|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
Common Stock
|
Additional Paid-in Capital "APIC"
|
|
Retained Earnings (Accumulated Deficit)
|
Accumulated Other Comp (Loss) Income
|
|
Non-controlling Interests
|
Total Equity
|
|
2021
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
$
|
7
|
|
$
|
27,707
|
|
|
$
|
—
|
|
$
|
(2,890)
|
|
|
$
|
239
|
|
$
|
25,063
|
|
|
Net income
|
|
|
|
600
|
|
|
|
3
|
|
603
|
|
|
Other comprehensive loss
|
|
|
|
|
(477)
|
|
|
|
(477)
|
|
|
Common dividends ($0.13 per share)
|
|
(97)
|
|
|
|
|
|
|
(97)
|
|
|
Issuance of Corteva stock
|
|
38
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
(18)
|
|
|
(332)
|
|
|
|
|
(350)
|
|
|
Other - net
|
|
|
|
|
|
|
(2)
|
|
(2)
|
|
|
Balance at March 31, 2021
|
$
|
7
|
|
$
|
27,630
|
|
|
$
|
268
|
|
$
|
(3,367)
|
|
|
$
|
240
|
|
$
|
24,778
|
|
|
Net income
|
|
|
|
970
|
|
|
|
3
|
|
973
|
|
|
Other comprehensive income
|
|
|
|
|
122
|
|
|
|
122
|
|
|
Common dividends ($0.13 per share)
|
|
|
|
(95)
|
|
|
|
|
(95)
|
|
|
Issuance of Corteva stock
|
|
28
|
|
|
|
|
|
|
28
|
|
|
Share-based compensation
|
|
23
|
|
|
(1)
|
|
|
|
|
22
|
|
|
Repurchase of common stock
|
|
|
|
(200)
|
|
|
|
|
(200)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other - net
|
|
1
|
|
|
(1)
|
|
|
|
(3)
|
|
(3)
|
|
|
Balance at June 30, 2021
|
$
|
7
|
|
$
|
27,682
|
|
|
$
|
941
|
|
$
|
(3,245)
|
|
|
$
|
240
|
|
$
|
25,625
|
|
|
Net income
|
|
|
|
$
|
30
|
|
|
|
2
|
|
32
|
|
|
Other comprehensive loss
|
|
|
|
|
(400)
|
|
|
|
(400)
|
|
|
Common dividends ($0.14 per share)
|
|
|
|
(103)
|
|
|
|
|
(103)
|
|
|
Issuance of Corteva stock
|
|
5
|
|
|
|
|
|
|
5
|
|
|
Share-based compensation
|
|
26
|
|
|
(1)
|
|
|
|
|
25
|
|
|
Repurchase of common stock
|
|
|
|
(200)
|
|
|
|
|
(200)
|
|
|
Other - net
|
|
(1)
|
|
|
(1)
|
|
|
|
(3)
|
|
(5)
|
|
|
Balance at September 30, 2021
|
$
|
7
|
|
$
|
27,712
|
|
|
$
|
666
|
|
$
|
(3,645)
|
|
|
$
|
239
|
|
$
|
24,979
|
|
See Notes to the Interim Consolidated Financial Statements beginning on page 9.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Corteva, Inc.
|
|
|
|
Notes to the Interim Consolidated Financial Statements (Unaudited)
|
|
Table of Contents
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2020, collectively referred to as the “2020 Annual Report.” The interim Consolidated Financial Statements include the accounts of the company and all of its subsidiaries in which a controlling interest is maintained.
Certain reclassifications of prior year's data have been made to conform to current year's presentation.
During the first quarter 2020, the company recorded an increase of $40 million to APIC relating to net assets recorded as transferred as part of the 2019 Internal Reorganizations that were retained.
Since 2018, Argentina has been considered a hyper-inflationary economy under U.S. GAAP and therefore the U.S. Dollar (“USD”) is the functional currency for our related subsidiaries. Argentina contributes approximately 4 percent to our annual Sales and EBITDA. We remeasure net monetary assets and translate our financial statements utilizing the official Argentine Peso (“Peso”) to USD exchange rate. The ability to draw down Peso cash balances is limited at this time due to government restrictions and market availability of U.S. Dollars. The devaluation of the Peso relative to the USD over the last several years has resulted in the recognition of exchange losses (refer to Note 6 – Supplementary Information, to the interim Consolidated Financial Statements, and Note 9 – Supplemental Information, to the company's 2020 Annual Report). As of September 30, 2021, a further 10 percent deterioration in the official Peso to USD exchange rate would reduce the USD value of our net monetary assets and negatively impact pre-tax earnings by approximately $20 million. We will continue to assess the implications to our operations and financial reporting.
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which was part of the FASB’s Simplification Initiative to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced, while maintaining or improving the usefulness of the information provided to users of the financial statements. This ASU amends ASC 740, Income Taxes, by removing certain exceptions to the general principles, and clarifying and amending current guidance. The new standard is effective for fiscal years, and periods within those fiscal years, beginning after December 15, 2020. The company adopted this guidance on January 1, 2021 and it did not have a material impact on the company’s financial position, results of operation or cash flows.
NOTE 3 - DIVESTITURES AND OTHER TRANSACTIONS
Separation Agreements
In connection with the Distributions, DuPont, Corteva, and Dow (together, the “Parties” and each a “Party”) have entered into certain agreements to effect the Separation, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among the Parties, and provide a framework for Corteva's relationship with Dow and DuPont following the Separations and Distributions (collectively, the "Separation Agreements"). For additional information see Note 13 - Commitments and Contingent Liabilities.
DuPont
Pursuant to the Separation Agreements, DuPont and Corteva indemnifies the other against certain litigation, environmental, tax, workers' compensation and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At September 30, 2021, the indemnification assets are $25 million within accounts and notes receivable - net and $70 million within other assets in the interim Consolidated Balance Sheet. At September 30, 2021, the indemnification liabilities are $76 million within other noncurrent obligations in the interim Consolidated Balance Sheet.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dow
Pursuant to the Separation Agreements, Dow and Corteva indemnifies the other against certain litigation, environmental, tax and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At September 30, 2021, the indemnification liabilities are $54 million within accrued and other current liabilities and $14 million within other noncurrent obligations in the interim Consolidated Balance Sheet.
NOTE 4 - REVENUE
Revenue Recognition
Products
Substantially all of Corteva's revenue is derived from product sales. Product sales consist of sales of Corteva's products to farmers, distributors, and manufacturers. Corteva considers purchase orders, which in some cases are governed by master supply agreements, to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. However, the company has some long-term contracts which can span multiple years.
Revenue from product sales is recognized when the customer obtains control of the company's product, which occurs at a point in time according to shipping terms. Payment terms are generally less than one year from invoicing. The company elected the practical expedient and does not adjust the promised amount of consideration for the effects of a significant financing component when the company expects it will be one year or less between when a customer obtains control of the company's product and when payment is due. The company has elected to recognize shipping and handling activities when control has transferred to the customer as an expense in cost of goods sold. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. In addition, the company elected the practical expedient to expense any costs to obtain contracts as incurred, as the amortization period for these costs would have been one year or less.
The transaction price includes estimates of variable consideration, such as rights of return, rebates, and discounts, that are reductions in revenue. All estimates are based on the company's historical experience, anticipated performance, and the company's best judgment at the time the estimate is made. Estimates of variable consideration included in the transaction price utilize either the expected value method or most likely amount depending on the nature of the variable consideration. These estimates are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. The majority of contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per unit. For contracts with multiple performance obligations, the company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.
Licenses of Intellectual Property
Corteva enters into licensing arrangements with customers under which it licenses its intellectual property. Revenue from the majority of intellectual property licenses is derived from sales-based royalties. Revenue for licensing agreements that contain sales-based royalties is recognized at the later of (i) when the subsequent sale occurs or (ii) when the performance obligation to which some or all of the royalty has been allocated is satisfied.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. The company applies the practical expedient to disclose the transaction price allocated to the remaining performance obligations for only those contracts with an original duration of one year or more. The transaction price allocated to remaining performance obligations with an original duration of more than one year related to material rights granted to customers for contract renewal options were $122 million, $115 million and $114 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The company expects revenue to be recognized for the remaining performance obligations over the next one year to six years.
Contract Balances
Contract liabilities primarily reflect deferred revenue from prepayments under contracts with customers where the company receives advance payments for products to be delivered in future periods. Corteva classifies deferred revenue as current or noncurrent based on the timing of when the company expects to recognize revenue. Contract assets primarily include amounts related to conditional rights to consideration for completed performance not yet invoiced. Accounts receivable are recorded when the right to consideration becomes unconditional.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
(In millions)
|
|
Accounts and notes receivable - trade1
|
$
|
4,744
|
|
$
|
3,917
|
|
$
|
4,638
|
|
|
Contract assets - current2
|
$
|
24
|
|
$
|
22
|
|
$
|
21
|
|
|
Contract assets - noncurrent3
|
$
|
60
|
|
$
|
54
|
|
$
|
52
|
|
|
Deferred revenue - current
|
$
|
692
|
|
$
|
2,662
|
|
$
|
402
|
|
|
Deferred revenue - noncurrent4
|
$
|
111
|
|
$
|
116
|
|
$
|
106
|
|
1.Included in accounts and notes receivable - net in the interim Consolidated Balance Sheets.
2.Included in other current assets in the interim Consolidated Balance Sheets.
3.Included in other assets in the interim Consolidated Balance Sheets.
4.Included in other noncurrent obligations in the interim Consolidated Balance Sheets.
Revenue recognized during the nine months ended September 30, 2021 and 2020 from amounts included in deferred revenue at the beginning of the period was $2,454 million and $2,195 million, respectively.
Disaggregation of Revenue
Corteva's operations are classified into two reportable segments: Seed and Crop Protection. The company disaggregates its revenue by major product line and geographic region, as the company believes it best depicts the nature, amount and timing of its revenue and cash flows. Net sales by major product line are included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Corn
|
$
|
437
|
|
$
|
303
|
|
$
|
4,505
|
|
$
|
4,224
|
|
|
Soybean
|
157
|
|
116
|
|
1,494
|
|
1,382
|
|
|
Other oilseeds
|
94
|
|
62
|
|
661
|
|
529
|
|
|
Other
|
50
|
|
42
|
|
350
|
|
381
|
|
|
Seed
|
738
|
|
523
|
|
7,010
|
|
6,516
|
|
|
Herbicides
|
782
|
|
583
|
|
2,737
|
|
2,315
|
|
|
Insecticides
|
416
|
|
395
|
|
1,261
|
|
1,218
|
|
|
Fungicides
|
339
|
|
261
|
|
911
|
|
714
|
|
|
Other
|
96
|
|
101
|
|
257
|
|
247
|
|
|
Crop Protection
|
1,633
|
|
1,340
|
|
5,166
|
|
4,494
|
|
|
Total
|
$
|
2,371
|
|
$
|
1,863
|
|
$
|
12,176
|
|
$
|
11,010
|
|
.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Sales are attributed to geographic regions based on customer location. Net sales by geographic region and segment are included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
North America1
|
$
|
168
|
|
$
|
97
|
|
$
|
4,482
|
|
$
|
4,290
|
|
|
EMEA2
|
153
|
|
117
|
|
1,398
|
|
1,262
|
|
|
Latin America
|
334
|
|
246
|
|
842
|
|
668
|
|
|
Asia Pacific
|
83
|
|
63
|
|
288
|
|
296
|
|
|
Total
|
$
|
738
|
|
$
|
523
|
|
$
|
7,010
|
|
$
|
6,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
North America1
|
$
|
422
|
|
$
|
390
|
|
$
|
1,693
|
|
$
|
1,528
|
|
|
EMEA2
|
237
|
|
198
|
|
1,304
|
|
1,163
|
|
|
Latin America
|
763
|
|
559
|
|
1,361
|
|
1,086
|
|
|
Asia Pacific
|
211
|
|
193
|
|
808
|
|
717
|
|
|
Total
|
$
|
1,633
|
|
$
|
1,340
|
|
$
|
5,166
|
|
$
|
4,494
|
|
1.Represents U.S. & Canada.
2.Europe, Middle East, and Africa ("EMEA").
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
2021 Restructuring Actions
As discussed in the 2020 Annual Report, on February 1, 2021, Corteva approved restructuring actions designed to right-size and optimize its footprint and organizational structure according to the business needs in each region with the focus on driving continued cost improvement and productivity. As a result of these actions, the company expects to record total pre-tax restructuring charges of approximately $150 million, comprised of approximately $65 million of severance and related benefit costs, $35 million of asset related charges, $10 million of asset retirement obligations and $40 million of costs related to contract terminations (contract terminations includes early lease terminations). The restructuring actions associated with this charge are expected to be substantially complete in 2021.
The charges related to the 2021 Restructuring Actions related to the segments, as well as corporate expenses, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
(In millions)
|
2021
|
2021
|
|
Seed
|
$
|
4
|
|
$
|
21
|
|
|
Crop Protection
|
4
|
|
41
|
|
|
Corporate expenses
|
9
|
|
65
|
|
|
Total
|
$
|
17
|
|
$
|
127
|
|
The following table is a summary of charges incurred related to 2021 Restructuring Actions for the three and nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
(In millions)
|
2021
|
2021
|
|
Severance and related benefit costs
|
$
|
9
|
|
$
|
58
|
|
|
Asset related charges
|
7
|
|
29
|
|
|
Contract termination charges
|
1
|
|
40
|
|
|
Total restructuring and asset charges - net
|
$
|
17
|
|
$
|
127
|
|
A reconciliation of the December 31, 2020 to the September 30, 2021 liability balances related to the 2021 Restructuring Actions is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Severance and Related Benefit Costs
|
Asset Related1
|
Contract Termination2
|
Total
|
|
Balance at December 31, 2020
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Charges to income from continuing operations
|
58
|
|
29
|
|
40
|
|
127
|
|
|
Payments
|
(14)
|
|
—
|
|
(26)
|
|
(40)
|
|
|
Asset write-offs
|
—
|
|
(29)
|
|
—
|
|
(29)
|
|
|
Balance at September 30, 2021
|
$
|
44
|
|
$
|
—
|
|
$
|
14
|
|
$
|
58
|
|
1.In addition, the company has a liability recorded for asset retirement obligations of $6 million as of September 30, 2021.
2.The liability for contract terminations includes lease obligations. The cash impact of these obligations will be substantially complete by 2022.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Execute to Win Productivity Program
During the first quarter of 2020, Corteva approved restructuring actions designed to improve productivity through optimizing certain operational and organizational structures primarily related to the Execute to Win Productivity Program. Through the third quarter of 2021, the company recorded net pre-tax restructuring charges of $186 million inception-to-date under the Execute to Win Productivity Program, consisting of $123 million of asset related charges and $63 million of severance and related benefit costs. The company does not anticipate any additional material charges from the Execute to Win Productivity Program as actions associated with this charge were substantially complete by the end of 2020.
The Execute to Win Productivity Program charges related to the segments, as well as corporate expenses, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Seed
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3
|
|
|
Crop Protection
|
4
|
|
30
|
|
10
|
|
85
|
|
|
Corporate expenses
|
—
|
|
—
|
|
—
|
|
46
|
|
|
Total
|
$
|
4
|
|
$
|
30
|
|
$
|
10
|
|
$
|
134
|
|
The following table is a summary of charges incurred related to the Execute to Win Productivity Program for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Severance and related benefit costs
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
46
|
|
|
Asset related charges
|
4
|
|
30
|
|
10
|
|
88
|
|
|
Total restructuring and asset related charges - net
|
$
|
4
|
|
$
|
30
|
|
$
|
10
|
|
$
|
134
|
|
A reconciliation of the December 31, 2020 to the September 30, 2021 liability balances related to the Execute to Win Productivity Program is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Severance and Related Benefit Costs
|
Asset Related1
|
|
Total
|
|
Balance at December 31, 2020
|
$
|
53
|
|
$
|
3
|
|
|
$
|
56
|
|
|
Charges to income from continuing operations
|
—
|
|
10
|
|
|
10
|
|
|
Payments
|
(24)
|
|
(3)
|
|
|
(27)
|
|
|
|
|
|
|
|
|
Asset write-offs
|
—
|
|
(10)
|
|
|
(10)
|
|
|
Balance at September 30, 2021
|
$
|
29
|
|
$
|
—
|
|
|
$
|
29
|
|
1.In addition, the company has a liability recorded for asset retirement obligations of $18 million as of September 30, 2021.
Other Asset Related Charges
During the three and nine months ended September 30, 2021, the company recognized $5 million and $124 million, respectively, in restructuring and asset related charges - net in the interim Consolidated Statements of Operations, from non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6 - SUPPLEMENTARY INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income - Net
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Interest income
|
$
|
19
|
|
$
|
11
|
|
$
|
58
|
|
$
|
38
|
|
|
Equity in (losses) / earnings of affiliates - net
|
(1)
|
|
—
|
|
4
|
|
(3)
|
|
|
Net gain (loss) on sales of businesses and other assets1
|
1
|
|
1
|
|
2
|
|
(29)
|
|
|
Net exchange gains / (losses)2
|
2
|
|
(67)
|
|
(47)
|
|
(127)
|
|
|
Non-operating pension and other post employment benefit credit3
|
326
|
|
93
|
|
979
|
|
275
|
|
|
Miscellaneous income (expense) - net4
|
31
|
|
(8)
|
|
17
|
|
(34)
|
|
|
Other income - net
|
$
|
378
|
|
$
|
30
|
|
$
|
1,013
|
|
$
|
120
|
|
1.The nine months ended September 30, 2020 includes a loss of $(53) million relating to the sale of the La Porte site, for which the company signed an agreement in 2020, and closed during the first quarter of 2021.
2.Includes net pre-tax exchange losses of $(16) million and $(53) million associated with the devaluation of the Argentine peso for the three and nine months ended September 30, 2021, respectively, and $(26) million and $(56) million for the three and nine months ended September 30, 2020, respectively.
3.Includes non-service related components of net periodic benefit credits (costs) (interest cost, expected return on plan assets, amortization of unrecognized gain (loss), amortization of prior service benefit and settlement loss).
4.Miscellaneous expense - net for the three and nine months ended September 30, 2021 and 2020 includes losses on sale of receivables, tax indemnification adjustments related to changes in indemnification balances as a result of the application of the terms of the Tax Matters Agreement between Corteva and Dow and/or DuPont, and other items. Miscellaneous expense - net for the three and nine months ended September 30, 2021 also includes a gain from remeasurement of an equity investment and for the nine months ended September 30, 2021 includes realized losses on sale of available-for-sale securities.
The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations. The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The hedging program gains (losses) are largely taxable (tax deductible) in the U.S., whereas the offsetting exchange gains (losses) on the remeasurement of the net monetary asset positions are often not taxable (tax deductible) in their local jurisdictions. The net pre-tax exchange gains (losses) are recorded in other income - net and the related tax impact is recorded in provision for income taxes on continuing operations in the interim Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
Subsidiary Monetary Position Losses
|
|
|
|
|
|
Pre-tax exchange losses
|
$
|
(32)
|
|
$
|
(61)
|
|
$
|
(47)
|
|
$
|
(300)
|
|
|
Local tax benefits / (expenses)
|
3
|
|
16
|
|
(11)
|
|
44
|
|
|
Net after-tax impact from subsidiary exchange losses
|
$
|
(29)
|
|
$
|
(45)
|
|
$
|
(58)
|
|
$
|
(256)
|
|
|
|
|
|
|
|
|
Hedging Program Gains
|
|
|
|
|
|
Pre-tax exchange gains (losses)
|
$
|
34
|
|
$
|
(6)
|
|
$
|
—
|
|
$
|
173
|
|
|
Tax (expenses) / benefits
|
(8)
|
|
2
|
|
—
|
|
(41)
|
|
|
Net after-tax impact from hedging program exchange gains (losses)
|
$
|
26
|
|
$
|
(4)
|
|
$
|
—
|
|
$
|
132
|
|
|
|
|
|
|
|
|
Total Exchange Losses
|
|
|
|
|
|
Pre-tax exchange gains (losses)
|
$
|
2
|
|
$
|
(67)
|
|
$
|
(47)
|
|
$
|
(127)
|
|
|
Tax (expenses) benefits
|
(5)
|
|
18
|
|
(11)
|
|
3
|
|
|
Net after-tax exchange losses
|
$
|
(3)
|
|
$
|
(49)
|
|
$
|
(58)
|
|
$
|
(124)
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Cash, cash equivalents and restricted cash equivalents
The following table provides a reconciliation of cash and cash equivalents and restricted cash equivalents presented in the interim Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash equivalents presented in the interim Consolidated Statements of Cash Flows. Corteva classifies restricted cash equivalents as current or noncurrent based on the nature of the restrictions, which are included in other current assets and other assets, respectively, in the interim Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Cash and cash equivalents
|
$
|
2,779
|
|
$
|
3,526
|
|
$
|
2,768
|
|
|
Restricted cash equivalents
|
361
|
|
347
|
|
354
|
|
|
Total cash, cash equivalents and restricted cash equivalents
|
$
|
3,140
|
|
$
|
3,873
|
|
$
|
3,122
|
|
Restricted cash equivalents primarily relates to (i) a trust funded by EID for cash obligations under certain non-qualified benefit and deferred compensation plans due to the Merger, which was a change in control event, and is classified as current; and (ii) contributions to the MOU Escrow Account as further described in Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements, which is classified as noncurrent.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - INCOME TAXES
For periods between the Merger Effectiveness Time and the Corteva Distribution, Corteva and its subsidiaries were included in DowDuPont's consolidated federal income tax group and consolidated tax return. Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year was apportioned among the members of the consolidated group based on each member’s separate taxable income. Corteva, DuPont and Dow intend that to the extent Federal and/or State corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax matters agreement. See Note 3 - Divestitures and Other Transactions, for further information related to indemnifications between Corteva, DuPont and Dow.
Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company's financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the company's results of operations.
During the three and nine months ended September 30, 2021, the company recognized $32 million and $58 million, respectively, of net tax benefits to provision for income taxes on continuing operations associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a $22 million tax benefit associated with U.S. research and development tax credits.
During the nine months ended September 30, 2020, the company recognized a tax benefit of $51 million to provision for income taxes on continuing operations related to a return to accrual adjustment associated with an elective change in accounting method for the 2019 tax year impact of the 2017 Tax Cuts and Jobs Act 's (“The Act”) foreign tax provisions.
During the nine months ended September 30, 2020 the company recognized a tax benefit of $14 million to provision for income taxes on continuing operations related to a return to accrual adjustment to reflect a change in estimate on the impact of a tax law enactment in a foreign jurisdiction.
The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of the program, which resides in the U.S., is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions, which can drive material impacts on the company's effective tax rate. For further discussion of pre-tax and after-tax impacts of the company's foreign currency hedging program and net monetary asset programs, refer to Note 6 - Supplementary Information.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - EARNINGS PER SHARE OF COMMON STOCK
The following tables provide earnings per share calculations for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) for Earnings Per Share Calculations - Basic and Diluted
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
Income (loss) from continuing operations after income taxes
|
$
|
36
|
|
$
|
(390)
|
|
$
|
1,667
|
|
$
|
657
|
|
|
|
|
Net income attributable to continuing operations noncontrolling interests
|
2
|
|
2
|
|
8
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to Corteva common stockholders
|
34
|
|
(392)
|
|
1,659
|
|
639
|
|
|
|
|
(Loss) income from discontinued operations available to Corteva common stockholders
|
(4)
|
|
—
|
|
(59)
|
|
1
|
|
|
|
|
Net income (loss) available to common stockholders
|
$
|
30
|
|
$
|
(392)
|
|
$
|
1,600
|
|
$
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Calculations - Basic
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
(Dollars per share)
|
2021
|
2020
|
2021
|
2020
|
|
Earnings (loss) per share of common stock from continuing operations
|
$
|
0.05
|
|
$
|
(0.52)
|
|
$
|
2.25
|
|
$
|
0.85
|
|
|
Loss per share of common stock from discontinued operations
|
(0.01)
|
|
—
|
|
(0.08)
|
|
—
|
|
|
Earnings (loss) per share of common stock
|
$
|
0.04
|
|
$
|
(0.52)
|
|
$
|
2.17
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Calculations - Diluted
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
(Dollars per share)
|
2021
|
2020
|
2021
|
2020
|
|
Earnings (loss) per share of common stock from continuing operations
|
$
|
0.05
|
|
$
|
(0.52)
|
|
$
|
2.23
|
|
$
|
0.85
|
|
|
Loss per share of common stock from discontinued operations
|
(0.01)
|
|
—
|
|
(0.08)
|
|
—
|
|
|
Earnings (loss) per share of common stock
|
$
|
0.04
|
|
$
|
(0.52)
|
|
$
|
2.15
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Count Information
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
(Shares in millions)
|
2021
|
2020
|
2021
|
2020
|
|
Weighted-average common shares - basic
|
733.8
|
|
749.5
|
|
738.1
|
|
749.5
|
|
|
Plus dilutive effect of equity compensation plans1
|
5.7
|
|
—
|
|
5.9
|
|
2.5
|
|
|
|
|
|
|
|
|
Weighted-average common shares - diluted
|
739.5
|
|
749.5
|
|
744.0
|
|
752.0
|
|
|
Potential shares of common stock excluded from EPS calculations2
|
3.0
|
|
14.6
|
|
3.1
|
|
9.7
|
|
1.Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.
2.These outstanding potential shares of common stock relating to stock options, restricted stock units and performance-based restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been anti-dilutive.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 9 - ACCOUNTS AND NOTES RECEIVABLE - NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Accounts receivable – trade1
|
$
|
3,336
|
|
$
|
3,754
|
|
$
|
3,231
|
|
|
Notes receivable – trade1,2
|
1,408
|
|
163
|
|
1,407
|
|
|
Other3
|
1,074
|
|
1,009
|
|
989
|
|
|
Total accounts and notes receivable - net
|
$
|
5,818
|
|
$
|
4,926
|
|
$
|
5,627
|
|
1.Accounts receivable – trade and notes receivable - trade are net of allowances of $210 million at September 30, 2021, $208 million at December 31, 2020, and $210 million at September 30, 2020. Allowances are equal to the estimated uncollectible amounts and are based on the expected credit losses and were developed using a loss-rate method.
2.Notes receivable – trade primarily consists of receivables for deferred payment loan programs for the sale of seed products to customers. These loans have terms of one year or less and are primarily concentrated in North America. The company maintains a rigid pre-approval process for extending credit to customers in order to manage overall risk and exposure associated with credit losses. As of September 30, 2021, December 31, 2020, and September 30, 2020 there were no significant impairments related to current loan agreements.
3.Other includes receivables in relation to indemnification assets, value added tax, general sales tax and other taxes. No individual group represents more than 10 percent of total receivables. In addition, Other includes amounts due from nonconsolidated affiliates of $84 million, $106 million, and $92 million as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively.
Accounts and notes receivable are carried at the expected amount to be collected, which approximates fair value. The company establishes the allowance for doubtful receivables using a loss-rate method where the loss rate is developed using past events, historical experience, current conditions and forecasts that affect the collectability of the financial assets.
The following table summarizes changes in the allowance for doubtful receivables for the nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
(In millions)
|
|
2020
|
|
|
Balance at December 31, 2019
|
$
|
174
|
|
|
Net provision for credit losses1
|
54
|
|
|
Write-offs charged against allowance / other1
|
(18)
|
|
|
Balance at September 30, 2020
|
$
|
210
|
|
|
|
|
|
2021
|
|
|
Balance at December 31, 2020
|
$
|
208
|
|
|
Net provision for credit losses
|
(7)
|
|
|
Write-offs charged against allowance / other
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
$
|
210
|
|
1.Prior year classifications in the changes in the allowance for doubtful receivables have been revised. Revisions did not impact the amount of the provision or the allowance for doubtful receivables recorded in the interim Consolidated Statements of Operations or the interim Consolidated Balance Sheets.
The company enters into various factoring agreements with third-party financial institutions to sell its trade receivables under both recourse and non-recourse agreements in exchange for cash proceeds. These financing arrangements result in a transfer of the company's receivables and risks to the third-party. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are derecognized from the interim Consolidated Balance Sheets upon transfer, and the company receives a payment for the receivables from the third-party within a mutually agreed upon time period. For arrangements involving an element of recourse, which is typically provided through a guarantee of accounts in the event of customer default, the guarantee obligation is measured using market data from similar transactions and reported as a current liability in the interim Consolidated Balance Sheets.
Trade receivables sold under these agreements were $70 million and $257 million for the three and nine months ended September 30, 2021, respectively, and $44 million and $221 million for the three and nine months ended September 30, 2020, respectively. The trade receivables sold that remained outstanding under these agreements which include an element of recourse as of September 30, 2021, December 31, 2020, and September 30, 2020 were $173 million, $157 million, and $178 million, respectively. The net proceeds received are included in cash used for operating activities in the interim Consolidated Statements of Cash Flows. The difference between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of receivables in other income - net in the interim Consolidated Statements of Operations. The loss on sale of receivables was $11 million and $54 million for the three and nine months ended September 30, 2021, respectively, and
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
$11 million and $49 million for the three and nine months ended September 30, 2020, respectively. See Note 13 - Commitments and Contingent Liabilities for additional information on the company’s guarantees.
NOTE 10 - INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Finished products
|
$
|
1,871
|
|
$
|
2,584
|
|
$
|
2,074
|
|
|
Semi-finished products
|
2,028
|
|
1,813
|
|
1,878
|
|
|
Raw materials and supplies
|
518
|
|
485
|
|
422
|
|
|
Total inventories
|
$
|
4,417
|
|
$
|
4,882
|
|
$
|
4,374
|
|
NOTE 11 - OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2021
|
|
December 31, 2020
|
September 30, 2020
|
|
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|
Intangible assets subject to amortization (Definite-lived):
|
|
|
|
|
|
|
|
|
|
|
|
Germplasm
|
$
|
6,265
|
|
$
|
(507)
|
|
$
|
5,758
|
|
|
$
|
6,265
|
|
$
|
(317)
|
|
$
|
5,948
|
|
$
|
6,265
|
|
$
|
(253)
|
|
$
|
6,012
|
|
|
Customer-related
|
1,956
|
|
(460)
|
|
1,496
|
|
|
1,984
|
|
(380)
|
|
1,604
|
|
1,966
|
|
(352)
|
|
1,614
|
|
|
Developed technology
|
1,485
|
|
(641)
|
|
844
|
|
|
1,451
|
|
(525)
|
|
926
|
|
1,463
|
|
(499)
|
|
964
|
|
|
Trademarks/trade names1
|
2,012
|
|
(152)
|
|
1,860
|
|
|
2,019
|
|
(99)
|
|
1,920
|
|
161
|
|
(86)
|
|
75
|
|
|
Favorable supply contracts
|
475
|
|
(373)
|
|
102
|
|
|
475
|
|
(302)
|
|
173
|
|
475
|
|
(279)
|
|
196
|
|
|
Other2
|
407
|
|
(252)
|
|
155
|
|
|
405
|
|
(239)
|
|
166
|
|
405
|
|
(233)
|
|
172
|
|
|
Total other intangible assets with finite lives
|
12,600
|
|
(2,385)
|
|
10,215
|
|
|
12,599
|
|
(1,862)
|
|
10,737
|
|
10,735
|
|
(1,702)
|
|
9,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization (Indefinite-lived):
|
|
|
|
|
|
|
|
|
|
|
|
IPR&D
|
10
|
|
—
|
|
10
|
|
|
10
|
|
—
|
|
10
|
|
10
|
|
—
|
|
10
|
|
|
Trade name1
|
|
|
|
|
|
|
|
1,871
|
|
—
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
10
|
|
—
|
|
10
|
|
|
10
|
|
—
|
|
10
|
|
1,881
|
|
—
|
|
1,881
|
|
|
Total
|
$
|
12,610
|
|
$
|
(2,385)
|
|
$
|
10,225
|
|
|
$
|
12,609
|
|
$
|
(1,862)
|
|
$
|
10,747
|
|
$
|
12,616
|
|
$
|
(1,702)
|
|
$
|
10,914
|
|
1.Beginning on October 1, 2020, the company changed its indefinite life assertion of its trade name asset to definite lived with a useful life of 25 years. This change is the result of the launch of BrevantTM seed in the retail channel in the U.S. Prior to changing the useful life of the trade name asset, the company tested the asset for impairment under ASC 350- Intangibles, Goodwill and Other, concluding the asset was not impaired.
2.Primarily consists of sales and farmer networks, marketing and manufacturing alliances and noncompetition agreements.
The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $180 million and $543 million for the three and nine months ended September 30, 2021, respectively, and $162 million and $501 million for the three and nine months ended September 30, 2020, respectively. The current estimated aggregate pre-tax amortization expense from continuing operations for the remainder of 2021 and each of the next five years is approximately $178 million, $700 million, $620 million, $606 million, $569 million and $558 million, respectively.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The following tables summarize Corteva's short-term borrowings and finance lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and finance lease obligations
|
|
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Commercial paper
|
$
|
802
|
|
$
|
—
|
|
$
|
926
|
|
|
Repurchase facility
|
550
|
|
—
|
|
1,175
|
|
|
Other loans - various currencies
|
18
|
|
1
|
|
39
|
|
|
Long-term debt payable within one year
|
1
|
|
1
|
|
1
|
|
|
Finance lease obligations payable within one year
|
1
|
|
1
|
|
1
|
|
|
Total short-term borrowings and finance lease obligations
|
$
|
1,372
|
|
$
|
3
|
|
$
|
2,142
|
|
The estimated fair value of the company's short-term borrowings, including interest rate financial instruments, was determined using Level 2 inputs within the fair value hierarchy. Based on quoted market prices for the same or similar issues, or on current rates offered to the company for debt of the same remaining maturities, the fair value of the company's short-term borrowings and finance lease obligations was approximately carrying value.
The fair value of the company’s long-term borrowings, including debt due within one year, was $1,134 million, $1,168 million, and $1,164 million as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively, and was determined using quoted market prices for the same or similar issues, or current rates offered to the company for debt of the same remaining maturities (Level 2 inputs).
Debt Offering
In May 2020, EID issued $500 million of 1.70 percent Senior Notes due 2025 and $500 million of 2.30 percent Senior Notes due 2030 (the May 2020 Debt Offering). The proceeds of this offering are intended to be used for general corporate purposes.
Repurchase Facility
In February 2021, the company entered into a new committed receivable repurchase facility of up to $1 billion (the "2021 Repurchase Facility") which expires in December 2021. Under the 2021 Repurchase Facility, Corteva may sell a portfolio of available and eligible outstanding customer notes receivables to participating institutions and simultaneously agree to repurchase at a future date. The 2021 Repurchase Facility is considered a secured borrowing with the customer notes receivables inclusive of those that are sold and repurchased, equal to 105 percent of the outstanding amounts borrowed utilized as collateral. Borrowings under the 2021 Repurchase Facility have an interest rate of LIBOR+0.85 percent.
As of September 30, 2021, $578 million of notes receivable, recorded in accounts and notes receivable - net in the interim Consolidated Balance Sheets, were pledged as collateral against outstanding borrowings under the 2021 Repurchase Facility of $550 million, recorded in short-term borrowings and finance lease obligations in the interim Consolidated Balance Sheet.
Revolving Credit Facilities
In November 2018, EID entered into a $3 billion 5-year revolving credit facility and a $3 billion 3-year revolving credit facility (the “Revolving Credit Facilities”). The Revolving Credit Facilities became effective in May 2019. Corteva, Inc. became a party at the time of the Corteva Distribution. In May 2021, the company entered into an amendment that extended the maturity date of the 3-year revolving credit facility from May 2022 to May 2023. Other than the change in maturity date, there were no material modifications to the terms of the credit facility. The Revolving Credit Facilities may serve as a substitute to the company's commercial paper program, and can be used, from time to time, for general corporate purposes including, but not limited to, the funding of seasonal working capital needs. The Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings. Additionally, the Revolving Credit Facilities contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Corteva and its consolidated subsidiaries not exceed 0.60.
In March 2020, the company drew down $500 million under the $3 billion 3-year revolving credit facility as a result of the volatility and increased borrowing costs of commercial paper resulting from the unstable market conditions caused by the COVID-19 pandemic and repaid that borrowing in full in June 2020. There were no additional borrowings and the unused commitments under the 3-year revolving credit facility were $3 billion as of September 30, 2021.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES
Guarantees
Indemnifications
In connection with acquisitions and divestitures, the company has indemnified respective parties against certain liabilities that may arise in connection with these transactions and business activities prior to the completion of the transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. In addition, the company indemnifies its duly elected or appointed directors and officers to the fullest extent permitted by Delaware law, against liabilities incurred as a result of their activities for the company, such as adverse judgments relating to litigation matters. If the indemnified party were to incur a liability or have a liability increase as a result of a successful claim, pursuant to the terms of the indemnification, the company would be required to reimburse the indemnified party. The maximum amount of potential future payments is generally unlimited. See pages 24 and 25 for additional information relating to the indemnification obligations under the Chemours Separation Agreement and the Corteva Separation Agreement.
Obligations for Customers and Other Third Parties
The company has directly guaranteed various debt obligations under agreements with third parties related to customers and other third parties. At September 30, 2021, December 31, 2020 and September 30, 2020, the company had directly guaranteed $107 million, $94 million, and $96 million, respectively, of such obligations. These amounts represent the maximum potential amount of future (undiscounted) payments that the company could be required to make under the guarantees in the event of default by the guaranteed party. All of the maximum future payments at September 30, 2021 had terms less than one year. The maximum future payments include $22 million, $17 million and $20 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively, of guarantees related to the various factoring agreements that the company enters into with third-party financial institutions to sell its trade receivables. See Note 9 - Accounts and Notes Receivable - Net, for additional information.
The maximum future payments also include agreements with lenders to establish programs that provide financing for select customers. The terms of the guarantees are equivalent to the terms of the customer loans that are primarily made to finance customer invoices. The total amounts owed from customers to the lenders relating to these agreements was $615 million, $16 million and $637 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively.
The company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.
Indemnifications under Separation Agreements
The company has entered into various agreements where the company is indemnified for certain liabilities. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. See Note 3 - Divestitures and Other Transactions, to the interim Consolidated Financial Statements for additional information related to indemnifications between Corteva, DuPont and Dow.
Chemours/Performance Chemicals
Pursuant to the Chemours Separation Agreement resulting from the 2015 spin-off of the Performance Chemicals segment from Historical DuPont, Chemours indemnifies the company against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable.
In 2017, the Chemours Separation Agreement was amended to provide for a limited sharing of potential future liabilities related to alleged historical releases of perfluorooctanoic acids and its ammonium salts (“PFOA”) for a five-year period that began on July 6, 2017. In addition, in 2017, Chemours and EID settled multi-district litigation in the U.S. District Court for the Southern District of Ohio (“Ohio MDL”), resolving claims of about 3,550 plaintiffs alleging injury from exposure to PFOA in drinking water as a result of the historical manufacture or use of PFOA at the Washington Works plant outside Parkersburg, West Virginia. This plant was previously owned and/or operated by the performance chemicals segment of EID and is now owned and/or operated by Chemours.
On May 13, 2019, Chemours filed suit in the Delaware Court of Chancery against DuPont, EID, and Corteva, seeking, among other things, to limit its responsibility for the litigation and environmental liabilities allocated to and assumed by Chemours under the Chemours Separation Agreement (the “Delaware Litigation”). On March 30, 2020, the Court of Chancery granted a
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
motion to dismiss. On December 15, 2020, the Delaware Supreme Court affirmed the judgment of the Court of Chancery. Meanwhile, a confidential arbitration process regarding the same and other claims had proceeded (the “Pending Arbitration”).
On January 22, 2021, Chemours, DuPont, Corteva and EID entered into a binding memorandum of understanding containing a settlement to resolve legal disputes originating from the Delaware Litigation and Pending Arbitration, and to establish a cost sharing arrangement and escrow account to be used to support and manage potential future legacy per- and polyfluoroalkyl substances ("PFAS") liabilities arising out of pre-July 1, 2015 conduct (the “MOU”). The MOU replaces the 2017 amendment to the Chemours Separation Agreement. According to the terms of the cost sharing arrangement within the MOU, Corteva and DuPont together, on one hand, and Chemours, on the other hand, agreed to a 50-50 split of certain qualified expenses related to PFAS liabilities incurred over a term not to exceed twenty years or $4 billion of qualified spend and escrow account contributions (see below for discussion of escrow account) in the aggregate. DuPont’s and Corteva’s 50% share under the MOU will be limited to $2 billion, including qualified expenses and escrow contributions. These expenses and escrow account contributions will be subject to the existing Letter Agreement, under which DuPont and Corteva will each bear 50% of the first $300 million (up to $150 million each), and thereafter DuPont bears 71% and Corteva bears the remaining 29%.
In order to support and manage any potential future PFAS liabilities, the parties have also agreed to establish an escrow account ("MOU Escrow Account"). The MOU provides that (1) no later than each of September 30, 2021 and September 30, 2022, Chemours shall deposit $100 million into an escrow account and DuPont and Corteva shall together deposit $100 million in the aggregate into an escrow account and (2) no later than September 30 of each subsequent year through and including 2028, Chemours shall deposit $50 million into an escrow account and DuPont and Corteva shall together deposit $50 million in the aggregate into an escrow account. Subject to the terms and conditions set forth in the MOU, each party may be permitted to defer funding in any year (excluding 2021). Over this period, Chemours will deposit a total of $500 million in the account and DuPont and Corteva will deposit an additional $500 million pursuant to the terms of the Letter Agreement. Additionally, if on December 31, 2028, the balance of the escrow account (including interest) is less than $700 million, Chemours will make 50% of the deposits and DuPont and Corteva together will make 50% of the deposits necessary to restore the balance of the escrow account to $700 million. Such payments will be made in a series of consecutive annual equal installments commencing on September 30, 2029 pursuant to the escrow account replenishment terms as set forth in the MOU. The MOU provides that no withdrawals from the MOU Escrow Account can be made before year six, except to fund mutually agreed upon third-party settlements in excess of $125 million. Starting with year six, withdrawals can only be made to fund qualified spend if the parties’ aggregate qualified spend in that particular year is greater than $200 million. Beginning with year 11, the amounts in the MOU Escrow Account can be used to fund any qualified spend. Restricted cash classified as noncurrent at September 30, 2021 is related to the MOU Escrow Account.
During the three months ended September 30, 2021, the company contributed its initial deposit into the MOU Escrow Account, which is classified as noncurrent restricted cash equivalents and is included in other assets in the interim Consolidated Balance Sheets.
After the term of this arrangement, Chemours’ indemnification obligations under the original 2015 Chemours Separation Agreement, would continue unchanged, subject in each case to certain exceptions set out in the MOU. Under the MOU, Chemours waived specified claims regarding the construct of its 2015 spin-off transaction, and the parties will dismiss the Pending Arbitration regarding those claims. Additionally, the parties have agreed to resolve the Ohio MDL PFOA personal injury litigation (as discussed below). The parties are expected to cooperate in good faith to enter into additional agreements reflecting the terms set forth in the MOU.
During the three and nine months ended September 30, 2021, the company recorded charges of $8 million and $45 million, respectively, to (loss) income from discontinued operations after income taxes in the interim Consolidated Statement of Operations, related to the MOU. The charges in the nine months ended September 30, 2021 primarily relate to an increase in the environmental remediation accrual for Chemours' Fayetteville Works facility for estimated costs for on-site surface water and groundwater remediation to address and abate PFAS discharges arising out of pre-July 1, 2015 conduct. The increase is the result of further detailed engineering and design work related to Chemours’ environmental remediation activities at the site under the Consent Order between Chemours and the North Carolina Department of Environmental Quality.
Corteva Separation Agreement
On April 1, 2019, in connection with the Dow Distribution, Corteva, DuPont and Dow entered into the Corteva Separation Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and certain other agreements (collectively, the “Corteva Separation Agreements”). The Corteva Separation Agreements allocate among Corteva, DuPont and Dow certain liabilities and obligations among the parties and provides for indemnification obligation among the parties. Under the Corteva Separation Agreements, DuPont will indemnify Corteva against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the Corteva Distribution and Dow indemnifies Corteva against certain litigation and other liabilities that relate to the Historical Dow business, but were transferred over as part of the common control combination with
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DAS, and Corteva indemnifies DuPont and Dow for certain liabilities. The term of this indemnification is generally indefinite with exceptions, and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. See Note 3 - Divestitures and Other Transactions, to the interim Consolidated Financial Statements for additional information relating to the Separation.
Under the Corteva Separation Agreement, certain legacy EID liabilities from discontinued and/or divested operations and businesses of EID (including Performance Chemicals) (a “stray liability”) were allocated to Corteva or DuPont. For those stray liabilities allocated to Corteva (which may include a specified amount of liability associated with that liability), Corteva is responsible for liabilities in an amount up to that specified amount plus an additional $200 million and, for those stray liabilities allocated to DuPont (which may include a specified amount of liability associated with that liability), DuPont is responsible for liabilities up to a specified amount plus an additional $200 million. Once each company has met the $200 million threshold, Corteva and DuPont will share future liabilities proportionally on the basis of 29% and 71%, respectively; provided, however, that for PFAS, DuPont will manage such liabilities with Corteva and DuPont sharing the costs on a 50% - 50% basis starting from $1 and up to $300 million (with such amount, up to $150 million, to be credited to each company’s $200 million threshold) and once the $300 million threshold is met, then the companies will share proportionally on the basis of 29% and 71% respectively, subject to a $1 million de minimis requirement. During the second quarter of 2021, the aggregate amount of the Company’s cash spent and liabilities accrued exceeded the stray liability thresholds, including PFAS, noted above. Therefore, liabilities recognized subsequent to the second quarter of 2021 will be shared at the reduced rates noted above.
Litigation
The company is subject to various legal proceedings, including, but not limited to, product liability, intellectual property, antitrust, commercial, property damage, personal injury, environmental and regulatory matters arising out of the normal course of its current businesses or legacy EID businesses unrelated to Corteva’s current businesses but allocated to Corteva as part of the separation of Corteva from DowDuPont. It is not possible to predict the outcome of these various proceedings, as considerable uncertainty exists. The company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Accruals may reflect the impact and status of negotiations, settlements, rulings, advice from counsel and other information and events that may pertain to a particular matter. For the litigation matters discussed below, management believes that it is reasonably possible that the company could incur liabilities in excess of amounts accrued, the ultimate liability for which could be material to the results of operations and the cash flows in the period recognized. However, the company is unable to estimate the possible loss beyond amounts accrued due to various reasons, including, among others, that the underlying matters are either in early stages and/or have significant factual issues to be resolved. In addition, even when the company believes it has substantial defenses, the company may consider settlement of matters if it believes it is in the best interest of the company.
Chlorpyrifos Lawsuits
As of September 30, 2021, there were pending personal injury lawsuits filed and additional asserted claims against the former Dow Agrosciences LLC, alleging injuries related to chlorpyrifos exposure, the active ingredient in Lorsban®, an insecticide used by commercial farms for field fruit, nut and vegetable crops. Corteva ended its production of Lorsban® in 2020. Chlorpyrifos products are restricted-use pesticides, which are not available for purchase or use by the general public, and may only be sold to, and used by, certified applicators or someone under the certified applicator's direct supervision. These lawsuits do not relate to Dursban®, a residential type chlorpyrifos product that was authorized for indoor purposes, which was discontinued over two decades ago prior to the Merger and Corteva’s formation and Separation. Claimants allege personal injury, including autism, developmental delays and/or decreased neurologic function, resulting from farm worker exposure and bystander drift and in utero exposure to chlorpyrifos. Certain claimants have also put forth remediation claims due to alleged property contamination from chlorpyrifos. Discovery for the cases only recently begun and is expected to continue through the first quarter of 2022. Notwithstanding the company’s confidence in the safety of its former chlorpyrifos products, in certain circumstances the company may settle when determined to be in the best interest of the company.
Litigation related to legacy EID businesses unrelated to Corteva’s current businesses
PFAS, PFOA, PFOS and Other Related Liabilities
For purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including the ammonium salt and does not distinguish between the two forms, and PFAS, which means per- and polyfluoroalkyl substances, including PFOA, PFOS (perfluorooctanesulfonic acid), GenX and other perfluorinated chemicals and compounds ("PFCs").
EID is a party to various legal proceedings relating to the use of PFOA by its former Performance Chemicals segment for which potential liabilities would be subject to the cost sharing arrangement under the MOU as long as it remains effective.
Leach Settlement and Ohio MDL Settlement
EID has residual liabilities under its 2004 settlement of a West Virginia state court class action, Leach v. EID, which alleged that PFOA from EID’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. The settlement class has about 80,000 members. In addition to relief that was provided to class
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
members years ago, the settlement requires EID to continue providing PFOA water treatment to six area water districts and private well users and to fund, through an escrow account, up to $235 million for a medical monitoring program for eligible class members. As of September 30, 2021, approximately $2 million had been disbursed from the account since its establishment in 2012 and the remaining balance is approximately $1 million.
The Leach settlement permits class members to pursue personal injury claims for six health conditions (and no others) that an expert panel appointed under the settlement reported in 2012 had a “probable link” (as defined in the settlement) with PFOA: pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol. After the panel reported its findings, approximately 3,550 personal injury lawsuits were filed in federal and state courts in Ohio and West Virginia and consolidated in multi-district litigation in the U.S. District Court for the Southern District of Ohio (“Ohio MDL”). The Ohio MDL was settled in early 2017 for $670.7 million in cash, with Chemours and EID (without indemnification from Chemours) each paying half.
Post-MDL Settlement PFOA Personal Injury Claims
The 2017 Ohio MDL settlement did not resolve claims of plaintiffs who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. The first trial for these claims, a kidney cancer case, resulted in a hung jury, while the second, Travis and Julie Abbot v. E.I du Pont de Nemours and Company (the “Abbot Case”), a testicular cancer case, resulted in a jury verdict of $40 million in compensatory damages and $10 million for loss of consortium. Following entry of the judgment by the court, EID filed post-trial motions to reduce the verdict, and to appeal the verdict on the basis of procedural and substantive legal errors made by the trial court. The trial court recently granted EID’s motion to reduce the loss of consortium award to conform with state tort reform laws limiting these damages to $250,000. The company is continuing its other appeals to reduce the jury verdict or eliminate its liability, in whole or part.
In January 2021, Chemours, DuPont and Corteva agreed to settle the remaining approximately 95 matters, as well as unfiled matters, remaining in the Ohio MDL, with the exception of the Abbot case, for $83 million, with Chemours contributing $29 million to the settlement, and DuPont and Corteva contributing $27 million each. The company recorded a liability for its share of the settlement, with a charge to (loss) income from discontinued operations after income taxes in the interim Consolidated Statement of Operations, during the year ended December 31, 2020, and paid $27 million during the nine months ended September 30, 2021. As agreed to in the settlement, the plaintiffs' counsel filed a motion to dissolve the MDL.
Other PFOA Matters
EID is a party to other PFOA lawsuits that do not involve claims for personal injury. Defense costs and any future liabilities that may arise out of these lawsuits are subject to the MOU and the cost sharing arrangement disclosed above. Under the MOU, fraudulent conveyance claims associated with these matters are not qualified expenses, unless Corteva, Inc. and EID would prevail on the merits of these claims.
New York. EID is a defendant in about 50 lawsuits, including a putative class action, brought by persons who live in and around Hoosick Falls, New York. These lawsuits assert claims for medical monitoring and property damage based on alleged PFOA releases from manufacturing facilities owned and operated by co-defendants in Hoosick Falls and allege that EID and 3M supplied some of the materials used at these facilities. EID is also one of more than ten defendants in a lawsuit brought by the Town of East Hampton, New York alleging PFOA and PFOS contamination of the town’s well water. Additionally, EID, along with 3M, Chemours and Dyneon, have been named defendants in complaints filed by eight water districts in Nassau County, New York alleging that the drinking water they provide to customers is contaminated with PFAS and seeking reimbursement for clean-up costs. The water district complaints also include allegations of fraudulent transfer.
New Jersey. At September 30, 2021, two lawsuits were pending, one brought by a local water utility and the second a putative class action, against EID alleging that PFOA from EID’s former Chambers Works facility contaminated drinking water sources. The putative class action was voluntarily dismissed without prejudice by the plaintiff.
In late March of 2019, the New Jersey State Attorney General filed four lawsuits against EID, Chemours, 3M and others alleging that operations at and discharges from former EID sites in New Jersey (Chambers Works, Pompton Lakes, Parlin and Repauno) damaged the State’s natural resources. Two of these lawsuits (those involving the Chambers Works and Parlin sites) allege contamination from PFAS. The Ridgewood Water District in New Jersey filed suit in the first quarter 2019 against EID, 3M, Chemours, and Dyneon alleging losses related to the investigation,
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
remediation and monitoring of polyfluorinated surfactants, including PFOA, in water supplies. DuPont and Corteva were subsequently added as defendants to these lawsuits.
Alabama / Others. EID is one of more than thirty defendants in a lawsuit by the Alabama water utility alleging contamination from PFCs, including PFOA, used by co-defendant carpet manufacturers to make their products more stain and grease resistant. In addition, the states of Alaska, Michigan, Mississippi, New Hampshire, South Dakota, and Vermont recently filed lawsuits against EID, Chemours, 3M and others, claiming, among other things, PFC (including PFOA) contamination of groundwater and drinking water. The complaints seek reimbursement for past and future costs to investigate and remediate the alleged contamination and compensation for the loss of value and use of the state’s natural resources. Motions to dismiss the Michigan, Vermont and New Hampshire cases have been denied.
Ohio. EID is a defendant in three lawsuits: an action by the State of Ohio based on alleged damage to natural resources, a putative nationwide class action brought on behalf of anyone who has detectable levels of PFAS in their blood serum, and an action by the City of Dayton claiming losses related to the investigation, remediation and monitoring of PFAS in water supplies.
Netherlands. In April 2021, four municipalities in the Netherlands filed complaints alleging contamination of land and groundwater resulting from the emission of PFOA and GenX by Corteva, DuPont and Chemours. The municipalities seek to recover costs incurred due to the alleged emissions, including damages for investigation costs, construction project delays, depreciation of land, soil remediation, liabilities to contractors, and attorneys’ fees.
Delaware. On July 13, 2021, Chemours, DuPont, EID and Corteva entered into a settlement agreement with the State of Delaware reflecting the companies’ and the State’s agreement to settle and fully resolve claims alleged against the companies regarding their historical Delaware operations, manufacturing, use and disposal of all chemical compounds, including PFAS. Under the settlement, the companies will collectively pay $50 million to fund environmental projects, including sampling and community environmental justice and equity grants, which shall be utilized to fund the Natural Resources and Sustainability Trust (the “NRST Trust”). If the companies, individually or jointly, within 8 years of the settlement, enter into a proportionally similar agreement to settle or resolve claims of another state for PFAS-related natural resource damages, for an amount greater than $50 million, the companies shall make a supplemental payment directly to the NRST Trust (“Supplemental Payment”) in an amount equal to such other states’ recovery in excess of $50 million. Supplemental Payment(s), if any, will not exceed $25 million in the aggregate. All amounts paid by the companies under the settlement are subject to the MOU and the Corteva Separation Agreement with Chemours bearing responsibility for 50%, or $25 million, of the $50 million payment due to the NRST and DuPont and Corteva each bearing $12.5 million of the remaining amount. As of September 30, 2021, an accrual has been established in relation to this settlement and during the nine months ended September 30, 2021, the company recorded a charge of $11 million to (loss) income from discontinued operations after income taxes in the interim Consolidated Statement of Operations. Under the settlement, if the state sues other parties and those parties seek contribution from the companies, the companies will have protection from contribution up to the amounts previously paid under the settlement agreement. The companies will also receive a credit up to the amount of the payment if the state seeks natural resource damage claims against the companies outside the scope of the settlement’s release of claims.
Aqueous Firefighting Foams. Approximately 1,760 cases have been filed against 3M and other defendants, including EID and Chemours, and more recently also including Corteva and DuPont, alleging PFOS or PFOA contamination of soil and groundwater from the use of aqueous firefighting foams. Most of those cases claim some form of property damage and seek to recover the costs of responding to this contamination and damages for the loss of use and enjoyment of property and diminution in value. Most of these cases have been transferred to a multidistrict litigation proceeding in federal district court in South Carolina. Approximately 1,600 of these cases were filed on behalf of firefighters who allege personal injuries (primarily kidney and testicular cancer) as a result of aqueous firefighting foams, while 96 are from municipal water districts. Most of these recent cases assert claims that the EID and Chemours separation constituted a fraudulent conveyance. A schedule of initial trials is expected to be established in the second half of 2021.
EID did not make firefighting foams, PFOS, or PFOS products. While EID made surfactants and intermediaries that some manufacturers used in making foams, which may have contained PFOA as an unintended byproduct or an impurity, EID’s products were not formulated with PFOA, nor was PFOA an ingredient of these products. EID has never made or sold PFOA as a commercial product.
Fayetteville Works Facility, North Carolina
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Prior to the separation of Chemours, EID introduced GenX as a polymerization processing aid and a replacement for PFOA at the Fayetteville Works facility in Bladen County, North Carolina. The facility is now owned and operated by Chemours, which continues to manufacture and use GenX.
At September 30, 2021, several actions are pending in federal court against Chemours and EID relating to PFC discharges from the Fayetteville Works facility. One of these is a consolidated putative class action that asserts claims for medical monitoring and property damage on behalf of putative classes of property owners and residents in areas near or who draw drinking water from the Cape Fear River. Another action is a consolidated action brought by various North Carolina water authorities, including the Cape Fear Public Utility Authority and Brunswick County, that seek actual and punitive damages as well as injunctive relief. In another action with approximately 100 property owners near the Fayetteville Works facility, a complaint was filed against Chemours and EID in May 2020. The plaintiffs seek compensatory and punitive damages for their claims of private nuisance, trespass, and negligence allegedly caused by release of PFAS.
In addition to the federal court actions, there is an action on behalf of about 100 plaintiffs who own wells and property near the Fayetteville Works facility. The plaintiffs seek damages for nuisance allegedly caused by releases of certain PFCs from the site.
Generally, site-related expenses related GenX claims are subject to the cost sharing arrangements as defined in the MOU.
Environmental
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. These obligations are included in accrued and other current liabilities and other noncurrent obligations in the interim Consolidated Balance Sheet. It is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the company’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration.
For a discussion of the allocation of environmental liabilities under the Chemours Separation Agreement and the Corteva Separation Agreement, see the previous discussion on page 24.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
(In millions)
|
Indemnification Asset
|
Accrual balance3
|
Potential exposure above amount accrued3
|
|
Environmental Remediation Stray Liabilities
|
|
|
|
|
Chemours related obligations - subject to indemnity1,2
|
$
|
156
|
|
$
|
156
|
|
$
|
266
|
|
|
Other discontinued or divested businesses obligations1
|
10
|
|
77
|
|
187
|
|
|
|
|
|
|
|
Environmental remediation liabilities primarily related to DuPont - subject to indemnity from DuPont2
|
38
|
|
38
|
|
64
|
|
|
|
|
|
|
|
Environmental remediation liabilities not subject to indemnity
|
—
|
|
72
|
|
49
|
|
|
|
|
|
|
|
Indemnification liabilities related to the MOU4
|
9
|
|
111
|
|
20
|
|
|
Total
|
$
|
213
|
|
$
|
454
|
|
$
|
586
|
|
1.Represents liabilities that are subject to the $200 million thresholds and sharing arrangements as discussed on page 24, under the header "Corteva Separation Agreement."
2.The company has recorded an indemnification asset related to these accruals, including $40 million related to the Superfund sites.
3.Accrual balance represents management’s best estimate of the costs of remediation and restoration, although it is reasonably possible that the potential exposure, as indicated, could range above the amounts accrued, as there are inherent uncertainties in these estimates. Accrual balances includes $67 million for remediation of Superfund sites.
4.Represents liabilities that are subject to the $150 million thresholds and sharing agreements as discussed on page 23, under the header "Chemours / Performance Chemicals."
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 14 - STOCKHOLDERS' EQUITY
Share Buyback Plan
On August 5, 2021, Corteva, Inc. announced that its Board of Directors authorized a $1.5 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date ("2021 Share Buyback Plan"). The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors. In connection with the 2021 Share Buyback Plan, the company purchased and retired 1,167,000 shares during the three months ended September 30, 2021 in the open market for a total cost of $50 million.
On June 26, 2019, Corteva, Inc. announced that its Board of Directors authorized a $1 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date ("2019 Share Buyback Plan").
In connection with the 2019 Share Buyback Plan, the company purchased and retired 3,408,000 shares and 15,378,000 shares, respectively, in the open market for a total cost of $150 million and $700 million during the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020, the company purchased and retired 1,160,000 shares and 3,025,000 shares, respectively, in the open market for a total cost of $33 million and $83 million, respectively. Purchases under the 2019 Share Buyback Plan are now complete with the third quarter 2021 activity noted above.
Shares repurchased pursuant to Corteva's share buyback plans are immediately retired upon purchase. Repurchased common stock is reflected as a reduction of stockholders' equity. The company's accounting policy related to its share repurchases is to reduce its common stock based on the par value of the shares and to reduce its retained earnings for the excess of the repurchase price over the par value. When Corteva has an accumulated deficit balance, the excess over the par value is applied to APIC. When Corteva has retained earnings, the excess is charged entirely to retained earnings.
Noncontrolling Interest
In June 2020, the company completed the acquisition of the remaining 46.5 percent interest in the Phytogen Seed Company, LLC joint venture from J. G. Boswell Company. As the purchase of the remaining interest did not result in a change of control, the difference between the carrying value of the noncontrolling interest and the consideration paid, net of taxes was recorded within equity.
Corteva, Inc. owns 100 percent of the outstanding common shares of EID. However, EID has preferred stock outstanding to third parties which is accounted for as a non-controlling interest in Corteva's interim Consolidated Balance Sheets. Each share of EID Preferred Stock - $4.50 Series and EID Preferred Stock - $3.50 Series issued and outstanding at the effective date of the Corteva Distribution remains issued and outstanding as to EID and was unaffected by the Corteva Distribution.
Below is a summary of the EID Preferred Stock at September 30, 2021, December 31, 2020, and September 30, 2020, which is classified as noncontrolling interests in Corteva's interim Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
Shares in thousands
|
Number of Shares
|
|
Authorized
|
23,000
|
|
$4.50 Series, callable at $120
|
1,673
|
|
$3.50 Series, callable at $102
|
700
|
Other Comprehensive (Loss) Income
The changes and after-tax balances of components comprising accumulated other comprehensive loss are summarized below:
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Cumulative Translation Adjustment1
|
Derivative Instruments
|
Pension Benefit Plans
|
Other Benefit Plans
|
Unrealized Gain (Loss) on Investments
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
Balance January 1, 2020
|
$
|
(1,944)
|
|
$
|
2
|
|
$
|
(1,247)
|
|
$
|
(81)
|
|
$
|
—
|
|
$
|
(3,270)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(507)
|
|
(23)
|
|
(10)
|
|
2
|
|
—
|
|
(538)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
7
|
|
4
|
|
1
|
|
—
|
|
12
|
|
|
Net other comprehensive (loss) income
|
(507)
|
|
(16)
|
|
(6)
|
|
3
|
|
—
|
|
(526)
|
|
|
Balance September 30, 2020
|
$
|
(2,451)
|
|
$
|
(14)
|
|
$
|
(1,253)
|
|
$
|
(78)
|
|
$
|
—
|
|
$
|
(3,796)
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
|
|
|
|
Balance January 1, 2021
|
$
|
(1,970)
|
|
$
|
(67)
|
|
$
|
(1,433)
|
|
$
|
590
|
|
$
|
(10)
|
|
$
|
(2,890)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(424)
|
|
115
|
|
(6)
|
|
1
|
|
3
|
|
(311)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
(8)
|
|
32
|
|
(475)
|
|
7
|
|
(444)
|
|
|
Net other comprehensive (loss) income
|
(424)
|
|
107
|
|
26
|
|
(474)
|
|
10
|
|
(755)
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2021
|
$
|
(2,394)
|
|
$
|
40
|
|
$
|
(1,407)
|
|
$
|
116
|
|
$
|
—
|
|
$
|
(3,645)
|
|
1.The cumulative translation adjustment loss for the nine months ended September 30, 2021 was primarily driven by strengthening of the USD against the European Euro ("EUR"), Swiss Franc ("CHF") and Brazilian Real ("BRL"). The cumulative translation adjustment loss for the nine months ended September 30, 2020 was primarily driven by strengthening of the USD against the Brazilian Real ("BRL") and the South African Rand ("ZAR") against the USD.
The tax benefit (expense) on the net activity related to each component of other comprehensive (loss) income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
Derivative instruments
|
$
|
(12)
|
|
$
|
4
|
|
$
|
(37)
|
|
$
|
6
|
|
|
Pension benefit plans - net
|
(3)
|
|
—
|
|
(8)
|
|
(3)
|
|
|
Other benefit plans - net
|
51
|
|
—
|
|
148
|
|
—
|
|
|
|
|
|
|
|
|
Benefit from (provision for) income taxes related to other comprehensive (loss) income items
|
$
|
36
|
|
$
|
4
|
|
$
|
103
|
|
$
|
3
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of the reclassifications out of accumulated other comprehensive loss is provided as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
Derivative Instruments1:
|
$
|
6
|
|
$
|
(22)
|
|
$
|
(9)
|
|
$
|
13
|
|
|
Tax (benefit) expense2
|
(1)
|
|
3
|
|
1
|
|
(6)
|
|
|
After-tax
|
$
|
5
|
|
$
|
(19)
|
|
$
|
(8)
|
|
$
|
7
|
|
|
Amortization of pension benefit plans:
|
|
|
|
|
|
Prior service benefit3,4
|
$
|
—
|
|
$
|
—
|
|
$
|
(1)
|
|
$
|
(1)
|
|
|
Actuarial losses3,4
|
14
|
|
1
|
|
41
|
|
3
|
|
|
|
|
|
|
|
|
Settlement loss3,4
|
—
|
|
—
|
|
1
|
|
3
|
|
|
Total before tax
|
$
|
14
|
|
$
|
1
|
|
$
|
41
|
|
$
|
5
|
|
|
Tax benefit2
|
(3)
|
|
—
|
|
(9)
|
|
(1)
|
|
|
After-tax
|
$
|
11
|
|
$
|
1
|
|
$
|
32
|
|
$
|
4
|
|
|
Amortization of other benefit plans:
|
|
|
|
|
|
Prior service benefit3,4
|
$
|
(231)
|
|
$
|
—
|
|
$
|
(692)
|
|
$
|
—
|
|
|
Actuarial gains3,4
|
23
|
|
1
|
|
70
|
|
1
|
|
|
Curtailment gain
|
—
|
|
—
|
|
(1)
|
|
—
|
|
|
Total before tax
|
$
|
(208)
|
|
$
|
1
|
|
$
|
(623)
|
|
$
|
1
|
|
|
Tax expense2
|
51
|
|
—
|
|
148
|
|
—
|
|
|
After-tax
|
$
|
(157)
|
|
$
|
1
|
|
$
|
(475)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Loss on Investments4
|
$
|
—
|
|
$
|
—
|
|
$
|
7
|
|
$
|
—
|
|
|
Tax benefit2
|
—
|
|
—
|
|
—
|
|
—
|
|
|
After-tax
|
$
|
—
|
|
$
|
—
|
|
$
|
7
|
|
$
|
—
|
|
|
Total reclassifications for the period, after-tax
|
$
|
(141)
|
|
$
|
(17)
|
|
$
|
(444)
|
|
$
|
12
|
|
1.Reflected in cost of goods sold in the interim Consolidated Statements of Operations.
2.Reflected in (benefit from) provision for income taxes from continuing operations in the interim Consolidated Statements of Operations.
3.These accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit credit of the company's pension and other benefit plans. See Note 15 - Pension Plans and Other Post Employment Benefits, for additional information.
4.Reflected in other income - net in the interim Consolidated Statements of Operations.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 - PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS
The following sets forth the components of the company's net periodic (credit) benefit cost for defined benefit pension plans and other post employment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Defined Benefit Pension Plans:
|
|
|
|
|
|
Service cost
|
$
|
7
|
|
$
|
6
|
|
$
|
19
|
|
$
|
19
|
|
|
Interest cost
|
91
|
|
139
|
|
273
|
|
420
|
|
|
Expected return on plan assets
|
(228)
|
|
(250)
|
|
(686)
|
|
(750)
|
|
|
Amortization of unrecognized loss
|
14
|
|
1
|
|
41
|
|
3
|
|
|
Amortization of prior service benefit
|
—
|
|
—
|
|
(1)
|
|
(1)
|
|
|
Settlement loss
|
—
|
|
—
|
|
1
|
|
3
|
|
|
Net periodic (credit) benefit cost
|
$
|
(116)
|
|
$
|
(104)
|
|
$
|
(353)
|
|
$
|
(306)
|
|
|
Other Post Employment Benefits:
|
|
|
|
|
|
Service cost
|
$
|
1
|
|
$
|
—
|
|
$
|
1
|
|
$
|
1
|
|
|
Interest cost
|
5
|
|
16
|
|
16
|
|
49
|
|
|
Amortization of unrecognized loss
|
23
|
|
1
|
|
70
|
|
1
|
|
|
Amortization of prior service benefit
|
(231)
|
|
—
|
|
(692)
|
|
—
|
|
|
Curtailment gain
|
—
|
|
—
|
|
(1)
|
|
—
|
|
|
Net periodic (credit) benefit cost
|
$
|
(202)
|
|
$
|
17
|
|
$
|
(606)
|
|
$
|
51
|
|
NOTE 16 - FINANCIAL INSTRUMENTS
At September 30, 2021, December 31, 2020 and September 30, 2020, the company had $2,108 million, $2,511 million and $1,986 million, respectively, of held-to-maturity securities (primarily time deposits and money market funds) classified as cash equivalents in the interim Consolidated Balance Sheets, as these securities had maturities of three months or less at the time of purchase; and $103 million, $43 million and $152 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively, of held-to-maturity securities (primarily time deposits) classified as marketable securities in the interim Consolidated Balance Sheets as these securities had maturities of more than three months to less than one year at the time of purchase. The company’s investments in held-to-maturity securities are held at amortized cost, which approximates fair value. At December 31, 2020, the company had $226 million of available-for-sale debt securities classified as marketable securities in the interim Consolidated Balance Sheet.
Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency and commodity price risks. The company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. The company has not designated any non-derivatives as hedging instruments.
The company's financial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges, and multinational grain exporters. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The notional amounts of the company's derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
$
|
1,227
|
|
$
|
1,164
|
|
$
|
770
|
|
|
Commodity contracts
|
$
|
262
|
|
$
|
383
|
|
$
|
51
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
$
|
1,164
|
|
$
|
647
|
|
$
|
924
|
|
|
Commodity contracts
|
$
|
7
|
|
$
|
—
|
|
$
|
—
|
|
Foreign Currency Risk
The company's objective in managing exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign currency rate changes and to mitigate the exposure of certain investments in foreign subsidiaries against changes in the Euro/USD exchange rate. Accordingly, the company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency-denominated assets, liabilities, commitments, investments and cash flows.
The company uses foreign exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, after related tax effects, are minimized. The company also uses foreign currency exchange contracts to offset a portion of the company’s exposure to certain forecasted transactions as well as the translation of foreign currency-denominated earnings. The company also uses commodity contracts to offset risks associated with foreign currency devaluation in certain countries.
Commodity Price Risk
Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as corn and soybeans. The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with agricultural commodity exposures.
Derivatives Designated as Cash Flow Hedges
Commodity Contracts
The company enters into over-the-counter and exchange-traded derivative commodity instruments, including options, futures and swaps, to hedge the commodity price risk associated with agriculture commodity exposures.
While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two years. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is probable of not occurring.
The following table summarizes the after-tax effect of commodity contract cash flow hedges on accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Beginning balance
|
$
|
73
|
|
$
|
(16)
|
|
$
|
(16)
|
|
$
|
2
|
|
|
Additions and revaluations of derivatives designated as cash flow hedges
|
(10)
|
|
10
|
|
93
|
|
(34)
|
|
|
Clearance of hedge results to earnings
|
(4)
|
|
(2)
|
|
(18)
|
|
24
|
|
|
Ending balance
|
$
|
59
|
|
$
|
(8)
|
|
$
|
59
|
|
$
|
(8)
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
At September 30, 2021, an after-tax net gain of $50 million is expected to be reclassified from accumulated other comprehensive loss into earnings over the next twelve months.
Foreign Currency Contracts
The company enters into forward contracts to hedge the foreign currency risk associated with forecasted transactions within certain foreign subsidiaries.
While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two years. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is probable of not occurring.
The following table summarizes the after-tax effect of foreign currency cash flow hedges on accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Beginning balance
|
$
|
(21)
|
|
$
|
19
|
|
$
|
(17)
|
|
$
|
—
|
|
|
Additions and revaluations of derivatives designated as cash flow hedges
|
8
|
|
4
|
|
3
|
|
23
|
|
|
Clearance of hedge results to earnings
|
9
|
|
(17)
|
|
10
|
|
(17)
|
|
|
Ending balance
|
$
|
(4)
|
|
$
|
6
|
|
$
|
(4)
|
|
$
|
6
|
|
At September 30, 2021, an after-tax net loss of $11 million is expected to be reclassified from accumulated other comprehensive loss into earnings over the next twelve months.
Derivatives Designated as Net Investment Hedges
Foreign Currency Contracts
The company has designated €450 million of forward contracts to exchange EUR as net investment hedges. The purpose of these forward contracts is to mitigate FX exposure related to a portion of the company’s Euro net investments in certain foreign subsidiaries against changes in Euro/USD exchange rates. These hedges will expire and be settled in 2023, unless terminated early at the discretion of the company.
The company elected to apply the spot method in testing for effectiveness of the hedging relationship.
Derivatives not Designated in Hedging Relationships
Foreign Currency Contracts
The company uses foreign exchange contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the use of hedge accounting; however, the required revaluation of the forward contracts and the associated foreign currency-denominated monetary assets and liabilities intends to achieve a minimal earnings impact, after taxes. The company also uses foreign currency exchange contracts to offset a portion of the company’s exposure to the translation of certain foreign currency-denominated earnings so that gains and losses on the contracts offset changes in the USD value of the related foreign currency-denominated earnings over the relevant aggregate period.
Commodity Contracts
The company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as corn and soybeans. The company uses forward agreements, with durations less than one year, to buy and sell USD priced commodities in order to reduce its exposure to currency devaluation for a portion of its local currency cash balances. Counterparties to the forward sales agreements are multinational grain exporters and subject to the company’s financial risk management procedures.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Fair Value of Derivative Instruments
Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the interim Consolidated Balance Sheets. The presentation of the company's derivative assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
(In millions)
|
Balance Sheet Location
|
Gross
|
Counterparty and Cash Collateral Netting1
|
Net Amounts Included in the interim Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
20
|
|
$
|
—
|
|
$
|
20
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
37
|
(23)
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
$
|
57
|
|
$
|
(23)
|
|
$
|
34
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
9
|
|
$
|
—
|
|
$
|
9
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
31
|
(23)
|
|
8
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
$
|
40
|
|
$
|
(23)
|
|
$
|
17
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In millions)
|
Balance Sheet Location
|
Gross
|
Counterparty and Cash Collateral Netting1
|
Net Amounts Included in the Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
15
|
|
$
|
—
|
|
$
|
15
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
40
|
|
(40)
|
|
—
|
|
|
Total asset derivatives
|
|
$
|
55
|
|
$
|
(40)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
38
|
|
$
|
—
|
|
$
|
38
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
97
|
|
(40)
|
|
57
|
|
|
Total liability derivatives
|
|
$
|
135
|
|
$
|
(40)
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
(In millions)
|
Balance Sheet Location
|
Gross
|
Counterparty and Cash Collateral Netting1
|
Net Amounts Included in the interim Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
24
|
|
$
|
—
|
|
$
|
24
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
101
|
|
(75)
|
|
26
|
|
|
Commodity contracts
|
Other current assets
|
1
|
|
—
|
|
1
|
|
|
Total asset derivatives
|
|
$
|
126
|
|
$
|
(75)
|
|
$
|
51
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
12
|
|
$
|
—
|
|
$
|
12
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
84
|
|
(69)
|
|
15
|
|
|
Commodity contracts
|
Accrued and other current liabilities
|
1
|
|
—
|
|
1
|
|
|
Total liability derivatives
|
|
$
|
97
|
|
$
|
(69)
|
|
$
|
28
|
|
1. Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Effect of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI - Pre-Tax1
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Net investment hedges:
|
|
|
|
|
|
Foreign currency contracts
|
$
|
10
|
|
$
|
(20)
|
|
$
|
24
|
|
$
|
(16)
|
|
|
Cash flow hedges:
|
|
|
|
|
|
Foreign currency contracts
|
18
|
|
4
|
|
12
|
|
27
|
|
|
Commodity contracts
|
(11)
|
|
14
|
|
117
|
|
(46)
|
|
|
Total derivatives designated as hedging instruments
|
$
|
17
|
|
$
|
(2)
|
|
$
|
153
|
|
$
|
(35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.OCI is defined as other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Income - Pre-Tax1
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
Foreign currency contracts2
|
$
|
(10)
|
|
$
|
19
|
|
$
|
(11)
|
|
$
|
19
|
|
|
Commodity contracts2
|
4
|
|
3
|
|
20
|
|
(32)
|
|
|
Total derivatives designated as hedging instruments
|
$
|
(6)
|
|
$
|
22
|
|
$
|
9
|
|
$
|
(13)
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts3
|
$
|
34
|
|
$
|
(6)
|
|
$
|
—
|
|
$
|
173
|
|
|
Foreign currency contracts2
|
12
|
|
3
|
|
(16)
|
|
19
|
|
|
Commodity contracts2
|
(1)
|
|
—
|
|
(18)
|
|
9
|
|
|
Total derivatives not designated as hedging instruments
|
45
|
|
(3)
|
|
(34)
|
|
201
|
|
|
Total derivatives
|
$
|
39
|
|
$
|
19
|
|
$
|
(25)
|
|
$
|
188
|
|
1.For cash flow hedges, this represents the portion of the gain (loss) reclassified from accumulated OCI into income during the period.
2.Recorded in cost of goods sold in the interim Consolidated Statements of Operations.
3.Gain recognized in other income (expense) - net was partially offset by the related gain on the foreign currency-denominated monetary assets and liabilities of the company's operations. See Note 6 - Supplementary Information, for additional information.
Debt Securities
The estimated fair value of the available-for-sale securities at December 31, 2020 was determined using Level 1 inputs within the fair value hierarchy. Level 1 measurements were based on quoted market prices in active markets for identical assets and liabilities. The available-for-sale securities at December 31, 2020 are held by certain foreign subsidiaries in which the USD is not the functional currency. The fluctuations in foreign exchange are recorded in accumulated other comprehensive loss within the interim Consolidated Statements of Equity. These fluctuations are subsequently reclassified from accumulated other comprehensive loss to earnings in the period in which the marketable securities are sold and the gains and losses on these securities offset a portion of the foreign exchange fluctuations in earnings for the company.
The following table provides the investing results from available-for-sale securities for the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Results
|
|
Nine Months Ended
September 30,
|
|
(In millions)
|
|
2021
|
|
Proceeds from sales of available-for-sale securities
|
|
$
|
226
|
|
|
|
|
|
|
Gross realized losses
|
|
$
|
(7)
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 17 - FAIR VALUE MEASUREMENTS
The following tables summarize the basis used to measure certain assets and liabilities at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Significant Other Observable Inputs
|
|
(In millions)
|
Level 1
|
Level 2
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
—
|
|
$
|
103
|
|
|
Derivatives relating to:2
|
|
|
|
|
Foreign currency
|
|
—
|
|
57
|
|
|
Equity securities3
|
|
75
|
|
—
|
|
|
Total assets at fair value
|
|
$
|
75
|
|
$
|
160
|
|
|
Liabilities at fair value:
|
|
|
|
|
Derivatives relating to:2
|
|
|
|
|
Foreign currency
|
|
—
|
|
40
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Significant Other Observable Inputs
|
|
|
|
|
(In millions)
|
Level 1
|
Level 2
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
—
|
|
$
|
43
|
|
|
|
Debt securities:
|
|
|
|
|
|
U.S. treasuries1
|
|
226
|
—
|
|
|
|
Derivatives relating to:2
|
|
|
|
|
|
Foreign currency
|
|
—
|
|
55
|
|
|
|
Total assets at fair value
|
|
$
|
226
|
|
$
|
98
|
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
Derivatives relating to:2
|
|
|
|
|
|
Foreign currency
|
|
—
|
|
135
|
|
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Significant Other Observable Inputs (Level 2)
|
|
(In millions)
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
152
|
|
|
Derivatives relating to:2
|
|
|
|
Foreign currency
|
|
125
|
|
|
Commodity contracts
|
|
1
|
|
|
Total assets at fair value
|
|
$
|
278
|
|
|
Liabilities at fair value:
|
|
|
|
Derivatives relating to:2
|
|
|
|
Foreign currency
|
|
96
|
|
|
Commodity contracts
|
|
1
|
|
|
Total liabilities at fair value
|
|
$
|
97
|
|
1. The company's investments in debt securities, which are available-for-sale, are included in "marketable securities" in the interim Consolidated Balance Sheets.
2. See Note 16 - Financial Instruments for the classification of derivatives in the interim Consolidated Balance Sheets.
3. The company's equity securities are included in other assets in the interim Consolidated Balance Sheets.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 18 - SEGMENT INFORMATION
Corteva’s reportable segments reflects the manner in which its chief operating decision maker ("CODM") allocates resources and assesses performance, which is at the operating segment level (seed and crop protection). For purposes of allocating resources to the segments and assessing segment performance, segment operating EBITDA is the primary measure used by Corteva’s CODM. The company defines segment operating EBITDA as earnings (i.e., income (loss) from continuing operations before income taxes) before interest, depreciation, amortization, corporate expenses, non-operating (benefits) costs - net, foreign exchange gains (losses), and net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting, excluding the impact of significant items. Effective January 1, 2021, on a prospective basis, the company excludes from segment operating EBITDA net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. Non-operating (benefits) costs - net consists of non-operating pension and other post-employment benefit (OPEB) costs, tax indemnification adjustments and environmental remediation and legal costs associated with legacy EID businesses and sites. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the application of the terms of the Tax Matters Agreement, between Corteva and Dow and/or DuPont that are recorded by the company as pre-tax income or expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended September 30,
(In millions)
|
Seed
|
Crop Protection
|
Total
|
|
2021
|
|
|
|
|
Net sales
|
$
|
738
|
|
$
|
1,633
|
|
$
|
2,371
|
|
|
Segment operating EBITDA
|
$
|
(217)
|
|
$
|
206
|
|
$
|
(11)
|
|
|
Segment assets1
|
$
|
23,701
|
|
$
|
12,539
|
|
$
|
36,240
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
Net sales
|
$
|
523
|
|
$
|
1,340
|
|
$
|
1,863
|
|
|
Segment operating EBITDA
|
$
|
(282)
|
|
$
|
130
|
|
$
|
(152)
|
|
|
Segment assets1
|
$
|
24,372
|
|
$
|
12,593
|
|
$
|
36,965
|
|
1. Segment assets at December 31, 2020 were $23,751 million and $13,099 million for Seed and Crop Protection, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
(In millions)
|
Seed
|
Crop Protection
|
Total
|
|
2021
|
|
|
|
|
Net sales
|
$
|
7,010
|
|
$
|
5,166
|
|
$
|
12,176
|
|
|
Segment operating EBITDA
|
$
|
1,523
|
|
$
|
897
|
|
$
|
2,420
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
Net sales
|
$
|
6,516
|
|
$
|
4,494
|
|
$
|
11,010
|
|
|
Segment operating EBITDA
|
$
|
1,255
|
|
$
|
677
|
|
$
|
1,932
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Reconciliation to interim Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations after income taxes to segment operating EBITDA
(In millions)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2021
|
2020
|
2021
|
2020
|
|
Income (loss) from continuing operations after income taxes
|
$
|
36
|
|
$
|
(390)
|
|
$
|
1,667
|
|
$
|
657
|
|
|
(Benefit from) provision for income taxes on continuing operations
|
(28)
|
|
(117)
|
|
434
|
|
88
|
|
|
Income (loss) from continuing operations before income taxes
|
8
|
|
(507)
|
|
2,101
|
|
745
|
|
|
Depreciation and amortization
|
309
|
|
285
|
|
926
|
|
868
|
|
|
Interest income
|
(19)
|
|
(11)
|
|
(58)
|
|
(38)
|
|
|
Interest expense
|
8
|
|
11
|
|
22
|
|
35
|
|
|
Exchange (gains) losses - net
|
(2)
|
|
67
|
|
47
|
|
127
|
|
|
Non-operating benefits - net
|
(315)
|
|
(73)
|
|
(941)
|
|
(237)
|
|
|
|
|
|
|
|
|
Mark-to-market (gains) losses on certain foreign currency contracts not designated as hedges1
|
(19)
|
|
|
3
|
|
|
|
Significant items
|
(21)
|
|
49
|
|
214
|
|
351
|
|
|
|
|
|
|
|
|
Corporate expenses
|
40
|
|
27
|
|
106
|
|
81
|
|
|
Segment operating EBITDA
|
$
|
(11)
|
|
$
|
(152)
|
|
$
|
2,420
|
|
$
|
1,932
|
|
1.Effective January 1, 2021, on a prospective basis, the company excludes net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. For the three and nine months ended September 30, 2020, the unrealized mark-to-market (loss) gain was $(8) million and $19 million, respectively. Refer to page 57 for further discussion of the company’s Non-GAAP financial measures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets to total assets (in millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Total segment assets
|
$
|
36,240
|
|
$
|
36,850
|
|
$
|
36,965
|
|
|
Corporate assets
|
4,882
|
|
5,799
|
|
4,725
|
|
|
Total assets
|
$
|
41,122
|
|
$
|
42,649
|
|
$
|
41,690
|
|
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Significant Pre-tax (Charges) Benefits Not Included in Segment Operating EBITDA
The three and nine months ended September 30, 2021 and 2020, respectively, included the following significant pre-tax (charges) benefits which are excluded from segment operating EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Seed
|
Crop Protection
|
Corporate
|
Total
|
|
For the Three Months Ended September 30, 2021
|
|
|
|
|
|
Restructuring and Asset Related Charges - Net 1
|
$
|
(9)
|
|
$
|
(8)
|
|
$
|
(9)
|
|
$
|
(26)
|
|
|
Equity securities mark-to-market gain
|
47
|
|
—
|
|
—
|
|
47
|
|
|
Total
|
$
|
38
|
|
$
|
(8)
|
|
$
|
(9)
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Seed
|
Crop Protection
|
Corporate
|
Total
|
|
For the Three Months Ended September 30, 2020
|
|
|
|
|
|
Restructuring and Asset Related Charges - Net 1
|
$
|
(9)
|
|
$
|
(40)
|
|
$
|
—
|
|
$
|
(49)
|
|
|
|
|
|
|
|
|
Total
|
$
|
(9)
|
|
$
|
(40)
|
|
$
|
—
|
|
$
|
(49)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Seed
|
Crop Protection
|
Corporate
|
Total
|
|
|
For the Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
Restructuring and Asset Related Charges - Net 1
|
$
|
(145)
|
|
$
|
(51)
|
|
$
|
(65)
|
|
$
|
(261)
|
|
|
|
Equity securities mark-to-market gain
|
47
|
|
—
|
|
—
|
|
47
|
|
|
|
Total
|
$
|
(98)
|
|
$
|
(51)
|
|
$
|
(65)
|
|
$
|
(214)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Seed
|
Crop Protection
|
Corporate
|
Total
|
|
For the Nine Months Ended September 30, 2020
|
|
|
|
|
|
Restructuring and Asset Related Charges - Net 1
|
$
|
(154)
|
|
$
|
(98)
|
|
$
|
(46)
|
|
$
|
(298)
|
|
|
Loss on Divestiture2
|
—
|
|
(53)
|
|
—
|
|
(53)
|
|
|
Total
|
$
|
(154)
|
|
$
|
(151)
|
|
$
|
(46)
|
|
$
|
(351)
|
|
1.Includes Board approved restructuring plans and asset related charges as well as accelerated prepaid amortization expense. See Note 5 - Restructuring and Asset Related Charges - Net, to the interim Consolidated Financial Statements for additional information.
2.Includes a loss recorded in other income - net related to the sale of the La Porte site.
.
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements About Forward-Looking Statements
This report contains certain estimates and forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and may be identified by their use of words like “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” “projects,” “estimates,” “outlook,” or other words of similar meaning. All statements that address expectations or projections about the future, including statements about Corteva’s strategy for growth, product development, regulatory approval, market position, liquidity, anticipated benefits of recent acquisitions, timing of anticipated benefits from restructuring actions, outcome of contingencies, such as litigation and environmental matters, expenditures, and financial results, as well as its expectations related to its separation of Corteva from DowDuPont and the agreements related thereto, are forward-looking statements.
Forward-looking statements and other estimates are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements and other estimates also involve risks and uncertainties, many of which are beyond Corteva’s control. While the list of factors presented below is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Corteva’s business, results of operations and financial condition. Some of the important factors that could cause Corteva’s actual results to differ materially from those projected in any such forward-looking statements include: (i) failure to obtain or maintain the necessary regulatory approvals for some of Corteva’s products; (ii) failure to successfully develop and commercialize Corteva’s pipeline; (iii) effect of the degree of public understanding and acceptance or perceived public acceptance of Corteva’s biotechnology and other agricultural products; (iv) effect of changes in agricultural and related policies of governments and international organizations; (v) effect of competition and consolidation in Corteva’s industry; (vi) effect of competition from manufacturers of generic products; (vii) costs of complying with evolving regulatory requirements and the effect of actual or alleged violations of environmental laws or permit requirements; (viii) effect of climate change and unpredictable seasonal and weather factors; (ix) risks related to oil and commodity markets; (x) competitor’s establishment of an intermediary platform for distribution of Corteva's products; (xi) impact of Corteva's dependence on third parties with respect to certain of its raw materials or licenses and commercialization; (xii) effect of industrial espionage and other disruptions to Corteva’s supply chain, information technology or network systems; (xiii) effect of volatility in Corteva’s input costs; (xiv) failure to realize the anticipated benefits of the internal reorganizations taken by DowDuPont in connection with the spin-off of Corteva and other cost savings initiatives; (xv) failure to raise capital through the capital markets or short-term borrowings on terms acceptable to Corteva; (xvi) failure of Corteva’s customers to pay their debts to Corteva, including customer financing programs; (xvii) increases in pension and other post-employment benefit plan funding obligations; (xviii) risks related to the indemnification obligations of legacy EID liabilities in connection with the separation of Corteva; (xix) effect of compliance with laws and requirements and adverse judgments on litigation; (xx) risks related to Corteva’s global operations; (xxi) failure to effectively manage acquisitions, divestitures, alliances and other portfolio actions; (xxii) risks related to COVID-19; (xxiii) risks related to activist stockholders; (xxiv) Corteva’s intellectual property rights or defend against intellectual property claims asserted by others; (xxv) effect of counterfeit products; (xxvi) Corteva’s dependence on intellectual property cross-license agreements; (xxvii) other risks related to the separation from DowDuPont; (xxviii) risks related to the Biden executive order Promoting Competition in the American Economy; and (xxix) risks associated with our CEO transition.
Additionally, there may be other risks and uncertainties that Corteva is unable to currently identify or that Corteva does not currently expect to have a material impact on its business. Where, in any forward-looking statement or other estimate, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of Corteva’s management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Corteva disclaims and does not undertake any obligation to update or revise any forward-looking statement, except as required by applicable law. A detailed discussion of some of the significant risks and uncertainties which may cause results and events to differ materially from such forward-looking statements or other estimates is included in the “Risk Factors” section of Corteva’s 2020 Annual Report, as modified by subsequent Quarterly Reports on Forms 10-Q and Current Reports on Form 8-K.
Recent Developments
Global Economic Conditions
On March 11, 2020, the World Health Organization (“WHO”) declared the novel coronavirus disease (“COVID-19”) a pandemic. The global health crisis caused by COVID-19 and the related government actions and stay at home orders have negatively impacted economic activity and increased political instability across the globe. Since the crisis began Corteva has engaged its global Integrated Health Services Pandemic & Infectious Disease Team to take actions and implement guidelines and protocols in response to the COVID-19 pandemic described in its 2020 Annual Report, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, COVID-19 Pandemic.
As COVID-19 becomes more contained, a rebound in economic activity has occurred, although varying regionally depending on government policies and regulations and the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments, vaccination rates, and the ability of COVD-19 variants to overcome containment efforts, available vaccines, and medical treatments. These varying levels of recovery have created a misalignment of supply and demand for labor, transportation and logistic services, energy, raw materials and other inputs, which have been exasperated in certain regions by one-time events, including extreme weather events. Corteva will continue to actively monitor the situation and may take further actions altering its business operations that it determines are in the best interests of its stakeholders, or as required by federal, state, or local authorities. These alterations or modifications may impact the company's business, including the effects on its customers, employees, and prospects, or on its financial results through 2022. With the ongoing volatility in global markets, the company will continue to monitor various factors that could impact earnings and cash flows of the business, including, but not limited to the inflation of, or unavailability of raw material inputs and transportation and logistics services, currency fluctuations, expectations of future planted area (as influenced by consumer demand, ethanol markets and government policies and regulations), trade and purchasing of commodities globally and relative commodity prices.
2021 Restructuring Actions
On February 1, 2021, Corteva approved restructuring actions designed to right-size and optimize footprint and organizational structure according to the business needs in each region with the focus on driving continued cost improvement and productivity. As a result of these actions, the company expects to record total pre-tax restructuring charges of approximately $150 million, comprised of approximately $65 million of severance and related benefit costs, $35 million of asset related charges, $10 million of asset retirement obligations and $40 million of costs related to contract terminations (contract terminations includes early lease terminations). Future cash payments related to this charge are anticipated to be approximately $75 million, primarily related to the payment of severance and related benefits, asset retirement obligations, and costs related to contract terminations. The restructuring actions associated with this charge are expected to be substantially complete in 2021.
During the nine months ended September 30, 2021, the company recorded pre-tax charges of $127 million, recognized in restructuring and asset related charges - net in the company's interim Consolidated Statement of Operations, primarily related to severance and related benefit costs and asset related charges and contract termination charges.
The 2021 Restructuring Actions are expected to contribute to the company’s ongoing cost and productivity improvement efforts through achieving an estimated $70 million of savings on a run rate basis by 2023. See Note 5 - Restructuring and Asset Related Charges - Net, to the interim Consolidated Financial Statements for additional information.
Share Buyback Plan
On August 5, 2021, Corteva, Inc. announced that its Board of Directors authorized a $1.5 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date ("2021 Share Buyback Plan"). The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors. In connection with the 2021 Share Buyback Plan, the company purchased and retired 1,167,000 shares during the three months ended September 30, 2021 in the open market for a total cost of $50 million.
On June 26, 2019, Corteva, Inc. announced that its Board of Directors authorized a $1 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date ("2019 Share Buyback Plan"). The company completed the 2019 Share Buyback Plan during the third quarter of 2021. In connection with the 2019 Share Buyback Plan, the company purchased and retired 3,408,000 shares and 15,378,000 shares during the three and nine months ended September 30, 2021, respectively, in the open market for a total cost of $150 million and $700 million, respectively. During the three and nine months ended September 30, 2020, the company purchased and retired 1,160,000 shares and 3,025,000 shares, respectively, in the open market for a total cost of $33 million and $83 million, respectively.
Overview
The following is a summary of results from continuing operations for the three months ended September 30, 2021:
•The company reported net sales of $2,371 million, up 27 percent versus the same quarter last year, reflecting a 17 percent increase in volume, a 7 percent increase in price and a 3 percent favorable impact from currency.
•Cost of goods sold ("COGS") totaled $1,558 million in the third quarter of 2021, up from $1,297 million in the third quarter of 2020, primarily driven by increased volumes and higher input costs, freight and logistics, which are primarily market-driven, partially offset by ongoing cost and productivity actions.
•Restructuring and asset related charges - net were $26 million in the third quarter of 2021, a decrease from $49 million in the third quarter of 2020. The charges for the three months ended September 30, 2021 primarily relate to $17 million related to severance and related benefit costs and asset related charges associated with 2021 Restructuring Actions and $5 million of non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.
•The provision for income taxes on continuing operations for the three months ended September 30, 2021 includes net tax benefits of $32 million associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a $22 million tax benefit associated with U.S. research and development tax credits.
•Income (loss) from continuing operations after income taxes was $36 million, as compared to $(390) million in the same quarter last year.
•Operating EBITDA was $(51) million for the three months ended September 30, 2021, improved from a loss of $(179) million for the three months ended September 30, 2020 primarily driven by volume gains, strong price execution, and lower bad debt expense which more than offset cost headwinds. The company experienced cost headwinds in the quarter including higher input costs, freight and logistics, which are primarily market-driven. The headwinds are partially offset by the company's ongoing execution on its productivity programs. Refer to page 57 for further discussion of the company's Non-GAAP financial measures.
The following is a summary of results from continuing operations for the nine months ended September 30, 2021:
•The company reported net sales of $12,176 million, up 11 percent versus the same period last year, reflecting a 6 percent increase in volume, a 3 percent increase in price and a 2 percent favorable impact from currency.
•COGS totaled $6,988 million in the nine months ended September 30, 2021, up from $6,395 million in the nine months ended September 30, 2020, primarily driven by higher input costs, freight and logistics, which are primarily market-driven, and increased volumes, partially offset by ongoing cost and productivity actions.
•Restructuring and asset related charges - net were $261 million in the nine months ended September 30, 2021, a decrease from $298 million in the nine months ended September 30, 2020. The charges for the nine months ended September 30, 2021 primarily relate to $127 million related to severance and related benefit costs, asset related charges, and contract termination charges associated with 2021 Restructuring Activities and $124 million of non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.
•The provision for income taxes on continuing operations for the nine months ended September 30, 2021 includes net tax benefits of $58 million associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a $22 million tax benefit associated with U.S. research and development tax credits.
•Income from continuing operations after income taxes was $1,667 million, as compared to $657 million in the same period last year.
•Operating EBITDA was $2,314 million, up from $1,851 million for the nine months ended September 30, 2020, primarily driven by continued penetration of new products, strong price execution, volume gains, favorable mix, and a favorable impact from currency, which more than offset cost headwinds. The company experienced cost headwinds, including higher input costs, freight and logistics, which are primarily market-driven. The headwinds are partially
offset by the company’s ongoing execution on its productivity programs. Refer to page 57 for further discussion of the company's Non-GAAP financial measures.
In addition to the financial highlights above, the following events occurred during or subsequent to the nine months ended September 30, 2021:
•The company returned approximately $1 billion to shareholders during the nine months ended September 30, 2021 under its previously announced share repurchase programs and through common stock dividends.
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share amounts
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
Net sales
|
$
|
2,371
|
|
$
|
1,863
|
|
$
|
12,176
|
|
$
|
11,010
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
$
|
1,558
|
|
$
|
1,297
|
|
$
|
6,988
|
|
$
|
6,395
|
|
|
Percent of net sales
|
66
|
%
|
70
|
%
|
57
|
%
|
58
|
%
|
|
|
|
|
|
|
|
Research and development expense
|
$
|
297
|
|
$
|
284
|
|
$
|
871
|
|
$
|
837
|
|
|
Percent of net sales
|
13
|
%
|
15
|
%
|
7
|
%
|
8
|
%
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
$
|
672
|
|
$
|
597
|
|
$
|
2,403
|
|
$
|
2,319
|
|
|
Percent of net sales
|
28
|
%
|
32
|
%
|
20
|
%
|
21
|
%
|
|
|
|
|
|
|
|
Effective tax rate on continuing operations
|
(350.0)
|
%
|
23.1
|
%
|
20.7
|
%
|
11.8
|
%
|
|
|
|
|
|
|
|
Income (loss) from continuing operations after income taxes
|
$
|
36
|
|
$
|
(390)
|
|
$
|
1,667
|
|
$
|
657
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to Corteva common stockholders
|
$
|
34
|
|
$
|
(392)
|
|
$
|
1,659
|
|
$
|
639
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock from continuing operations
|
$
|
0.05
|
|
$
|
(0.52)
|
|
$
|
2.25
|
|
$
|
0.85
|
|
|
Diluted earnings (loss) per share of common stock from continuing operations
|
$
|
0.05
|
|
$
|
(0.52)
|
|
$
|
2.23
|
|
$
|
0.85
|
|
Results of Operations
Net Sales
Net sales were $2,371 million and $1,863 million for the three months ended September 30, 2021 and 2020, respectively. The increase, led by Latin America and North America, was primarily driven by a 17 percent increase in volume versus the prior period. Volume increases were driven by continued penetration of new technology and strong execution globally. Price and currency represented increases of 7 percent and 3 percent, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
2021
|
2020
|
|
|
Net Sales
($ Millions)
|
%
|
Net Sales
($ Millions)
|
%
|
|
Worldwide
|
$
|
2,371
|
|
100
|
%
|
$
|
1,863
|
|
100
|
%
|
|
North America1
|
590
|
|
25
|
%
|
487
|
|
26
|
%
|
|
EMEA2
|
390
|
|
17
|
%
|
315
|
|
17
|
%
|
|
Latin America
|
1,097
|
|
46
|
%
|
805
|
|
43
|
%
|
|
Asia Pacific
|
294
|
|
12
|
%
|
256
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 2021 vs. Q3 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America1
|
$
|
103
|
|
21
|
%
|
9
|
%
|
11
|
%
|
1
|
%
|
—
|
%
|
|
EMEA2
|
75
|
|
24
|
%
|
2
|
%
|
17
|
%
|
5
|
%
|
—
|
%
|
|
Latin America
|
292
|
|
36
|
%
|
11
|
%
|
20
|
%
|
5
|
%
|
—
|
%
|
|
Asia Pacific
|
38
|
|
15
|
%
|
—
|
%
|
16
|
%
|
1
|
%
|
(2)
|
%
|
|
Total
|
$
|
508
|
|
27
|
%
|
7
|
%
|
17
|
%
|
3
|
%
|
—
|
%
|
1.Represents U.S. & Canada.
2.Europe, Middle East, and Africa ("EMEA").
Net sales were $12,176 million and $11,010 million for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by a 6 percent increase in volume versus the prior year period. Gains in both segments were primarily driven by ongoing penetration of new technology. Price and currency represented increases of 3 percent and 2 percent, respectively. Higher prices reflect ongoing execution on a price-for-value strategy globally and pricing for higher raw material and logistical costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
2020
|
|
|
Net Sales
($ Millions)
|
%
|
Net Sales
($ Millions)
|
%
|
|
Worldwide
|
$
|
12,176
|
|
100
|
%
|
$
|
11,010
|
|
100
|
%
|
|
North America1
|
6,175
|
|
51
|
%
|
5,818
|
|
53
|
%
|
|
EMEA2
|
2,702
|
|
22
|
%
|
2,425
|
|
22
|
%
|
|
Latin America
|
2,203
|
|
18
|
%
|
1,754
|
|
16
|
%
|
|
Asia Pacific
|
1,096
|
|
9
|
%
|
1,013
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months 2021 vs. Nine Months 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America1
|
$
|
357
|
|
6
|
%
|
1
|
%
|
4
|
%
|
1
|
%
|
—
|
%
|
|
EMEA2
|
277
|
|
11
|
%
|
4
|
%
|
3
|
%
|
4
|
%
|
—
|
%
|
|
Latin America
|
449
|
|
26
|
%
|
10
|
%
|
17
|
%
|
(1)
|
%
|
—
|
%
|
|
Asia Pacific
|
83
|
|
8
|
%
|
2
|
%
|
5
|
%
|
3
|
%
|
(2)
|
%
|
|
Total
|
$
|
1,166
|
|
11
|
%
|
3
|
%
|
6
|
%
|
2
|
%
|
—
|
%
|
1.Represents U.S. & Canada.
2.Europe, Middle East, and Africa ("EMEA").
Cost of Goods Sold
COGS was $1,558 million (66 percent of net sales) and $1,297 million (70 percent of net sales) for the three months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by increased volumes in both seed and crop protection, higher input costs, freight and logistics, which are primarily market-driven, and unfavorable currency, partially offset by ongoing cost and productivity actions. The market driven trends are expected to continue as global supply chains and logistics remain constrained across industries.
COGS was $6,988 million (57 percent of net sales) and $6,395 million (58 percent of net sales) for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by higher input costs, freight and logistics, which are primarily market-driven, increased volumes in both seed and crop protection, and unfavorable currency, partially offset by ongoing cost and productivity actions.
Research and Development Expense
R&D expense was $297 million (13 percent of net sales) and $284 million (15 percent of net sales) for the three months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by increases in contract labor, variable compensation and unfavorable currency, partially offset by lower salaries and ongoing cost and productivity actions.
R&D expense was $871 million (7 percent of net sales) and $837 million (8 percent of net sales) for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by increases in contract labor and field supplies, increases in variable compensation, and unfavorable currency, partially offset by lower salaries and ongoing cost and productivity actions.
Selling, General and Administrative Expenses
SG&A expenses were $672 million (28 percent of net sales) and $597 million (32 percent of net sales) for the three months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by increases in commission expense and variable compensation and unfavorable currency, partially offset by lower bad debt expense and ongoing cost and productivity actions.
SG&A expenses were $2,403 million (20 percent of net sales) and $2,319 million (21 percent of net sales) for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by increases in commission expense and variable compensation, and unfavorable currency, partially offset by a decrease in bad debt expense, lower functional spend and ongoing cost and productivity actions.
Amortization of Intangibles
Intangible asset amortization was $180 million and $162 million for the three months ended September 30, 2021 and 2020, respectively, and $543 million and $501 million for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily driven by amortization of the trade name asset that was changed from indefinite lived intangible asset to definite lived in the fourth quarter of 2020. See Note 11 - Other Intangible Assets, to the interim Consolidated Financial Statements for additional information.
Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $26 million and $49 million for the three months ended September 30, 2021 and 2020, respectively. The charges in the third quarter of 2021 primarily relate to severence and related benefit costs and asset related charges associated with 2021 Restructuring Actions and non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits under the Execute to Win Productivity Program.
The charges in the third quarter of 2020 related to non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits and asset related charges under both the Execute to Win Productivity Program and the DowDuPont Cost Synergy Program (the "Synergy Program").
Restructuring and asset related charges - net were $261 million and $298 million for the nine months ended September 30, 2021 and 2020, respectively. The charges during the nine months ended September 30, 2021 primarily related to severance and related benefit costs, asset related charges, and contract termination charges associated with 2021 Restructuring Actions and non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits under the Execute to Win Productivity Program.
The charges during the nine months ended September 30, 2020 primarily related to non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits and asset related charges and severance and related benefit costs under the Execute to Win Productivity Program.
See Note 5 - Restructuring and Asset Related Charges, Net, to the interim Consolidated Financial Statements for additional information.
Other Income - Net
Other income - net was $378 million and $30 million for the three months ended September 30, 2021 and 2020, respectively. The increase was primarily due to an increase in non-operating pension and other post-employment benefit credit, driven by the
December 2020 OPEB plan amendments as discussed in the 2020 Annual Report, a mark-to-market gain recognized relating to equity securities, and a net exchange gain during the three months ended September 30, 2021 compared to a net exchange loss during the three months ended September 30, 2020.
Other income - net was $1,013 million and $120 million for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily due to an increase in non-operating pension and other post-employment benefit credit, driven by the
December 2020 OPEB plan amendments as discussed in the 2020 Annual Report, mark-to-market gains recognized relating to equity securities, and a decrease in net exchange losses. In addition, Other income - net for the nine months ended September 30, 2020 includes a $(53) million loss on the sale of the La Porte site.
The company routinely uses forward exchange contracts to offset its net exposures, by currency denominated monetary assets and liabilities of its operations. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes. The net pre-tax exchange gains and losses are recorded in other income - net and the related tax impact is recorded in (benefit from) provision for income taxes on continuing operations in the interim Consolidated Statement of Operations.
See Note 6 - Supplementary Information, to the interim Consolidated Financial Statements for additional information.
Interest Expense
Interest expense was $8 million and $11 million for the three months ended September 30, 2021 and 2020, respectively. The change was primarily driven by lower average short-term borrowings and lower interest rates.
Interest expense was $22 million and $35 million for the nine months ended September 30, 2021 and 2020, respectively. The change was primarily driven by lower average short-term borrowings and lower interest rates, partially offset by higher average long-term borrowings.
Benefit from (Provision for) Income Taxes on Continuing Operations
The company’s benefit from income taxes on continuing operations was $(28) million for the three months ended September 30, 2021 on pre-tax income from continuing operations of $8 million, resulting in an effective tax rate of (350.0) percent. The effective tax rate was favorably impacted by $32 million of net tax benefits associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a $22 million tax benefit associated with U.S. research and development tax credits. The favorable impacts were partially offset by unfavorable geographic mix of earnings.
The company’s benefit from income taxes on continuing operations was $(117) million for the three months ended September 30, 2020 on pre-tax loss from continuing operations of $(507) million, resulting in an effective tax rate of 23.1 percent. The effective tax rate was favorably impacted by geographic mix of earnings, the tax impact of certain net exchange gains recognized on the re-measurement of the net monetary asset positions which were not taxable in their local jurisdictions, as well
as the tax impact of restructuring and asset related charges.
The company’s provision for income taxes on continuing operations was $434 million for the nine months ended September 30, 2021 on pre-tax income from continuing operations of $2,101 million, resulting in an effective tax rate of 20.7 percent. The effective tax rate was favorably impacted by $58 million of net tax benefits associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a $22 million tax benefit associated with U.S. research and development tax credits. The favorable impacts were partially offset by unfavorable geographic mix of earnings, as well as the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not tax-deductible in their local jurisdictions.
The company’s provision for income taxes on continuing operations was $88 million for the nine months ended September 30, 2020 on pre-tax income from continuing operations of $745 million, resulting in an effective tax rate of 11.8 percent. The effective tax rate was favorably impacted by geographic mix of earnings, as well as $26 million of net tax benefits associated with changes in accruals for certain prior year tax positions in various jurisdictions, including a tax benefit of $14 million related to a return to accrual adjustment to reflect a change in estimate on the impact of a tax law enactment in a foreign jurisdiction. In addition, during the nine months ended September 30, 2020, the company recognized a tax benefit of $51 million to provision for income taxes on continuing operations related to a return to accrual adjustment associated with an elective change in accounting method for the 2019 tax year impact of The Act's foreign tax provisions. The effective tax rate was unfavorably impacted by the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not tax-deductible in their local jurisdictions, as well as tax charges related to the issuance of stock-based compensation.
(Loss) Income from Discontinued Operations After Tax
(Loss) income from discontinued operations after tax was $(4) million and ($59) million for the three and nine months ended September 30, 2021, respectively, and $0 million and $1 million for the three and nine months ended September 30, 2020. The three and nine months ended September 30, 2021 primarily reflects charges relating to PFAS environmental remediation activities for legacy operations at the Fayetteville Works facility and the settlement with the State of Delaware for PFAS related natural resource damage claims. Refer to Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements for additional information.
EID Analysis of Operations
As discussed in Note 1 - Basis of Presentation, to the EID interim Consolidated Financial Statements, EID is a subsidiary of Corteva, Inc. and continues to be a reporting company, subject to the requirements of the Exchange Act. The below relates to EID only and is presented to provide an Analysis of Operations, only for the differences between EID and Corteva, Inc.
Interest Expense
EID’s interest expense was $19 million and $30 million for the three months ended September 30, 2021 and 2020, respectively, and $61 million and $117 million for the nine months ended September 30, 2021 and 2020, respectively. The change was primarily driven by the items noted on page 49, under the header "Interest Expense," and by lower average borrowings on the related party loan between EID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID interim Consolidated Financial Statements for further information.
(Benefit from) Provision for Income Taxes on Continuing Operations
EID’s benefit from income taxes on continuing operations was $(30) million for the three months ended September 30, 2021 on pre-tax loss from continuing operations of $(3) million, resulting in an effective tax rate of 1,000.0 percent. EID’s benefit from income taxes on continuing operations was $(122) million for the three months ended September 30, 2020 on pre-tax loss from continuing operations of $(526) million, resulting in an effective tax rate of 23.2 percent.
EID’s provision for income taxes on continuing operations was $425 million for the nine months ended September 30, 2021 on pre-tax income from continuing operations of $2,062 million, resulting in an effective tax rate of 20.6 percent. EID’s provision for income taxes on continuing operations was $68 million for the nine months ended September 30, 2020 on pre-tax income from continuing operations of $663 million, resulting in an effective tax rate of 10.3 percent.
EID’s effective tax rates for the three and nine months ended September 30, 2021 and 2020 were driven by the items noted on page 49, under the header “(Benefit from) Provision for Income Taxes on Continuing Operations” and a tax benefit related to
the interest expense incurred on the related party loan between EID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID interim Consolidated Financial Statements for further information.
Corporate Outlook
The company is increasing its net sales and Operating Earnings Per Share outlook for 2021. Net sales is now expected to be in the range of $15.5 billion and $15.7 billion and Operating Earnings EPS is now expected to be in the range of $2.05 and $2.15 per share for the full year 2021. Additionally, the company is affirming its previous Corporate Outlook on Operating EBITDA, which is expected to be in the range of $2.5 billion and $2.6 billion for the full year 2021.
Corteva is not able to reconcile its forward-looking non-GAAP financial measures to its most comparable U.S. GAAP financial measures, as it is unable to predict with reasonable certainty items outside of the company’s control, such as Significant Items, without unreasonable effort (refer to page 58 for Significant Items recorded in the three and nine months ended September 30, 2021 and 2020).
Recent Accounting Pronouncements
See Note 2 - Recent Accounting Guidance, to the interim Consolidated Financial Statements for a description of recent accounting pronouncements.
Segment Reviews
The company operates in two reportable segments: Seed and Crop Protection.
Seed
The company’s seed segment is a global leader in developing and supplying advanced germplasm and traits that produce optimum yield for farms around the world. The segment is a leader in many of the company’s key seed markets, including North America corn and soybeans, Europe corn and sunflower, as well as Brazil, India, South Africa and Argentina corn. The segment offers trait technologies that improve resistance to weather, disease, insects and herbicides used to control weeds, and trait technologies that enhance food and nutritional characteristics. In addition, the segment provides digital solutions that assist farmer decision-making with a view to optimize product selection and, ultimately, help maximize yield and profitability.
Crop Protection
The crop protection segment serves the global agricultural input industry with products that protect against weeds, insects and other pests, and disease, and that improve overall crop health both above and below ground via nitrogen management and seed-applied technologies. The segment offers crop protection solutions that provide farmers the tools they need to improve productivity and profitability, and help keep fields free of weeds, insects and diseases. The segment is a leader in global herbicides, insecticides, nitrogen stabilizers and pasture and range management herbicides.
Summarized below are comments on individual segment net sales and segment operating EBITDA for the three and nine months ended September 30, 2021 compared with the same period in 2020. The company defines segment operating EBITDA as earnings (i.e., income (loss) from continuing operations before income taxes) before interest, depreciation, amortization, corporate expenses, non-operating costs-net, foreign exchange gains (losses), and net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting, excluding the impact of significant items. Non-operating costs-net consists of non-operating pension and other post-employment benefit (OPEB) credits, tax indemnification adjustments and environmental remediation and legal costs associated with legacy EID businesses and sites. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the application of the terms of the Tax Matters Agreement, between Corteva and Dow and/or DuPont that are recorded by the company as pre-tax income or expense. Beginning January 1, 2021, the company excludes net unrealized gains or losses from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. See Note 18 - Segment Information, to the interim Consolidated Financial Statements for details related to significant pre-tax benefits (charges) excluded from segment operating EBITDA. All references to prices are based on local price unless otherwise specified.
A reconciliation of segment operating EBITDA to income from continuing operations after income taxes for the three and nine months ended September 30, 2021 and 2020 is included in Note 18 - Segment Information, to the interim Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2021
|
2020
|
2021
|
2020
|
|
Net sales
|
$
|
738
|
|
$
|
523
|
|
$
|
7,010
|
|
$
|
6,516
|
|
|
Segment operating EBITDA
|
$
|
(217)
|
|
$
|
(282)
|
|
$
|
1,523
|
|
$
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Q3 2021 vs. Q3 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America
|
$
|
71
|
|
73
|
%
|
38
|
%
|
33
|
%
|
2
|
%
|
—
|
%
|
|
EMEA
|
36
|
|
31
|
%
|
4
|
%
|
18
|
%
|
9
|
%
|
—
|
%
|
|
Latin America
|
88
|
|
36
|
%
|
23
|
%
|
9
|
%
|
4
|
%
|
—
|
%
|
|
Asia Pacific
|
20
|
|
32
|
%
|
(1)
|
%
|
33
|
%
|
—
|
%
|
—
|
%
|
|
Total
|
$
|
215
|
|
41
|
%
|
19
|
%
|
18
|
%
|
4
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Q3 2021 vs. Q3 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
Corn
|
$
|
134
|
|
44
|
%
|
23
|
%
|
17
|
%
|
4
|
%
|
—
|
%
|
|
Soybeans
|
41
|
|
35
|
%
|
20
|
%
|
11
|
%
|
4
|
%
|
—
|
%
|
|
Other oilseeds
|
32
|
|
52
|
%
|
6
|
%
|
44
|
%
|
2
|
%
|
—
|
%
|
|
Other
|
8
|
|
19
|
%
|
8
|
%
|
9
|
%
|
2
|
%
|
—
|
%
|
|
Total
|
$
|
215
|
|
41
|
%
|
19
|
%
|
18
|
%
|
4
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Nine Months 2021 vs. Nine Months 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America
|
$
|
192
|
|
4
|
%
|
—
|
%
|
3
|
%
|
1
|
%
|
—
|
%
|
|
EMEA
|
136
|
|
11
|
%
|
5
|
%
|
3
|
%
|
3
|
%
|
—
|
%
|
|
Latin America
|
174
|
|
26
|
%
|
14
|
%
|
16
|
%
|
(4)
|
%
|
—
|
%
|
|
Asia Pacific
|
(8)
|
|
(3)
|
%
|
1
|
%
|
(5)
|
%
|
1
|
%
|
—
|
%
|
|
Total
|
$
|
494
|
|
8
|
%
|
3
|
%
|
4
|
%
|
1
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
Nine Months 2021 vs. Nine Months 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
Corn
|
$
|
281
|
|
7
|
%
|
4
|
%
|
2
|
%
|
1
|
%
|
—
|
%
|
|
Soybeans
|
112
|
|
8
|
%
|
—
|
%
|
7
|
%
|
1
|
%
|
—
|
%
|
|
Other oilseeds
|
132
|
|
25
|
%
|
4
|
%
|
18
|
%
|
3
|
%
|
—
|
%
|
|
Other
|
(31)
|
|
(8)
|
%
|
(4)
|
%
|
(5)
|
%
|
1
|
%
|
—
|
%
|
|
Total
|
$
|
494
|
|
8
|
%
|
3
|
%
|
4
|
%
|
1
|
%
|
—
|
%
|
Seed
Seed net sales were $738 million in the third quarter of 2021, up 41 percent from $523 million in the third quarter of 2020. The increase was due to a 19 percent increase in price, an 18 percent increase in volume, and a 4 percent favorable impact from currency.
The increase in price was led by strong execution in Latin America coupled with fewer corn replant units in North America. Higher volumes were driven by lower corn and cotton returns in North America, coupled with higher other seed sales in India. These volume gains were partially offset by robust early demand for corn in Latin America and an early settlement of the canola season in Canada, which shifted approximately $80 million of sales into the second quarter. Favorable currency impacts were primarily driven by the South African Rand and the Brazilian Real.
Segment operating EBITDA was $(217) million in the third quarter of 2021, up 23 percent from $(282) million in the third quarter of 2020. Continued price execution, higher volumes, lower royalties, and ongoing cost and productivity actions more than offset higher costs including commodity costs and SG&A.
Seed net sales were $7,010 million for the first nine months of 2021, up 8 percent from $6,516 million for the first nine months of 2020. The increase was due to a 4 percent increase in volume, a 3 percent increase in price and a 1 percent favorable impact from currency.
The increase in volume was driven by higher soybean and corn sales in North America, market share gains in Brazil Safrinha, and canola growth in Canada. Price gains were driven by strong adoption of new Seed technology and price execution in Latin America and EMEA, with corn price up 4 percent globally. These gains were partially offset by competitive pricing pressure in North America soybeans, where price was down 3 percent. Favorable currency impacts primarily from the Canadian Dollar and the Euro more than offset unfavorable impacts from the Brazilian Real.
Segment operating EBITDA was $1,523 million for the first nine months of 2021, up 21 percent from $1,255 million for the first nine months of 2020. Continued price execution, volume gains, lower royalties, ongoing cost and productivity actions, and lower bad debt expense more than offset higher input costs and higher freight and warehousing costs. Segment Operating EBITDA margin improved by more than 240 basis points versus the prior-year period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2021
|
2020
|
2021
|
2020
|
|
Net sales
|
$
|
1,633
|
|
$
|
1,340
|
|
$
|
5,166
|
|
$
|
4,494
|
|
|
Segment Operating EBITDA
|
$
|
206
|
|
$
|
130
|
|
$
|
897
|
|
$
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Q3 2021 vs. Q3 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America
|
$
|
32
|
|
8
|
%
|
2
|
%
|
6
|
%
|
—
|
%
|
—
|
%
|
|
EMEA
|
39
|
|
20
|
%
|
1
|
%
|
16
|
%
|
3
|
%
|
—
|
%
|
|
Latin America
|
204
|
|
36
|
%
|
5
|
%
|
26
|
%
|
5
|
%
|
—
|
%
|
|
Asia Pacific
|
18
|
|
9
|
%
|
—
|
%
|
10
|
%
|
2
|
%
|
(3)
|
%
|
|
Total
|
$
|
293
|
|
22
|
%
|
3
|
%
|
16
|
%
|
3
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Q3 2021 vs. Q3 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
Herbicides
|
$
|
199
|
|
34
|
%
|
7
|
%
|
24
|
%
|
3
|
%
|
—
|
%
|
|
Insecticides
|
21
|
|
5
|
%
|
—
|
%
|
3
|
%
|
2
|
%
|
—
|
%
|
|
Fungicides
|
78
|
|
30
|
%
|
3
|
%
|
23
|
%
|
5
|
%
|
(1)
|
%
|
|
Other
|
(5)
|
|
(5)
|
%
|
(10)
|
%
|
4
|
%
|
1
|
%
|
—
|
%
|
|
Total
|
$
|
293
|
|
22
|
%
|
3
|
%
|
16
|
%
|
3
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Nine Months 2021 vs. Nine Months 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
North America
|
$
|
165
|
|
11
|
%
|
3
|
%
|
7
|
%
|
1
|
%
|
—
|
%
|
|
EMEA
|
141
|
|
12
|
%
|
2
|
%
|
4
|
%
|
6
|
%
|
—
|
%
|
|
Latin America
|
275
|
|
25
|
%
|
7
|
%
|
18
|
%
|
—
|
%
|
—
|
%
|
|
Asia Pacific
|
91
|
|
13
|
%
|
2
|
%
|
9
|
%
|
5
|
%
|
(3)
|
%
|
|
Total
|
$
|
672
|
|
15
|
%
|
4
|
%
|
9
|
%
|
3
|
%
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
Crop Protection
|
Nine Months 2021 vs. Nine Months 2020
|
Percent Change Due To:
|
|
|
Net Sales Change
|
Price &
|
|
|
Portfolio /
|
|
$ In millions
|
$
|
%
|
Product Mix
|
Volume
|
Currency
|
Other
|
|
Herbicides
|
$
|
422
|
|
18
|
%
|
4
|
%
|
11
|
%
|
3
|
%
|
—
|
%
|
|
Insecticides
|
43
|
|
4
|
%
|
3
|
%
|
(1)
|
%
|
2
|
%
|
—
|
%
|
|
Fungicides
|
197
|
|
28
|
%
|
4
|
%
|
22
|
%
|
5
|
%
|
(3)
|
%
|
|
Other
|
10
|
|
4
|
%
|
(3)
|
%
|
7
|
%
|
—
|
%
|
—
|
%
|
|
Total
|
$
|
672
|
|
15
|
%
|
4
|
%
|
9
|
%
|
3
|
%
|
(1)
|
%
|
Crop Protection
Crop protection net sales were $1,633 million in the third quarter of 2021, up 22 percent from $1,340 million in the third quarter of 2020. The increase was due to a 16 percent increase in volume, 3 percent increase in price, and a 3 percent favorable impact from currency.
Volume growth was driven by continued penetration of new products, including IsoclastTM insecticide and ArylexTM herbicide, coupled with strong customer demand and an accelerated start to the season in Latin America, which shifted an estimated $100 million in sales from the fourth quarter. Gains were partially offset by an approximate $70 million impact from the decision to phase out select low-margin products. The increase in price was driven by gains in Latin America. Favorable currency impacts were primarily from the Brazilian Real.
Segment operating EBITDA was $206 million in the third quarter of 2021, up 58 percent from $130 million in the third quarter of 2020. Volume gains from new products, favorable mix, productivity actions, and continued pricing execution more than offset higher costs, including raw materials and SG&A.
Crop protection net sales were $5,166 million for the first nine months of 2021, up 15 percent from $4,494 million for the first nine months of 2020. The increase was due to a 9 percent increase in volume, a 4 percent increase in price and a 3 percent favorable impact from currency, partially offset by a 1 percent unfavorable portfolio impact.
Volume growth was led by continued penetration of new products, including ArylexTM herbicide and Isoclast™ insecticide. These volume gains were partially offset by an approximate $200 million impact from our decision to phase out select low-margin products. The increase in price was largely driven by gains in Latin America and North America, including pricing for higher raw material and logistical costs. Favorable currency impacts were primarily from the Euro. The portfolio impact was driven by prior-year divestitures in Asia Pacific.
Segment operating EBITDA was $897 million for the first nine months of 2021, up 32 percent from $677 million for the first nine months of 2020. Continued penetration of new products, favorable mix, ongoing cost and productivity actions, and a favorable impact from currency more than offset higher input costs, including raw material and logistics costs. Segment Operating EBITDA margin improved by more than 230 basis points versus the prior-year period.
Non-GAAP Financial Measures
The company presents certain financial measures that do not conform to U.S. GAAP and are considered non-GAAP measures. These measures include Operating EBITDA and operating earnings per share. Management uses these measures internally for planning and forecasting, including allocating resources and evaluating incentive compensation. Management believes that these non-GAAP measures best reflect the ongoing performance of the company during the periods presented and provide more relevant and meaningful information to investors as they provide insight with respect to ongoing operating results of the company and a more useful comparison of year over year results. These non-GAAP measures supplement the company's U.S. GAAP disclosures and should not be viewed as an alternative to U.S. GAAP measures of performance. Furthermore, such non-GAAP measures may not be consistent with similar measures provided or used by other companies. Reconciliations for these non-GAAP measures to U.S. GAAP are provided below.
Operating EBITDA is defined as earnings (i.e., income (loss) from continuing operations before income taxes) before interest, depreciation, amortization, non-operating (benefits) costs - net, foreign exchange gains (losses), and net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting, excluding the impact of significant items. Non-operating (benefits) costs - net consists of non-operating pension and OPEB credits, tax indemnification adjustments and environmental remediation and legal costs associated with legacy businesses and sites of Historical DuPont. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the application of the terms of the Tax Matters Agreement, between Corteva and Dow and/or DuPont that are recorded by the company as pre-tax income or expense. Operating earnings per share is defined as "Earnings per common share from continuing operations - diluted" excluding the after-tax impact of significant items, the after-tax impact of non-operating (benefits) costs - net, the after-tax impact of amortization expense associated with intangible assets existing as of the Separation from DowDuPont, and the after-tax impact of net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. Although amortization of the company's intangible assets is excluded from these non-GAAP measures, management believes it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in amortization of additional intangible assets. Net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting represents the non-cash net gain (loss) from changes in fair value of certain undesignated foreign currency derivative contracts. Upon settlement, which is within the same calendar year of execution of the contract, the realized gain (loss) from the changes in fair value of the non-qualified foreign currency derivative contracts will be reported in the relevant non-GAAP financial measures, allowing quarterly results to reflect the economic effects of the foreign currency derivative contracts without the resulting unrealized mark to fair value volatility.
Reconciliation of Income (Loss) from Continuing Operations after Income Taxes to Operating EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Income (loss) from continuing operations after income taxes (GAAP)
|
$
|
36
|
|
$
|
(390)
|
|
$
|
1,667
|
|
$
|
657
|
|
|
(Benefit from) provision for income taxes on continuing operations
|
(28)
|
|
(117)
|
|
434
|
|
88
|
|
|
Income (loss) from continuing operations before income taxes (GAAP)
|
8
|
|
(507)
|
|
2,101
|
|
745
|
|
|
Depreciation and amortization
|
309
|
|
285
|
|
926
|
|
868
|
|
|
Interest income
|
(19)
|
|
(11)
|
|
(58)
|
|
(38)
|
|
|
Interest expense
|
8
|
|
11
|
|
22
|
|
35
|
|
|
Exchange (gains) losses - net
|
(2)
|
|
67
|
|
47
|
|
127
|
|
|
Non-operating benefits - net
|
(315)
|
|
(73)
|
|
(941)
|
|
(237)
|
|
|
|
|
|
|
|
|
Mark-to-market (gains) losses on certain foreign currency contracts not designated as hedges1
|
(19)
|
|
|
3
|
|
|
|
Significant items charge
|
(21)
|
|
49
|
|
214
|
|
351
|
|
|
|
|
|
|
|
|
Operating EBITDA (Non-GAAP)
|
$
|
(51)
|
|
$
|
(179)
|
|
$
|
2,314
|
|
$
|
1,851
|
|
1.Effective January 1, 2021, on a prospective basis, the company excludes net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. For the three and nine months ended September 30, 2020, the unrealized mark-to-market (loss) gain was $(8) million and $19 million, respectively.
Significant Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
Restructuring and asset related charges - net
|
$
|
(26)
|
|
$
|
(49)
|
|
$
|
(261)
|
|
$
|
(298)
|
|
|
Equity securities mark-to-market gain
|
47
|
|
—
|
|
47
|
|
—
|
|
|
Loss on divestiture
|
—
|
|
—
|
|
—
|
|
(53)
|
|
|
Total pretax significant items benefit (charge)
|
21
|
|
(49)
|
|
(214)
|
|
(351)
|
|
|
Total tax (provision) benefit impact of significant items1
|
(4)
|
|
22
|
|
47
|
|
81
|
|
|
Tax only significant item benefit2
|
—
|
|
—
|
|
—
|
|
10
|
|
|
Total significant items benefit (charge), after tax
|
$
|
17
|
|
$
|
(27)
|
|
$
|
(167)
|
|
$
|
(260)
|
|
1.Unless specifically addressed above, the income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
2.The tax only significant item benefits for the nine months ended September 30, 2020 are primarily related to a benefit due to an elective change in accounting method that alters the 2019 impact of the business separation on The Act's foreign tax provisions and a state tax valuation allowance in the U.S. based on a change in judgment about the realizability of a deferred tax asset.
Reconciliation of Income (Loss) from Continuing Operations Attributable to Corteva and Earnings (Loss) Per Share of Common Stock from Continuing Operations - Diluted to Operating (Loss) Earnings and Operating (Loss) Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
(In millions)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Corteva (GAAP)
|
$
|
34
|
|
$
|
(392)
|
|
$
|
1,659
|
|
$
|
639
|
|
|
Less: Non-operating benefits - net, after tax
|
242
|
|
56
|
|
716
|
|
180
|
|
|
Less: Amortization of intangibles (existing as of Separation), after tax
|
(140)
|
|
(126)
|
|
(423)
|
|
(377)
|
|
|
|
|
|
|
|
|
Less: Mark-to-market gains (losses) on certain foreign currency contracts not designated as hedges, after tax1
|
15
|
|
|
(2)
|
|
|
|
Less: Significant items benefit (charge), after tax
|
17
|
|
(27)
|
|
(167)
|
|
(260)
|
|
|
Operating (Loss) Earnings (Non-GAAP)
|
$
|
(100)
|
|
$
|
(295)
|
|
$
|
1,535
|
|
$
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock from continuing operations - diluted (GAAP)
|
$
|
0.05
|
|
$
|
(0.52)
|
|
$
|
2.23
|
|
$
|
0.85
|
|
|
Less: Non-operating benefits - net, after tax
|
0.33
|
|
0.08
|
|
0.96
|
|
0.24
|
|
|
Less: Amortization of intangibles (existing as of Separation), after tax
|
(0.18)
|
|
(0.17)
|
|
(0.57)
|
|
(0.50)
|
|
|
|
|
|
|
|
|
Less: Mark-to-market gains on certain foreign currency contracts not designated as hedges, after tax1
|
0.02
|
|
|
—
|
|
|
|
Less: Significant items benefit (charge), after tax
|
0.02
|
|
(0.04)
|
|
(0.22)
|
|
(0.35)
|
|
|
Operating (Loss) Earnings Per Share (Non-GAAP)
|
$
|
(0.14)
|
|
$
|
(0.39)
|
|
$
|
2.06
|
|
$
|
1.46
|
|
|
Diluted Shares Outstanding (in millions)
|
739.5
|
|
749.5
|
|
744.0
|
|
752.0
|
|
1.Effective January 1, 2021, on a prospective basis, the company excludes net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. For the three and nine months ended September 30, 2020, the unrealized mark-to-market (loss) gain was $(8) million and $19 million, respectively.
Liquidity and Capital Resources
Information related to the company's liquidity and capital resources can be found in the company’s 2020 Annual Report, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity & Capital Resources. The discussion below provides the updates to this information for the nine months ended September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2021
|
December 31, 2020
|
September 30, 2020
|
|
Cash, cash equivalents and marketable securities
|
$
|
2,882
|
|
$
|
3,795
|
|
$
|
2,920
|
|
|
Total debt
|
$
|
2,473
|
|
$
|
1,105
|
|
$
|
3,244
|
|
The company's cash, cash equivalents and marketable securities at September 30, 2021, December 31, 2020, and September 30, 2020 were $2,882 million, $3,795 million and $2,920 million, respectively. Total debt at September 30, 2021, December 31, 2020, and September 30, 2020 was $2,473 million, $1,105 million, and $3,244 million, respectively. The increase in debt balances from December 31, 2020 was primarily due to funding the company’s seasonal working capital needs and capital expenditures. See further information in Note 12 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the interim Consolidated Financial Statements.
The company believes its ability to generate cash from operations and access to capital markets and commercial paper markets will be adequate to meet anticipated cash requirements to fund its operations, including seasonal working capital, capital spending, and pension obligations. Corteva's strong financial position, liquidity and credit ratings will provide access as needed to capital markets and commercial paper markets to fund seasonal working capital needs. The company's liquidity needs can be met through a variety of sources, including cash provided by operating activities, commercial paper, syndicated credit lines, bilateral credit lines, long-term debt markets, bank financing and committed receivable repurchase facilities. Corteva considers the borrowing costs and lending terms when selecting the source to fund its operations and working capital needs.
The company had access to approximately $6.4 billion at September 30, 2021, December 31, 2020, and September 30, 2020, respectively, in committed and uncommitted unused credit lines. In addition to the unused credit facilities, the company has a $1 billion 2021 Repurchase Facility (as defined below). These facilities provide support to meet the company’s short-term liquidity needs and for general corporate purposes which may include funding of discretionary and nondiscretionary contributions to certain benefit plans, severance payments, repayment and refinancing of debt, working capital, capital expenditures, repurchases and redemptions of securities, and funding Corteva's costs and expenses.
In March 2020, the company drew down $500 million under the three year revolving credit facility to finance its short term liquidity needs as a result of the volatility and increased borrowing costs of commercial paper resulting from the unstable market conditions caused by the COVID-19 pandemic, and repaid that borrowing in full in June 2020. The Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings. The Revolving Credit Facilities also contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Corteva and its consolidated subsidiaries not exceed 0.60. At September 30, 2021 the company was in compliance with these covenants.
In May 2020, EID issued $500 million of 1.70 percent Senior Notes due 2025 and $500 million of 2.30 percent Senior Notes due 2030 (the May 2020 Debt Offering). The proceeds of this offering are intended to be used for general corporate purposes.
The company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations affecting manufacturing plants, mineral producing properties or research facilities located in the U.S. and the consolidated subsidiaries owning such plants, properties and facilities subject to certain limitations. The outstanding long-term debt also contains customary default provisions.
The company has meaningful seasonal working capital needs based in part on providing financing to its customers. Working capital is funded through multiple methods including cash, commercial paper, the 2021 Repurchase Facility, the Revolving Credit Facilities, and factoring.
In February 2021, in line with seasonal working capital requirements, the company entered into a committed receivable repurchase agreement of up to $1.0 billion (the "2021 Repurchase Facility"), which expires in December 2021. Under the 2021 Repurchase Facility, Corteva may sell a portfolio of available and eligible outstanding customer notes receivables to participating institutions and simultaneously agree to repurchase at a future date. See further discussion of this facility in Note 12 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the interim Consolidated Financial Statements.
The company has factoring agreements with third-party financial institutions to sell its trade receivables under both recourse and non-recourse agreements in exchange for cash proceeds in an effort to reduce its receivables risk. For arrangements that include an element of recourse, the company provides a guarantee of the trade receivables in the event of customer default. Refer to Note 9 - Accounts and Notes Receivable - Net, to the interim Consolidated Financial Statements for more information.
The company also organizes agreements with third-party financial institutions who directly provide financing for select customers of the company's seed and crop protection products in each region. Terms of the third-party loans are less than a year and programs are renewed on an annual basis. In some cases, the company guarantees a portion of the extension of such credit to such customers. Refer to Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements for more information on the company’s guarantees.
The company's cash, cash equivalents and marketable securities at September 30, 2021, December 31, 2020, and September 30, 2020 are $2.9 billion, $3.8 billion, and $2.9 billion respectively, of which $2.7 billion, $3.1 billion, and $2.6 billion at September 30, 2021, December 31, 2020, and September 30, 2020, respectively, was held by subsidiaries in foreign countries, including United States territories. Upon actual repatriation, such earnings could be subject to withholding taxes, foreign and/or U.S. state income taxes, and taxes resulting from the impact of foreign currency movements. The cash held by foreign subsidiaries is generally used to finance the subsidiaries' operational activities and future foreign investments. At September 30, 2021, management believed that sufficient liquidity is available in the U.S. with global operating cash flows, borrowing capacity from existing committed credit facilities, and access to capital markets and commercial paper markets.
Summary of Cash Flows
Cash used for operating activities was $819 million for the nine months ended September 30, 2021 compared to $1,237 million for the nine months ended September 30, 2020. The change in cash used for operating activities was driven by higher earnings.
Cash used for investing activities was $201 million for the nine months ended September 30, 2021 compared to $445 million for the nine months ended September 30, 2020. The change was primarily due to lower purchases of investments and proceeds of marketable securities, partially offset by higher capital expenditures. The company is affirming its expected capital expenditures of $600-$650 million, which reflects increases in costs for materials used in various capital expenditures and capacity expansion projects due in part to inflation and the rising demand from the economic recovery from the lifting of COVID-19 pandemic restrictions and government stimulus in some regions, while the supply for certain materials have not returned to pre-pandemic levels.
Cash provided by financing activities was $365 million for the nine months ended September 30, 2021 compared to $2,695 million for the nine months ended September 30, 2020. The change was primarily due to lower borrowings partially offset by higher repurchases of Corteva common stock.
In January 2021, the company's Board of Directors authorized a common stock dividend of $0.13 per share, payable on March 15, 2021, to the shareholders of record on March 1, 2021. In April 2021, the company's Board of Directors authorized a common stock dividend of $0.13 per share, payable on June 15, 2021, to the shareholders of record on May 14, 2021. In July 2021, the company’s Board of Directors approved an increase in the common stock dividend of $0.13 per share to $0.14 per share. In July 2021, the company's Board of Directors authorized a common stock dividend of $0.14 per share, payable on September 15, 2021, to the shareholders of record on August 13, 2021. In October 2021, the company's Board of Directors authorized a common stock dividend of $0.14 per share, payable on December 15, 2021, to the shareholders of record on November 12, 2021.
On August 5, 2021, the company's Board of Directors authorized a $1.5 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date (“2021 Share Buyback Plan”). In connection with the 2021 Share Buyback Plan, the company purchased and retired 1,167,000 shares during the three months ended September 30, 2021 in the open market for a total cost of $50 million.
On June 26, 2019, the company's Board of Directors authorized a $1 billion share repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date (“2019 Share Buyback Plan”). The company completed the 2019 Share Buyback Plan during the third quarter of 2021. In connection with the 2019 Share Buyback Plan, the company repurchased and retired 3,408,000 shares and 15,378,000 during the three and nine months ended September 30, 2021, respectively, in the open market for a total cost of $150 million and $700 million, respectively. During the three and nine months ended September 30, 2020, the company purchased and retired 1,160,000 shares and 3,025,000 shares, respectively, in the open market for a total cost of $33 million and $83 million, respectively.
For the full year 2021, the company expects to repurchase at least $900 million under the share buyback plans discussed above. The total amount, timing, price and volume of purchases will be based on market conditions, relevant securities laws and other market and company specific factors.
See Note 14 - Stockholders' Equity, to the interim Consolidated Financial Statements for additional information related to the share buyback plans.
EID Liquidity Discussion
As discussed in Note 1 - Basis of Presentation, to the EID interim Consolidated Financial Statements, EID is a subsidiary of Corteva, Inc. and continues to be a reporting company, subject to the requirements of the Exchange Act. The below relates to EID only and is presented to provide a Liquidity discussion for the differences between EID and Corteva, Inc.
Cash used for operating activities
EID’s cash used for operating activities was $838 million and $1,283 million for the nine months ended September 30, 2021 and 2020, respectively. The change was primarily driven by the items noted on page 60, under the header, "Summary of Cash Flow" and lower interest on related party debt.
Cash provided by financing activities
EID’s cash provided by financing activities was $384 million for the nine months ended September 30, 2021 compared to $2,741 million for the nine months ended September 30, 2020. The change was primarily driven by lower proceeds from issuance of long-term debt and higher payments on long-term debt on related party debt.
See Note 2 - Related Party Transactions, to the EID interim Consolidated Financial Statements for further information on the related party loan between EID and Corteva, Inc.
Guarantees and Off-Balance Sheet Arrangements
For detailed information related to Guarantees, Indemnifications, and Obligations for Equity Affiliates and Others, see the company’s 2020 Annual Report, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements and Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements.
Contractual Obligations
Information related to the company's contractual obligations at December 31, 2020 can be found on page 73 of the company's 2020 Annual Report. There have been no material changes to the company’s contractual obligations outside the ordinary course of business from those reported in the company’s 2020 Annual Report.