2022 as well as a higher application of those advances against current period sales. The change in 2022 and 2021 was related to higher overall payments received primarily due to strong North America seasons in both years.
(3)These rebates are primarily associated within North America, and to a lesser extent Brazil, and in North America generally settle in the fourth quarter of each year given the end of the respective crop cycle. The change in 2023 compared to 2022 and 2021 are mostly associated with the mix in sales eligible for rebates and incentives which includes lower revenues for eligible products compared to the prior periods.
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(4)The change in inventory during 2023 is the result of lower than expected sales volume during the period. The change in cash flows during 2022 reflect the inventory build required to meet forecasted business demand. The change in cash flows during 2021 include an inventory build to help manage supply chain volatility as well as higher input costs.
(5)The change in cash flows related to accounts payable in 2023 is primarily due to lower raw material inventory purchases due to the decline in demand and, to a lesser extent, the timing of payments made to suppliers and vendors. The changes in accounts payable in 2022 and 2021 are primarily due to timing of payments made to suppliers and vendors. In 2022, the change in cash flows related to accounts payable was also impacted by cost inflation.
(6)Changes in all periods presented primarily represent timing of payments associated with all other operating assets and liabilities. Additionally, the 2022 and 2021 period includes the effects of the unfavorable contracts amortization of approximately $82 million and $103 million, respectively. The contract expired during the fourth quarter of 2022.
(7)See Note 8 to the consolidated financial statements included within this Form 10-K for further details.
(8)Included in our results for each of the years presented are environmental charges for environmental remediation of $66.9 million, $34.7 million and $27.1 million, respectively. The amounts in 2023 will be spent in future years. The amounts represent environmental remediation spending which were recorded against pre-existing reserves, net of recoveries. Environmental obligations for continuing operations primarily represent obligations at shut down or abandoned facilities within businesses that do not meet the criteria for presentation as discontinued operations. Amounts in 2021 include payments of $32.2 million related to the Pocatello Tribal Litigation. Refer to Note 11 to the consolidated financial statements included within this Form 10-K for more details.
(9)There were no voluntary contributions to our U.S. qualified defined benefit plan, which is slightly over funded, in 2023, 2022 and 2021.
(10)Interest payments were higher during 2023 largely due to higher interest rates and, to a lesser extent, higher debt balances in our portfolio.
(11)Amounts shown in the chart represent net tax payments of our continuing operations across various jurisdictions.
(12)Represents payments for legal and professional fees associated with integrating the DuPont Crop Protection Business. The integration is complete and the 2022 payments are associated with settlement of final amounts payable.
Cash provided (required) by operating activities of discontinued operations was $(86.1) million, $(77.6) million and $(78.5) million for 2023, 2022 and 2021, respectively.
Cash required by operating activities of discontinued operations in 2023 is directly related to environmental spending of $54.5 million as well as $31.6 million for other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings, collectively. 2022 and 2021 spending were of a similar nature. Additionally, during 2023, we paid $16.5 million for a portion of settlement amount related to one of our discontinued foreign environmental remediation sites. The remaining payment of $11.3 million is expected in 2024.
Cash provided (required) by investing activities of continuing operations was $(154.4) million, $(266.4) million and $(131.7) million for 2023, 2022 and 2021, respectively.
Cash required for 2023 is primarily related to capital expenditures for increased capacity, and to a lesser extent, acquisition related spending associated with the acquired IPR&D assets completed during the third quarter of 2023.