We are a diversified chemical company serving agricultural, consumer and industrial markets globally with innovative solutions, applications and market-leading products. We operate in three distinct business segments: FMC Agricultural Solutions,
Discontinued operations FMC Peroxygens divestiture: In
April 2013, the Board of Directors authorized management to pursue the sale of our FMC Peroxygens segment. This segment was classified as a discontinued operation and an asset held for sale beginning with our September 30, 2013condensed consolidated financial statements filed on Form 10- Q. In December 2013, we signed a definitive agreement to sell FMC Peroxygens and we expect the sale to be completed in the first quarter of 2014. Results of operations related to our FMC Peroxygens segment have been reclassified as a discontinued operation on a retrospective basis for all years presented. Unless otherwise indicated, the following discussions in this section pertain only to our continuing operations. For additional information see Note 9 "Discontinued Operations" to our consolidated financial statements included in this Form 10-K. 2013 Highlights The following are the more significant developments in our businesses during the year ended December 31, 2013: • Revenue of $3,874.8 millionin 2013 increased $464.9 millionor 14 percent versus last year. Revenue increases are associated with sales growth in all segments. A more detailed review of revenues by segment are included under the section entitled "Results of Operations" . On a regional basis, sales in Latin Americaincreased by 19 percent, sales in North Americawere up 16 percent, sales in Asiawere up five percent and sales in Europe, Middle Eastand Africa(EMEA) increased by seven percent. • Our gross margin of $1,340.4 millionincreased $72.1 millionor approximately six percent versus last year. Gross margin as a percent of revenues of approximately 35 percent declined two hundred basis points compared to 2012. This decline was primarily due to lower selling prices in our Alkali division. • Selling, general and administrative expenses increased five percent from $489.7 millionto $515.8 million. Selling, general and administrative expenses, excluding non-operating pension and postretirement charges and acquisition related charges, of $472.9 millionincreased $18.1 millionor approximately four percent. This was largely due to increased spending to meet the demands of the growth in our business as well as expenditures related to a transformation of our finance organization. The majority of these increases were experienced in our FMC Agricultural Solutions segment. Non-operating pension and postretirement charges and acquisition related charges are presented in our Adjusted Earnings Non-GAAP financial measurement below under the section titled "Results of Operations" . • Research and Development expenses of $117.7 millionincreased $5.7 millionor five percent, largely due to increased spending in FMC Agricultural Solutions associated with various innovation projects. • Adjusted earnings after-tax from continuing operations attributable to FMC stockholders of $528.4 millionincreased approximately $58.3 millionor 12 percent primarily due to higher operating results in FMC Agricultural Solutions. See the disclosure of our Adjusted Earnings Non-GAAP financial measurement below under the section titled "Results of Operations" . 22
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Other 2013 Highlights • In
April 2013, we made the decision to simplify our organizational structure to focus on three core business segments. The new segments better reflect the markets where we participate and lead today, and where we expect to grow in the future. For more information on this change see Note 20 within the notes to the consolidated financial statements within this Form 10-K. • In July 2013, we acquired Epax Nutra Holding III AS and Epax UKHolding III AS (together, "Epax"). Epax is a global supplier of fish-based omega-3 EPA/DHA fatty acid concentrates. Epax will be integrated into our newly formed FMC Healthand Nutrition segment from the acquisition date. The acquisition of Epax is an important step in fulfilling our strategic intent to broaden our product and customer base within our Health and Nutrition segment. • In August 2013, we concluded a licensing agreement with Belchim Crop Protectionfor access to valifenalate, a fungicide which will be introduced into our Agricultural Solutions segment. Our rights are exclusive for use in mixtures in the Americasas well as select countries in Asia. The product is already registered and sold in certain countries in Latin America, and we plan to register in many other countries in our territory. • In late September and early October 2013, we entered into two separate transactions that together provide our Agricultural Solutions segment with a strong foundation for developing, manufacturing and marketing biologically-based products to enhance yields and respond to evolving pest pressures and resistance. Namely, we acquired the assets of the Center for Agricultural and Environmental Biosolutions(CAEB), based in Research Triangle Park, NC, including CAEB's library of microorganisms and a pipeline of biological products in various stages of development. Further, in October 2013, we entered into an exclusive collaboration with Chr. Hansen A/S, a leading global biosciences company with expertise in screening, fermentation, and scale up of microbially-based products. Together with Agricultural Solutions' existing capabilities, we believe these transactions establish FMC as an industry leader in the growing market for biologically-based agricultural products. • Investments in our existing businesses continued in 2013. We began construction of our new MCC facility in Thailand, which will be completed late in 2014. We completed the restructuring of our Lithium operations and we introduced new improvements to our manufacturing capabilities, which we refer to as Manufacturing Excellence, in Alkali, Lithium and Health and Nutrition.
2014 Outlook In 2014, we expect another year of record performance. We expect higher revenues and an increase in earnings from all three of our segments. Higher revenues and stronger earnings are expected to be driven by the following:
• In FMC Agricultural Solutions, we expect new product introductions and our deep customer relationships to continue to drive volume growth. •
In FMC Healthand Nutrition, we expect growth in 2014 from food and pharmaceutical ingredients driven by our texturants, binders and natural colors product lines, principally in emerging markets. We are also confident that our recently acquired omega-3 business will add momentum to the segment's growth, with strong sales into the pharmaceutical sector and with steadily increasing penetration into the nutraceutical market. • In FMC Minerals, we expect Alkali to operate at record production levels in 2014 aided by better geological conditions and supported by Manufacturing Excellence programs already underway. We also remain optimistic that the soda ash pricing environment is improving. In Lithium, we expect stable pricing, consistent plant operations and increased volumes to enhance profitability.
We expect cash flow from our business segments to remain strong.
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Results of Operations-2013, 2012 and 2011 Overview The following presents a reconciliation of our segment results to net income attributable to FMC stockholders as seen through the eyes of management. SEGMENT RESULTS RECONCILIATION Year Ended December 31, (in Millions) 2013 2012 2011 Revenue FMC Agricultural Solutions
$ 2,145.7 $ 1,763.8 $ 1,464.5FMC Health and Nutrition 762.0 680.8 654.3 FMC Minerals 970.0 966.2 917.5 Eliminations (2.9 ) (0.9 ) - Total $ 3,874.8 $ 3,409.9 $ 3,036.3
Income (loss) from continuing operations before income taxes FMC Agricultural Solutions
$ 539.0 $ 454.0 $ 349.8FMC Health and Nutrition 169.5 161.6 159.4 FMC Minerals 128.3 171.4 175.7 Eliminations - (0.4 ) - Segment operating profit $ 836.8 $ 786.6 $ 684.9Corporate expense (82.7 ) (78.6 ) (75.3 ) Operating profit before the items listed below 754.1 708.0 609.6 Interest expense, net (42.2 ) (40.7 ) (35.0 ) Corporate special (charges) income: Restructuring and other (charges) income (47.9 ) (27.5 ) (6.3 )
Non-operating pension and postretirement charges (1) (38.1 ) (34.9 ) (14.5 ) Acquisition-related charges (2)
(10.0 ) (7.2 ) (0.6 ) Provision for income taxes (148.6 ) (134.5 ) (132.9 ) Discontinued operations, net of income taxes (159.3 ) (27.5 ) (38.1 )
Net income attributable to noncontrolling interests (14.1 ) (19.5 ) (16.3 ) Net income attributable to FMC stockholders
$ 293.9 $ 416.2 $ 365.9
(1) Our non-operating pension and postretirement costs are defined as those costs related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These costs 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 exclude these non-operating pension and postretirement costs from our segments as we believe that removing them provides a better understanding of the underlying profitability of our businesses, provides increased transparency and clarity in the performance of our retirement plans and enhances period-over-period comparability. We continue to include the service cost and amortization of prior service cost in our operating segments noted above. We believe these elements reflect the current year operating costs to our businesses for the employment benefits provided to active employees. (2) Charges related to the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions and certain professional fees associated with the completion of acquisitions. Charges for the year ended
December 31, 2013, represented amortization of inventory fair value step-up of $5.2 millionand certain professional fees of $4.8 millionassociated with the completion of our Epax acquisition within our FMC Healthand Nutrition segment. The charges for 2012 and 2011 represent amortization of inventory fair value step-up related to a number of acquisitions completed in 2012 and 2011. On the consolidated statements of income, the charges associated with inventory fair value step-up are included in "Costs of sales and services" and fees associated with concluding the acquisitions are included in "Selling, general and administrative expenses".
The following chart, which is provided to assist the readers of our financial statements, depicts certain after-tax charges (gains). These items are excluded by us in the measures we use to evaluate business performance and determine certain performance-based compensation. These after-tax items are discussed in detail within the "Other results of operations" section that follows. Additionally, the chart below discloses our Non-GAAP financial measure "Adjusted after-tax earnings from continuing operations
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attributable to FMC stockholders" reconciled from the GAAP financial measure "Net income attributable to FMC stockholders". We believe that this measure provides useful information about our operating results to investors and securities analysts. We also believe that excluding the effect of restructuring and other income and charges, non-operating pension and postretirement charges, certain tax adjustments from operating results and discontinued operations allows management and investors to compare more easily the financial performance of our underlying businesses from period to period. This measure should not be considered as a substitute for net income (loss) or other measures of performance or liquidity reported in accordance with GAAP.
ADJUSTED EARNINGS RECONCILIATION Years Ended December 31, (in Millions) 2013 2012 2011
Net income attributable to FMC stockholders (GAAP)
96.0 69.6 21.4 Income tax expense (benefit) on Corporate special charges (income) (35.3 ) (25.1 ) (7.6 ) Corporate special charges (income), net of income taxes 60.7 44.5 13.8 Discontinued operations, net of income taxes 159.3 27.5 38.1 Tax adjustments 14.5 (18.1 ) (2.0 )
Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (Non-GAAP)
$ 528.4 $ 470.1 $ 415.8In the discussion below, please refer to our chart titled "Segment Results Reconciliation" within the Results of Operations section. All comparisons are between the periods unless otherwise noted. Segment Results For management purposes, segment operating profit is defined as segment revenue less segment operating expenses (segment operating expenses consist of costs of sales and services, selling, general and administrative expenses and research and development expenses). We have excluded the following items from segment operating profit: corporate staff expense, interest income and expense associated with corporate debt facilities and investments, income taxes, gains (or losses) on divestitures of businesses, restructuring and other charges (income), non-operating pension and postretirement charges, investment gains and losses, loss on extinguishment of debt, asset impairments, Last-in, First-out ("LIFO") inventory adjustments, acquisition related charges and other income and expense items. Information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in Note 20 to our consolidated financial statements included in this Form 10-K. FMC Peroxygens divestiture: Results of operations related to our FMC Peroxygens segment have been reclassified as a discontinued operation on a retrospective basis for all years presented. Unless otherwise indicated, the following discussions in this section pertain only to our continuing operations. For additional information see Note 9 "Discontinued Operations" to our consolidated financial statements included in this Form 10-K. FMC Agricultural Solutions Year Ended December 31, (in Millions) 2013 2012 2011 Revenue $ 2,145.7 $ 1,763.8 $ 1,464.5Operating Profit 539.0 454.0 349.8 2013 vs. 2012 Revenue of $2,145.7 millionincreased approximately 22 percent versus the prior year period due to sales growth in North America, Latin Americaand Asia, partially offset by declines in EMEA. Sales in Latin Americaof $1,184.7 millionincreased 23 percent driven by Brazilvolume growth in herbicide and insecticide sales for soybeans, including growth from new and recently launched products. Sales in North Americaof $506.1 millionincreased 37 percent driven by strong demand for pre-emergent herbicides and at-plant insecticides as well as growth from new product introductions. Revenue in Asiaof $315.4 millionincreased 14 percent reflecting sales 25
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China, Indonesia, Australiaand a number of other key countries. EMEA declined 12 percent to $139.5 millionprimarily due to unfavorable weather conditions and lower insecticide sales. FMC Agricultural Solutions' operating profit of $539.0 millionincreased approximately 19 percent compared to the year-ago period, reflecting the sales growth described in the preceding paragraph, a favorable geographic mix and selected price increases. Selling, general and administrative costs were approximately $9 millionor three percent higher compared to the prior year due to increased spending on growth initiatives and higher people-related costs to support the higher sales. Research and development costs also increased period over period by approximately $5 milliondue to increased spending associated with various innovation projects. In 2014, we expect full-year revenue percentage growth in the mid-teens reflecting increased volumes due to strong market conditions and growth from new and recently introduced products, particularly in Latin America, North Americaand Asia. We expect full-year segment operating profit to grow in the mid-teens percentage, driven primarily by continued market share gains in Latin Americaand increased demand for resistance management products in North America.
Certain Regulatory Issues
We intend to defend vigorously all our products in the U.S., EU and other countries as our pesticide products are reviewed in the ordinary course of regulatory programs during 2014 as part of the ongoing cycle of re-registration of our pesticide products around the world.
2012 vs. 2011 Revenue of
$1,763.8 millionincreased approximately 20 percent versus the prior year period due to strong sales across all regions. The increase in revenue for the year ended December 31, 2012was also attributable to acquisitions that closed in the second half of 2011 of approximately $60 million. Sales in North Americaimproved by 30 percent to $368.5 millionreflecting favorable market conditions, strong demand for our proprietary herbicides and insecticides and growth from new or recently introduced products. Latin Americarevenue of $960.5 millionincreased 23 percent reflecting strong market conditions in Brazildriven by key crops such as sugarcane and soybeans, increased planted acres and sales from our new market access joint venture, Ruralco, in Argentina. Revenue in Asiaof $275.7 millionincreased 12 percent as a result of growth in recently launched and acquired products, coupled with growth in China, Indonesiaand the Philippines. EMEA revenues of $159.1 millionincreased five percent driven by higher herbicide sales in Europeand insecticide volume gains in Africa. FMC Agricultural Solutions' operating profit of $454.0 millionincreased approximately 30 percent compared to the prior year, reflecting the broad-based sales growth and targeted price increases. This increase was partially offset by a $51.7 millionincrease in selling, general and administrative costs mainly for focused growth initiatives and increased people-related costs to support the higher sales. Segment earnings were also impacted by higher research and development costs of $11.1 milliondue to increased spending associated with various innovation projects.
Year Ended December 31, (in Millions) 2013 2012 2011 Revenue
$ 762.0 $ 680.8 $ 654.3Operating Profit 169.5 161.6 159.4 2013 vs. 2012 Revenue was $762.0 million, an increase of approximately 12 percent versus the prior-year period. This increase was due to volume increases of three percent in core product lines, revenue from acquisitions which increased sales by six percent, favorable pricing and foreign currency impacts which increased sales by two and one percent, respectively. Segment operating profit of $169.5 millionincreased by five percent versus the prior year period as revenue growth was partially offset by acquisition integration costs, higher raw material costs and costs associated with our Manufacturing Excellence program. Selling, general and administrative costs also increased approximately $6 millioncompared to the prior year due to the addition of the Epax business within the segment. 26
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In 2014, we expect full-year revenue to be up in the mid to high-teens percent driven by higher volumes in texture and stability solutions, natural colors and binder product lines and contributions from the omega-3 product line. Full-year segment operating profit are expected to grow in the mid-teens percent with benefits from omega-3 sales and strong demand in food ingredients. 2012 vs. 2011 Revenue of
$680.8 millionincreased approximately four percent from the prior year. This increase was due to favorable pricing which impacted sales by six percent and revenue from acquisitions which increased sales by two percent. These increases were partially offset by decreased volumes of two percent and unfavorable currency impacts of two percent. Segment operating profit of $161.6 millionincreased one percent versus the prior year. The higher revenues were negatively impacted by higher raw material costs. Additionally, selling, general and administrative expenses also increased by approximately $7 millionto support growth initiatives. FMC Minerals Year Ended December 31,
(in Millions) 2013 2012 2011 Revenue
$ 970.0 $ 966.2 $ 917.5Operating Profit 128.3 171.4 175.7 2013 vs. 2012 Revenue of $970.0 million, was essentially flat period over period. Volume gains of three percent driven by Alkali sales were offset by unfavorable pricing year over year. Unfavorable pricing was primarily driven by Alkali, slightly offset by favorable pricing in Lithium. Alkali revenues of $747.0 millionincreased 2 percent over the prior year due to volume gains of six percent which were partially offset by reduced pricing of four percent. Lithium revenues of $223.0 milliondecreased 4 percent compared to the prior year due to unfavorable sales mix. Production and sales volumes on a lithium carbonate equivalent basis were relatively flat year over year, as lower production in Argentinadue to operational issues was offset by higher third party product purchases. Segment operating profit of $128.3 milliondecreased approximately 25 percent versus the prior year. The decrease was primarily due to lower average export pricing in soda ash. Additionally, production factors, such as poor geological conditions at the alkali mine as well as poor weather at the lithium mine and unfavorable currency in lithium impacted the results. In 2014, we expect full-year revenue percentage growth up to the mid- to high-single digits percent driven primarily by increased volumes in lithium and soda ash and short- and long-term contract price increases in soda ash. We expect full-year segment operating profit to increase in the high-teens percent, reflecting lithium margin improvements and more favorable contractual soda ash pricing versus 2013. 2012 vs. 2011 Revenue in FMC Minerals was $966.2 million, an increase of approximately five percent versus the prior year. Revenue increased four percent due to higher pricing across the segment and by one percent due to volume increases in Alkali. Alkali revenues of $733.2 millionincreased six percent over the prior year due to higher average pricing which impacted sales by four percent in both the domestic and export markets. Additionally higher export volumes favorably impacted sales by two percent. Volume growth was partially related to full production at our Grangerfacility which came on line in the middle of last year. Export volumes were robust, especially in Asiaand Latin America. Lithium revenue of $233.0 millionincreased approximately four percent compared to the prior year. This increase was due to higher pricing which impacted sales by six percent, partially offset by decreased volumes which decreased sales by two percent. Lithium sales growth was led by higher selling prices in lithium primaries. Lower volumes also resulted from production downtime in the first quarter of 2012 associated with our capacity expansion in Argentina, as well as the effect of related operational issues which primarily impacted the first half of 2012 and the extended planned outage in Lithium's Argentinafacility in third quarter 2012. Segment operating profit of $171.4 milliondecreased approximately two percent versus the year ago period. Higher pricing and volumes experienced in Alkali were more than offset by higher royalty and energy costs associated with our 27
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Wyoming Alkali operations and increased manufacturing costs within our Lithium operations. Selling, general and administrative costs increased seven percent or
Other Results of Operations Corporate expenses Corporate expenses are included as a component of the line item "Selling, general and administrative expenses" on our consolidated statements of income. 2013 vs. 2012 Corporate and other expenses of
$82.7 millionincreased by $4.1 millionfrom $78.6 millionin the same period in 2012. The increase period over period is due to increased costs of approximately $4 millionprimarily representing costs associated with the transformation of our finance organization. This transformation is similar to past initiatives to improve our organization. 2012 vs. 2011 Corporate and other of $78.6 millionin 2012 increased by $3.3 millionfrom $75.3 millionin 2011. The year-over-year increase is primarily due to higher LIFO inventory charges of $5.0 million. Interest expense, net 2013 vs. 2012 Interest expense, net for 2013 of $42.2 millionincreased approximately four percent compared to 2012 of $40.7 million. The increase was primarily due to higher overall debt levels driven by funding requirements for the acquisition of Epax and our share repurchases during 2013. 2012 vs. 2011 Interest expense, net for 2012 of $40.7 millionincreased approximately 16 percent compared to the same period in 2011 of $35.0 million. The increase was primarily due to higher debt levels associated with the issuance of our 3.95% senior notes during the 4th quarter of 2011. The interest expense on these notes was approximately $12 millionin 2012. The higher interest associated with our senior notes was slightly offset by a decrease in our foreign debt interest expense during 2012 as compared to 2011 of approximately $5.3 million. Corporate special income (charges) 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, (in Millions) 2013 2012 2011 Restructuring Charges and Asset Disposals $ 9.6 $ 17.7 $ 2.3Other Charges (Income), Net 38.3 9.8 4.0 Total Restructuring and Other Charges $ 47.9 $ 27.5 $ 6.3
Restructuring and asset disposal charges in 2013 of
Restructuring and asset disposal charges in 2012 primarily included charges of
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at operating sites and a
$4.4 millioncharge related to our FMC Agricultural Solutions segment for the purpose of acquiring certain rights to a fungicide still under development. Restructuring and asset disposal charges in 2011 were primarily associated with continuing charges related to facility restructurings and shutdowns which were announced in years prior to 2011. Other charges (income) net in 2011 were primarily associated with charges of $3.1 millionfor environmental remediation at operating sites. The activity of the restructuring charges listed above are also included within Note 7 to our consolidated financial statements included in this Form 10-K. We believe the restructuring plans implemented are on schedule and the benefits and savings either have been or will be achieved. Non-operating pension and postretirement (charges) income Non-operating pension and postretirement (charges) income are included in "Selling, general and administrative expenses" on our consolidated statements of income. 2013 vs. 2012 The charge for 2013 was $38.1 millioncompared to $34.9 millionfor 2012. The increase in charges were primarily the result of a settlement charge of $7.4 million, partially offset by lower interest costs of $3.7 million. The settlement charge was associated with the acceleration of previously deferred actuarial losses triggered by the lump-sum payout to former executives in 2013. 2012 vs. 2011 The charge for 2012 was $34.9 millioncompared to $14.5 millionfor 2011. The increased charge was primarily the result of higher amortization impacts of actuarial losses of $14.9 million. Acquisition-related charges Acquisition-related charges associated with inventory fair value step-up are included in "Costs of sales and services" and fees associated with concluding the acquisitions are included in "Selling, general and administrative expenses". 2013 vs. 2012 Charges related to the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions and certain professional fees associated with the completion of acquisitions. Charges in 2013 represent amortization of inventory fair value step-up of $5.2 millionand certain professional fees of $4.8 millionassociated with the completion of our Epax acquisition within our FMC Healthand Nutrition segment. The charges in 2012, represented amortization of inventory fair value step-up relate to a number of acquisitions completed in 2011 and in the second quarter of 2012. 2012 vs. 2011 The charge in 2012 of $7.2 million, related to the expensing of the inventory fair value step-up resulting from the application of purchase accounting associated with acquisitions completed in 2012 and 2011. The charges for year ended December 31, 2011relate to a number of acquisitions completed in late 2011. See Note 3 to our consolidated financial statements included in this Form 10-K for more information on our acquisitions. Provision for income taxes 2013 vs. 2012 Provision for income taxes is $148.6 millionfor 2013 compared to a provision of $134.5 millionfor the prior year period resulting in effective tax rates of 24.1 percent and 22.5 percent, respectively. Excluding the impact of tax adjustments in both periods, our effective rate in 2013 was 21.7% and in 2012 was 25.5%. Tax adjustments in 2013 were primarily associated with adjustments to U.S. state deferred tax balances established prior to 2013 driven by a change in enacted tax rates and other state related items. Tax benefit adjustments in 2012 were primarily driven by a reduction in our valuation allowance related to state net operating losses expected to be recoverable in future years. When excluding these impacts, the decrease in the effective tax rates was primarily due to a mix shift in domestic versus foreign income. Foreign profits are generally taxed at lower rates compared to domestic income. See Note 11 to the Consolidated Financial Statements for additional details related to the provisions for income taxes on continuing operations, as well as items that significantly impact our effective tax rate. 2012 vs. 2011 Provision for income taxes was $134.5 millionfor 2012 compared to a provision of $132.9 millionfor the prior year period resulting in effective tax rates of 22.5 percent and 24.0 percent, respectively. Excluding the impact of tax 29
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adjustments in both periods, which in 2012 were primarily driven by a reduction in our valuation allowance related to state net operating losses expected to be recoverable in future years, our effective rate in 2012 was 25.5 percent versus 24.4 percent in 2011. This increase was driven by slightly higher domestic profits in 2012 versus 2011. Domestic profits are taxed at higher rates as compared to foreign profits. Discontinued operations, net of income taxes Our discontinued operations represent our discontinued FMC Peroxygens segment results as well as adjustments to retained liabilities from previous discontinued operations. The primary liabilities retained include environmental liabilities, other postretirement benefit liabilities, self-insurance, long-term obligations related to legal proceedings and historical restructuring activities. 2013 vs. 2012 Discontinued operations, net of income taxes totaled a charge of
$159.3 millionfor 2013, compared to a charge of $27.5 million2012. The increase was a result of a charge of $156.7 million( $122.1 millionafter-tax) associated with our discontinued FMC Peroxygens segment. The charge was associated with a write down of the FMC Peroxygens segment assets held for sale to fair value. For more information on our discontinued operations, net of income taxes see Note 9 to our consolidated financial statements included in this Form 10-K. 2012 vs. 2011 Discontinued operations, net of income taxes totaled a charge of $27.5 millionfor 2012, compared to a charge of $38.1 millionfor 2011. The decrease is primarily attributable to lower restructuring charges of approximately $9 millionassociated with our discontinued FMC Peroxygens' Spanish operations. Net income attributable to FMC stockholders 2013 vs. 2012 Net income attributable to FMC stockholders decreased to $293.9 millionin 2013, from $416.2 millionin 2012. This fluctuation year over year is described in more detail above, however the primary driver is the $122.1 millionafter-tax charge associated with our discontinued FMC Peroxygens segment. 2012 vs. 2011 Net income attributable to FMC stockholders increased to $416.2 millionin 2012, from $365.9 millionin 2011. The increase was primarily due to higher operating profits in our FMC Agricultural Solutions segment and a lower effective tax rate. These items were partially offset by higher non-operating pension and postretirement charges and slightly reduced FMC Minerals results. Liquidity and Capital Resources Cash and cash equivalents at December 31, 2013and 2012, were $123.2 millionand $77.1 million, respectively. Of the cash and cash equivalents balance at December 31, 2013, $112.6 millionwere held by our foreign subsidiaries. Our intent is to reinvest permanently the earnings of our foreign subsidiaries, and therefore we have not recorded additional taxes that would be payable if we repatriated these earnings. However, in the third quarter of 2013, we changed our assertion on the portion of our foreign subsidiaries unremitted earnings that we intend to repatriate upon the sale of our discontinued FMC Peroxygens segment and have recorded the taxes that would be payable upon such repatriation. In the event that additional funds from our foreign subsidiaries are repatriated to the U.S., we would be required to accrue and pay U.S. taxes on those amounts. In June 2013, we commenced a $1.5 billioncommercial paper program supported by our credit facility. This program allows us to borrow at rates generally more favorable than those available under our credit facility. We have used proceeds from the commercial paper program for general corporate purposes. At December 31, 2013, the average effective interest rate on these borrowings was 0.34 percent. On August 5, 2013, we entered into an Amendment and Consent No. 1 (the "Amendment") to our credit agreement, dated as of August 5, 2011. The Amendment, among other things, extended the termination date of the credit facility to August 5, 2017from August 5, 2016. On November 15, 2013, we issued $400 millionaggregate principal amount of 4.10 percent Senior Notes due 2024. The net proceeds from the offering were used for general corporate purposes including repayment of outstanding commercial paper. 30
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Statement of Cash Flows Cash provided by operating activities was
Twelve months ended December 31, (in Millions) 2013 2012 2011 Income from continuing operations before equity in (earnings) loss of affiliates, interest income and expense and income taxes 659.0 639.1 587.4 Significant non-cash expenses (1) 221.6 220.6 264.6 Operating income before non-cash expenses (Non-GAAP) 880.6 859.7 852.0 Change in trade receivables (2) (394.5 ) (191.6 ) (107.8 ) Change in inventories (3) 5.1 (194.5 ) (109.9 ) Change in accounts payable (4) 40.4 51.4 65.4 Change in accrued rebates (5) 63.8 27.2 15.5 Change in advance payments from customers (6) 35.9 64.0 44.7 Change in all other operating assets and liabilities (7) 30.4 (3.5 ) (80.9 ) Restructuring and other spending (8) (7.3 ) (0.9 ) (2.4 ) Environmental spending, continuing, net of recoveries (9) (7.8 ) (7.1 ) (12.0 ) Pension and other postretirement benefit contributions (10) (68.0 ) (77.5 ) (67.0 ) Cash basis operating income (Non-GAAP) 578.6 527.2 597.6 Net interest payments (39.4 ) (36.2 ) (36.3 ) Tax payments, net of refunds (11) (153.3 ) (59.0 ) (47.9 ) Excess tax benefits from share-based compensation (12) (7.1 ) (9.7 ) (7.4 ) Cash provided by operating activities of continuing operations 378.8 422.3 506.0
(1) Represents the sum of depreciation, amortization, non-cash asset write down, share-based compensation and pension charges. (2) Overall, the increase in trade receivables in each year is primarily due to revenue increases, particularly for FMC Agricultural Solutions sales in
Brazilwhere terms are significantly longer than the rest of our businesses. (3) Inventory levels remained fairly consistent from 2012 to 2013 as projected demand in early 2014 is expected to be in-line with prior year. The change in inventory from 2011 to 2012 was primarily due to an inventory build to fulfill strong projected 2013 season demand in FMC Agricultural Solutions and to support continued growth in the business. (4) The increase in accounts payable for all years present is primarily due to inventory build at the end of each year to satisfy projected demand for the following year. (5) These rebates are associated with our FMC Agricultural Solutions segment and are primarily in North Americaand Braziland generally settle in the fourth quarter of each year. The changes year over year are primarily associated with timing of payments and increased sales. (6) The advance payments from customers represent advances from our FMC Agricultural Solutions segment customers. The change for each year presented are consistent with our sales increases year over each year and our projected demand in early 2014. (7) Changes in all periods presented primarily represent timing of payments associated with all other operating assets and liabilities. (8) See Note 7 in our consolidated financial statements included in this Form 10-K for further details. (9) Included in our income for each of the years presented are environmental charges of $6.2 million, $5.8 millionand $3.1 millionfor environmental and remediation at our operating sites. The amounts in 2013 will be spent in future years. The amounts represent environmental remediation spending at our operating sites which were recorded against pre-existing reserves, net of recoveries. 31
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(10) Amounts include voluntary contributions to our U.S. defined benefit plan of
$40 million, $65 millionand $55 million, respectively. In 2013 the amount also includes a lump-sum payout of approximately $15.4 millionfrom our nonqualified pension plan. (11) We utilized the last of our tax losses and tax credit carryforwards in the United Statesin 2012, and therefore, saw an increase in total cash taxes paid. Higher tax cash payments in 2013, were reflective of higher profits in the U.S. as well as $35.5 millionin advanced tax payments which were classified as prepaid taxes in the consolidated balance sheet at December 31, 2013. (12) Amounts are presented as a financing activity in the statement of cash flows, from share-based compensation. Cash required by operating activities of discontinued operations was $50.1 million, $62.6 millionand $124.7 millionfor 2013, 2012 and 2011, respectively. The decrease from 2012 to 2013 is primarily due to reduced spending associated with our discounted restructuring activities. The spending decrease from 2011 to 2012 was directly associated with the exit of our discontinued Huevla, Spain - FMC Peroxygens' operations. In the fourth quarter of 2010, we exited our Huelvaoperations, and most of the spending associated with the exit was spent in 2011. Additionally, in 2011 amounts included the $44 millionpayment associated with the European Union Fine. Cash required by investing activities was $628.5 million, $363.6 millionand $302.0 millionfor 2013, 2012 and 2011, respectively. The increase in spending during the year ended December 31, 2013, as compared to the same period in 2012, was primarily due to the Epax acquisition completed in the third quarter of 2013 and higher spending on capital expenditures compared to 2012. Increased spending from 2011 to 2012 is primarily due to higher capital spending associated with capital expansions, primarily in our Health and Nutrition segment and our Alkali and Lithium divisions, and as well as increased expenditures related to our FMC Agricultural Solutions segment contract manufacturers. See Note 3 to the consolidated financial statements included within this Form 10-K for more information on our acquisitions. Cash provided (required) by financing activities was $371.2 million, $(48.2) millionand $(25.3) millionin 2013, 2012 and 2011, respectively. The change in financing activities is primarily due to borrowings under our commercial paper ("CP") program which was implemented during the second quarter of 2013 and the issuance of $400 millionin senior notes in the fourth quarter of 2013. These borrowings were partially offset by repayments of borrowings under our committed credit facility, the acquisition of an additional 6.25% ownership interest in our consolidated entity FMC Wyomingand higher dividends paid and share repurchases compared to 2012. The change in 2012 as compared to 2011 was primarily due to lower proceeds from long term debt borrowings, slightly offset by higher borrowings under our credit facility and lower repayments of scheduled long term debt maturities. Other potential liquidity needs Our cash needs for 2014 include operating cash requirements, capital expenditures, scheduled mandatory payments of long-term debt, dividend payments, share repurchases, contributions to our pension plans, environmental and asset retirement obligation spending and restructuring. 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, 2013our remaining borrowing capacity under our credit facility was $770.8 million(which includes borrowings under our commercial paper program). In December 2013, we signed a definitive agreement to sell FMC Peroxygens for $200 million. We expect the sale to be completed in first quarter of 2014. We intend to use the proceeds to pay down our short term debt borrowings. Projected 2014 capital expenditures as well as expenditures related to contract manufacturers are expected to be approximately 15 percent higher than 2013 levels, primarily to increase capacity in our FMC Healthand Nutrition segment and our Alkali division within our FMC Minerals segment. Projected 2014 spending includes approximately $35 millionof net environmental remediation spending. This spending does not include expected spending of approximately $10 millionin 2014 on capital projects relating to environmental control facilities. Also, we expect to spend approximately $30 millionin 2014 for environmental compliance costs, which we will include as a component of costs of sales and services in our consolidated statements of income since these amounts are not covered by established reserves. Capital spending to expand, maintain or replace equipment at our production facilities may trigger requirements for upgrading our environmental controls, which may increase our spending for environmental controls over the foregoing projections. Our U.S. Pension Plan assets increased significantly from $984.0 millionat December 31, 2012to $1,192.9 millionat December 31, 2013due to stock market performance. Our U.S. Pension Plan assets comprise approximately 93 percent of our total plan assets with the difference representing plan assets related to foreign pension plans. See Note 13 to the consolidated financial statements included within this Form 10-K for details on how we develop our long-term rate of return assumptions. We made contributions of $40 millionand $65 millionin 2013 and 2012, respectively, and intend to contribute $50 millionin 2014. Our contributions in 2012, 2013 and our intended contribution in 2014 are all in excess of the minimum requirements. Our contributions in excess of the minimum requirement are done with the objective of reducing future funding volatility. We do not believe that this additional 32
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contribution in 2014 will have a material impact on our current and future liquidity needs. However, volatility of interest rates and equity returns may require greater contributions in the future. On
We provide guarantees to financial institutions on behalf of certain FMC Agricultural Solutions customers, principally Brazilian customers, for their seasonal borrowing. The total of these guarantees was
$27.9 millionand $31.4 millionat December 31, 2013, and 2012, respectively, and are recorded on the consolidated balance sheets for each date as "Guarantees of vendor financing". Short-term debt consisted of foreign credit lines at December 31, 2013, and 2012. We provide parent-company guarantees to lending institutions providing credit to our foreign subsidiaries. We continually evaluate our options for divesting real estate holdings and property, plant and equipment that are no longer integral to our operating businesses. In connection with 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. As such, 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. If triggered, we may be able to recover certain of the indemnity payments from third parties. We have not recorded any specific liabilities for these guarantees. Our total significant committed contracts that we believe will affect cash over the next four years and beyond are as follows: Contractual Commitments Expected Cash Payments by Year 2018 & (in Millions) 2014 2015 2016 2017 beyond Total Debt maturities (1) $ 697.8 $ 0.9 $ 1.0 $ 0.7 $ 1,154.0 $ 1,854.4Contractual interest (2) 55.6 52.6 52.6 52.6 317.3 530.7 Lease obligations (3) 26.3 25.9 17.3 15.4 157.3 242.2 Certain long-term liabilities (4) 4.5 5.1 5.1 5.1 35.3 55.1 Derivative contracts 6.4 - - - - 6.4 Purchase obligations (5) 36.8 8.6 0.6 - 19.5 65.5 Total (6) $ 827.4 $ 93.1 $ 76.6 $ 73.8 $ 1,683.4 $ 2,754.3____________________ (1) Excluding discounts. (2) Contractual interest is the interest we are contracted to pay on our long-term debt obligations. We had $18.6 millionof long-term debt subject to variable interest rates at December 31, 2013. The rate assumed for the variable interest component of the contractual interest obligation was the rate in effect at December 31, 2013. Variable rates are determined by the market and will fluctuate over time.
(3) Before sub-lease rental income.
(4) Obligations associated with our Ewing research and development facility and our
Shanghaiinnovation center. (5) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding on us 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. Since the majority of the minimum obligations under these contracts are take-or-pay commitments over the life of the contract as opposed to a year by year take-or-pay, the obligations in the table 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. (6) As of December 31, 2013, the liability for uncertain tax positions was $37.3 millionand this liability is excluded from the table above. Additionally, accrued pension and other postretirement benefits and our environmental liabilities as recorded on our consolidated balance sheets are excluded from the table above. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of the amount and periods in which these liabilities might be paid. 33
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See Note 19 to our consolidated financial statements included in this Form 10-K.
Climate Change We continue to follow legislative and regulatory developments regarding climate change because the regulation of greenhouse gases, depending on their nature and scope, could subject some of our manufacturing operations to additional costs or limits on operations. Our Alkali Chemicals Division mines and refines trona ore into soda ash and related products at our
Westvacoand Grangerfacilities near Green River, Wyoming. This activity constitutes most of FMC's greenhouse gas emissions globally. In 2013, we reported approximately 2.2 million metric tons of direct emissions from the Green Riveroperations for 2012 as part of the EPAGreenhouse gas reporting program. In the absence of federal climate change legislation in the United States, EPAhas moved forward with a finding of "endangerment" and a promulgated "tailoring rule" to apply the Prevention of Significant Deterioration (PSD) provisions of the Clean Air Act to greenhouse gas emissions. Pursuant to the Tailoring rule, FMC has submitted a PSD application for a proposed project for one of our Wyomingfacilities, and EPAhas issued a draft permit. A significant source of greenhouse gas emissions at the Green Riveroperations are emissions from the beneficiation of trona ore. That is, a significant portion of the greenhouse gases released during the mining and refining of soda ash occurs naturally in the trona ore feedstock. Unlike the situation with energy efficiency, where efficiencies may result in a reduction of greenhouse gases, the amount of greenhouse gases present in the trona ore cannot be reduced. All of the companies producing natural soda ash have such refining emissions. Yet, the lower energy intensity of natural soda ash provides a favorable carbon intensity compared with synthetic soda ash produced throughout the rest of the world. Soda ash is an essential raw material in the production of glass of all kinds. Climate change, energy intensity and alternative forms of energy will drive increased production of new forms of glass (lower emissivity glass, solar panel glass, etc.) and will increase the need for this essential raw material from FMC. The soda ash industry has an interest in assuring that climate change legislation or regulation recognizes the benefits of soda ash (particularly natural soda ash) and the challenges facing this industry in controlling its greenhouse gas emissions. Because of the many variables, it is premature to make any estimate of the costs of complying with possible future federal climate change legislation in the United States. However, we are aware of the potential impacts that could result from emissions regulations in the U.S. that are more stringent than those experienced by our global competitors. These could make it more difficult for us to competitively produce natural soda ash at Green River. A reduction in natural soda ash production as a result of more stringent regulations in the U.S. would lead to more greenhouse gas emissions globally because the lost supply of natural soda ash would be replaced by the more costly and more greenhouse gas intensive synthetic soda ash. In 2013, two U.S. plants in our Health & Nutrition business also reported emissions above the EPA'sreporting threshold, but each plant's emissions are substantially less than at our Green Riveroperations, in total less than 0.1 million metric tons. At this point our U.S. facilities are not subject to any state or regional greenhouse gas regulation that limits or imposes fees on current emissions, and while some of our foreign operations may be subject to national or local energy management or climate change regulation, the cost to these facilities has not been and is not expected to be material to FMC. We have considered the potential physical risks to FMC facilities and operations and the indirect consequences of regulation or business trends as a result of potential future climate change. We routinely assess our facilities for potential natural hazard exposures and do not expect material impacts based on currently available information. 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 in this Form 10-K. 34
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Critical Accounting Policies 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. 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. Such provisions incorporate inflation and are not discounted to their present values. 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. 35
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See Note 10 to our consolidated financial statements included in this Form 10-K for changes in estimates associated with our environmental obligations.
Impairments and valuation of long-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. The principal assumptions utilized in our valuation methodologies include revenue growth rates, operating margin estimates and discount rates. 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 occur 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. Based on our assessment for 2013, we determined that no impairment charge to our continuing operations was required. See Note 7 to our consolidated financial statements included in 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. 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. The expected rate of return on plan assets is based on a market-related value of assets that recognizes investment gains and losses over a five-year period. 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, 2013, we placed particular emphasis on a discount rate yield-curve provided by our actuary. This yield-curve when populated with projected cash flows that represented the expected timing and amount of our plans' benefit payments, produced a single effective interest discount rate of 4.95 percent, which was used to measure the plan's liabilities. The discount rates used at our December 31, 2013and 2012 measurement dates were 4.95 percent and 4.15 percent, respectively. The effect of the change in the discount rate from 4.15 percent to 4.95 percent at December 31, 2013resulted in a $121.3 milliondecrease to our pension and other postretirement benefit obligations. The effect of the change in the discount rate from 4.95 percent at December 31, 2011to 4.15 percent at December 31, 2012resulted in a $12.7 millionincrease to 2013 pension and other postretirement benefit expense. 36
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The change in discount rate from 4.15 percent at
December 31, 2012to 4.95 percent at December 31, 2013was attributable to a increase in yields on high quality corporate bonds with cash flows matching the timing and amount of our expected future benefit payments between the 2012 and 2013 measurement dates. Using the December 31, 2012yield curve, our plan cash flows produced a single weighted-average discount rate of approximately 4.15 percent. Matching our plan cash flows to a similarly constructed curve reflecting high-yielding bonds available as of December 31, 2013, resulted in a single weighted-average discount rate of approximately 4.95 percent. 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. We also consider the historical performance of our own plan's trust, which has earned a compound annual rate of return of approximately 9.90 percent over the last 20 years (which is in excess of comparable market indices for the same period) as well as other factors which are discussed in Note 13 to our consolidated financial statements in this Form 10-K. Our long-term rate of return for 2013 and 2012 was 7.75 percent which we adjusted downward from 8.50 percent in 2011. The effect of the change in the long-term rate of return from 8.5 percent during 2011 to 7.75 percent during 2012 resulted in a $6.4 millionincrease to 2012 pension and other postretirement benefit expense. 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 $67.2 millionand $77.8 millionat December 31, 2013and 2012, respectively, and decreased pension and other postretirement benefit costs by $5.8 million, $8.2 millionand $6.5 millionfor 2013, 2012 and 2011, respectively. A one-half percent decrease in the assumed discount rate would have increased pension and other postretirement benefit obligations by $73.9 millionand $85.7 millionat December 31, 2013and 2012, respectively, and increased pension and other postretirement benefit net periodic benefit cost by $6.2 million, $8.4 millionand $6.6 millionfor 2013, 2012 and 2011, respectively. A one-half percent increase in the assumed expected long-term rate of return on plan assets would have decreased pension costs by $4.8 million, $4.7 millionand $4.6 millionfor 2013, 2012 and 2011, respectively. A one-half percent decrease in the assumed long-term rate of return on plan assets would have increased pension costs by $4.8 million, $4.7 millionand $4.6 millionfor 2013, 2012 and 2011, respectively. Further details on our pension and other postretirement benefit obligations and net periodic benefit costs (benefits) are found in Note 13 to our consolidated financial statements in this Form 10-K. Income taxes We have recorded a valuation allowance to reduce deferred tax assets 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. The 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% 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 11 to our consolidated financial statements included in this Form 10-K for additional discussion surrounding income taxes. 37
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Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Dividends On
January 16, 2014, we paid dividends aggregating $18.0 millionto our shareholders of record as of December 31, 2013. This amount is included in "Accrued and other liabilities" on the consolidated balance sheets as of December 31, 2013. For the years ended December 31, 2013, 2012 and 2011, we paid $73.6 million, $47.8 millionand $41.2 millionin dividends, respectively. Fair Value Measurements See Note 18 to our consolidated financial statements included in this Form 10-K for additional discussion surrounding our fair value measurements.