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.
Cash required for 2022 is primarily related to capital expenditures needed for increased capacity, as well the consideration paid for the BioPhero acquisition. Capital expenditures in 2022 increased due to spending directed towards capacity expansion. This usage of cash was offset by the proceeds received on the disposition of land on a previously shutdown manufacturing facility.
Cash required in 2021 is primarily due to capital expenditures and spending related to our contract manufacturing arrangements. We completed the final stage of our SAP system implementation during the early part of 2021.
Cash provided (required) by investing activities of discontinued operations was zero, zero and $19.7 million for 2023, 2022 and 2021, respectively.
Cash provided by investing activities of discontinued operations in 2021 represents the proceeds from the sale of land at one of our discontinued sites. This resulted in a gain recognized within discontinued operations of approximately $15.4 million net of taxes.
Cash provided (required) by financing activities was $331.5 million, $(237.4) million and $(747.9) million in 2023, 2022 and 2021, respectively.
The change in cash provided by financing activities in 2023 is primarily due to higher commercial paper balances and an increase in short term foreign borrowings as well as the proceeds from the Senior Notes. This increase was partially offset by the repayment of the $800 million term loan, and $75 million in repurchases of common stock under the publicly announced program.
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The change in cash required by financing activities in 2022 is primarily driven by lower share repurchases under our publicly announced program as well as lower repayments on long term debt.
The change in cash required by financing activities in 2021 is primarily driven due to the payment of long term debt and the increase in share repurchases under our publicly announced program.
Free Cash Flow
We define free cash flow, a Non-GAAP financial measure, as all cash inflows and outflows excluding those related to financing activities (such as debt repayments, dividends, and share repurchases) and acquisition related investing activities. Free cash flow is calculated as all cash from operating activities reduced by spending for capital additions and other investing activities as well as legacy and transformation spending. Therefore, our calculation of free cash flow will almost always result in a lower amount than cash from operating activities from continuing operations, the most directly comparable U.S. GAAP measure. However, the free cash flow measure is consistent with management's assessment of operating cash flow performance and we believe it provides a useful basis for investors and securities analysts about the cash generated by routine business operations, including capital expenditures, in addition to assessing our ability to repay debt, fund acquisitions including cost and equity method investments, and return capital to shareholders through share repurchases and dividends.
Our use of free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results under U.S. GAAP. First, free cash flow is not a substitute for cash provided (required) by operating activities of continuing operations, as it is not a measure of cash available for discretionary expenditures since we have non-discretionary obligations, primarily debt service, that are not deducted from the measure. Second, other companies may calculate free cash flow or similarly titled Non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison. Additionally, the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for a given period. Because of these and other limitations, free cash flow should be considered along with cash provided (required) by operating activities of continuing operations and other comparable financial measures prepared and presented in accordance with U.S. GAAP.
The table below presents a reconciliation of free cash flow from the most directly comparable U.S. GAAP measure.
FREE CASH FLOW RECONCILIATION
(in Millions) Year ended December 31,
Transaction and integration costs (1) — 0.5 9.5
Other investing activities (3)(4) (9.8) 23.6 (13.7)
Capital additions and other investing activities $ (143.7) $ (118.7) $ (113.8)
Proceeds from land disposition (6) 5.8 50.5 —
Transaction and integration costs (1) — (0.5) (9.5)
Investment in Enterprise Resource Planning system (3) — — (12.7)
Legacy and transformation (7) $ (80.3) $ (27.6) $ (81.0)
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(1)Represents payments for legal and professional fees associated with the DuPont Crop Protection Business Acquisition in addition to costs related to integrating the DuPont Crop Protection Business. See Note 4 to the consolidated financial statements included within this Form 10-K for more information. Cash spending associated with these initiatives is complete.
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(2)Adjusted cash from operations is defined as cash provided (required) by operating activities of continuing operations excluding the effects of transaction-related cash flows, which are included within legacy and transformation. There are no remaining cash flows expected related to previously incurred transaction costs.
(3)Components of cash provided (required) by investing activities of continuing operations. Refer to the below discussion for further details.
(4)Included in the amounts is cash spending associated with contract manufacturers of $2.9 million, $6.8 million and $18.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
(5)Refer to the above discussion for further details.
(6)During December 2022, we finalized a land transfer agreement with the Shanghai Municipal People's Government. We received cash proceeds of $50.5 million for the land transfer. During 2023, we received the final payment of $5.8 million related to the agreement. For additional detail on this transaction, see Note 8 to our consolidated financial statements included within this Form 10-K.
(7)Includes our legacy liabilities such as environmental remediation and other legal matters and our discontinued investing activities that are reported in discontinued operations as well as business integration costs associated with the DuPont Crop Protection Business Acquisition and the implementation of our new SAP system.
2024 Cash Flow Outlook
Our cash needs for 2024 include operating cash requirements (particularly working capital as well as environmental, asset retirement obligation, and restructuring spending), capital expenditures, and legacy and transformation spending, as well as mandatory payments of debt, dividend payments and, if applicable, share repurchases. We plan to meet our liquidity needs through available cash, cash generated from operations, commercial paper issuances and borrowings under our committed revolving credit facility. At December 31, 2023 our remaining borrowing capacity under our credit facility was $1,009.0 million.
We expect 2024 free cash flow (Non-GAAP) to fall within a range of approximately $400 million to $600 million. At the mid-point of the range, there is a significant increase year over year driven largely by the rebuilding of payables and lower inventory.
Although we provide a forecast for free cash flow, a Non-GAAP financial measure, we are not able to forecast the most directly comparable measure calculated and presented in accordance with U.S. GAAP, which is cash provided (required) by operating activities of continuing operations. Certain elements of the composition of the U.S. GAAP amount 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.
Cash from operating activities of continuing operations
We expect cash from operating activities to be in the range of approximately $670 million to $850 million. Cash from operating activities also includes cash requirements related to our pension plans, environmental sites, restructuring and asset retirement obligations, taxes and interest on borrowings.
Pension
We do not expect to make any voluntary cash contributions to our U.S. qualified defined benefit pension plan in 2024. The plan is slightly overfunded and our portfolio is comprised of 100 percent fixed income securities and cash. Our 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.
Environmental
Projected 2024 spending, net of recoveries includes approximately $35 million to $45 million of net environmental remediation spending for our sites accounted for within continuing operations. 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.
Projected 2024 spending, net of recoveries includes approximately $50 million to $60 million of net environmental remediation spending for our discontinued sites, which is part of legacy and transformation noted below. These projections include spending as a result of a settlement reached in 2019 at our Middleport, New York site of $10 million maximum per year, on average, until the remediation is complete as well as a settlement agreement reached during the second quarter of 2023 with the other party involved at one of our foreign environmental remediation sites.
Total projected 2024 environmental spending, inclusive of sites accounted for within both continuing operations and discontinued sites, is expected to be in the range of $85 million to $105 million.
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Restructuring and asset retirement obligations
We expect to make payments of approximately $80 million to $100 million in 2024, of which approximately $5 million is related to exit and disposal costs as a result of our previous decision in 2019 to exit sales of all carbofuran formulations (including Furadan® insecticide/nematicide, as well as Curaterr® insecticide/nematicide and any other brands used with carbofuran products).
In response to the unprecedented downturn in the global crop protection market that resulted in severe channel destocking, we initiated the Project Focus global restructuring plan. This program 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. As noted in the section titled "Results of Operations," we expect to incur approximately $180 to $215 million of pre-tax restructuring charges in total over the life of the program, which includes $80 to $90 million of non-cash asset write-off charges. Included within the estimated charges are costs needed to transition various activities to Switzerland in order to realize the benefits associated with the recently awarded tax incentives of approximately $1.4 billion granted to the Company’s Swiss subsidiaries. The estimate also includes, but is not limited to, employee severance and related benefit costs, and consulting and other professional service fees. 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. The projected restructuring spending for 2024 includes $70 million to $90 million related to the Project Focus activities which will be presented within Legacy and transformation as part of our Free Cash Flow Reconciliation in 2024. The Company expects Project Focus to deliver $50 to $75 million in contributions to adjusted EBITDA in 2024. The targeted annual run-rate savings is $150 million or more by the end of 2025 from the program once fully implemented, which is expected by the end of 2025.
Capital additions and other investing activities
Projected 2024 capital expenditures and expenditures related to contract manufacturers are expected to be in the range of approximately $95 million to $105 million. The spending is mainly driven by investments for our new products. Expenditures related to contract manufacturers are included within "other investing activities".
Legacy and transformation
Projected 2024 legacy and transformation spending are expected to be in the range of approximately $155 million to $165 million. This is primarily driven by environmental remediation spending for our discontinued sites, discussed above, and other legacy liabilities as well as transformation spending associated with Project Focus also discussed above.
Share repurchases
In February 2022, the Board of Directors authorized the repurchase of up to $1 billion of the Company's common stock. During the year ended December 31, 2023, 651,052 shares were repurchased under the publicly announced repurchase program. At December 31, 2023, approximately $825.0 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 connections with vesting, exercise and forfeiture of awards under our equity compensation plans. In connection with an amendment to the Company’s credit agreement, disclosed in more detail under the Outstanding debt caption in the Liquidity and Capital Resources section of this Form 10-K, the Company agreed that it shall not repurchase shares until September 30, 2025, with the exception of share repurchases under our equity compensation plans.
Dividends
On January 18, 2024, we paid dividends aggregating $72.5 million to our shareholders of record as of December 29, 2023. This amount is included in "Accrued and other liabilities" on the consolidated balance sheet as of December 31, 2023. For the years ended December 31, 2023, 2022 and 2021, we paid $290.5 million, $267.5 million and $247.2 million in dividends, respectively. We expect to continue to make quarterly dividend payments. Future cash dividends, as always, will depend on a variety of factors, including earnings, capital requirements, financial condition, general economic conditions and other factors considered relevant by us and is subject to final determination by our Board of Directors.
Contingencies
See Note 20 to our consolidated financial statements included within this Form 10-K.
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Climate Change
We are concerned about the consequences of climate change and will take prudent and cost-effective actions that reduce GHG emissions to the atmosphere.
FMC is committed to continuing to do its part to address climate change and its impacts on nature and communities, establishing goals related to waste, water, and net-zero emissions by 2035. FMC published its first sustainability report in 2011 and has been reporting its GHG emissions and mitigation strategy to CDP since 2016. FMC details the business risks and opportunities we have due to climate change and its impacts in our CDP climate change and water security reports and has been recognized as a leader in climate disclosures.
Even as we take action to minimize the release of GHG emissions, additional warming is anticipated. Long-term, higher average global temperatures could result in induced changes in natural resources, growing seasons, precipitation patterns, weather patterns, species distributions, water availability, sea levels, and biodiversity. These impacts could cause changes in supplies of raw materials used to maintain FMC’s production capacity and could lead to possible increased sourcing costs. Extreme weather events attributable to climate change may result in, among other things, physical damage to our property and equipment, and interruptions to our supply chain. In addition, depending on how pervasive the climate impacts are in the different geographic locations, FMC’s customers could be impacted by chronic or acute climate events. Demand for FMC’s products is dependent upon growers’ livelihood and ability to adapt to the impacts of climate change.
Though the nature of these events makes them difficult to predict, to respond to the uncertainty and better understand our risks and opportunities, we have conducted climate related scenario analyses consistent with the recommendations provided by the Taskforce for Climate-Related Financial Disclosures (“TCFD”). As part of the TCFD scenario analysis, we have evaluated both physical and transitional risks and opportunities across multiple time horizons. In accordance with the TCFD guidance, we leveraged scenarios published by the International Energy Agency (“IEA”) and the United Nations’ Intergovernmental Panel on Climate Change (IPCC), including a scenario below 2°C. Results of this analysis are integrated in our enterprise risk management process, long-term business strategy, and are used to determine where strategic capital could be deployed to address risks and opportunities. Risks identified in Item 1A are aligned with the TCFD requirements. Additionally, the Taskforce for Nature-Related Financial Disclosures (“TNFD”) has outlined recommendations for companies to identify and disclose nature-related impacts and dependencies. FMC is a supporter of TNFD and is in the process of evaluating the adoption of TNFD recommendations. Appropriate updates will be included in our annual sustainability report and CDP submissions.
In our product portfolio, we see transition market opportunities for our products to enable customers to address climate change impacts. For example, FMC’s product solutions can help growers adapt to climate change and protect biodiversity by maximizing yield and utilizing resources more efficiently Our solutions can also help growers adapt to more unpredictable growing conditions and the effects these types of threats have on crops. FMC has committed to investing 100 percent of our research and development pipeline budget to developing sustainable products and solutions.
We are improving existing products and developing new platforms and technologies that help mitigate impacts of climate change. These opportunities could lead to new products and services for our existing and potential customers. Beyond our products and operations, FMC recognizes that energy consumption and dependencies on nature throughout our supply chain can impact climate change and product costs. FMC has a SBTi-validated target of net-zero GHG emissions, which includes reductions across our entire supply chain. Therefore, we will actively work with our entire value chain – suppliers, contractors, and customers – with a goal to reduce their GHG emissions and to mitigate their potential impacts on climate change.
We continue to follow legislative and regulatory developments regarding climate change, including climate-related financial disclosures and green taxes. The regulation of GHGs, depending on their nature and scope, could subject some of our manufacturing operations to additional costs or limits on operations and transport of our products. Future GHG regulatory requirements may result in increased costs of energy, additional capital costs for emissions control or new equipment, and/or costs associated with cap and trade or carbon taxes. For instance, FMC is subject to climate change regulation such as the EU Emissions Trading Scheme and subsequent Carbon Border Adjustment Mechanism. Additional green taxes, extended producer responsibility requirements, and mandated sustainability disclosures may continue to impact FMC as a part of the EU Green Deal and other global regulations. Many countries FMC does business in are in the process of establishing mandates for non-financial disclosures by aligning with ISSB or other directives such as the EU Corporate Sustainability Reporting Directive, California SB 253 and 261 and the SEC climate proposal. FMC is closely following regulatory developments, and the cost of complying with future global regulations, including reporting requirements and green taxes, is difficult to estimate at this time.
See Item IA. Risk Factors for additional considerations related to risks of climate change and sustainability.
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Recently Adopted and Issued Accounting Pronouncements and Regulatory Items
See Note 2 "Recently Issued and Adopted Accounting Pronouncements and Regulatory Items" to our consolidated financial statements included within this Form 10-K.
Fair Value Measurements
See Note 19 to our consolidated financial statements included in this Form 10-K for additional discussion surrounding our fair value measurements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 1 "Principal Accounting Policies and Related Financial Information" to our consolidated financial statements included in this Form 10-K. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our consolidated financial statements. We have reviewed these critical accounting policies with the Audit Committee of the Board of Directors. Critical accounting policies are central to our presentation of results of operations and financial condition in accordance with U.S. GAAP and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors. Our most critical accounting estimates and assumptions, which are those that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations, include: Impairments and valuation of long-lived and indefinite-lived assets, Pension and other postretirement benefits, valuation allowance on deferred tax assets and the Allowance for credit losses on our trade receivables. Additional critical accounting policies are included within the list below:
Revenue recognition and trade receivables
We recognize revenue when (or as) we satisfy our performance obligation which is when the customer obtains control of the good or service. Rebates due to customers are accrued as a reduction of revenue in the same period that the related sales are recorded based on the contract terms. Refer to Note 3 to our consolidated financial statements included in this Form 10-K for more information.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements. We record a liability until remitted to the respective taxing authority.
We periodically enter into prepayment arrangements with customers and receive advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue and classified as "Advance payments from customers" on the consolidated balance sheet. Revenue associated with advance payments is recognized as shipments are made and transfer of control to the customer takes place.
Trade receivables consist of amounts owed to us from customer sales and are recorded when revenue is recognized. The allowance for trade receivables represents our best estimate of the probable losses associated with potential customer defaults. In developing our allowance for trade receivables, we use a two-stage process which includes calculating a general formula to develop an allowance to appropriately address the uncertainty surrounding collection risk of our entire portfolio and specific allowances for customers where the risk of collection has been reasonably identified either due to liquidity constraints or disputes over contractual terms and conditions.
Our method of calculating the general formula consists of estimating the recoverability of trade receivables based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. Our analysis of trade receivable collection risk is performed quarterly, and the allowance is adjusted accordingly.
We also hold long-term receivables that represent long-term customer receivable balances related to past-due accounts which are not expected to be collected within the current year. Our policy for the review of the allowance for these receivables is consistent with the discussion in the preceding paragraph above on trade receivables. Therefore, on an ongoing basis, we continue to evaluate the credit quality of our long-term receivables utilizing aging of receivables, collection experience and write-offs, as well as existing economic conditions, to determine if an additional allowance is necessary.
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We believe our allowance for credit losses is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and potentially have a material impact on our results of operations. Based on a combination of historical trends as well as current economic factors, we apply judgment to reserve for expected credit losses in the period in which the sale is recorded. A substantial change in the operating environments in any of our key locations (driven by weather conditions, industry specific events, and macroeconomic conditions) may result in actual adjustments that differ from our original assumptions.
Environmental obligations and related recoveries
We provide for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
Estimated obligations to remediate sites that involve oversight by the United States Environmental Protection Agency ("EPA"), or similar government agencies, are generally accrued no later than when a Record of Decision ("ROD"), or equivalent, is issued, or upon completion of a Remedial Investigation/Feasibility Study ("RI/FS"), or equivalent, that is submitted by us to the appropriate government agency or agencies. Estimates are reviewed quarterly by our environmental remediation management, as well as by financial and legal management and, if necessary, adjusted as additional information becomes available. The estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties.
Our environmental liabilities for continuing and discontinued operations are principally for costs associated with the remediation and/or study of sites at which we are alleged to have released hazardous substances into the environment. Such costs principally include, among other items, RI/FS, site remediation, costs of operation and maintenance of the remediation plan, management costs, fees to outside law firms and consultants for work related to the environmental effort, and future monitoring costs. Estimated site liabilities are determined based upon existing remediation laws and technologies, specific site consultants’ engineering studies or by extrapolating experience with environmental issues at comparable sites.
Included in our environmental liabilities are costs for the operation, maintenance and monitoring of site remediation plans ("OM&M"). Such reserves are based on our best estimates for these OM&M plans. Over time we may incur OM&M costs in excess of these reserves. However, we are unable to reasonably estimate an amount in excess of our recorded reserves because we cannot reasonably estimate the period for which such OM&M plans will need to be in place or the future annual cost of such remediation, as conditions at these environmental sites change over time. Such additional OM&M costs could be significant in total but would be incurred over an extended period of years.
Included in the environmental reserve balance, other assets balance and disclosure of reasonably possible loss contingencies are amounts from third-party insurance policies, which we believe are probable of recovery.
Provisions for environmental costs are reflected in income, net of probable and estimable recoveries from named Potentially Responsible Parties ("PRPs") or other third parties. See Note 11 to the consolidated financial statements included within this Form 10-K for further information. All other environmental provisions incorporate inflation and are not discounted to their present value.
In calculating and evaluating the adequacy of our environmental reserves, we have taken into account the joint and several liability imposed by Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and the analogous state laws on all PRPs and have considered the identity and financial condition of the other PRPs at each site to the extent possible. We have also considered the identity and financial condition of other third parties from whom recovery is anticipated, as well as the status of our claims against such parties. Although we are unable to forecast the ultimate contributions of PRPs and other third parties with absolute certainty, the degree of uncertainty with respect to each party is taken into account when determining the environmental reserve by adjusting the reserve to reflect the facts and circumstances on a site-by-site basis. Our liability includes our best estimate of the costs expected to be paid before the consideration of any potential recoveries from third parties. We believe that any recorded recoveries related to PRPs are realizable in all material respects. Recoveries are recorded as either an offset in "Environmental liabilities, continuing and discontinued" or as "Other assets" in our consolidated balance sheets in accordance with U.S. accounting literature.
See Note 11 to our consolidated financial statements included within this Form 10-K for changes in estimates associated with our environmental obligations.
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Impairments and valuation of long-lived and indefinite-lived assets
Our long-lived assets primarily include property, plant and equipment, goodwill and intangible assets. The assets and liabilities of acquired businesses are measured at their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired, including identified intangibles, is recorded as goodwill. The determination and allocation of fair value to the assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, including estimates based on historical information, current market data and future expectations. Although the estimates were deemed reasonable by management based on information available at the dates of acquisition, those estimates are inherently uncertain.
We test for impairment whenever events or circumstances indicate that the net book value of our property, plant and equipment may not be recoverable from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets, which is based on discounted cash flows at the lowest level determinable. The estimated cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.
We perform an annual impairment test of goodwill and indefinite-lived intangible assets in the third quarter of each year, or more frequently whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. In performing our evaluation, we assess qualitative factors such as overall financial performance of our reporting units, anticipated changes in industry and market structure, competitive environments, planned capacity and cost factors such as raw material prices.
We estimate the fair value of the reporting unit using a discounted cash flow model as part of the income approach. We assess the appropriateness of projected financial information by comparing projected revenue growth rates, profit margins and tax rates to historical performance, industry data and selected guideline companies, where applicable. Our key assumptions include future cash flow projections, tax rates, terminal growth rates and discount rates.
We employ the relief from royalty method of the income approach to value our brand portfolios (indefinite-lived intangible assets). The principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. Primary inputs and key assumptions include revenue forecasts attributable to each portfolio, royalty rates (considering both external market data and internal arrangements), tax rates, terminal growth rates and discount rates.
Estimating the fair value requires significant judgment and actual results may differ due to changes in the overall market conditions. We believe we have applied reasonable assumptions which considers both internal and external factors.
We believe that an accounting estimate relating to asset impairment is a critical accounting estimate because of the inherent uncertainty within the underlying assumptions. An adverse change in any of these assumptions could result in an impairment charge which would potentially have a material impact on our results of operations.
Based on the annual assessment, we concluded the fair value of the reporting unit substantially exceeded the carrying value. Additionally, the fair value of each indefinite-lived intangible asset exceeded its carrying value.
See Note 8 to our consolidated financial statements included within this Form 10-K for charges associated with long-lived asset disposal costs and the activity associated with the restructuring reserves.
Pension and other postretirement benefits
We provide qualified and nonqualified defined benefit and defined contribution pension plans, as well as postretirement health care and life insurance benefit plans to our employees and retirees. The costs (benefits) and obligations related to these benefits reflect key assumptions related to general economic conditions, including interest (discount) rates, healthcare cost trend rates, expected rates of return on plan assets and the rates of compensation increase for employees. The costs (benefits) and obligations for these benefit programs are also affected by other assumptions, such as average retirement age, mortality, employee turnover, and plan participation. To the extent our plans’ actual experience, as influenced by changing economic and financial market conditions or by changes to our own plans’ demographics, differs from these assumptions, the costs and obligations for providing these benefits, as well as the plans’ funding requirements, could increase or decrease. When actual results differ from our assumptions, the difference is typically recognized over future periods. In addition, the unrealized gains and losses related to our pension and postretirement benefit obligations may also affect periodic benefit costs (benefits) in future periods.
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We use several assumptions and statistical methods to determine the asset values used to calculate both the expected rate of return on assets component of pension cost and to calculate our plans’ funding requirements. As previously disclosed, we changed our method of accounting to the fair value approach for our liability-hedging asset class, which does not involve deferring the impact of excess plan asset gains or losses in the determination of these two components of net periodic benefit cost. This class of assets is comprised solely of fixed income securities and therefore, provides a natural hedge (liability-hedging assets) against the changes in the recorded amount of net periodic benefit cost. We use an actuarial value of assets to determine our plans’ funding requirements. The actuarial value of assets must be within a certain range, high or low, of the actual market value of assets, and is adjusted accordingly.
We select the discount rate used to calculate pension and other postretirement obligations based on a review of available yields on high-quality corporate bonds as of the measurement date. In selecting a discount rate as of December 31, 2023, we placed particular emphasis on a discount rate yield-curve provided by our actuary. This yield-curve, when populated with projected cash flows that represent the expected timing and amount of our plans' benefit payments, produced an effective discount rate of 4.97 percent for our U.S. qualified plan, 4.78 percent for our U.S. nonqualified, and 4.83 percent for our U.S. other postretirement benefit plans.
The discount rates used to determine projected benefit obligation at our December 31, 2023 and 2022 measurement dates for the U.S. qualified plan were 4.97 percent and 5.16 percent, respectively. The effect of the change in the discount rate from 5.16 percent to 4.97 percent at December 31, 2023 resulted in a $16.8 million increase to our U.S. qualified pension benefit obligations. The effect of the change in the discount rate used to determine net annual benefit cost (income) from 2.84 percent at December 31, 2022 to 5.16 percent at December 31, 2023 resulted in a $5.7 million increase to the 2023 U.S. qualified pension expense.
The change in discount rate from 5.16 percent at December 31, 2022 to 4.97 percent at December 31, 2023 was attributable to an increase in yields on high quality corporate bonds with cash flows matching the timing and amount of our expected future benefit payments between the 2022 and 2023 measurement dates. Using the December 31, 2023 and 2022 yield curves, our U.S. qualified plan cash flows produced a single weighted-average discount rate of approximately 4.97 percent and 5.16 percent, respectively.
In developing the assumption for the long-term rate of return on assets for our U.S. Plan, we take into consideration the technical analysis performed by our outside actuaries, including historical market returns, information on the assumption for long-term real returns by asset class, inflation assumptions, and expectations for standard deviation related to these best estimates. Our long-term rate of return for the fiscal year ended December 31, 2023, 2022 and 2021 was 4.75 percent, 2.50 percent and 2.25 percent, respectively.
For the sensitivity of our pension costs to incremental changes in assumptions see our discussion below.
Sensitivity analysis related to key pension and postretirement benefit assumptions.
A one-half percent increase in the assumed discount rate would have decreased pension and other postretirement benefit obligations by $42.4 million and $43.5 million at December 31, 2023 and 2022, respectively, and increased pension and other postretirement benefit costs by $0.5 million, $0.1 million and $0.4 million for 2023, 2022 and 2021, respectively. A one-half percent decrease in the assumed discount rate would have increased pension and other postretirement benefit obligations by $46.1 million and $47 million at December 31, 2023 and 2022, respectively, and decreased pension and other postretirement benefit costs by $0.1 million in 2023, zero in 2022, and $0.4 million in 2021.
A one-half percent increase in the assumed expected long-term rate of return on plan assets would have decreased pension costs by $5.0 million, $6.6 million and $6.3 million for 2023, 2022 and 2021, respectively. A one-half percent decrease in the assumed long-term rate of return on plan assets would have increased pension costs by $5.0 million, $6.6 million and $6.3 million for 2023, 2022 and 2021, respectively.
Further details on our pension and other postretirement benefit obligations and net periodic benefit costs (benefits) are found in Note 14 to our consolidated financial statements in this Form 10-K.
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Income taxes
We have recorded a valuation allowance to reduce deferred tax assets in certain jurisdictions to the amount that we believe is more likely than not to be realized. In assessing the need for this allowance, we have considered a number of factors including future taxable income, the jurisdictions in which such income is earned and our ongoing tax planning strategies. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Similarly, should we conclude that we would be able to realize certain deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.
Additionally, we file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Certain income tax returns for FMC entities taxable in the U.S. and significant foreign jurisdictions are open for examination and adjustment. We assess our income tax positions and record a liability for all years open to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We adjust these liabilities, if necessary, upon the completion of tax audits or changes in tax law.
See Note 12 to our consolidated financial statements included within this Form 10-K for additional discussion surrounding income taxes.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in commodity prices, interest rates and foreign currency exchange rates. Our policy is to minimize exposure to our cash flow over time caused by changes in commodity, interest and currency exchange rates. To accomplish this, we have implemented a controlled program of risk management consisting of appropriate derivative contracts entered into with major financial institutions.
The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates and prices. The range of changes chosen reflects our view of changes that are reasonably possible over a one-year period. Market value estimates are based on the present value of projected future cash flows considering the market rates and prices chosen.
At December 31, 2023, our net financial instrument position was a net liability of $11.4 million compared to a net liability of $4.6 million at December 31, 2022. The change in the net financial instrument position was primarily due to fluctuations in our foreign exchange portfolios as well as the lack of outstanding interest rate swap contracts.
Since our risk management programs are generally highly effective, the potential loss in value for each risk management portfolio described below would be largely offset by changes in the value of the underlying exposure.
Foreign Currency Exchange Rate Risk
The primary currencies for which we have exchange rate exposure are the U.S. dollar versus the Brazilian real, Chinese yuan, Indian rupee, euro, Mexican peso and Argentine peso. Foreign currency debt and foreign exchange forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange forward contracts are also used to hedge firm and highly anticipated foreign currency cash flows.
To analyze the effects of changing foreign currency rates, we have performed a sensitivity analysis in which we assume an instantaneous 10 percent change in the foreign currency exchange rates from their levels at December 31, 2023 and 2022, with all other variables (including interest rates) held constant.
Hedged Currency vs. Functional Currency
Net asset/(liability) position at December 31, 2023 $ (11.4) $ 34.4 $ (56.2)
Interest Rate Risk
One of the strategies that we can use to manage interest rate exposure is to enter into interest rate swap agreements. In these agreements, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount. As of December 31, 2023, we had no outstanding interest rate swap contracts.
To analyze the effects of changing interest rates, we have performed a sensitivity analysis in which we assume an instantaneous one percent change in the interest rates from their levels at December 31, 2022, with all other variables held constant. As a result of having no outstanding interest rate swaps at December 31, 2023, there was no sensitivity analysis performed over interest rate risk for that period.
Net asset/(liability) position at December 31, 2023 $ — $ — $ —
Our debt portfolio at December 31, 2023 is composed of 79 percent fixed-rate debt and 21 percent variable-rate debt. The variable-rate component of our debt portfolio principally consists of borrowings under our Credit Facility, commercial paper program, and amounts outstanding under foreign subsidiary credit lines. Changes in interest rates affect different portions of our variable-rate debt portfolio in different ways.
Based on the variable-rate debt in our debt portfolio at December 31, 2023, a one percentage point increase in interest rates would have increased gross interest expense by $8.4 million and a one percentage point decrease in interest rates would have decreased gross interest expense by $8.4 million for the year ended December 31, 2023.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Consolidated Balance Sheets as of December 31, 2023 and 2022 51
Notes to Consolidated Financial Statements 55
Report of Independent Registered Public Accounting Firm 108
Management's Annual Report on Internal Control Over Financial Reporting 110
Report of Independent Registered Public Accounting Firm 111
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FMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in Millions, Except Per Share Data) 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)
Less: Net income (loss) attributable to noncontrolling interests (0.5) 5.0 (2.5)
Net income (loss) attributable to FMC stockholders $ 1,321.5 $ 736.5 $ 739.6
Amounts attributable to FMC stockholders:
Continuing operations, net of income taxes $ 1,420.0 $ 833.7 $ 807.8
Discontinued operations, net of income taxes (98.5) (97.2) (68.2)
Net income (loss) attributable to FMC stockholders $ 1,321.5 $ 736.5 $ 739.6
Basic earnings (loss) per common share attributable to FMC stockholders:
Net income (loss) attributable to FMC stockholders $ 10.55 $ 5.83 $ 5.76
Diluted earnings (loss) per common share attributable to FMC stockholders:
Net income (loss) attributable to FMC stockholders $ 10.53 $ 5.81 $ 5.73
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in Millions) Year Ended December 31,
Other comprehensive income (loss), net of tax:
Foreign currency adjustments:
Reclassification of foreign currency translation (gains) losses $ — $ 4.2 $ —
Total foreign currency adjustments (1) $ 29.7 $ (98.9) $ (87.0)
Derivative instruments:
Pension and other postretirement benefits:
Other comprehensive income (loss), net of tax $ 53.6 $ (135.0) $ (45.3)
____________________
(1)Income taxes are not provided for foreign currency translation because the related investments are essentially permanent in duration.
(2)At December 31 of each year, we remeasure our pension and postretirement plan obligations at which time we record any actuarial gains (losses) and prior service (costs) credits to other comprehensive income. See Note 14 to the consolidated financial statements included within this Form 10-K for further details.
(3)For more detail on the components of these reclassifications and the affected line item in the consolidated statements of income (loss), see Note 16 to the consolidated financial statements included within this Form 10-K for further details.
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(in Millions, Except Share and Par Value Data) 2023 2022
ASSETS
Current assets
Cash and cash equivalents $ 302.4 $ 572.0
Prepaid and other current assets 398.9 343.6
Property, plant and equipment, net 892.5 849.6
Other assets including long-term receivables, net 489.5 560.5
LIABILITIES AND EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 934.0 $ 540.8
Accounts payable, trade and other 602.4 1,252.2
Advance payments from customers 482.1 680.5
Accrued and other liabilities 684.8 601.8
Guarantees of vendor financing 69.6 142.0
Accrued pension and other postretirement benefits, current 6.4 2.3
Long-term debt, less current portion 3,023.6 2,733.2
Accrued pension and other postretirement benefits, long-term 24.4 31.6
Environmental liabilities, continuing and discontinued 494.7 439.1
Commitments and contingent liabilities (Note 20)
Equity
Capital in excess of par value of common stock 935.6 909.2
Accumulated other comprehensive income (loss) (406.5) (459.6)
Noncontrolling interests 22.5 23.0
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Millions) Year Ended December 31,
Cash provided (required) by operating activities of continuing operations:
Discontinued operations, net of income taxes 98.5 97.2 68.2
Income (loss) from continuing operations $ 1,419.5 $ 838.7 $ 805.3
Restructuring and other charges (income) 212.3 93.1 108.0
Pension and other postretirement benefits 20.9 12.5 10.5
Guarantees of vendor financing (72.4) (64.2) 65.6
Pension and other postretirement benefit contributions (2.4) (4.5) (5.3)
Environmental spending, continuing, net of recoveries (34.5) (26.9) (63.6)
Restructuring and other spending (1) (30.3) (35.2) (34.7)
Transaction and integration costs — (0.5) (9.5)
Change in other operating assets and liabilities, net (2) 21.5 26.2 (61.6)
Cash provided (required) by operating activities of discontinued operations:
Other discontinued spending (31.6) (30.6) (21.0)
____________________
(1)In addition to cash payments shown in our roll forward of restructuring reserves in Note 8 to our consolidated financial statements included within this Form 10-K, the restructuring and other spending amount above for the years ended December 31, 2023 and 2022 includes spending of $9.7 million and $10.0 million, respectively, related to the Furadan® asset retirement obligations and $1.1 million and $3.2 million, respectively, for certain historical India indirect tax matters. For additional detail on restructuring and other charges activities, see Note 8 to our consolidated financial statements included within this Form 10-K.
(2)Changes in all periods represent timing of payments associated with all other operating assets and liabilities.
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in Millions) Year Ended December 31,
Cash provided (required) by investing activities of continuing operations:
Investment in Enterprise Resource Planning system — — (12.7)
Acquisitions, including cost and equity method, net (3) (16.5) (198.2) (5.2)
Proceeds from land disposition (4) 5.8 50.5 —
Other investing activities (5) (9.8) 23.6 (13.7)
Cash provided (required) by investing activities of discontinued operations:
Proceeds from disposal of property, plant and equipment — — 19.7
Cash provided (required) by financing activities of continuing operations:
Increase (decrease) in short-term debt $ 400.7 $ 115.2 $ 104.9
Proceeds from borrowing of long-term debt 1,498.6 — 1,000.0
Financing fees and interest rate swap settlements (0.8) 16.3 (2.4)
Distributions to minority partners (0.6) (0.5) —
Issuances of common stock, net 5.3 9.4 7.9
Other repurchases of common stock (6.2) (8.9) (8.0)
Increase (decrease) in cash and cash equivalents $ (269.6) $ 55.2 $ (52.1)
Cash and cash equivalents, beginning of period 572.0 516.8 568.9
Cash and cash equivalents, end of period $ 302.4 $ 572.0 $ 516.8
____________________
(3)The acquisitions, including cost and equity method, net amount in 2023 includes an $11.9 million payment related to the in-process research and development assets acquired. For additional detail on this transaction, see Note 8 to our consolidated financial statements included within this Form 10-K. The 2022 activity includes the purchase price of Biophero of approximately $193 million. For additional detail on this transaction, see Note 4 to our consolidated financial statements included within this Form 10-K.
(4)During December 2022, we finalized a land transfer agreement with the Shanghai Municipal People's Government. In the years ended December 31, 2023 and 2022, we received cash proceeds of $5.8 million and $50.5 million, respectively, for the land transfer. For additional detail on this transaction, see Note 8 to our consolidated financial statements included within this Form 10-K.
(5)Included in the above is cash spending associated with contract manufacturers was $2.9 million, $6.8 million and $18.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
(6)See Note 16 to the consolidated financial statements included within this Form 10-K regarding our quarterly cash dividend.
Supplemental disclosure of cash flow information: Cash paid for interest, net of capitalized interest was $229.6 million, $144.0 million and $125.8 million, and income taxes paid, net of refunds was $180.1 million, $122.0 million and $139.2 million in December 31, 2023, 2022 and 2021, respectively. Non-cash additions to property, plant and equipment and other assets at December 31, 2023, 2022 and 2021 were $18.6 million, $40.4 million and $45.5 million, respectively. Non-cash investing activities includes investments representing our beneficial interest in a trade receivables securitization program of $19.3 million at December 31, 2022.
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FMC Stockholders’ Equity
Stock compensation plans — 20.2 — — 5.5 — 25.7
Shares for benefit plan trust — — — — 1.6 — 1.6
Net hedging gains (losses) and other, net of income tax — — — 49.6 — — 49.6
Foreign currency translation adjustments — — — (86.5) — (0.5) (87.0)
Repurchases of common stock — — — — (408.0) — (408.0)
Stock compensation plans — 28.8 — — 4.7 — 33.5
Shares for benefit plan trust — — — — 0.1 — 0.1
Net hedging gains (losses) and other, net of income tax — — — (29.5) — — (29.5)
Foreign currency translation adjustments — — — (98.0) — (0.9) (98.9)
Repurchases of common stock — — — — (108.9) — (108.9)
Distributions to noncontrolling interests — — — — — (0.5) (0.5)
Stock compensation plans — 26.4 — — 5.2 — 31.6
Shares for benefit plan trust — — — — (1.7) — (1.7)
Net hedging gains (losses) and other, net of income tax — — — 1.5 — — 1.5
Foreign currency translation adjustments — — — 29.2 — 0.5 29.7
Repurchases of common stock — — — — (81.2) — (81.2)
Distributions to noncontrolling interests — — — — — (0.5) (0.5)
The accompanying Notes are an integral part of these consolidated financial statements.
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FMC CORPORATION
Notes to Consolidated Financial Statements
Note 1: Principal Accounting Policies and Related Financial Information
Nature of operations. We are 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 and 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, and digital and precision agriculture. These products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects, weeds and disease, as well as in non-agricultural markets for pest control.
Basis of consolidation and basis of presentation. The accompanying consolidated financial statements of FMC Corporation and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our consolidated financial statements include the accounts of FMC and all entities that we directly or indirectly control. All significant intercompany accounts and transactions are eliminated in consolidation.
Estimates and assumptions. In preparing the financial statements in conformity with U.S. GAAP we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results are likely to differ from those estimates, but we do not believe such differences will materially affect our financial position, results of operations or cash flows.
Cash equivalents. We consider investments in all liquid debt instruments with original maturities of 3 months or less to be cash equivalents.
Trade receivables, net of allowance. Trade receivables consist of amounts owed to us from customer sales and are recorded when revenue is recognized. The allowance for trade receivables represents our best estimate of the probable losses associated with potential customer defaults. In developing our allowance for trade receivables, we use a two-stage process which includes calculating a general formula to develop an allowance to appropriately address the uncertainty surrounding collection risk of our entire portfolio and specific allowances for customers where the risk of collection has been reasonably identified either due to liquidity constraints or disputes over contractual terms and conditions. Our methodology considers current economic conditions as well as forward-looking expectations about expected credit loss.
Our method of calculating the general formula consists of estimating the recoverability of trade receivables based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. Our analysis of trade receivable collection risk is performed quarterly, and the allowance is adjusted accordingly.
We also hold long-term receivables that represent long-term customer receivable balances related to past-due accounts which are not expected to be collected within the current year. Our policy for the review of the allowance for these receivables is consistent with the discussion in the preceding paragraph above on trade receivables. Therefore, on an ongoing basis, we continue to evaluate the credit quality of our long-term receivables utilizing aging of receivables, collection experience and write-offs, as well as existing economic conditions, to determine if an additional allowance is necessary.
The allowance for trade receivables was $29.1 million and $33.9 million as of December 31, 2023 and 2022, respectively. The allowance for long-term receivables was $27.1 million and $44.5 million at December 31, 2023 and 2022, respectively. The provision to the allowance for receivables charged against operations was $6.3 million, $(0.5) million and $21.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. See Note 9 to the consolidated financial statements included within this Form 10-K for more information.
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Investments. Investments in companies in which our ownership interest is 50 percent or less and in which we exercise significant influence over operating and financial policies are accounted for using the equity method. Under the equity method, original investments are recorded at cost and adjusted by our share of undistributed earnings and losses of these investments. Majority owned investments in which our control is restricted are also accounted for using the equity method. As of December 31, 2023 and 2022, we do not own any equity method investments. All other investments are carried at their fair values or at cost, as appropriate and are not material to our consolidated financial statements. FMC Ventures, which was established in 2020, is 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. The accounting guidance requires these nonmarketable equity securities to be recorded at cost and adjusted to fair value each reporting period. However, the guidance allows for a measurement alternative, which is to record the investment at cost, less impairment, if any, and subsequently adjust for observable price changes. Each reporting period, we review the portfolio for any observable price changes or potential indicators of impairment. At December 31, 2023, our investments made through FMC Ventures individually and in the aggregate are not significant to our financial results.
Inventories. Inventories are stated at the lower of cost or net realizable value. Inventory costs include those costs directly attributable to products before sale, including all manufacturing overhead but excluding distribution costs. All inventories are determined on a first-in, first-out ("FIFO") basis.
Property, plant and equipment. We record property, plant and equipment, including capitalized interest, at cost. We recognize acquired property, plant and equipment, from acquisitions at its estimated fair value. Depreciation is provided principally on the straight-line basis over the estimated useful lives of the assets (land improvements — 20 years, buildings and building equipment — 15 to 40 years, and machinery and equipment — 3 to 18 years). Gains and losses are reflected in income upon sale or retirement of assets. Expenditures that extend the useful lives of property, plant and equipment or increase productivity are capitalized. Ordinary repairs and maintenance are expensed as incurred through operating expense.
Capitalized interest. We capitalized interest costs of $9.3 million, $5.6 million, and $3.4 million in 2023, 2022, and 2021, respectively. These costs were primarily associated with the construction of certain long-lived assets and have been capitalized as part of the cost of those assets. We amortize capitalized interest over the assets’ estimated useful lives.
Impairments of long-lived assets. We review the recovery of the net book value of long-lived assets whenever events and circumstances indicate that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the net book value, we recognize an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Asset retirement obligations. We record asset retirement obligations ("AROs") at fair value at the time the liability is incurred if we can reasonably estimate the settlement date. The associated AROs are capitalized as part of the carrying amount of related long-lived assets. In future periods, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. We also adjust the liability for changes resulting from the passage of time and/or revisions to the timing or the amount of the original estimate. Upon retirement of the long-lived asset, we either settle the obligation for its recorded amount or incur a gain or loss.
We have obligations at the majority of our manufacturing facilities in the event of permanent plant shutdown. For certain AROs not already accrued, we have calculated the fair value of these AROs and concluded that the present value of these obligations was inconsequential at December 31, 2023 and 2022.
The carrying amounts for the AROs for the years ended December 31, 2023 and 2022 are $6.4 million and $16.0 million, respectively. These amounts are included in "Accrued and other liabilities" and "Other long-term liabilities" on the consolidated balance sheet.
Restructuring and other charges. We continually perform strategic reviews and assess the return on our business. This sometimes results in a plan to restructure the operations of our business. We record an accrual for severance and other exit costs under the provisions of the relevant accounting guidance.
See Note 8 to the consolidated financial statements included within this Form 10-K for more information on Project Focus, the global restructuring program announced in December 2023.
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Additionally, as part of these restructuring plans, write-downs of long-lived assets may occur. Two types of assets are impacted: assets to be disposed of by sale and assets to be abandoned. Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale. Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered. The useful life of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.
Capitalized software. We capitalize the costs of internal use software in accordance with accounting literature which generally requires the capitalization of certain costs incurred to develop or obtain internal use software. We assess the recoverability of capitalized software costs on an ongoing basis and record write-downs to fair value as necessary. We amortize capitalized software costs over expected useful lives ranging from 3 to 10 years. See Note 22 to the consolidated financial statements included within this Form 10-K for the net unamortized computer software balances.
Goodwill and intangible assets. Goodwill and other indefinite life intangible assets are not subject to amortization. Instead, they are subject to at least an annual assessment for impairment by applying a fair value-based test.
We test goodwill and indefinite life intangibles for impairment annually using the criteria prescribed by U.S. GAAP accounting guidance for goodwill and other intangible assets. Based upon our annual impairment assessments conducted in 2023, 2022 and 2021, we did not record any goodwill or intangible asset impairments.
Finite-lived intangible assets consist of primarily customer relationships as well as patents, brands, registration rights, industry licenses, and other intangibles and are generally being amortized over periods of approximately 3 to 20 years. See Note 5 to the consolidated financial statements included within this Form 10-K for additional information on goodwill and intangible assets.
Revenue recognition. We recognize revenue when (or as) we satisfy our performance obligation which is when the customer obtains control of the good or service. Rebates due to customers are accrued as a reduction of revenue in the same period that the related sales are recorded based on the contract terms. Refer to Note 3 to the consolidated financial statements included within this Form 10-K for further details.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements. We record a liability until remitted to the respective taxing authority.
We periodically enter into prepayment arrangements with customers and receive advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue and classified as "Advance payments from customers" on the consolidated balance sheet. Revenue associated with advance payments is recognized as shipments are made and transfer of control to the customer takes place.
Research and development.Research and development costs are expensed as incurred. In-process research and development acquired as part of asset acquisitions, which include license and development agreements, are expensed as incurred and included as a component of "Restructuring and other charges (income)" on the consolidated statements of income (loss).
Income and other taxes. We provide current income taxes on income reported for financial statement purposes adjusted for transactions that do not enter into the computation of income taxes payable. We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. We have not provided income taxes for other outside basis differences inherent in our investments in subsidiaries because the investments and related unremitted earnings are essentially permanent in duration or we have concluded that no additional tax liability will arise upon disposal or remittance.
Foreign currency. We translate the assets and liabilities of our foreign operations at exchange rates in effect at the balance sheet date. For foreign operations where the functional currency is not the U.S. dollar we record translation gains and losses as a component of accumulated other comprehensive income (loss) in equity. The foreign operations' income statements are translated at the monthly exchange rates for the period.
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Notes to Consolidated Financial Statements — (Continued)
We record remeasurement gains and losses on monetary assets and liabilities, such as accounts receivables and payables, which are not in the functional currency of the operation. These remeasurement gains and losses are recorded in income as they occur. We generally enter into foreign currency contracts to mitigate the financial risk associated with these transactions. See "Derivative financial instruments" within this Note and Note 19 to the consolidated financial statements included within this Form 10-K.
Derivative financial instruments. We mitigate certain financial exposures, including currency risk, interest rate risk and to a lesser extent commodity price exposures, through a controlled program of risk management that includes the use of derivative financial instruments when applicable. We enter into foreign exchange contracts, including forward and purchased option contracts, to reduce the effects of fluctuating foreign currency exchange rates.
We recognize all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, we generally designate the derivative as either a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge) or a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). We record in accumulated other comprehensive income (loss) changes in the fair value of derivatives that are designated as, and meet all the required criteria for, a cash flow hedge. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. We record immediately in earnings changes in the fair value of derivatives that are not designated as cash flow hedges.
We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess, both at the inception of the hedge and throughout its term, whether each derivative is highly effective in offsetting changes in fair value or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively.
Treasury stock. We record shares of common stock repurchased at cost as treasury stock, resulting in a reduction of stockholders’ equity in the consolidated balance sheets. When the treasury shares are contributed under our employee benefit plans or issued for option exercises, we use a FIFO method for determining cost. The difference between the cost of the shares and the market price at the time of contribution to an employee benefit plan is added to or deducted from the related capital in excess of par value of common stock.
Segment information. We operate as a single business segment providing innovative solutions to growers around the world. The business is supported by global corporate staff functions. The determination of a single segment is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and both planning and forecasting future periods. Refer to Note 3 to the consolidated financial statements included within this Form 10-K for further information on product and regional revenues.
Geographic long-lived assets include goodwill and other intangibles, net, property, plant and equipment, net and other non-current assets. Refer to Note 21 to the consolidated financial statements included within this Form 10-K for further details.
Stock compensation plans. We recognize compensation expense in the financial statements for all share options and other equity-based arrangements. Share-based compensation cost is measured at the date of grant, based on the fair value of the award, and is recognized over the employee’s requisite service period. See Note 15 to the consolidated financial statements included within this Form 10-K for further discussion on our share-based compensation.
Environmental obligations. We provide for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
Estimated obligations to remediate sites that involve oversight by the United States Environmental Protection Agency ("EPA"), or similar government agencies, are generally accrued no later than when a Record of Decision ("ROD"), or equivalent, is issued, or upon completion of a Remedial Investigation/Feasibility Study ("RI/FS"), or equivalent, that is submitted by us and the appropriate government agency or agencies. Estimates are reviewed quarterly and, if necessary, adjusted as additional information becomes available. The estimates can change substantially as additional information becomes available regarding
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the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties.
Our environmental liabilities for continuing and discontinued operations are principally for costs associated with the remediation and/or study of sites at which we are alleged to have released hazardous substances into the environment. Such costs principally include, among other items, RI/FS, site remediation, costs of operation and maintenance of the remediation plan, management costs, fees to outside law firms and consultants for work related to the environmental effort, and future monitoring costs. Estimated site liabilities are determined based upon existing remediation laws and technologies, specific site consultants’ engineering studies or by extrapolating experience with environmental issues at comparable sites.
Included in our environmental liabilities are costs for the operation, maintenance and monitoring ("OM&M") of site remediation plans. Such reserves are based on our best estimates for these OM&M plans. Over time we may incur OM&M costs in excess of these reserves. However, we are unable to reasonably estimate an amount in excess of our recorded reserves because we cannot reasonably estimate the period for which such OM&M plans will need to be in place or the future annual cost of such remediation, as conditions at these environmental sites change over time. Such additional OM&M costs could be significant in total but would be incurred over an extended period of years.
Included in the environmental reserve balance, other assets balance and disclosure of reasonably possible loss contingencies are amounts from third-party insurance policies which we believe are probable of recovery.
Provisions for environmental costs are reflected in income, net of probable and estimable recoveries from named Potentially Responsible Parties ("PRPs") or other third parties. All of our environmental provisions incorporate inflation and are not discounted to their present value, other than our reserve for our Pocatello Tribal Matter. We remeasure this discounted liability balance according to current interest rates. See Note 11 to the consolidated financial statements included within this Form 10-K for further information.
In calculating and evaluating the adequacy of our environmental reserves, we have taken into account the joint and several liability imposed by Comprehensive Environmental Remediation, Compensation and Liability Act ("CERCLA") and the analogous state laws on all PRPs and have considered the identity and financial condition of the other PRPs at each site to the extent possible. We have also considered the identity and financial condition of other third parties from whom recovery is anticipated, as well as the status of our claims against such parties. Although we are unable to forecast the ultimate contributions of PRPs and other third parties with absolute certainty, the degree of uncertainty with respect to each party is taken into account when determining the environmental reserve on a site-by-site basis. Our liability includes our best estimate of the costs expected to be paid before the consideration of any potential recoveries from third parties. We believe that any recorded recoveries related to PRPs are realizable in all material respects. Recoveries are recorded as either an offset in "Environmental liabilities, continuing and discontinued" or as "Other assets including long-term receivables, net" in our consolidated balance sheets in accordance with U.S. accounting literature.
Pension and other postretirement benefits. We provide qualified and nonqualified defined benefit and defined contribution pension plans, as well as postretirement health care and life insurance benefit plans to our employees and retirees. The costs (or benefits) and obligations related to these benefits reflect key assumptions related to general economic conditions, including interest (discount) rates, healthcare cost trend rates, expected rates of return on plan assets and the rates of compensation increase for employees. The costs (or benefits) and obligations for these benefit programs are also affected by other assumptions, such as average retirement age, mortality, employee turnover, and plan participation. To the extent our plans’ actual experience, as influenced by changing economic and financial market conditions or by changes to our own plans’ demographics, differs from these assumptions, the costs and obligations for providing these benefits, as well as the plans’ funding requirements, could increase or decrease. When actual results differ from our assumptions, the difference is typically recognized over future periods. In addition, the unrealized gains and losses related to our pension and postretirement benefit obligations may also affect periodic benefit costs (or benefits) in future periods. See Note 14 to the consolidated financial statements included within this Form 10-K for additional information relating to pension and other postretirement benefits.
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