filings.toolsItem 6. SELECTED FINANCIAL DATA
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Item 6. SELECTED FINANCIAL DATA
| Successor | Predecessor | |||||||||||||||||||
| (Dollars in millions, except per share) | For the Year Ended December 31, 2020 | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Period September 1 through December 31, 2017 | For the Period January 1 through August 31, 2017 | For the Year Ended December 31, 2016 | ||||||||||||||
| Summary of operations | ||||||||||||||||||||
| Net sales | $ | 14,217 | $ | 13,846 | $ | 14,287 | $ | 3,790 | $ | 6,894 | $ | 8,133 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | 675 | $ | (316) | $ | (6,806) | $ | (461) | $ | (37) | $ | (527) | ||||||||
| Net income (loss) attributable to Corteva | $ | 681 | $ | (959) | $ | (5,065) | $ | 1,182 | $ | 1,734 | $ | 2,513 | ||||||||
| Basic earnings (loss) per share of common stock from continuing operations | $ | 0.98 | $ | (0.38) | $ | (9.08) | $ | 2.34 | $ | 0.40 | $ | (0.29) | ||||||||
| Diluted earnings (loss) per share of common stock from continuing operations | $ | 0.98 | $ | (0.38) | $ | (9.08) | $ | 2.34 | $ | 0.40 | $ | (0.29) | ||||||||
| Financial position at year-end | ||||||||||||||||||||
| Working capital1 | $ | 6,220 | $ | 5,281 | $ | 3,740 | $ | 4,468 | $ | 2,916 | ||||||||||
| Total assets2,3 | $ | 42,649 | $ | 42,397 | $ | 108,683 | $ | 120,366 | $ | 40,041 | ||||||||||
| Borrowings and finance lease obligations | ||||||||||||||||||||
| Short-term borrowings and finance lease obligations | $ | 3 | $ | 7 | $ | 2,154 | $ | 2,752 | $ | 425 | ||||||||||
| Long-term debt | $ | 1,102 | $ | 115 | $ | 5,784 | $ | 10,299 | $ | 8,059 | ||||||||||
| Total equity | $ | 25,063 | $ | 24,555 | $ | 75,153 | $ | 79,593 | $ | 10,196 | ||||||||||
| General | ||||||||||||||||||||
| Dividends per common share | $ | 0.52 | $ | 0.26 | $ | 1.14 | $ | 1.52 | ||||||||||||
1.Working capital represents current assets less current liabilities and excludes the assets and liabilities related to discontinued operations. Refer to Note 1 Background and Basis of Presentation and Note 5 - Divestitures and Other Transactions, of the Consolidated Financial Statements for further information.
2.The company adopted ASC 842 in the first quarter of 2019, which allows for a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial adoption. The company has elected to apply the transition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented.
3.Periods prior to December 31, 2019 includes total assets of discontinued operations. See Note 5 - Divestitures and Other Transactions, of the Consolidated Financial Statements for further information.
Part II
ITEM 7. 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 expected benefits from, the separation of Corteva from DowDuPont, 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; failure to enforce; (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; and (xxvii) other risks related to the Separation from DowDuPont.
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 is included in the section titled “Risk Factors” (Part I, Item 1A of this Form 10-K).
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Overview
Refer to pages 3 - 5 for a discussion of the DowDuPont Merger of Equals, the Internal Reorganizations, and the Business Separations.
Basis of Presentation
Dow AgroSciences ("DAS") Common Control Combination
The transfer or conveyance of DAS to Corteva was treated as a transfer of entities under common control. As such, the company recorded the assets, liabilities, and equity of DAS on its balance sheet at their historical basis. Transfers of businesses between entities under common control requires the financial statements to be presented as if the transaction had occurred at the point at which common control first existed (the "Merger Effectiveness Time," or August 31, 2017 at 11:59 pm ET). As a result, the accompanying Consolidated Financial Statements and Notes thereto include the results of DAS as of the Merger Effectiveness Time. See Note 1 - Background and Basis of Presentation and Note 4 - Common Control Business Combination, to the Consolidated Financial Statements for additional information.
Divestiture of EID ECP
The transfer of EID ECP meets the criteria for discontinued operations and as such, results of operations are presented as discontinued operations and have been excluded from continuing operations for all periods presented. The comprehensive income (loss), stockholder's equity and cash flows related to EID ECP have not been segregated and are included in the Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for 2019 and all prior periods. Amounts related to EID ECP are consistently included or excluded from the Notes to the Consolidated Financial Statements based on the respective financial statement line item. See Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information.
Divestiture of EID Specialty Products Entities
The transfer of the EID Specialty Products Entities meets the criteria for discontinued operations and as such, results of operations are presented as discontinued operations and have been excluded from continuing operations for all periods presented. The comprehensive income (loss), stockholder's equity and cash flows related to the EID Specialty Products Entities have not been segregated and are included in the Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for 2019 and all prior periods. Amounts related to the EID Special Products Entities are consistently included or excluded from the Notes to the Consolidated Financial Statements based on the respective financial statement line item. See Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information.
Items Affecting Comparability of Financial Results
In addition to the Analysis of Operations discussion based on the GAAP as reported results, the following includes a supplemental Analysis of Operations discussion reflecting unaudited pro forma financial information, prepared in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments. This unaudited pro forma financial information, for the years ended December 31, 2019 and 2018 assumes the Merger, the debt retirement transactions related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements), and the separation and distribution to DowDuPont stockholders of all the outstanding shares of Corteva common stock as if they had been consummated on January 1, 2016. For additional information, see the Supplemental Unaudited Pro Forma Combined Financial Information in this section.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Overview
The following is a summary of results from continuing operations for the year ended December 31, 2020:
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The company reported net sales of $14,217 million, an increase of 3 percent versus the year ended December 31, 2019, reflecting a 5 percent increase in volume and a 3 percent increase in local price, partially offset by a 5 percent decline in currency. Volume and price gains were driven by continued penetration of new products.
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Cost of goods sold ("COGS") totaled $8,507 million, down from $8,575 million for the year ended December 31, 2019, primarily driven by currency benefits, $272 million of amortization of inventory step-up included in the year ended December 31, 2019 and ongoing cost and productivity actions, partially offset by increased volumes and higher input costs.
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Restructuring and asset related charges - net were $335 million, an increase from $222 million for the year ended December 31, 2019. The year ended December 31, 2020 included $159 million of non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.
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There were no integration and separation costs in the year ended December 31, 2020, as compared to $744 million for the year ended December 31, 2019.
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The benefit from income taxes on continuing operations for the twelve months ended December 31, 2020 includes a $(182) million tax benefit associated with the recognition of an elective cantonal component of the recent enactment of the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Reform") and a tax benefit of $(51) million 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.
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Income from continuing operations after income taxes was $756 million, as compared to a loss of $(270) million for the year ended December 31, 2019.
*•*Operating EBITDA was $2,087 million, up from $1,987 million for the year ended December 31, 2019, driven by volume and price gains in both seed and crop protection, as well as ongoing execution on cost and productivity actions. The company realized cost and productivity savings of approximately $230 million for the year ended December 31, 2020, which were mostly offset by higher input costs and investments to fund growth and advance the pipeline. Currency net of pricing was a $180 million headwind, inclusive of $150 million in pricing actions. Refer to page 59 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 year ended December 31, 2020:
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The company returned more than $660 million to shareholders during the year ended December 31, 2020 under its previously announced share repurchase program and through common stock dividends.
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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. Corteva expects to record total pre-tax restructuring and asset-related charges of approximately $130 million to $170 million, comprised of approximately $40 million to $50 million of severance and related benefit costs, $40 million to $60 million of asset related charges, $10 million to $15 million of asset retirement obligations and $40 million to $45 million of costs related to contract terminations. Future cash payments related to this charge are anticipated to be approximately $90 million to $110 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.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Priorities
The company believes the following priorities will enable it to create significant value for its customers while delivering strong financial returns to its shareholders:
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Deliver organic sales growth** by continuing to leverage its industry-leading innovation pipeline to introduce new proprietary seed traits and crop protection formulations that anticipate and meet evolving customer needs and utilizing its comprehensive multi-channel, multi-brand strategy to align its brands and capabilities across different sales channels.
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Drive actions to expand margins in the company's reportable segments** by integrating its operations and continuing to drive operating efficiencies, enabling a streamlined, efficient and focused organization while working to achieve a best-in-class cost structure and creating a strong culture based on productivity.
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Accelerate the return of cash to shareholders** by executing on its authorized share repurchase programs as the company repurchased $300 million under its share buyback plan since the Corteva Distribution and expects to repurchase the remaining $700 million in 2021. The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Analysis of Operations
COVID-19 Pandemic
On March 11, 2020, the World Health Organization (“WHO”) declared the novel coronavirus disease (“COVID-19”) a pandemic. Since the early days of the coronavirus outbreak, Corteva has taken steps to help protect the health and safety of its employees, customers, vendors, and stakeholders. Corteva has engaged crisis management teams at the country, regional and global level, and its Integrated Health Services Pandemic & Infectious Disease Planning Team has been monitoring the situation and developing guidelines and protocols that have been communicated to all of its employees globally.
Overwhelmingly, countries and U.S. states have considered agriculture an “essential business”; therefore, Corteva is not subject to many of the restrictions imposed by the government, particularly on non-essential businesses, which, in certain cases, includes ordering businesses to close or limit operations or people to stay at home. While the company's business has experienced some localized operating disruptions, particularly around sourcing and logistics, these disruptions have been temporary and have not materially impacted the company's financial results. Additionally, the company has implemented mitigating strategies to limit the impact of supply chain disruptions, including leveraging the company’s ability to use a multi-sourcing strategy and source key raw materials from multiple suppliers and countries. Furthermore, the company implemented remote work arrangements for non-essential employees and restricted business travel effective mid-March 2020, and to date, these arrangements have not materially affected the company's ability to maintain its business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.
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. During the year ended December 31, 2020, the company observed declining demand and price reductions in the oil and gas sector as business and consumer activity decelerated across the globe, which had impacted the price of corn. When COVID-19 is demonstrably contained, the company anticipates a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments. 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. It is not clear what the potential effects any such alterations or modifications may have on the company's business, including the effects on its customers, employees, and prospects, or on its financial results for 2021 and beyond. With the increasing uncertainty in global markets, the company will continue to monitor various factors that could impact mid-term forecasted cash flows of the business, including, but not limited to 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.
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. During the year ended December 31, 2020, the company recorded net pre-tax restructuring charges of $176 million, comprised of $113 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 Program as actions associated with this charge are substantially complete.
Future cash payments related to this charge are anticipated to be approximately $77 million, primarily related to the payment of severance and related benefits and asset retirement obligations. The company expects $130 million of savings to be achieved on a run rate basis by 2023. See Note 7 - Restructuring and Asset Related Charges - Net, to the Consolidated Financial Statements, for additional information.
Share Buyback Plan
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. The company repurchased $300 million under its share buyback plan since the Corteva Distribution and expects to repurchase the remaining $700 million in 2021. The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors.
During the year ended December 31, 2020, the company purchased and retired 8,503,000 shares for a total cost of $275 million. During the year ended December 31, 2019, the company purchased and retired 824,000 shares in the open market for a total cost of $25 million.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Impact From Previously Enacted Tariffs
In 2018, certain countries where the company’s products are manufactured, distributed or sold previously enacted tariffs on certain products. The tariffs contributed to an expected shift to soybeans from corn in Latin America and pressured North American farmer margins. These expectations were reflected in the revised long-term cash flow projections for the company's agriculture reporting unit in 2018, as discussed in Note 15 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements. In January 2020 the United States and China signed "phase one" of a trade agreement ("China Trade Agreement") and the United States ("U.S."), Mexico and Canada ratified the United States-Mexico-Canada Agreement ("USMCA"). On July 2, 2020, the USMCA went into effect. The China Trade Agreement commits China to purchase at least $40 billion worth of U.S. farm goods annually and for China to reduce non-tariff barriers to agriculture products such as poultry and feed additives, as well as approval of biotechnology products. Additionally, the China Trade Agreement includes stronger intellectual property protections and the elimination of any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access. While the USMCA will replace the North America Free Trade Agreement, it is not a one-for-one replacement. It is designed to modernize trade rules in North America, ensure open markets, protect innovations for a majority of U.S. goods, and enhance sanitary/phytosanitary standards. The company expects the impacts of these agreements to overall be positive for demand for U.S. agriculture products.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax (“transition tax”) on earnings of foreign subsidiaries that were previously tax deferred, created new provisions related to foreign sourced earnings, eliminated the domestic manufacturing deduction and moved to a territorial system. As of December 31, 2018, the company had completed its accounting for the tax effects of The Act. As a result of The Act, the company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. The company recorded a cumulative benefit of $(2,847) million (which includes a $(34) million benefit for the year ended December 31, 2018) to provision for (benefit from) income taxes on continuing operations in the company's Consolidated Statement of Operations with respect to the remeasurement of the company's deferred tax balances. Additionally, the company recorded a cumulative charge of $928 million (which includes a $182 million charge for the year ended December 31, 2018) to provision for (benefit from) income taxes on continuing operations with respect to the one-time transition tax. For tax years beginning after December 31, 2017, The Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred. Additional details related to The Act can be found in Note 10 - Income Taxes, to the Consolidated Financial Statements.
DowDuPont Agriculture Division Restructuring Program
During the fourth quarter of 2018 and in connection with the ongoing integration activities, DowDuPont approved restructuring actions to simplify and optimize certain organizational structures in preparation for the Business Separations. From inception-to-date, the company recorded total net pre-tax restructuring charges of $70 million, comprised of $61 million of severance and related benefit costs and $9 million of asset-related charges. The actions related to this program were complete in 2019. See Note 7 - Restructuring and Asset Related Charges - Net, to the Consolidated Financial Statements, for additional information.
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont and EID approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), adopted at the time by the DowDuPont Board of Directors. The Synergy Program was designed to integrate and optimize the organization following the Merger and in preparation for the Business Separations. The company recorded net pre-tax restructuring charges of $845 million from inception-to-date under the Synergy Program, consisting of severance and related benefit costs of $317 million, contract termination costs of $193 million, and asset-related charges of $335 million. Actions associated with the Synergy Program, including employee separations, are substantially complete.
The company anticipates including cumulative savings associated with these actions within its cost synergy commitment of $1.2 billion through 2021. See Note 7 - Restructuring and Asset Related Charges - Net, to the Consolidated Financial Statements, for additional information.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Net Sales
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Net Sales | $ | 14,217 | $ | 13,846 | $ | 14,287 |
2020 versus 2019
Net sales were $14,217 million for the year ended December 31, 2020, compared to $13,846 million for the year ended December 31, 2019. Volume increased 5 percent versus the year-ago period, primarily driven by sales of new and differentiated products globally and across both segments. Local price grew 3 percent on a full-year basis, with higher prices in all regions, led by Latin America partly to offset currency. Currency represented a headwind of 5 percent, led by the impact of the Brazilian Real.
2019 versus 2018
Net sales were $13,846 million for the year ended December 31, 2019, compared to $14,287 million for the year ended December 31, 2018. The decrease was primarily driven by a 3 percent decline in currency. Unfavorable currency impacts were primarily driven by the Brazilian Real and the Euro. Volume was flat as strong demand for new product and gains in corn in EMEA were offset by significant weather-related planting delays in North America, resulting in lost spring applications of crop protection products and a reduction in planted area for soybeans. Pricing gains from new product launches and favorable mix in Latin America were offset by competitive pricing pressure, increases in replant, and increased grower incentive program discounts in North America.
| For the Year Ended December 31, | ||||||||||||||||||||
| (In millions) | 2020 | 2019 | 2018 | |||||||||||||||||
| Net Sales | % of Net Sales | Net Sales | % of Net Sales | Net Sales | % of Net Sales | |||||||||||||||
| Worldwide | $ | 14,217 | 100 | % | $ | 13,846 | 100 | % | $ | 14,287 | 100 | % | ||||||||
| North America | 7,168 | 50 | % | 6,929 | 50 | % | 7,412 | 52 | % | |||||||||||
| EMEA | 2,842 | 20 | % | 2,740 | 20 | % | 2,765 | 19 | % | |||||||||||
| Latin America | 2,805 | 20 | % | 2,889 | 21 | % | 2,817 | 20 | % | |||||||||||
| Asia Pacific | 1,402 | 10 | % | 1,288 | 9 | % | 1,293 | 9 | % |
| Year Ended December 31, 2020 vs. 2019 | Percent Change Due To: | |||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| (in millions) | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | 239 | 3 | % | 1 | % | 3 | % | (1) | % | — | % | ||||||||
| EMEA | 102 | 4 | % | 2 | % | 6 | % | (4) | % | — | % | |||||||||
| Latin America | (84) | (3) | % | 7 | % | 10 | % | (20) | % | — | % | |||||||||
| Asia Pacific | 114 | 9 | % | 2 | % | 11 | % | (3) | % | (1) | % | |||||||||
| Total | $ | 371 | 3 | % | 3 | % | 5 | % | (5) | % | — | % |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Year Ended December 31, 2019 vs. 2018 | Percent Change Due To: | |||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| (in millions) | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | (483) | (7) | % | (2) | % | (4) | % | (1) | % | — | % | ||||||||
| EMEA | (25) | (1) | % | 2 | % | 5 | % | (8) | % | — | % | |||||||||
| Latin America | 72 | 3 | % | 4 | % | 4 | % | (5) | % | — | % | |||||||||
| Asia Pacific | (5) | — | % | 2 | % | 1 | % | (3) | % | — | % | |||||||||
| Total | $ | (441) | (3) | % | — | % | — | % | (3) | % | — | % |
COGS
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| COGS | $ | 8,507 | $ | 8,575 | $ | 9,948 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma COGS | $ | 8,386 | $ | 8,449 |
2020 versus 2019
COGS was $8,507 million (60 percent of net sales) for the year ended December 31, 2020 compared to $8,575 million (62 percent of net sales) for the year ended December 31, 2019. The decrease was primarily driven by currency benefits, lack of inventory step-up in 2020 as compared to $272 million recognized in 2019, and ongoing cost and productivity actions. The decrease was partially offset by increased volumes, higher input costs in both seed and crop protection and higher royalties in seed. Amortization of inventory step-up was 2 percent of net sales for the year ended December 31, 2019.
COGS was $8,507 million (60 percent of net sales) on an as reported basis for the year ended December 31, 2020 compared to $8,386 million (61 percent of net sales) on a pro forma basis for the year ended December 31, 2019. The increase was driven by increased volumes, higher input costs in both seed and crop protection and higher royalties in seed, partially offset by the above noted currency benefits and ongoing cost and productivity actions.
2019 versus 2018
COGS was $8,575 million (62 percent of net sales) for the year ended December 31, 2019 compared to $9,948 million (70 percent of net sales) for the year ended December 31, 2018. The decrease was primarily driven by lower amortization of remaining inventory step up compared to the prior year ($272 million in 2019 compared to $1,554 million in 2018). The amortization of inventory step-up was 2 percent and 11 percent of net sales for the year ended December 31, 2019 and 2018, respectively. The remaining COGS decrease was primarily driven by lower volumes as a result of weather-related planting delays in North America, cost synergies and a currency benefit, partially offset by higher input costs for both seed and crop protection.
On a pro forma basis, COGS was $8,386 million (61 percent of net sales) for the year ended December 31, 2019 and $8,449 million (59 percent of net sales) for the year ended December 31, 2018. The decrease was primarily driven by lower volumes as a result of weather-related planting delays in North America, cost synergies and a currency benefit, partially offset by higher input costs for both seed and crop protection. The increase was due to higher input costs for both seed and crop protection, partially offset by cost synergies.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Research and Development Expense ("R&D")
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| R&D | $ | 1,142 | $ | 1,147 | $ | 1,355 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma R&D | $ | 1,147 | $ | 1,352 |
2020 versus 2019
R&D expense was $1,142 million (8 percent of net sales) for the year ended December 31, 2020 and $1,147 million (8 percent of net sales) for the year ended December 31, 2019. The decrease was primarily driven by currency benefits and ongoing cost and productivity actions, partially offset by increased investments to support new products in crop protection.
2019 versus 2018
R&D expense was $1,147 million (8 percent of net sales) for the year ended December 31, 2019 and $1,355 million (9 percent of net sales) for the year ended December 31, 2018. The decrease was primarily driven by cost synergies and additional actions taken to curtail spending.
Pro forma R&D expense was $1,147 million (8 percent of net sales) for the year ended December 31, 2019 and $1,352 million (9 percent of net sales) for the year ended December 31, 2018. The decrease was primarily driven by the factors described above.
Selling, General and Administrative Expenses ("SG&A")
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| SG&A | $ | 3,043 | $ | 3,065 | $ | 3,041 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma SG&A | $ | 3,068 | $ | 3,042 |
2020 versus 2019
SG&A was $3,043 million (21 percent of net sales) for the year ended December 31, 2020 and $3,065 million (22 percent of net sales) for the year ended December 31, 2019. The decrease was primarily driven by currency benefits and ongoing cost and productivity actions taken to curtail spending, partially offset by higher commissions and selling expenses due to higher volumes, higher enterprise resource planning ("ERP") costs and higher product launch costs.
2019 versus 2018
SG&A was $3,065 million (22 percent of net sales) for the year ended December 31, 2019 and $3,041 million (21 percent of net sales) for the year ended December 31, 2018. The increase was primarily driven by an increase in performance-based compensation, an increase in sales commission rate increases and route to market changes in select markets, and settlement of a legal matter, partially offset by cost synergies.
Pro forma SG&A expense for the year ended December 31, 2019 was $3,068 million (22 percent of net sales) compared to $3,042 million (21 percent of net sales) for the year ended December 31, 2018. The increase was primarily driven by the factors described above.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Amortization of Intangibles
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Amortization of Intangibles | $ | 682 | $ | 475 | $ | 391 |
2020 versus 2019
Intangible asset amortization was $682 million for the year ended December 31, 2020 and $475 million for the year ended December 31, 2019. The increase was primarily driven by the full year impact of germplasm assets, which changed from an indefinite lived intangible asset to a definite lived with a useful life of 25 years in the fourth quarter of 2019. The remaining increase in amortization expense is primarily due to amortization of the trade name asset that was changed from an indefinite lived intangible asset to definite lived in the fourth quarter of 2020. Beginning in 2021, the company expects annual amortization expense to increase by approximately $55 million, as a result of the change in useful life for trade name asset. See Note 15 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements, for additional information for above items.
2019 versus 2018
Intangible asset amortization was $475 million for the year ended December 31, 2019 and $391 million for the year ended December 31, 2018. The increase was primarily driven by amortization of germplasm assets, which changed from an indefinite lived intangible asset to definite lived with a useful life of 25 years in fourth quarter of 2019. The remaining increase in amortization expense is primarily due to the reclassification of amounts from indefinite-lived in-process research and development ("IPR&D") to developed technology as a result of the company's launch of its Qrome® corn hybrids following the receipt of regulatory approval from China. See Note 15 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements, for additional information for above items.
Restructuring and Asset Related Charges - Net
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Restructuring and Asset Related Charges - Net | $ | 335 | $ | 222 | $ | 694 |
2020 versus 2019
Restructuring and asset related charges - net were $335 million for the year ended December 31, 2020 and $222 million for the year ended December 31, 2019. The activity for the year ended December 31, 2020 was comprised of $176 million net charge related to the Execute to Win Productivity Program and $159 million of restructuring and asset related charges - net from non-cash accelerated prepaid royalty amortization expense related to the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits. The $176 million net charge associated with the Execute to Win Productivity Program was comprised of $113 million of asset related charges and $63 million of severance and related benefit costs.
2019 versus 2018
Restructuring and asset related charges - net were $222 million for the year ended December 31, 2019 and $694 million for the year ended December 31, 2018. The activity for the year ended December 31, 2019 was comprised of $144 million of asset related charges (discussed in the "Asset Impairment" section, below) and a $92 million net charge related to the Synergy Program, offset by a net benefit of $14 million related to the DowDuPont Agriculture Division Restructuring Program. The $92 million net charge associated with the Synergy Program was comprised of $69 million of contract termination charges and $30 million of asset related charges, partially offset by a $7 million benefit on the reduction of severance and related benefit costs. The $14 million net benefit associated with the DowDuPont Agriculture Division Restructuring Program included a $17 million benefit on the reduction of severance and related benefit costs, partially offset by $3 million of asset related charges.
Asset Impairment
For the year ended December 31, 2019, the company recognized a $144 million pre-tax ($110 million after-tax) non-cash impairment charge in restructuring and asset related charges - net in the company's Consolidated Statements of Operations related to certain IPR&D assets within the seed segment. See Note 7 - Restructuring and Asset Related Charges - Net, and Note 23 - Fair Value Measurements, to the Consolidated Financial Statements for additional information.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
For the year ended December 31, 2018, the company recognized an $85 million pre-tax ($66 million after-tax) non-cash impairment charge in restructuring and asset related charges - net in the company's Consolidated Statements of Operations related to certain IPR&D assets within the seed segment. See Note 7 - Restructuring and Asset Related Charges - Net, and Note 23 - Fair Value Measurements, to the Consolidated Financial Statements for additional information.
For the year ended December 31, 2018, management determined the fair values of investments in nonconsolidated affiliates in China were below the carrying values and had no expectation the fair values would recover. As a result, management concluded the impairment was other than temporary and recorded a non-cash impairment charge of $41 million in restructuring and asset related charges - net in the company's Consolidated Statements of Operations, none of which is tax-deductible, for the year ended December 31, 2018. See Note 7 - Restructuring and Asset Related Charges - Net, and Note 23 - Fair Value Measurements, to the Consolidated Financial Statements for additional information.
Integration and Separation Costs
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Integration and Separation Costs | $ | — | $ | 744 | $ | 992 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma Integration and Separation Costs1 | $ | 632 | $ | 571 |
1.Beginning in the second quarter of 2019, this includes both integration and separation costs.
Integration and separation costs were $744 million and $992 million for the years ended December 31, 2019 and 2018, respectively. These costs primarily have consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Business Separations and the integration of EID’s Pioneer and Crop Protection businesses with DAS. Pro forma integration and separation costs were $632 million and $571 million for the years ended December 31, 2019 and 2018, respectively. The increase was primarily driven by an increase in financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Business Separations and the integration of EID’s Pioneer and Crop Protection businesses with DAS.
Goodwill Impairment Charge
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Goodwill Impairment Charge | $ | — | $ | — | $ | 4,503 |
The company recorded a non-cash goodwill impairment charge of $4,503 million for the year ended December 31, 2018 related to a goodwill impairment test for its agriculture reporting unit. See Note 15 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements for additional information.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Other Income - Net
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Other Income - Net | $ | 212 | $ | 215 | $ | 249 |
2020 versus 2019
Other income - net was income of $212 million for the year ended December 31, 2020 and income of $215 million for the year ended December 31, 2019. The increase in non-operating pension and other employment benefit credits was offset by higher net exchange loss as well as net losses on sales of businesses and other assets for the year ended December 31, 2020, compared to net gains in 2019 and a change in miscellaneous income. Other income - net for the year ended December 31, 2020 includes a $(53) million loss on the expected sale of the La Porte site (see below for gains and losses on divestitures for the year ended December 31, 2019). See Note 9 - Supplementary Information, to the Consolidated Financial Statements for additional information.
2019 versus 2018
Other income - net was income of $215 million for the year ended December 31, 2019 and income of $249 million for the year ended December 31, 2018. The decrease was primarily due to a reduction in non-operating pension and other post employment credits and interest income, partially offset by a change in miscellaneous income and lower net exchange losses. Additionally, other income - net for the year ended December 31, 2019 included gains on divestitures in the crop protection segment of approximately $70 million partially offset by a loss on a divestiture in the seed segment of $(24) million.
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 provision for (benefit from) income taxes on continuing operations in the Consolidated Statement of Operations. See Note 9 - Supplementary Information, to the Consolidated Financial Statements for additional information.
Loss on Early Extinguishment of Debt
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Loss on Early Extinguishment of Debt | $ | — | $ | 13 | $ | 81 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma Loss on Early Extinguishment of Debt | $ | 13 | $ | — |
The company recorded a loss from early extinguishment of debt $13 million and $81 million for the years ended December 31, 2019 and 2018, respectively. The loss for 2019 related to the difference between the redemption price and the par value of the Make Whole Notes, the Term Loan Facility, and the Special Mandatory Redemption ("SMR") Notes, partially offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt. The loss for 2018 was primarily related to the difference between the redemption price and the aggregate amount of the Tender Notes purchased in the Tender Offer, mostly offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt. Additional information regarding the company’s Tender Offer can be found on page 63 of this report and Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Interest Expense
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Interest Expense | $ | 45 | $ | 136 | $ | 337 |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma Interest Expense | $ | 91 | $ | 76 |
2020 versus 2019
Interest expense was $45 million and $136 million for the years ended December 31, 2020 and 2019, respectively. The change was primarily driven by lower average debt balances as a result of the redemption/repayment transactions in the second quarter of 2019 related to paying off or retiring portions of EID’s existing debt liabilities (refer to Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements) and lower average interest rates.
2019 versus 2018
Interest expense was $136 million for the year ended December 31, 2019 and $337 million for the year ended December 31, 2018. The change was primarily driven by lower average long-term debt balances during 2019 due to debt redemption/repayment transactions. Pro forma interest expense for the year ended December 31, 2019 was $91 million compared to $76 million for the year ended December 31, 2018. The increase was primarily driven by interest expense incurred subsequent to March 31, 2019 related to the Make Whole Notes, the Term Loan Facility and SMR Notes which were repaid and/or redeemed in the second quarter of 2019.
(Benefit From) Provision for Income Taxes on Continuing Operations
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Benefit from Income Taxes on Continuing Operations | $ | (81) | $ | (46) | $ | (31) | |||||
| Effective Tax Rate | (12.0) | % | 14.6 | % | 0.5 | % |
| For the Year Ended December 31, | ||||||||
| (In millions) | 2019 | 2018 | ||||||
| Pro Forma Provision for Income Taxes on Continuing Operations | $ | 1 | $ | 395 | ||||
| Pro Forma Effective Tax Rate | 3.7 | % | (8.7) | % |
2020
For the year ended December 31, 2020, the company’s effective tax rate of (12.0) percent on pre-tax income from continuing operations of $675 million was favorably impacted by a $(182) million tax benefit associated with the recognition of an elective cantonal component of the recent enactment of the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), a $(51) million tax benefit 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, a $(14) million tax benefit 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, as well as an additional $(14) million of net tax benefits associated with changes in accruals for certain prior year tax positions in various other jurisdictions. These benefits were partially offset by the impacts of unfavorable geographic mix of earnings, the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not deductible in their local jurisdictions, and a $19 million tax charge associated with a state tax valuation allowance in the U.S. based on a change in judgment about the realizability of a deferred tax asset.
2019
For the year ended December 31, 2019, the company’s effective tax rate of 14.6 percent on pre-tax loss from continuing operations of $(316) million was unfavorably impacted by a tax charge of $146 million related to the U.S. state blended tax rate changes associated with the Business Separations and a tax charge of $35 million related to application of The Act’s foreign tax
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
provisions. Other net unfavorable effective tax rate impacts included those related to the Argentine peso devaluation, integration and separation costs, non-tax-deductible amortization of the fair value step-up in inventories as a result of the Merger, the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not deductible in their local jurisdictions, as well as geographic mix of earnings. Those unfavorable impacts were partially offset by a tax benefit of $(102) million related to an internal legal entity restructuring associated with the Business Separations, tax benefits of $(38) million associated with the enactment of the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), a $(34) million tax benefit associated with the release of a valuation allowance recorded against the net deferred tax asset position of a legal entity in Switzerland, as well as $(19) million of tax benefits associated with changes in accruals for certain prior year tax positions and reductions in the company’s unrecognized tax benefits due to the closure of various tax statutes of limitations.
For the year ended December 31, 2019, the company’s effective tax rate was 3.7 percent on pro forma pre-tax income from continuing operations of $27 million. The pro forma pre-tax income from continuing operations excludes pre-tax charges of $205 million, $45 million and $93 million primarily related to the removal of amortization of the fair value-step-up of inventories as a result of the Merger, removal of interest expense related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements), and removal of expenses directly attributable to the Separation, respectively. The pro forma provision for income taxes on continuing operations excludes net tax benefits of $(36) million, $(10) million and $(1) million related to the above items, respectively.
2018
For the year ended December 31, 2018, the company’s effective tax rate of 0.5 percent on pre-tax loss from continuing operations of $(6,806) million was unfavorably impacted by the non-tax-deductible impairment charge for the agriculture reporting unit and corresponding $75 million tax charge associated with a valuation allowance recorded against the net deferred tax asset position of a legal entity in Brazil, costs associated with the Merger with Dow (including a $50 million net tax charge on repatriation activities to facilitate the Business Separations), a $164 million net tax charge related to completing its accounting for the tax effects of the Act (see Note 10 - Income Taxes, of the Consolidated Financial Statements for additional detail), and the jurisdictional impacts related to the non-tax-deductible amortization of the fair value step-up in inventories as a result of the Merger.
For the year ended December 31, 2018, the company’s effective tax rate was (8.7) percent on pro forma pre-tax loss from continuing operations of $(4,542) million. The pro forma pre-tax loss excludes pre-tax charges of $1,554 million, $342 million, and $368 million, primarily related to the removal of amortization of the fair value-step-up of inventories as a result of the Merger, removal of interest expense and the related loss on early extinguishment of debt related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements), and removal of expenses directly attributable to the Separation, respectively. The pro forma provision for income taxes on continuing operations excludes net tax benefits of $(295) million, $(78) million and $(53) million related to the above items, respectively.
(Loss) Income from Discontinued Operations After Tax
Chemours, DuPont, Corteva and EID Memorandum of Understanding
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. For further discussion see Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.
| For the Year Ended December 31, | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| (Loss) Income from Discontinued Operations After Income Taxes | $ | (55) | $ | (671) | $ | 1,748 |
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2020 versus 2019
Loss from discontinued operations after income taxes was $(55) million for the year ended December 31, 2020 and $(671) million for the year ended December 31, 2019. The year ended December 31, 2020 primarily reflects an after-tax charge of $(65) million as a result of the MOU, and the settlement of approximately 95 matters, as well as unfiled matters remaining in the Ohio MDL. See Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements, for further discussion.
2019 versus 2018
(Loss) income from discontinued operations after income taxes was $(671) million for the year ended December 31, 2019 and $1,748 million for the year ended December 31, 2018. The change was primarily driven by a non-cash goodwill impairment charge of $1,102 million and adjustments of certain unrecognized tax benefits for positions taken on items from prior years from previously divested businesses, reflected in the year ended December 31, 2019.
EID Analysis of Operations
As discussed in Note 1 - Basis of Presentation, to the EID 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
2020 versus 2019
EID’s interest expense was $145 million for the year ended December 31, 2020 and $242 million for the year ended December 31, 2019, the decrease was driven by the items noted on page 47, under the header "Interest Expense - 2020 versus 2019," and by lower interest expense incurred on the related party loan between EID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID Consolidated Financial Statements for further information.
2019 versus 2018
EID’s interest expense was $242 million for the year ended December 31, 2019 and $337 million for the year ended December 31, 2018, driven by the items noted on page 47 under the header “Interest Expense - 2019 versus 2018,” partially offset by interest expense incurred on the related party loan between EID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID Consolidated Financial Statements for further information.
Provision for Income Taxes
2020
For the year ended December 31, 2020, EID had an effective tax rate of (18.3) percent on pre-tax income from continuing operations of $575 million, driven by the items noted on page 47, under the header “Provision for Income Taxes - 2020” and a tax benefit related to the interest expense incurred on the related party loan between EID and Corteva, Inc. See Note 3 - Income Taxes, to the EID Consolidated Financial Statements for further information.
2019
For the year ended December 31, 2019, EID had an effective tax rate of 16.8 percent on pre-tax loss from continuing operations of $(422) million, driven by the items noted on page 47, under the header “Provision for Income Taxes - 2019” and a tax benefit related to the interest expense incurred on the related party loan between EID and Corteva, Inc. See Note 3 - Income Taxes, to the EID Consolidated Financial Statements for further information.
Corporate Outlook
Global demand for agricultural products continues to be strong with some production challenges in key global producing regions, reducing global stocks of corn and soybeans. The company anticipates a modest increase in the U.S. corn and soybean area, with the increase heavily biased towards soybeans.
The company expects approximately 2 percent increase in net sales, driven by new product sales, partially offset by currency and portfolio headwinds.
The company expects Operating EBITDA to increase approximately 15 - 20 percent and Operating Earnings Per Share to increase approximately 23 - 30 percent, driven by new product sales and ongoing cost savings and productivity actions,
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
partially offset by expected increased input costs due to rising commodity prices and expected unfavorable yields in Europe. Refer to further discussion of Non-GAAP metrics on pages 59 - 61.
The above outlook does not contemplate any operational disruptions, significant changes in customers' demand or ability to pay, or further acceleration of currency impacts resulting from the COVID-19 pandemic. 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 60 for Significant Items recorded in the years ended December 31, 2020, 2019 and 2018). In February 2021 the company approved a restructuring program, in which it expects to record total pre-tax restructuring and asset-related charges of approximately $130 million to $170 million (for further discussion refer to page 37), with actions expected to be substantially completed in 2021; and, in 2021, the company expects non-operating benefits - net, to be approximately $930 million higher, as a result of amendments to the OPEB plans and a decrease in the discount rate, partly offset by a change in expected return on plan assets, and expects an increase in amortization expense. Refer to Note 15 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements and to the company's discussion on Long-term Employee Benefits on page 74. Additionally, beginning January 1, 2020, the company recognizes non-cash accelerated prepaid royalty amortization expense as a restructuring and asset related charge. For further discussion of accelerated prepaid royalty amortization refer to the Company's Critical Accounting Estimates for Prepaid Royalties on page 71.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Supplemental Unaudited Pro Forma Financial Information
The supplemental unaudited pro forma statements of operations (the "unaudited pro forma statements of operations") for Corteva for the years ended December 31, 2019 and 2018 give effect to the Merger, the debt retirement transactions related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements), and the separation and distribution to DowDuPont stockholders of all the outstanding shares of Corteva common stock as if they had been consummated on January 1, 2016.
For the periods presented below, Corteva’s results for all periods prior to the Business Realignment and Internal Reorganization consist of the combined results of operations for Historical EID and DAS, and Corteva’s results for all periods after the Business Realignment and Internal Reorganization represent the consolidated balances of the company. The unaudited pro forma statements of operations below were prepared in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments, and events that are not expected to have a continuing impact on the combined results (e.g., amortization of inventory step-up costs) are excluded. One-time transaction-related costs incurred prior to, or concurrent with, the closing of the Merger, the debt redemptions/repayments, and the Corteva Distribution are not included in the unaudited pro forma combined statements of operations through March 31, 2019. The unaudited pro forma combined statements of operations do not reflect restructuring or integration activities or other costs, that were not already reflected in GAAP results, following the separation and distribution transactions that may be incurred to achieve cost or growth synergies of Corteva. As no assurance can be made that these costs will be incurred or the growth synergies will be achieved, no adjustment has been made.
The unaudited pro forma statements of operations have been presented for informational purposes only and are not necessarily indicative of what Corteva’s results of operations actually would have been had the above transactions been completed on January 1, 2016. In addition, the unaudited pro forma statements of operations do not purport to project the future operating results of the company. The unaudited pro forma statements of operations were based on and should be read in conjunction with the audited Consolidated Financial Statements and Notes contained within this Annual Report on Form 10-K.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Unaudited Pro Forma Statement of Operations | For the Year Ended December 31, 2019 | ||||||||||||||||
| (In millions, except per share amounts) | Corteva (As Reported - GAAP) | Merger 1 | Debt Retirement 2 | Separations Related 3 | Pro Forma | ||||||||||||
| Net sales | $ | 13,846 | $ | — | $ | — | $ | — | $ | 13,846 | |||||||
| Cost of goods sold | 8,575 | (205) | — | 16 | 8,386 | ||||||||||||
| Research and development expense | 1,147 | — | — | — | 1,147 | ||||||||||||
| Selling, general and administrative expenses | 3,065 | — | — | 3 | 3,068 | ||||||||||||
| Amortization of intangibles | 475 | — | — | — | 475 | ||||||||||||
| Restructuring and asset related charges - net | 222 | — | — | — | 222 | ||||||||||||
| Integration and separation costs | 744 | — | — | (112) | 632 | ||||||||||||
| Other income - net | 215 | — | — | — | 215 | ||||||||||||
| Loss on early extinguishment of debt | 13 | — | — | — | 13 | ||||||||||||
| Interest expense | 136 | — | (45) | — | 91 | ||||||||||||
| (Loss) income from continuing operations before income taxes | (316) | 205 | 45 | 93 | 27 | ||||||||||||
| (Benefit from) provision for income taxes on continuing operations | (46) | 36 | 10 | 1 | 1 | ||||||||||||
| (Loss) income from continuing operations after income taxes | (270) | 169 | 35 | 92 | 26 | ||||||||||||
| Net income from continuing operations attributable to noncontrolling interests | 13 | — | — | — | 13 | ||||||||||||
| Net (loss) income attributable to Corteva | $ | (283) | $ | 169 | $ | 35 | $ | 92 | $ | 13 | |||||||
| Per share common data | |||||||||||||||||
| Earnings per share of common stock from continuing operations - basic | $ | 0.02 | |||||||||||||||
| Earnings per share of common stock from continuing operations - diluted | $ | 0.02 | |||||||||||||||
| Weighted-average common shares outstanding - basic | 749.5 | ||||||||||||||||
| Weighted-average common shares outstanding - diluted | 749.5 |
1.Represents the removal of amortization of EID’s agriculture business’ inventory step-up recognized in connection with the Merger, as the incremental amortization is directly attributable to the Merger and will not have a continuing impact.
2.Represents removal of interest expense related to the debt redemptions/repayments.
3.Adjustments directly attributable to the separations and distributions of Corteva, Inc. include the following: removal of Telone® Soil Fumigant business (“Telone®”) results (as Telone® did not transfer to Corteva as part of the common control combination of DAS); impact from the distribution agreement entered into between Corteva and Dow that allows for Corteva to become the exclusive distributor of Telone® products for Dow; elimination of one-time transaction costs directly attributable to the Corteva Distribution; the impact of certain manufacturing, leasing and supply agreements entered into in connection with the Corteva Distribution; and the related tax impacts of these items.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Unaudited Pro Forma Statement of Operations | For the Year Ended December 31, 2018 | ||||||||||||||||
| (In millions, except per share amounts) | Corteva (As Reported - GAAP) | Merger 1 | Debt Retirement 2 | Separations Related 3 | Pro Forma | ||||||||||||
| Net sales | $ | 14,287 | $ | — | $ | — | $ | — | $ | 14,287 | |||||||
| Cost of goods sold | 9,948 | (1,554) | — | 55 | 8,449 | ||||||||||||
| Research and development expense | 1,355 | — | — | (3) | 1,352 | ||||||||||||
| Selling, general and administrative expenses | 3,041 | — | — | 1 | 3,042 | ||||||||||||
| Amortization of intangibles | 391 | — | — | — | 391 | ||||||||||||
| Restructuring and asset related charges - net | 694 | — | — | — | 694 | ||||||||||||
| Integration and separation costs | 992 | — | — | (421) | 571 | ||||||||||||
| Goodwill impairment charge | 4,503 | — | — | — | 4,503 | ||||||||||||
| Other income - net | 249 | — | — | — | 249 | ||||||||||||
| Loss on early extinguishment of debt | 81 | — | (81) | — | — | ||||||||||||
| Interest expense | 337 | — | (261) | — | 76 | ||||||||||||
| Loss from continuing operations before income taxes | (6,806) | 1,554 | 342 | 368 | (4,542) | ||||||||||||
| (Benefit from) provision for income taxes on continuing operations | (31) | 295 | 78 | 53 | 395 | ||||||||||||
| Loss from continuing operations after income taxes | (6,775) | 1,259 | 264 | 315 | (4,937) | ||||||||||||
| Net income from continuing operations attributable to noncontrolling interests | 29 | — | — | — | 29 | ||||||||||||
| Net loss attributable to Corteva | $ | (6,804) | $ | 1,259 | $ | 264 | $ | 315 | $ | (4,966) | |||||||
| Per share common data | |||||||||||||||||
| Loss per share of common stock from continuing operations - basic | $ | (6.63) | |||||||||||||||
| Loss per share of common stock from continuing operations - diluted | $ | (6.63) | |||||||||||||||
| Weighted-average common shares outstanding - basic | 749.4 | ||||||||||||||||
| Weighted-average common shares outstanding - diluted | 749.4 |
1.Represents the removal of amortization of EID’s agriculture business’ inventory step-up recognized in connection with the Merger, as the incremental amortization is directly attributable to the Merger and will not have a continuing impact.
2.Represents removal of interest expense and loss on early extinguishment of debt related to the debt redemptions/repayments.
3.Adjustments directly attributable to the separations and distributions of Corteva, Inc. includes the following: removal of Telone®; impact from the distribution agreement entered into between Corteva and Dow that allows for Corteva to become the exclusive distributor of Telone® products for Dow; elimination of one-time transaction costs directly attributable to the Corteva Distribution; the impact of certain manufacturing, leasing and supply agreements entered into in connection with the Corteva Distribution; and the related tax impacts of these items.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Recent Accounting Pronouncements
See Note 3 - Recent Accounting Guidance, to the Consolidated Financial Statements for a description of recent accounting pronouncements.
Segment Reviews
The company operates in two reportable segments: seed and crop protection. 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 offers trait technologies that improve resistance to weather, disease, insects and weeds, and trait technologies that enhance food and nutritional characteristics, and also provides digital solutions that assist farmer decision-making with a view to optimize product selection and, ultimately, maximize yield and profitability. The segment competes in a wide variety of agricultural markets. 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 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 years ended December 31, 2020, 2019 and 2018. For the years ended December 31, 2019 and 2018, segment operating EBITDA is calculated on a pro forma basis, as this is the manner in which the chief operating decision maker ("CODM") assesses performance and allocates resources. Pro forma adjustments used in the calculation of pro forma segment operating EBITDA were determined in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments. For the years ended December 31, 2019 and 2018, these adjustments give effect to the Merger, the debt retirement transactions related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements), and the separation and distribution to DowDuPont stockholders of all the outstanding shares of Corteva common stock as if they had been consummated on January 1, 2016 (refer to supplemental unaudited pro forma financial statements on page 51). The company defines segment operating EBITDA as earnings (i.e., income from continuing operations before income taxes) before interest, depreciation, amortization, corporate expenses, non-operating costs-net and foreign exchange gains (losses), excluding the impact of significant items (including goodwill impairment charges). Non-operating costs-net consists of non-operating pension and OPEB costs, tax indemnification adjustments, 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. See Note 25 - Segment Information, to the Consolidated Financial Statements for details related to significant pre-tax (charges) benefits 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 (loss) from continuing operations after income taxes for the years ended December 31, 2020, 2019 and 2018 is included in Note 25 - Segment Information, to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Seed | For the Year Ended December 31, | ||||||||||
| In millions | 2020 | 2019 | 2018 | ||||||||
| Net sales | $ | 7,756 | $ | 7,590 | $ | 7,842 | |||||
| Segment operating EBITDA 1 | $ | 1,208 | $ | 1,040 | $ | 1,139 |
1.The years ended December 31, 2019 and 2018 are presented on a Pro Forma Basis, prepared in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments.
| Seed | 2020 vs. 2019 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | 71 | 2 | % | — | % | 2 | % | — | % | — | % | ||||||||
| EMEA | 90 | 7 | % | 4 | % | 8 | % | (5) | % | — | % | |||||||||
| Latin America | (13) | (1) | % | 4 | % | 13 | % | (18) | % | — | % | |||||||||
| Asia Pacific | 18 | 5 | % | 4 | % | 6 | % | (5) | % | — | % | |||||||||
| Total | $ | 166 | 2 | % | 1 | % | 5 | % | (4) | % | — | % |
| Seed | 2020 vs. 2019 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| Corn1 | $ | 56 | 1 | % | 2 | % | 4 | % | (5) | % | — | % | ||||||||
| Soybeans1 | 58 | 4 | % | 2 | % | 4 | % | (2) | % | — | % | |||||||||
| Other oilseeds1 | 26 | 4 | % | — | % | 8 | % | (4) | % | — | % | |||||||||
| Other1 | 26 | 5 | % | 3 | % | 5 | % | (3) | % | — | % | |||||||||
| Total | $ | 166 | 2 | % | 1 | % | 5 | % | (4) | % | — | % |
| Seed | 2019 vs. 2018 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | (250) | (5) | % | (2) | % | (3) | % | — | % | — | % | ||||||||
| EMEA | (30) | (2) | % | 1 | % | 5 | % | (8) | % | — | % | |||||||||
| Latin America | 28 | 3 | % | 8 | % | (1) | % | (4) | % | — | % | |||||||||
| Asia Pacific | — | — | % | 2 | % | 2 | % | (4) | % | — | % | |||||||||
| Total | $ | (252) | (3) | % | — | % | (1) | % | (2) | % | — | % |
| Seed | 2019 vs. 2018 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| Corn1 | $ | (94) | (2) | % | — | % | 1 | % | (3) | % | — | % | ||||||||
| Soybeans1 | (110) | (7) | % | (3) | % | (4) | % | — | % | — | % | |||||||||
| Other oilseeds1 | (52) | (8) | % | 1 | % | (4) | % | (6) | % | 1 | % | |||||||||
| Other1 | 4 | 1 | % | 4 | % | (1) | % | (2) | % | — | % | |||||||||
| Total | $ | (252) | (3) | % | — | % | (1) | % | (2) | % | — | % |
- Prior periods have been reclassified to conform to current period presentation.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Seed
Seed net sales were $7,756 million in 2020, up 2 percent from $7,590 million in 2019. The increase was driven by a 5 percent increase in volume and 1 percent increase in local price, partially offset by a 4 percent unfavorable impact from currency. Volume growth was driven by the recovery of soybean planted area in North America and strong summer and Safrinha sales in Brazil. Global corn price grew 2 percent year over year, primarily driven by continued penetration from products such as Qrome® and PowerCore ULTRATM. North America soybean price increased 2 percent versus the year-ago period due to superior product performance and strong execution. Unfavorable currency impacts were led by the Brazilian Real.
Seed operating EBITDA was $1,208 million in 2020, up 16 percent from pro forma operating EBITDA of $1,040 million in 2019. Favorable mix, volume gains and ongoing cost and productivity actions more than offset the unfavorable impact of currency, higher input costs and higher royalties.
Seed net sales were $7,590 million in 2019, down from $7,842 million in 2018. The decrease was primarily due to a 2 percent decline in currency and a 1 percent decline in volume. Local price was flat.
Unfavorable currency impacts were primarily due to the Brazilian Real, Eastern European currencies, and the Euro. Volume gains in corn in EMEA were more than offset by significant weather-related planting delays in North America, leading to a reduction in planted area for soybeans, and multi-channel and multi-brand rationalization impacts in North America. Competitive pricing pressure in soybeans in the U.S. and increased soybean and corn replant in North America were offset by favorable mix and continued penetration of PowerCore Ultra® in Latin America.
Seed pro forma operating EBITDA was $1,040 million in 2019, down 9 percent from $1,139 million in 2018. Competitive pricing pressure, the unfavorable impact of currency, increased commissions and input costs, and volume declines more than offset cost synergies and ongoing productivity.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Crop Protection | For the Year Ended December 31, | ||||||||||
| In millions | 2020 | 2019 | 2018 | ||||||||
| Net sales | $ | 6,461 | $ | 6,256 | $ | 6,445 | |||||
| Segment operating EBITDA 1 | $ | 1,004 | $ | 1,066 | $ | 1,074 |
1.The years ended December 31, 2019 and 2018 are presented on a Pro Forma Basis, prepared in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments.
| Crop Protection | 2020 vs. 2019 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | 168 | 8 | % | 3 | % | 5 | % | — | % | — | % | ||||||||
| EMEA | 12 | 1 | % | 1 | % | 3 | % | (2) | % | (1) | % | |||||||||
| Latin America | (71) | (4) | % | 9 | % | 8 | % | (21) | % | — | % | |||||||||
| Asia Pacific | 96 | 10 | % | 1 | % | 13 | % | (2) | % | (2) | % | |||||||||
| Total | $ | 205 | 3 | % | 4 | % | 7 | % | (7) | % | (1) | % |
| Crop Protection | 2020 vs. 2019 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| Herbicides1 | $ | 74 | 2 | % | 1 | % | 7 | % | (5) | % | (1) | % | ||||||||
| Insecticides1 | 112 | 7 | % | 5 | % | 9 | % | (7) | % | — | % | |||||||||
| Fungicides1 | (40) | (4) | % | 5 | % | 5 | % | (12) | % | (2) | % | |||||||||
| Other1 | 59 | 18 | % | 24 | % | 1 | % | (7) | % | — | % | |||||||||
| Total | $ | 205 | 3 | % | 4 | % | 7 | % | (7) | % | (1) | % |
| Crop Protection | 2019 vs. 2018 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| North America | $ | (233) | (10) | % | (3) | % | (6) | % | — | % | (1) | % | ||||||||
| EMEA | 5 | — | % | 2 | % | 5 | % | (7) | % | — | % | |||||||||
| Latin America | 44 | 3 | % | 1 | % | 7 | % | (5) | % | — | % | |||||||||
| Asia Pacific | (5) | (1) | % | 3 | % | — | % | (3) | % | (1) | % | |||||||||
| Total | $ | (189) | (3) | % | — | % | 1 | % | (3) | % | (1) | % |
| Crop Protection | 2019 vs. 2018 | Percent Change Due To: | ||||||||||||||||||
| Net Sales Change | Local Price & | Portfolio / | ||||||||||||||||||
| In millions | $ | % | Product Mix | Volume | Currency | Other | ||||||||||||||
| Herbicides1 | $ | (207) | (6) | % | (1) | % | (2) | % | (3) | % | — | % | ||||||||
| Insecticides1 | 146 | 10 | % | 5 | % | 9 | % | (4) | % | — | % | |||||||||
| Fungicides1 | (70) | (6) | % | (3) | % | 1 | % | (4) | % | — | % | |||||||||
| Other1 | (58) | (15) | % | (2) | % | (11) | % | (2) | % | — | % | |||||||||
| Total | $ | (189) | (3) | % | — | % | 1 | % | (3) | % | (1) | % |
- Prior periods have been reclassified to conform to current period presentation.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Crop Protection
Crop protection net sales were $6,461 million in 2020, up from $6,256 million in 2019. Sales gains were driven by a 7 percent increase in volume and a 4 percent increase in local price, which was partially offset by a 7 percent impact from currency and a 1 percent impact from portfolio.
The increase in volume was driven by continued penetration of new products globally, with combined sales of $1 billion in 2020, up $265 million compared to the prior-year period, led by EnlistTM, ArylexTM, and RinskorTM herbicides and IsoclastTM insecticide. Local price growth was driven by increases in Latin America to offset currency, coupled with favorable mix globally from new product launches. Unfavorable currency impacts were led by the Brazilian Real. The Company has recognized approximately $150 million in pricing to offset the weakening Brazilian Real for the full year. The portfolio impact was driven by divestitures in Asia Pacific and North America.
Crop Protection operating EBITDA was $1,004 million in 2020, down from pro forma segment operating EBITDA of $1,066 million in 2019. Favorable mix, ongoing cost and productivity actions, together with volume gains, were more than offset by the negative impact of currency, increased investment to fund growth and higher input costs. Currency net of pricing was a $70 million headwind, inclusive of $150 million in pricing actions.
Crop protection net sales were $6,256 million in 2019, down from $6,445 million in 2018. The decrease was primarily due to a 3 percent decline in currency and a 1 percent decline in portfolio, partially offset by a 1 percent increase in volume. Local price was flat.
Unfavorable currency impacts were primarily due to Brazilian Real and the Euro. Volume gains driven by new product launches - including EnlistTM and ArylexTM herbicides and IsoclastTM insecticide - were partially offset by the unfavorable weather in North America, which resulted in lost spring applications. Pricing gains from new products launches were offset by increased grower incentive program discounts in North America. The portfolio impact was driven by divestitures in North America and Asia Pacific.
Crop Protection pro forma operating EBITDA was $1,066 million in 2019, down 1 percent from $1,074 million in 2018. Volume declines in North America, the unfavorable impact of currency, and higher input costs more than offset cost synergies, sales from new products, and ongoing productivity.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
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. For the years ended December 31, 2019 and 2018, information is on a pro forma basis and these non-GAAP measures are being reconciled to a pro forma GAAP financial measure prepared and presented in accordance with Article 11 of Regulation S-X that was in effect prior to recent amendments, which are reconciled to the GAAP reported figures. See Article 11 Pro Forma Combined Statements of Operations on page 52.
Operating EBITDA is defined as earnings (i.e., income from continuing operations before income taxes) before interest, depreciation, amortization, non-operating (benefits) costs - net and foreign exchange gains (losses), net, excluding the impact of significant items (including goodwill impairment charges). 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 (including goodwill impairment charges), the after-tax impact of non-operating (benefits) costs - net, and the after-tax impact of amortization expense associated with intangible assets existing as of the Separation from DowDuPont. 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.
Reconciliation of Income (Loss) from Continuing Operations after Income Taxes to Operating EBITDA
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (In millions) | As Reported | Pro Forma | Pro Forma | ||||||||
| Income from continuing operations after income taxes | $ | 756 | $ | 26 | $ | (4,937) | |||||
| (Benefit from) provision for income taxes on continuing operations | (81) | 1 | 395 | ||||||||
| Income (loss) from continuing operations before income taxes | 675 | 27 | (4,542) | ||||||||
| Depreciation and amortization | 1,177 | 1,000 | 909 | ||||||||
| Interest income | (56) | (59) | (86) | ||||||||
| Interest expense | 45 | 91 | 76 | ||||||||
| Exchange losses - net | 174 | 66 | 77 | ||||||||
| Non-operating benefits - net | (316) | (129) | (211) | ||||||||
| Goodwill impairment charge | — | — | 4,503 | ||||||||
| Significant items charge | 388 | 991 | 1,346 | ||||||||
| Operating EBITDA (Non-GAAP) | $ | 2,087 | $ | 1,987 | $ | 2,072 |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Significant Items
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (In millions) | As Reported | Pro Forma | Pro Forma | ||||||||
| Integration and separation costs | $ | — | $ | 632 | $ | 571 | |||||
| Restructuring and asset related charges - net | 335 | 222 | 694 | ||||||||
| Gain on sale of assets | — | — | (24) | ||||||||
| Loss on deconsolidation of subsidiary | — | — | 53 | ||||||||
| Loss on divestiture | 53 | 24 | 2 | ||||||||
| Amortization of inventory step-up | — | 67 | — | ||||||||
| Argentina currency devaluation | — | 33 | — | ||||||||
| Loss on early extinguishment of debt | — | 13 | — | ||||||||
| Income tax related items | — | — | 50 | ||||||||
| Total pretax significant items charge | 388 | 991 | 1,346 | ||||||||
| Total tax benefit impact of significant items1 | (86) | (135) | (239) | ||||||||
| Tax only significant item (benefit) charge2 | (192) | (72) | 347 | ||||||||
| Total significant items charge, net of tax | $ | 110 | $ | 784 | $ | 1,454 |
1.The tax benefit impact of significant items for the year ended December 31, 2019 includes a net tax charge of $35 million related to application of the U.S. Tax Reform’s foreign tax provisions, a net tax charge of $146 million related to U.S. state blended tax rate changes associated with the Internal Reorganizations, and a net tax benefit of $(102) million related to an internal legal entity restructuring associated with the Internal Reorganizations. Unless specifically addressed above, the income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
2.The tax only significant item benefit for the year ended December 31, 2020 reflects the impacts of the recognition of an elective cantonal component of the recent enactment of the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Reform") ($(182) million benefit) and 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 ($(29) million benefit), partially offset by a state tax valuation allowance in the U.S. based on a change in judgment about the realizability of a deferred tax asset ($19 million charge). The tax only significant item benefit for the year ended December 31, 2019 reflects the impacts of Swiss Tax Reform ($(38) million benefit) and the release of a tax valuation allowance recorded against the net deferred tax asset position of a Swiss legal entity ($(34) million benefit). The tax only significant item charge for the year ended December 31, 2018 reflects the impacts of U.S. Tax Reform ($361 million charge), a tax valuation allowance recorded against the net deferred tax asset position of a Brazilian legal entity ($75 million charge), as well as the Internal Reorganizations and Business Separations ($25 million charge), partially offset by impacts of the company's discretionary pension contribution ($(114) million benefit).
Reconciliation of Income (Loss) from Continuing Operations Attributable to Corteva and Earnings (Loss) Per Share of Common Stock from Continuing Operations - Diluted to Operating Earnings and Operating Earnings Per Share
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (In millions) | As Reported | Pro Forma | Pro Forma | ||||||||
| Income (loss) from continuing operations attributable to Corteva | $ | 736 | $ | 13 | $ | (4,966) | |||||
| Less: Non-operating benefits - net, after tax | 237 | 100 | 165 | ||||||||
| Less: Amortization of intangibles (existing as of Separation), after tax | (518) | (376) | (313) | ||||||||
| Less: Goodwill impairment charge, after tax | — | — | (4,503) | ||||||||
| Less: Significant items charge, after tax | (110) | (784) | (1,454) | ||||||||
| Operating Earnings (Non-GAAP) | $ | 1,127 | $ | 1,073 | $ | 1,139 |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| As Reported | Pro Forma | Pro Forma | |||||||||
| Earnings (loss) per share of common stock from continuing operations - diluted | $ | 0.98 | $ | 0.02 | $ | (6.63) | |||||
| Less: Non-operating benefits - net, after tax | 0.32 | 0.13 | 0.22 | ||||||||
| Less: Amortization of intangibles (existing as of Separation), after tax | (0.69) | (0.50) | (0.42) | ||||||||
| Less: Goodwill impairment charge, after tax | — | — | (6.01) | ||||||||
| Less: Significant items charge, after tax | (0.15) | (1.04) | (1.94) | ||||||||
| Operating Earnings Per Share (Non-GAAP) | $ | 1.50 | $ | 1.43 | $ | 1.52 | |||||
| Diluted Shares Outstanding (in millions) | 751.2 | 749.5 | 749.4 |
Liquidity & Capital Resources
The company continually reviews its sources of liquidity and debt portfolio and occasionally may make adjustments to one or both to ensure adequate liquidity.
| (Dollars in millions) | December 31, 2020 | December 31, 2019 | ||||||
| Cash, cash equivalents and marketable securities | $ | 3,795 | $ | 1,769 | ||||
| Total debt | $ | 1,105 | $ | 122 |
The company's cash, cash equivalents and marketable securities at December 31, 2020 and December 31, 2019 were $3.8 billion, and $1.8 billion respectively. Total debt at December 31, 2020 and December 31, 2019 was $1.1 billion and $0.1 billion, respectively. See further information under Note 17 - Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements.
The company's credit ratings impact its access to the debt capital markets and cost of capital. The company remains committed to a strong financial position and strong investment-grade rating. The company's long-term and short-term credit ratings assigned to EID are as follows:
| Long-term | Short-term | Outlook | |||||||||
| Standard & Poor's1 | A- | A-2 | Stable | ||||||||
| Moody’s Investors Service | A3 | P-2 | Stable | ||||||||
| Fitch Ratings1 | A | F1 | Stable |
1.In addition, Corteva, Inc. has been assigned a long-term issuer credit rating of A- with Stable outlook by Standard & Poor's and an Issuer Default Rating of A with Stable outlook by Fitch Ratings.
Part II
Previous: Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES · Next: Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued