0001755672 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel2Member country:US us-gaap:PensionPlansDefinedBenefitMember 2019-12-31
20162019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|
| | |
| (Mark One) |
ý☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
For the fiscal year ended December 31, 2016 |
| | |
| OR |
o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-815File Number 001-38710
E. I. DU PONT DE NEMOURS AND COMPANYCorteva, Inc.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
|
| | | | | | | |
| Delaware | | | 82-4979096 | |
| (State or other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| 974 Centre Road, | Wilmington, | Delaware | 19805 | | (302) | 485-3000 | |
| (Address of Principal Executive Offices) (Zip Code) | | (Registrant’s Telephone Number, including area code) |
Commission File Number 1-815
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
|
| | | | | | | |
| Delaware | | | 51-0014090 | |
| (State or other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| 974 Centre Road, | Wilmington, | Delaware | 19805 | | (302) | 485-3000 | |
| (Address of Principal Executive Offices) (Zip Code) | | (Registrant’s Telephone Number, including area code) |
Securities registered pursuant to Section 12(b) of the Act for Corteva, Inc.:
|
| | |
DELAWARE
(State or Other JurisdictionTitle of Incorporation or Organization)
each class | Trading Symbol(s) | 51-0014090
(I.R.S. Employer Identification No.)
Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | CTVA | New York Stock Exchange |
974 Centre Road
Wilmington, Delaware 19805
(Address of principal executive offices)
Registrant's telephone number, including area code: 302-774-1000
Securities registered pursuant to Section 12(b) of the Act for E. I. du Pont de Nemours and Company:
(Each class is registered on the New York Stock Exchange, Inc.):Title of Each Class
Common Stock ($.30 par value)
Preferred Stock
(without par value-cumulative)
$4.50 Series
|
| | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| $3.50 Series Preferred Stock | CTAPrA | New York Stock Exchange |
| $4.50 Series Preferred Stock | CTAPrB | New York Stock Exchange |
No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).
Corteva, Inc. Yesx No o
E. I. du Pont de Nemours and Company Yes ýoNoox
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Corteva, Inc. Yes oNoýx
E. I. du Pont de Nemours and Company Yes oNox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Corteva, Inc. Yesýx No o
E. I. du Pont de Nemours and Company Yesx No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Corteva, Inc. Yesý No o
E. I. du Pont de Nemours and Company Yesý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Corteva, Inc. ý
E. I. du Pont de Nemours and Company ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
|
| | | | | | | |
Corteva, Inc. | Large accelerated filer ýAccelerated Filer | x | Accelerated Filer o | Accelerated filer Non-Accelerated Filer
| o | Non-accelerated filer o
| Smaller reporting company o | Emerging growth company o |
| | | | | | | |
| E. I. du Pont de Nemours and Company | Large Accelerated Filer | o | Accelerated Filer o | Non-Accelerated Filer | x | Smaller reporting company o | Emerging growth company o |
��
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Corteva, Inc. o
E. I. du Pont de Nemours and Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Corteva, Inc. Yeso Noý
E. I. du Pont de Nemours and Company Yeso Noý
The aggregate market value of voting stock of Corteva, Inc. held by nonaffiliates of the registrant (excludes outstanding shares beneficially owned by directors and officers and treasury shares) as of June 30, 2016,2019 was approximately $56.6 billion.$22.1 billion.
As of January 31, 2017, 864,574,000 shares (excludes 87,041,000February 7, 2020, 749,403,000 shares of treasury stock) of the company'sCorteva, Inc's common stock, $0.30$0.01 par value, were outstanding.
Documents Incorporated by Reference
(Specific pages incorporated are indicated under the applicable Item herein):
|
| | |
| | Incorporated
By Reference
In Part No.
|
The company's 2017 Annual Meeting Proxy Statement to be filed within 120 daysAs of February 7, 2020, all of the company's fiscal year ended December 31, 2016. | | III |
E. I. du Pont de Nemours and CompanyCompany’s issued and outstanding common stock, comprised of 200 shares, $0.30 par value per share, is held by Corteva, Inc.
Form 10-K
Table of Contents
The terms "DuPont" or the "company" as used herein refer to E. I.E.I. du Pont de Nemours and Company meets the conditions set forth in General Instruction I(1)(a), (b) and its consolidated subsidiaries, or to E. I. du Pont de Nemours(d) of Form 10-K (as modified by a grant of no-action relief dated February 12, 2018) and Company, as the context may indicate.is therefore filing this form with reduced disclosure format.
Note on Incorporation by Reference
Information pertaining to certain Items in Part III of this report is incorporated by reference to portions of the company'sCorteva, Inc.'s definitive 20162019 Annual Meeting Proxy Statement to be filed within 120 days after the end of the year covered by this Annual Report on Form 10-K, pursuant to Regulation 14A (the Proxy).
CORTEVA, INC.
Form 10-K
Table of Contents
Explanatory Note
Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K to:
"Corteva" or "the company" refers to Corteva, Inc. and its consolidated subsidiaries (including EID);
"EID" refers to E. I. du Pont de Nemours and Company and its consolidated subsidiaries or E. I. du Pont de Nemours and Company excluding its consolidated subsidiaries, as the context may indicate;
"DowDuPont" refers to DowDuPont Inc, and its subsidiaries prior to the Separation of Corteva defined on page 3;
"Historical Dow" refers to the Dow Chemical Company and its consolidated subsidiaries prior to the Internal Reorganization defined on page 3;
"Historical DuPont" refers to EID prior to the Internal Reorganization;
"Dow" refers to Dow Inc. after the Dow Distribution defined on page 3;
"DuPont" refers to DuPont de Nemours, Inc. after the Separation of Corteva; and
"DAS" refers to the agriculture business of Historical Dow, Dow AgroSciences.
DowDuPont was formed on December 9, 2015 to effect an all-stock, merger of equals strategic combination between Historical Dow and Historical DuPont (the "Merger Transaction"). On August 31, 2017 at 11:59 pm ET, (the "Merger Effectiveness Time") pursuant to the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 (the "Merger Agreement"), Historical Dow and Historical DuPont each merged with wholly owned subsidiaries of DowDuPont ("Mergers") and, as a result of the Mergers, Historical Dow and Historical DuPont became subsidiaries of DowDuPont (collectively, the "Merger"). For purposes of DowDuPont’s financial statement presentation, Historical Dow was determined to be the accounting acquirer in the Merger and Historical DuPont’s assets and liabilities were reflected at fair value as of the close of the Merger in the financial statements of DowDuPont. In connection with the Merger and the related accounting determination, Historical DuPont elected to apply push down accounting and reflected in its historical financial statements the fair value of its assets and liabilities. For purposes of Corteva’s financial statement presentation, periods following the closing of the Merger are labeled “Successor” and reflect DowDuPont’s basis in the fair values of the assets and liabilities of Corteva/EID. All periods prior to the closing of the Merger reflect the historical accounting basis in EID’s assets and liabilities and are labeled “Predecessor.” Corteva’s historical financial statements include a black line division between the columns titled “Predecessor” and “Successor” to signify that the amounts shown for the periods prior to and following the Merger are not comparable. The Predecessor period reflects the results of operations and assets and liabilities of EID and excludes the DAS business.
On June 1, 2019, DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”). Beginning on June 3, 2019, the company's common stock is traded on the New York Stock Exchange under the ticker symbol "CTVA".
This Annual Report on Form 10-K is a combined report being filed separately by Corteva, Inc. and EID. Corteva, Inc. owns all of the common equity interests in EID, and EID meets the conditions set forth in General Instruction I(1)(a), (b) and (d) of Form 10-K and is therefore filing its information within this Form 10-K with the reduced disclosure format. Each of Corteva, Inc. and EID is filing on its own behalf the information contained in this report that relates to itself, and neither company makes any representation as to information relating to the other company. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined in this report. Where information or an explanation is not substantially the same for each company, separate information and explanation has been provided. In addition, separate consolidated financial statements for each company, along with notes to the consolidated financial statements, are included in this report.
The primary differences between Corteva and EID's financial statements relate to EID's Preferred Stock - $4.50 Series and EID Preferred Stock - $3.50 Series, a related party loan between EID and Corteva, Inc. and the associated tax deductible interest expense for EID, and the capital structure of Corteva. Inc. (See EID's Note 1 - Basis of Presentation to EID's Consolidated Financial Statements, for additional information for above items). The separate EID financial statements and footnotes for areas that differ from Corteva, are included within this Annual Report on Form 10-K and begin on page F-100. Footnotes of EID that are identical to that of Corteva are cross-referenced accordingly.
ITEM 1. BUSINESS
Background
On June 1, 2019, Corteva, Inc. became an independent, publicly traded company through the previously announced separation (the “Separation”) of the agriculture business of DuPont de Nemours, Inc. (formerly known as DowDuPont Inc.) (“DuPont” or "DowDuPont"). The separation was foundedeffectuated through a pro rata distribution (the “Corteva Distribution”) of all of the then-issued and outstanding shares of common stock, par value $0.01 per share, of Corteva, Inc., which was then a wholly-owned subsidiary of DowDuPont, to holders of record of DowDuPont common stock as of the close of business on May 24, 2019. In connection with the Separation, DowDuPont Inc. changed its name to DuPont de Nemours, Inc.
Subsequent to the Merger, Historical Dow and EID engaged in 1802a series of internal reorganization and realignment steps to realign their businesses into three divisions: agriculture, materials science and specialty products. As a result of the Internal Reorganization (defined below), on May 31, 2019, EID was incorporatedcontributed to Corteva, Inc. and, as a result, Corteva, Inc. owns 100% of the outstanding common stock of EID. Prior to March 31, 2019, Corteva, Inc. had engaged in Delaware in 1915. Today, DuPontno business operations and had no assets or liabilities of any kind, other than those incident to its formation.
EID continues to be a reporting company and is helping customers finddeemed to be the predecessor to Corteva, Inc., with the historical results of EID to be deemed the historical results of Corteva for periods prior to and including May 31, 2019. Shares of EID preferred stock, $3.50 Series and $4.50 Series, issued and outstanding immediately prior to the Separation remain issued and outstanding and were unaffected by the Separation.
Corteva combines the strengths of EID’s Pioneer and Crop Protection businesses and the DAS business to create a leading global provider of seed and crop protection solutions focused on the agriculture industry. The company is focused on advancing its science-based innovation, which aims to capitalize on areas of growing global demand — enabling more, safer, nutritious food; creating high-performance, cost-effective and energy efficient materials fordeliver a wide range of industries;improved products and increasingly delivering renewably sourced bio-based materialsservices to its customers. Through the merger of the EID and fuels.DAS innovation pipelines, Corteva has one of the broadest and most productive new product pipelines in the agriculture industry. The company intends to leverage its rich heritage of scientific achievement to advance its robust innovation pipeline and continue to shape the future of responsible agriculture. New products are crucial to solving farmers’ productivity challenges amid a growing global population while addressing natural resistance, regulatory changes, safety requirements and competitive dynamics. The company’s investment in technology-based and solution-based product offerings allows it to meet farmers’ evolving needs while ensuring that its investments generate sufficient returns. Meanwhile, through Corteva’s unique routes to market, the company continues to work face-to-face with farmers around the world to deeply understand their needs.
The company's broad portfolio of agriculture solutions fuels farmer productivity in approximately 140 countries. Total worldwide employment at December 31, 20162019 was about 46,00021,000 people. The company has operations in about 90 countries worldwide and 61 percent of consolidated net sales are made to customers outside the United States of America (U.S.). See Note 2024 - Geographic Information, to the Consolidated Financial Statements for additional details on the location of the company's sales and property.
SubsidiariesDowDuPont Merger of Equals, Internal Reorganizations, and affiliatesBusiness Separations
Subsequent to the Merger, Historical Dow and EID engaged in a series of DuPont conduct manufacturing, seed production or selling activitiesinternal reorganization and some are distributors of products manufactured by the company. As arealignment steps to realign their businesses into three subgroups: agriculture, materials science and technology based company, DuPont competes on a variety of factors such as product quality and performance or specifications, continuity of supply, price, customer service and breadth of product line, depending on the characteristics of the particular market involved and the product or service provided. Most products are marketed primarily through the company's sales force, although in some regions, more emphasis is placed on sales through distributors. The company utilizes numerous suppliers as well as internal sources to supply a wide range of raw materials, energy, supplies, services and equipment. To ensure availability, the company maintains multiple sources for fuels and many raw materials, including hydrocarbon feedstocks. Large volume purchases are generally procured under competitively priced supply contracts.
DuPont Dow Merger of Equals
On December 11, 2015, DuPont and The Dow Chemical Company (Dow) announced entry into an Agreement and Plan of Merger (the Merger Agreement), under which the companies will combine in an all-stock merger of equals (the Merger Transaction) subject to satisfaction of customary closing conditions, including receipt of regulatory approval. Subject to the terms and conditions of the Merger Agreement, (i) Dow Merger Sub, a Delaware corporation that was formed on December 9, 2015, as a wholly owned subsidiary of DowDuPont Inc., a company jointly owned by Dow and DuPont, (DowDuPont) will be merged with and into Dow, with Dow surviving as a subsidiary of DowDuPont, (the Dow Merger), and (ii) DuPont Merger Sub, a Delaware corporation that was formed on December 9, 2015 as a wholly owned subsidiary of DowDuPont, will be merged with and into DuPont, with DuPont surviving the merger as a subsidiary of DowDuPont, (the DuPont Merger and, together with the Dow Merger, the Mergers). As a result of the Mergers, among other things, (a) DowDuPont will become the ultimate parent of Dow, DuPont and their respective subsidiaries and (b) existing Dow stockholders and DuPont stockholders will receive DowDuPont common stock, in accordance with the terms of the Merger Agreement. On July 20, 2016, stockholders of both DuPont and Dow voted to approve all stockholder proposals necessary to complete the Merger Transaction at their respective special meetings. Following the consummation of the Merger Transaction, DuPont and Dow intend to pursue, subject to the receipt of approval by the Board of Directors of DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (collectively, the Intended Business Separations)"Business Separations”).
Subject to Effective as of 5:00 pm ET on April 1, 2019, DowDuPont completed the termspreviously announced separation of its materials science business into a separate and conditionsindependent public company by way of a distribution of Dow Inc. (“Dow”) through a pro rata dividend in-kind of all of the Merger Agreement, each share of common stock, par value $0.30 per share, of DuPont (DuPont Common Stock) issuedthen-issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement), excluding any shares of DuPont Common Stock that are held in treasury, will be converted into the right to receive 1.2820 shares ofDow’s common stock, par value $0.01 per share, to holders of DowDuPont's common stock (the “DowDuPont Common Stock”), as of the close of business on March 21, 2019 (the “Dow Distribution” and together with the Corteva Distribution, the “Distributions”).
Prior to the Dow Distribution, Historical Dow conveyed or transferred the assets and liabilities aligned with Historical Dow’s agriculture business to separate legal entities (“Dow Ag Entities”) and the assets and liabilities associated with its specialty products business to separate legal entities (the “Dow SP Entities”). On April 1, 2019, Dow Ag Entities and the Dow SP Entities were transferred and conveyed to DowDuPont.
In furtherance of the Business Separations, EID engaged in a series of internal reorganization and realignment steps (the “Internal Reorganization” and the "Business Realignment," respectively) to realign its businesses into three subgroups: agriculture, materials science and specialty products. As part of the Internal Reorganization:
the assets and liabilities aligned with EID’s materials science business, including EID’s ethylene and ethylene copolymers business, excluding its ethylene acrylic elastomers business, (“EID ECP”) were transferred or conveyed to separate legal entities (the “Materials Science Entities”) that were ultimately conveyed by DowDuPont to Dow;
Part I
ITEM 1. BUSINESS,continued
the assets and liabilities aligned with EID’s specialty products business were transferred or conveyed to separate legal entities (“EID Specialty Products Entities”);
on April 1, 2019, EID transferred and conveyed its Materials Science Entities to Dow;
on May 1, 2019, EID distributed its Specialty Products Entities to DowDuPont;
on May 2, 2019, DowDuPont conveyed Dow Ag Entities to EID and in connection with the foregoing, EID issued additional shares of its common stock to DowDuPont; and
on May 31, 2019, DowDuPont contributed EID to Corteva, Inc.
On May 6, 2019, the Board of Directors of DowDuPont (DowDuPont Common Stock), for each shareapproved the distribution of DuPont Common Stock with cash in lieu of any fractional share of DowDuPont. Each share of DuPont Preferred Stock-$4.50 Series and DuPont Preferred Stock-$3.50 Series, in each caseall the then issued and outstanding immediately priorshares of common stock of Corteva, Inc., a wholly-owned subsidiary of DowDuPont, to DowDuPont stockholders. On June 1, 2019, DowDuPont completed the Separation. Each DowDuPont stockholder received one share of Corteva, Inc. common stock for every three shares of DowDuPont common stock held at the close of business on May 24, 2019, the record date of distribution. Corteva, Inc.'s common stock began trading the "regular way" under the ticker symbol "CTVA" on June 3, 2019, the first business day after June 1, 2019. Upon becoming an independent company, the capital structure of Corteva consisted of 748,815,000 authorized shares of common stock (par value of $0.01 per share), which represents the number of common shares issued on June 3, 2019.
As a result of the Business Realignment and the Internal Reorganization discussed above, Corteva owns 100% of the outstanding common stock of EID, and EID owns, directly or indirectly, 100% of DAS. EID is a subsidiary of Corteva, Inc. and continues to be a reporting company, subject to the requirements of the Securities Exchange Act of 1934, as amended.
Separation Agreements
In connection with the Distributions, DuPont, Corteva, and Dow (together, the “Parties” and each a “Party”) have entered into certain agreements to effect the separation, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among the Parties, and provide a framework for Corteva's relationship with Dow and DuPont following the separations and Distributions. Effective Time, shall remain issuedApril 1, 2019, the Parties entered into the following agreements:
Separation and outstandingDistribution Agreement - Effective April 1, 2019, the Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Corteva Separation Agreement").
Tax Matters Agreement - The Parties entered into an agreement effective as of April 1, 2019, as amended on June 1, 2019, that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be unaffected byallocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the merger.Parties as part of the Distributions and describes when and how the relevant transfers and assignments would occur.
Subject toIntellectual Property Cross-License Agreement - Effective as of April 1, 2019 Corteva and Dow, and effective June 1, 2019 Corteva and DuPont, entered into Intellectual Property Cross-License Agreements. The Intellectual Property Cross-License Agreements set forth the terms and conditions set forthunder which the applicable Parties may use in the Merger Agreement, at the Effective Time,their respective businesses, following each share of common stock, par value $2.50 per share, of Dow (the Dow Common Stock) issued and outstanding immediately prior to the Effective Time, excluding any shares of Dow Common Stock that are held in treasury, will be converted into the right to receive one share of DowDuPont Common Stock. Pursuant to the terms of the Merger Agreement, each share of Cumulative Convertible Perpetual Preferred Stock, Series A, par value $1.00 per share, of Dow (the Dow Preferred) issuedDistributions, certain know-how (including trade secrets), copyrights, and outstanding immediately priorsoftware, and certain patents and standards, allocated to the Effective Time would be automatically canceled and each holder of shares of Dow Preferred would be deemed to hold the same number of shares of preferred stock of DowDuPont on equivalent terms. However, on December 30, 2016, (the Dow Preferred Conversion Date) each share of Dow Preferred was converted into 24.2010 shares of Dow Common Stock. In connection therewith, on the Dow Preferred Conversion date, Dow issued 96,804,000 shares of Dow Common Stock. As a result, it is expected that no shares of preferred stock of DowDuPont will be issuedanother Party pursuant to the terms of the Merger Agreement at the Effective Time.
Corteva Separation Agreement.
Part I
ITEM 1. BUSINESS,continued
Letter Agreement - DuPont and Dow continue to work constructively with regulators in key jurisdictions to obtain approvalCorteva entered into a Letter Agreement. The Letter Agreement sets forth certain additional terms and to prepare for closing as soon as possible after closing conditions have been met. Consummation of the Merger Transaction is contingent on satisfaction of customary closing conditions, including the receipt of regulatory approval from the U.S., European Union, China, Brazil and Canada. Subject to satisfaction of customary closing conditions, including the receipt of regulatory approvals, closing would be expected to occur in first half of 2017.
See the discussion entitled Merger Risks Part I, Item 1A, Risk Factors, and Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 2 to the Consolidated Financial Statements for further details and a discussion of some of the risks related to the transaction. Additional information aboutSeparation, including certain limitations on each party’s ability to transfer certain businesses and assets to third parties without assigning certain of such party’s indemnification obligations under the Merger TransactionCorteva Separation Agreement to the other party to the transferee of such businesses and the Merger Agreement is set forth in the definitive registration statement on Form S-4 (File No. 333-209869) (as amended, the Registration Statement) that includes a joint proxy statement of Dow and DuPont and that also constitutes a prospectus of DowDuPont and the company's Current Report on Form 8-K filed with the SEC on December 11, 2015.assets or meeting certain other alternative conditions.
Spin-off of Performance Chemicals
On July 1, 2015, Historical DuPont completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (Chemours)("Chemours"). In connection with the separation, the companyHistorical DuPont and Chemours entered into a Separation Agreement and a Tax mattersMatters Agreement as well as certain ancillary agreements. In accordance with generally accepted accounting principles in the U.S. (GAAP)("GAAP"), the financial position and results of operations of theits former Performance Chemicals segment are presented as discontinued operations and, as such, have been excludedare included within (loss) income from continuingdiscontinued operations and segment resultsafter income taxes in the Consolidated Statements of Operations for all periods presented. Additional details regarding the separation and other related agreements can be found in Note 35 - Divestitures and Other Transactions, to the Consolidated Financial Statements.
Productivity and Cost Savings Initiatives
On December 11, 2015, DuPont announced a 2016 global cost savings and restructuring plan designed to reduce $730 million in costs in 2016 compared with 2015, which represents a reduction of operating costs on a run-rate basis of about $1.0 billion by end of 2016. As part of the plan, the company committed to take structural actions across all businesses and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with them. In connection with the restructuring actions, the company recorded a pre-tax charge to earnings of $798 million in the fourth quarter 2015, comprised of $656 million of severance and related benefit costs, $109 million of asset related charges, and $33 million of contract termination costs. The restructuring actions associated with the charge are substantially complete and the plan delivered the target cost reductions in 2016 versus prior year. Additional details related to this plan can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 24 of this report and Note 4 to the Consolidated Financial Statements.
In June 2014, DuPont announced its global, multi-year initiative to redesign its global organization and operating model to reduce costs and improve productivity and agility across all businesses and functions. DuPont commenced a restructuring plan to realign and rebalance staff function support, enhance operational efficiency, and to reduce residual costs associated with the separation of its Performance Chemicals segment. Cost reductions from the 2014 operational redesign were essentially completed during 2015 and for full year 2015, the company delivered incremental cost savings of approximately $440 million year over year. Additional details related to this plan can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 24 of this report and Note 4 to the Consolidated Financial Statements.
Business Segments
The company consistscompany’s operations are managed through two reportable segments: seed and crop protection. The seed segment develops and supplies commercial seed combining superior germplasm with advanced traits to produce high yield potential for farmers around the world. The crop protection segment supplies products to protect crop yields against weeds, insects and disease, enabling farmers to achieve optimal results. The combination of 7 businesses which are aggregated into 6 reportable segments based on similar economic characteristics, the naturethese leading platforms creates one of the products and production processes, end-use markets, channelsbroadest portfolios of distribution and regulatory environment. The company's reportable segments are Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Materials and Protection Solutions. The company includes certain businesses not includedagriculture solutions in the reportable segments, such as pre-commercial programs, nonaligned businesses and pharmaceuticals in Other.industry. Additional information with respect to business segment results is included in Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, on page 3155 of this report and Note 2125 - Segment Information, to the Consolidated Financial Statements.
Effective January 1, 2016,Seed
The seed segment is a global leader in developing and supplying commercial seed combining advanced germplasm and traits that produce optimum yield for farms around the DuPont Packaging & Industrial Polymers business consolidatedworld. The company’s seed segment is a leader in many key seed markets, including North America corn and soybeans, Europe corn and sunflower, as well as Brazil, India, South Africa and Argentina corn. The company offers trait technologies that improve resistance to weather, disease, insects and weeds, and trait technologies that enhance food and nutritional characteristics. In addition, the company provides digital solutions that assist farmer decision-making with a view to optimize product selection and, ultimately, help maximize yield and profitability.
Details on the DuPont Performance Polymers business within the Performance Materials segment,seed segment’s net sales by major product line and the DuPont Protection Technologies business consolidated with the DuPont Building Innovations business within the former Safety & Protection segment (now Protection Solutions). The consolidations were undertaken to create greater efficiency and enhanced capabilities in the two segments where these businesses operate. These changes did not result in a change in reportable segments.geographic region (based on customer location) are as follows:
Part I
ITEM 1. BUSINESS,continued
DuPont Sustainable Solutions, previouslyProducts and Brands
The seed segment’s major brands and technologies, by key product line, are listed below:
|
| |
| Seed Solutions Brands | Pioneer®; Brevant™ seeds; Dairyland Seed®; Mycogen®; Hoegemeyer®; Nutech®; Seed Consultants®; Terral Seed®; AgVenture®; Alforex®; PhytoGen®; Pannar®; VP Maxx®; RPM®; REV®; HPT®; G2®; Supreme EX®; XL®; Power Plus® |
| Seed Solutions Traits and Technologies | ENLIST E3™ soybeans; EXZACT® Precision Technology; HERCULEX® Insect Protection; Pioneer® brand hybrids with Leptra® insect protection technology offering protection against above ground pests; POWERCORE® Insect Trait Technology family of products; Pioneer® brand Optimum® AcreMax® family of products offering above and below ground insect protection; REFUGE ADVANCED® powered by SMARTSTAX® 1; SMARTSTAX® Insect Trait Technology 1; NEXERA® seed offering increased canola yield potential; Omega-9 OilsTM; Pioneer® brand Optimum® AQUAmax® hybrids; Pioneer® brand corn hybrids; Pioneer® brand A-Series soybeans; Pioneer® brand Plenish® high oleic soybeans; Pioneer® brand sunflowers with the ExpressSun® trait; Pioneer® brand products with Pioneer Protector® technology for canola, sunflower and sorghum; Pioneer MAXIMUS® rapeseed hybrids; PROPOUND™; Conkesta™ |
| Other | LumiGEN® technologies seed treatment portfolio of offerings, LUMIDERM™, LUMIVIA® andLUMIALZA™; GRANULAR®; ACREVALUE® |
U.S. federal regulatory authorizations have been obtained for the commercialization of ENLIST™ corn, ENLIST E3™ soybeans and ENLIST® cotton, including the U.S. Environmental Protection Agency's registration of ENLIST DUO® and ENLIST ONE® for use with ENLIST™ corn, soybeans and cotton in 34 states. The company has also secured cultivation authorizations of ENLIST E3™ soybeans and ENLIST™ corn in Argentina, Brazil, and North America.
In connection with the validation of breeding plans and large-scale product development timelines focused on rapidly ramping up differentiated technology solutions, during the fourth quarter of 2019, the company is accelerating the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer® brands, over the next five years. During the ramp-up period, the company is expected to significantly reduce the volume of products with the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits beginning in 2021, with expected minimal use of the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® traits thereafter for the remaining term of the non-exclusive license with the Monsanto Company. Refer to Prepaid Royalties within the company's former Safety & Protection segment (now Protection Solutions), was comprisedCritical Accounting Estimates section on page 70 for additional information.
In 2019, Corteva received import authorization from China for the Conkesta™ soybean insect control trait. The trait approval had been in progress in China since 2014. The receipt of two business units: clean technologies and consulting solutions. Effective January 1, 2016,China import approval is a necessary step for commercialization of Conkesta E3™ in Latin America, which the clean technologies business unit becamecompany is expecting the latter part of 2021, pending additional regulatory approvals.
In 2019, the Industrial Biosciencescompany launched Qrome® corn products in U.S. Pioneer® brands. Qrome® products offer growers high yield potential insect control options to help drive productivity for their operations by combining top-tier genetics and strong defensive traits. In 2020, Qrome® products will be expanded to the U.S. multi-channel and Canada Pioneer® brands.
The company acquired exclusive rights to the Clearfield® canola production system in North America from BASF in 2019. The Clearfield® canola trait provides non-genetically modified tolerance to imidazolinone herbicides. Clearfield® canola in the Pioneer® and Nexera® brands were already highly established in the market and integrated into the company’s breeding, production and commercial processes.
Distribution
The seed segment has a diverse worldwide network which markets and distributes the company’s brands to customers, primarily through the company’s multi-channel, multi-brand strategy, which includes four differentiated channels: Pioneer agency model, regional brands, retail brands, as well as third parties through licensing and distribution channels.
Part I
ITEM 1. BUSINESS,continued
The Pioneer agency model is unique to Corteva and represents sales made directly to farmers via independent sales representatives. Through this agency model, the company interacts directly with farmers at multiple points in the focusgrowing season, from prior to planting all the way through harvest. These regular interactions enable the company to provide the advice and service farmers need while giving the company real-time insights into the customers’ future ordering decisions. The company’s regional brands connect to customers through regional brand employees and farmer-dealer networks. Retail brands provide a one-stop shop for seed and chemistry solutions and may include sales to distributors, agricultural cooperatives, and dealers. Finally, Corteva out-licenses traits and germplasm to third parties.
Key Raw Materials
The key raw materials for seed include corn and soybean seeds. To produce high-quality seeds, the company contracts with third party growers globally. Corteva focuses on workingproduction close to the customer to ensure the seed product is suitable for that region and its weed, insect and disease challenges, weather, soil and other conditions. The company conditions and packages the seeds using its own plants and third-party contract manufacturers. By striking a balance between owning production facility assets directly and contracting with customersthird party growers, the company believes it is best able to maintain flexibility to react to demand changes unique to each geography while minimizing costs. The company seeks to collaborate with strategic seed growers and share its digital agronomy and product management knowledge with them. The company’s third-party growers are an important part of its supply chain. Corteva provides them with rigorous training, planning tools and access to a system that tests and advances products matched to specific geographic needs.
The company’s R&D and supply chain groups work seamlessly to select and maintain product characteristics that enhance the quality of its seed products and solutions. The company focuses on customer-driven innovation to deliver the best germplasm and trait technologies. With its large sets of digitized data and its seed field management solution, the company can manage its field operations efficiently and draw insights from data quickly and effectively. This allows the company’s supply chain to react quickly to changing customer needs and provides R&D with tremendous amounts of data to analyze and incorporate into resource allocation decisions. The company continues to invest in and build capabilities that drive value via data digitization and analytics that enable it to create an even more responsive and efficient answer to customer needs.
Crop Protection
The crop protection segment serves the global agricultural input industry with products that protect against weeds, insects and other pests, and disease, and that improve overall crop health both above and below ground via nitrogen management and seed-applied technologies. The company offers crop protection solutions that provide farmers the tools they need to improve the performance, productivity and sustainabilityprofitability, and help keep fields free of their productsweeds, insects and processes.diseases. The company is exploring a range of options to maximize the growth of the consulting solutions business unit which effective January 1, 2016 is reported within Other.
Agriculture
Agriculture businesses, DuPont Pioneer (Pioneer) and DuPont Crop Protection (Crop Protection), leverage the company's technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply and the global production agriculture industry. Land available for worldwide agricultural production is increasingly limited so production growth will need to be achieved principally through improving crop yields and productivity rather than through increases in planted area. The segment's businesses deliver a broad portfolio of products and services that are specifically targeted to achieve gains in crop yields and productivity, including Pioneer® brand seed products and well-established brands of insecticides, fungicides and herbicides. Research and development focuses on leveraging technology to increase grower productivity and to enhance the value of grains and oilseeds through improved seed traits, superior seed germplasm and effective use of insecticides, herbicides and fungicides. Agriculture accounted for 57 percent of the company's total research and development expense in 2016.
Sales of the company's products in this segment are affected by the seasonality of global agriculture markets and weather patterns. Sales and earnings performance in the Agriculture segment are significantly stronger in the first versus second half of the year reflecting the northern hemisphere planting season. As a result of the seasonal nature of its business, Agriculture's inventory is at its highest level at the end of the calendar year and is sold down in the first and second quarters. Trade receivables in the Agriculture segment are at a low point at year-end and increase through the northern hemisphere selling season to peak at the end of the second quarter.
Pioneer is a world leader in developing, producingglobal herbicides, insecticides, above-ground nitrogen stabilizers and marketing hybrid corn seedpasture and soybean seed varieties which improverange management herbicides.
Details on the productivity and profitability of its customers. Additionally, Pioneer develops, produces and markets canola, sunflower, sorghum, wheat and rice seed, as well as silage inoculants. As the world's population grows and the middle class expands, the need for crops for animal feed, food, biofuels and industrial uses continues to increase. The business competes with other seed and plant biotechnology companies. Pioneer seed sales amounted to 27 percent of the company's total consolidatedcrop protection segment’s net sales for the years ended December 31, 2016, 2015by major product line and 2014.geographic region (based on customer location) are as follows:
Pioneer's research and development focuses on integrating high yielding germplasm with value added proprietary and/or licensed native and biotechnology traits with local environment and service expertise. Pioneer uniquely develops integrated products for specific regional application based on local product advancement and testing of the product concepts. Research and development in this arena requires long-term commitment of resources, extensive regulatory efforts and collaborations, partnerships and business arrangements to successfully bring products to market. To protect its investment, the business employs the use of patents covering germplasm and native and biotechnology traits in accordance with country laws. Pioneer holds multiple long-term biotechnology trait licenses from third parties as a normal course of business. The biotechnology traits licensed by Pioneer from third parties are contained in a variety of Pioneer crops, including corn hybrids and soybean varieties. The majority of Pioneer’s corn hybrids and soybean varieties sold to customers contain biotechnology traits licensed from third parties under these long term licenses.
Pioneer is actively pursuing the development of innovations for corn hybrids, soybean varieties, and canola, sunflower, wheat and rice seed based on market assessments of the most valuable opportunities. In corn seeds, programs include innovations for insect protection, drought, yield and yield stability. In soybean seeds, programs include products with enhanced end-use value and insect protection.
Pioneer has seed production facilities located throughout the world. Seed production is performed directly by the business or contracted with independent growers and conditioners. Pioneer's ability to produce seeds primarily depends upon growing conditions and availability of reliable contract growers.
Pioneer markets and sells seed product primarily under the Pioneer® brand but also sells and distributes products utilizing additional brand names. Pioneer promotes its products through multiple marketing channels around the world. In the corn and soybean markets of the U.S. Corn Belt, Pioneer® brand products are sold primarily through a specialized force of independent sales representatives. Outside of North America, Pioneer's products are marketed through a network of subsidiaries, joint ventures and independent producer-distributors.
Part I
ITEM 1. BUSINESS,continued
Crop Protection serves the global production agriculture industry withProducts and Brands
The crop protection products for field crops such as wheat, corn, soybeansegment’s major brands and rice and specialty crops such as fruit, nut, vine and vegetables. Principle crop protection productstechnologies, by key product line, are weed control, disease control and insect control offerings for foliar application or as a seed treatment. Crop Protection products are marketed and sold to growers and other end users through a network of wholesale distributors and crop input retailers. Sales for the business' insect control portfolio is led by DuPontTM Rynaxypyr® insecticide, a product that is used across a broad range of core agricultural crops.listed below:
|
| |
| Insect and Nematode Management | CLOSER™; DELEGATE™; INTREPID®; ISOCLAST™; LANNATE™; EXALT™; PEXALON™; TRANSFORM™; VYDATE®; OPTIMUM™; RADIANT™; SENTRICON™; ENTRUST® SC; GF-120™; and TRACER™ |
| Disease Management | APROACH® PRIMA; VESSARYA™; APPROACH POWER™; TALENDO™; TALIUS®; EQUATION PRO™; EQUATION CONTACT™; ZORVEC™; DITHANE™; INATREQ™; CURZATE™; TANOS™, FONTELIS™; ACANTO®; and GALILEO™ |
| Weed Control | ARIGO®; ARYLEX™; ENLIST™ weed control system; ENLIST DUO™; BROADWAY™; RINSKOR™; ZYPAR™; MUSTANG®; GALLANT™; VERDICT®; LANCET®; KERB™; PIXXARO™; QUELEX™; GALLERY™; CENT-7™; SNAPSHOT®; TRELLIS®; CITADEL™; CLIPPER™; GRANITE®; RAINBOW™; PINDAR® GT; VIPER®; WIDEATTACK®; BELKAR®; WIDEMATCH®; PERFECTMATCH®; CLINCHER™; DURANGO™; FENCER®; GARLON™; SONIC®; TEXARO®; KEYSTONE®; PACTO®; LIGATE®; DIMENSION®; TOPSHOT™; RICER™; LOYANT™; CLASSIC™; REALM® Q; TRIVENCE®; LONTREL™; GRAZON™; PANZER®; PRIMUS®; RESICORE®; SPIDER™; STARANE®; SURESTART®; and TORDON™ |
| Nitrogen Management | INSTINCT™; N-SERVE® Nitrogen Stabilizer; N-LOCK™; and PinnitMax™ |
Key Raw Materials
The major commodities,key raw materials and supplies for the Agriculture segment include: benzenecrop protection include chlorinated pyridines derivatives, other aromaticsspecialty intermediates and carbamic acid related intermediates, corn and soybean seeds, insect control products, natural gastechnical grade active ingredients, chlorine, and seed treatments.
Agriculture net sales outside Typically, the U.S. accountedcompany purchases major raw materials through long-term contracts with multiple suppliers, which sometimes require minimum purchase commitments. Certain important raw materials are supplied by a few major suppliers. The company expects the markets for 51 percentits raw materials to remain balanced, though pricing may be volatile given the current state of the segment's total sales in 2016.
Electronics & Communications
Electronics & Communications (E&C) is a leading supplier of differentiated materialsglobal economy. The company relies on contract manufacturers, both domestically and systemsinternationally, to produce certain inputs or key components for consumer electronics, photovoltaics (PV), displaysits product formulations. These inputs are typically sourced close to where the company ultimately formulates and advanced printing that enable superior performance and lower total cost of ownership for customers. The segment leverages the company's strong materials and technology base to target attractive growth opportunities in circuit and semiconductor fabrication and packaging materials, PV materials, display materials, packaging graphics, and digital printing.
In the consumer electronics market, E&C materials add value across multiple devices, with growth driven largely by smart phones. The segment has a portfolio of materials for semiconductor fabrication and packaging, as well as innovative materials for circuit applications, to address critical needs of electronic component and device manufacturers. In the growing PV market, E&C is an industry-leading innovator and supplier of metallization pastes and backsheet materials that improve the efficiency and lifetime of solar cells and solar modules. Solar modules, which are made up of solar cells and other materials, are installed to generate power. DuPont is a leading global supplier of materials to the PV industry. In packaging graphics, E&C is a leading supplier of flexographic printing systems, including Cyrel® photopolymer plates and platemaking systems, and is investing in new products to strengthensells its market leadership position. The segment supplies pigmented inks used in digital printing applications for textile, commercial and home-office use. In the displays market, E&C has developed solution-process technology, which it licenses for active matrix organic light emitting diode (AMOLED) television displays.
The major commodities, raw materials and supplies for E&C include: acrylic monomers, acetoxystyrene monomer, black and color pigments, styrenic block copolymers, color dyes, copper foil, difluoroethane, diglycolamine, DMAC, hydroxylamine, monomers and polymer resins, oxydianiline, polyester film, polymer films, precious metals and pyromellitic dianhydride.
E&C net sales outside the U.S. accounted for 79 percent of the segment's total sales in 2016.
Industrial Biosciences
Industrial Biosciences is a leader in developing and manufacturing a broad portfolio of bio-based products. The segment's enzymes add valuecompany strives to maintain multiple high-quality supply sources for each input.
Corteva’s supply chain strategy will involve managing global supplies of active and functionality to processesintermediate ingredients sourced regionally with global best practices and products across a broad range of markets such as animal nutrition, detergents, food manufacturing, ethanol production and industrial applications. The result is cost and process benefits, better product performance and improved environmental outcomes. Industrial Biosciences also makes DuPontTM Sorona® PTT renewably sourced polymer for use in carpet and apparel fibers. In addition, the clean technologies business unit provides offerings that help reduce sulfur and other emissions, formulate cleaner fuels, and dispose of liquid waste.
The segmentoversight. Corteva’s supply strategy includes a joint venture with Tate & Lyle PLC, DuPont Tate & Lyle Bio Products Company, LLC,robust and flexible global footprint to produce BioPDOTM 1,3 propanediol using a proprietary fermentation and purification process. BioPDOTM ismeet future portfolio growth. The company’s supply chain also provides competitive advantages including reducing time to meet customer requirements in regions while minimizing costs through the key building block for DuPontTM Sorona® PTT polymer.value chain.
The major commodities, raw materials and supplies for the Industrial Biosciences segment include: terephthalic acid, processed grains (including dextrose and glucose), and glycols.
Industrial Biosciences netSeasonality
Corteva’s sales outside the U.S. accounted for 59 percent of the segment's total sales in 2016.
Part I
ITEM 1. BUSINESS,continued
Nutrition & Health
Nutrition & Health offers a wide range of sustainable, bio-based ingredients, providing innovative solutions for specialty food ingredients, food nutrition, health and safety. The segment's product solutions include the wide-range of DuPont™ Danisco® food ingredients such as cultures and probiotics, notably Howaru®, emulsifiers, texturants, natural sweeteners such as Xivia® and Supro®soy-based food ingredients. These ingredients hold leading market positions based on industry leading innovation, knowledge and experience, relevant product portfolios and close-partnering with the world's food manufacturers. Nutrition & Health serves various end markets within the food industry including dairy, bakery, meat and beverage segments. Nutrition & Health has research, production and distribution operations around the world.
Nutrition & Health products are marketed and sold under a variety of brand names and are distributed primarily through its direct route to market. The direct route to market focuses on strong customer collaborations and insights with multinational customers and regional customers alike.
The major commodities, raw materials and supplies for the Nutrition & Health segment include: cellulose, gelatin, glycerol, guar, organic oils, peels, saccharides, seaweed, soybeans, sugars and yeasts.
In November 2016, DuPont announced an investment to expand probiotics production capacity in the United States. The investment is the second phase of a broader probiotics expansion project due to the rapidly growing global demand for probiotics. Phase one, supporting current growth, is ongoing in Madison, Wis., and Rochester, N.Y., and is partially complete as of the end of 2016. The second phase is scheduled to span two-years, represents an investment of approximately $100 million, and increases the company’s probiotics production capacity by an additional 70 percent. Production will be optimized with the installation of new, high-volume fermenters and other processing equipment.
In December 2016, DuPont and Hygenia LLC announced an agreement to sell DuPont's global food safety diagnostic business to Hygenia LLC. The transaction is expected to closegenerally strongest in the first half of 2017, pending satisfaction of customary closing conditions, including receipt of regulatory approval.
Nutrition & Health net sales outside the U.S. accounted for 66calendar year, which aligns with the planting and growing season in the northern hemisphere. The company typically generates about 65 percent of the segment's totalits sales in 2016.
Performance Materials
DuPont Performance Materials (Performance Materials) provides its customers with innovative polymer science solutionsthe first half of the calendar year, driven by northern hemisphere seed and expert application development assistance to enhance the performance, reduce the total system cost and optimize the sustainability of their products. Solutions include productive, higher performance polymers, elastomers, films, parts, and systems and solutions which improve the uniqueness, functionality and profitabilitycrop protection sales. The company generates about 35 percent of its customers' offerings. Key market segments include automotive and transportation, packaging for food and beverages, electrical/electronic components, material handling, healthcare, construction, semiconductor and aerospace. The segment has several large customers, primarilysales in the motor vehicle OEM industry supply chain.second half of the calendar year, led by seed sales in the southern hemisphere. The company has long-standing relationships with these customersseasonality in sales impacts both the seed and theycrop protection segments. The company’s direct distribution channel, where products are consideredshipped to farmers, is more affected by planting delays than its competitors. Generally speaking, unfavorable weather slows the planting season and can affect the company’s quarterly results and sales mix. Severe unfavorable weather, however, can impact overall sales. Accounts receivable tends to be important tohigher during the segment's operating results.
Performance Materials product portfolio includes elastomers and thermoplastic and thermoset engineering polymers which are used by customers to fabricate components for mechanical, chemical and electrical systems. The main products include: DuPontTM Zytel® long chain nylon polymers, Zytel® HTN nylon resins, Zytel® nylon resins, Crastin® PBT polymer resins, Rynite® PET polymer resins, Delrin® acetal resins, Hytrel® polyester thermoplastic elastomer resins, Vespel® parts and shapes, Vamac® ethylene acrylic elastomer and Kalrez® perfluoroelastomer.
Performance Materials also specializes in resins and films used in packaging and industrial polymer applications, sealants and adhesives and sporting goods. Key brands include: DuPontTM Surlyn® ionomer resins, Bynel® coextrudable adhesive resins, Elvax® EVA resins, Nucrel® Elvaloy®polymer modifiersand Elvaloy® copolymer resins. Performance Materials product portfolio also includesfirst half of the DuPont Teijin Films joint venture, whose primary products are Mylar® and Melinex® polyester films.
In November 2013, DuPont entered into a definitive agreement to sell Glass Laminating Solutions/Vinyls (GLS/Vinyls) to Kuraray Co. Ltd. In June 2014,year, consistent with the sale was completed which resulted in a pre-tax gain of $391 million ($273 million net of tax). The gain was recorded in other income, netpeak sales period in the company's Consolidated Income Statement fornorthern hemisphere, with cash collection focused in the year ended December 31, 2014. GLS/Vinyls specializes in interlayers for laminated safety glass and its key brands include SentryGlas® and Butacite® laminate interlayers.fourth quarter.
Part I
ITEM 1. BUSINESS,continued
The major commodities, raw materials and supplies for the Performance Materials segment include: acetic acid, acrylic monomers, adipic acid, butanediol, dimethyl terephthalate, dodecanedioic acid, ethane, fiberglass, hexamethylene diamine, methanol, methacrylic acid, methylacrylate, natural gas, paraxylene, perfluoromethylvinyl ether, polytetramethylene glycol, polyethylene, polyolefin resin,purified terephthalic acid, and vinyl acetate monomer.
Performance Materials net sales outside the U.S. accounted for 71 percent of the segment's total sales in 2016.
Protection Solutions
Protection Solutions satisfies the growing global needs of businesses, governments, and consumers for solutions that make life safer, healthier, and more secure. By uniting market-driven science with the strength of highly regarded brands, the segment delivers products to a broad array of markets, including, industrial, construction, consumer, military and law enforcement, automotive, aircraft, and energy. Protection Solutions is also investing in future growth initiatives such as protection of perishable and temperature-sensitive food and pharmaceutical products and roofing underlayment.
With highly recognized brands like DuPont™ Kevlar® high-strength material, Nomex® thermal-resistant material, and Tyvek® protective material, the business has a broad portfolio of industry leading solutions for applications such as: aerospace, life protection, personal protection, medical packaging, graphics, and protection and energy efficiency of buildings. DuPont™ Corian®, Montelli®, and Zodiaq® solid surfaces offer durable, functional, and aesthetically appealing materials for residential and commercial interior and exterior applications.
The major commodities, raw materials, and supplies for the Protection Solutions segment include: alumina trihydrate, aniline, benzene, calcium chloride, carbon monoxide, chlorine, high-density polyethylene, isophthalic acid, metaphenylenediamine, methyl methacrylate, polyester resin, polypropylene, quartz, sulfuric acid, and terephthalic acid.
Protection Solutions net sales outside the U.S. accounted for 56 percent of the segment's total sales in 2016.
Backlog
In general, the company does not manufacture its products against a backlog of orders and does not consider backlog to be a significant indicator of the level of future sales activity. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, the company believes that backlog information is not material to understanding its overall business and should not be considered a reliable indicator of the company's ability to achieve any particular level of revenue or financial performance.
Intellectual Property
As a science and technology based company, DuPont believes that securingCorteva considers its intellectual property is an important partestate, which includes patents, trade secrets, trademarks and copyrights, in the aggregate, to constitute a valuable asset of protecting its research. Some DuPont businesses operate in environments in which the availabilityCorteva and protection ofactively seeks to secure intellectual property rights affect competition. Information onas part of an overall strategy to protect its investment in innovations and maximize the importanceresults of its research and development program. While the company believes that its intellectual property rightsestate, taken as a whole, provides a competitive advantage in many of its businesses, no single patent, trademark, license or group of related patents or licenses is in itself essential to Pioneer is included in Item 1 Agriculture business discussion beginning on page 4the company as a whole or to any of this report.the company’s segments.
Trade secrets are an important element of the company's intellectual property. Many of the processes used to make DuPontCorteva products are kept as trade secrets which, from time to time, may be licensed to third parties. DuPontCorteva vigilantly protects all of its intellectual property including its trade secrets. When the company discovers that its trade secrets have been unlawfully taken, it reports the matter to governmental authorities for investigation and potential criminal action, as appropriate. In addition, the company takes measures to mitigate any potential impact, which may include civil actions seeking redress, restitution and/or damages based on loss to the company and/or unjust enrichment.
Patents & Trademarks:DuPont Corteva continually applies for and obtains U.S. and foreign patents and has access to a large patent portfolio, both owned and licensed. DuPont’sCorteva’s rights under these patents and licenses, as well as the products made and sold under them, are important to the company in the aggregate. The protection afforded by these patents varies based on country, scope of individual patent coverage, as well as the availability of legal remedies in each country. This significant patent estate may be leveraged to align with the company’s strategic priorities within and across segments.product lines. At December 31, 2016,2019, the company owned about 6,500 active5,200 U.S. patents and about 10,0009,200 active patents outside of the U.S., of which about 55 and 30 percent, respectively, relate to the Agriculture segment.
Part I
ITEM 1. BUSINESS,continued
Remaining life of granted patents owned as of December 31, 2016:2019:
| | | | U.S. |
| Other Countries |
| Approximate U.S. | Approximate Other Countries |
| Within 5 years | 1,400 |
| 1,900 |
| 600 | 800 |
| 6 to 10 years | 1,600 |
| 4,100 |
| 1,100 | 2,800 |
| 11 to 16 years | 2,400 |
| 3,700 |
| 2,200 | 5,100 |
| 16 to 20 years | 1,100 |
| 300 |
| 1,300 | 500 |
| Total | 6,500 |
| 10,000 |
| 5,200 | 9,200 |
In addition to its owned patents, the company owns over 8,3007,100 patent applications.
The company also owns or licenses manyhas licensed a substantial number of tradenames, trademarks that have significant recognition at the consumer retail level and/or business to business level. Ownership rights in trademarks do not expire if the trademarks are continued in use and properly protected.
Research and Development
DuPont’s investment in research and development (R&D) was $1.6 billion in 2016, $1.9 billion in 2015 and $2.0 billion in 2014. DuPont conducts R&D activities to renew our portfolio, create new product lines, and transform markets to deliver resultstrademark registrations in the short, midUnited States and long term. Each businessother countries, including over 12,100 registrations and pending trademark applications in a number of jurisdictions.
In addition, the company directs R&D activities that support its business objectives,holds multiple long-term biotechnology trait licenses from third parties as a normal course of business. Most corn hybrids and soybean varieties sold to customers contain biotechnology traits licensed from third parties under these long-term licenses.
Competition
The company competes with producers of seed germplasm, trait developers, and crop protection products on a global basis. The global market for products within the industry is highly competitive and the company supports cross-businessbelieves competition has and cross-functional investmentwill continue to incubate new science-intensive growth opportunities additive tointensify with industry consolidation. Corteva competes based on germplasm and trait leadership, price, quality and cost competitiveness and the existing business portfolios.offering of a holistic solution. The R&D portfolio is managed by senior businesscompany’s key competitors include BASF, Bayer, FMC and R&D leaders to ensure consistency with the corporateChemChina, as well as companies trading in generic crop protection chemicals and business strategies and to capitalize on the application of emerging science. DuPont’s R&D leverages the company's unique world-class science, technology and engineering capabilities, deep understanding of markets and value chains, and research collaborations, to drive revenue and profit growth.regional seed companies.
The company protects its R&D investment through its intellectual property strategy. See discussion under “Intellectual Property” beginning on page 7.
Additional information with respect to R&D related to Agriculture is included on page 4.
Environmental Matters
Information related to environmental matters is included in several areas of this report: (1) Environmental Proceedings beginning on page 18,27, (2) Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on pages 43, 48-5067, 73-75 and (3) Notes 1Note 2 - Summary of Significant Accounting Policies, and 15Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.
Part I
ITEM 1. BUSINESS,continued
Available Information
The company is subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, the company is required to file reports and information with the Securities and Exchange Commission (SEC), including reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
The public may read and copy any materials the company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are also accessible on the company'sCorteva's website at http://www.dupont.comwww.corteva.com/ by clicking on the section labeled "Investors", then on "Filings & Reports" and then on "SEC Filings."Financial Information." These reports are made available, without charge, as soon as is reasonably practicable after the company files or furnishes them electronically with the SEC.
Executive Officers of the RegistrantInformation related to the company's Executive Officers is included in Item 10, Directors, Executive Officers and Corporate Governance, beginning on page 53 of this report.
Part I
ITEM 1A. RISK FACTORS
Risks relatingThe successful development and commercialization of Corteva’s pipeline products, including Enlist E3™ soybeans, will be necessary for Corteva’s growth.
Corteva uses advanced breeding technologies to produce hybrids and varieties with superior performance in farmers’ fields and uses biotechnology to introduce traits that enhance specific characteristics of its crops. Corteva also uses advanced analytics, software tools, mobile communications and new planting and monitoring equipment to provide agronomic recommendations to growers. Additionally, Corteva conducts research into biological and chemical products to protect farmers’ crops from pests and diseases and enhance plant productivity.
New product concepts may be abandoned for many reasons, including greater anticipated development costs, technical difficulties, lack of efficacy, regulatory obstacles or inability to market under regulatory frameworks, competition, inability to prove the original concept, lack of demand and the need to divert focus, from time to time, to other initiatives with perceived opportunities for better returns. The processes of active ingredient development or discovery, breeding, biotechnology trait discovery and development and trait integration are lengthy, and a very small percentage of the chemicals, genes and germplasm Corteva tests is selected for commercialization. Furthermore, the length of time and the risk associated with the breeding and biotech pipelines are interlinked because both are required as a package for commercial success in markets where biotech traits are approved for growers. For example, the transition to the Mergerscompany’s Enlist E3™ soybean technology is expected to take five years and is packaged with its Enlist One® and Enlist Duo® herbicides. In countries where biotech traits are not approved for widespread use, Corteva’s seed sales depend on the quality of its germplasm. While initial commercialization efforts have been promising, there are no guarantees that anticipated levels of product acceptability within Corteva's markets will be achieved or that higher quality products will not be developed by Corteva's competitors in the future.
Speed in discovering, developing, protecting and responding to new technologies, including new technology-based distribution channels that could facilitate Corteva’s ability to engage with customers and end users, and bringing related products to market is a significant competitive advantage. Commercial success frequently depends on being the first company to the market, and many of Corteva’s competitors are also making considerable investments in similar new biotechnology products, improved germplasm products, biological and chemical products and agronomic recommendation products.
Corteva participates in an industry that is highly competitive and has undergone consolidation, which could increase competitive pressures.
Corteva currently faces significant competition in the markets in which it operates. In most segments of the market, the number of products available to the grower is steadily increasing as new products are introduced. At the same time, certain products are coming off patent and are thus available to generic manufacturers for production and commercialization. Additionally, data analytic tools and web-based new direct purchase models offer increased transparency and comparability, which creates price pressures. Corteva cannot predict the pricing or promotional actions of its competitors. Aggressive marketing or pricing by Corteva’s competitors could adversely affect Corteva’s business, results of operations and financial conditions. As a result, Corteva continues to face significant competitive challenges.
Corteva may not be able to obtain or maintain the necessary regulatory approvals for some of its products, including its seed and crop protection products, which could restrict its ability to sell those products in some markets.
Regulatory and legislative requirements affect the development, manufacture and distribution of Corteva’s products, including the testing and planting of seeds containing Corteva’s biotechnology traits and the import of crops grown from those seeds, and non-compliance can harm Corteva’s sales and profitability.
Seed products incorporating biotechnology derived traits and crop protection products must be extensively tested for safety, efficacy and environmental impact before they can be registered for production, use, sale or commercialization in a given market. In certain jurisdictions, Corteva must periodically renew its approvals for both biotechnology and crop protection products, which typically require Corteva to demonstrate compliance with then-current standards which generally are more stringent since the prior registration. The risk factors below shouldregulatory approvals process is lengthy, costly, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. The regulatory approvals process for products that incorporate novel modes of action or new technologies can be read in conjunction withparticularly unpredictable and uncertain due to the risk factorsthen-current state of regulatory guidelines and objectives, as well as governmental policy considerations and non-governmental organization and other informationstakeholder considerations.
Part I
ITEM 1A. RISK FACTORS,continued
Furthermore, the detection of biotechnology traits or chemical residues from a crop protection product not approved in the country in which Corteva sells or cultivates its product, or in a country to which Corteva imports its product, may affect Corteva’s ability to supply its products or export its products, or even result in crop destruction, product recalls or trade disruption, which could result in lawsuits and termination of licenses related to biotechnology traits and raw material supply agreements. Delays in obtaining regulatory approvals to import, including those related to the Mergers set forthimportation of crops grown from seeds containing certain traits or treated with specific chemicals, may influence the rate of adoption of new products in globally traded crops.
Additionally, the regulatory environment may be impacted by the activities of non-governmental organizations and special interest groups and stakeholder reaction to actual or perceived impacts of new and existing technology, products or processes on safety, health and the environment. Obtaining and maintaining regulatory approvals requires submitting a significant amount of information and data, which may require participation from technology providers. Regulatory standards and trial procedures are continuously changing. In addition, Corteva has seen an increase in recent years in the Registration Statement andnumber of lawsuits filed by those who identify themselves as public or environmental interest groups seeking to invalidate pesticide product registrations and/or challenge the risk factors related to the company’s operations set forth below as well as the other information contained in this report.
Regulatory approvals may not be received, may take longer than expectedway federal or may impose conditions that are not presently anticipated or that cannot be met.
Before the Mergers may be completed, various approvals, authorizations and declarations of non-objection must be obtained from certain regulatory and governmental authorities. Subject to the terms and conditions of the Merger Agreement, Dow and DuPont have each agreed to use their reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with each other in doing, all things necessary, proper or advisable to consummate and make effective, as soon as possible following the date of the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement. For purposes of the foregoing, "reasonable best efforts" includes (i) the sale, divestiture or disposition of such assets or businesses of either party or its subsidiaries or affiliates and (ii) restrictions or actions that after the Effective Time would limit DowDuPont's or its subsidiaries' or affiliates' freedom of action or operations with respect to retaining, or its ability to retain, one or more of its or its subsidiaries' businesses, product lines or assets. These regulatory andstate governmental entities apply the rules and regulations governing pesticide produce use. The pace of change together with the lack of regulatory harmony could result in unintended noncompliance. Responding to these changes and meeting existing and new requirements may impose conditions on the granting of such approvals and if such regulatory and governmental entities seekinvolve significant costs or capital expenditures or require changes in business practice that could result in reduced profitability. The failure to impose such conditions, lengthy negotiations may ensue among such regulatoryreceive necessary permits or governmental entities, DuPont and Dow. Such conditions and the process of obtaining regulatory approvals could have near- and long-term effects on Corteva’s ability to produce and sell some current and future products.
Enforcing Corteva’s intellectual property rights, or defending against intellectual property claims asserted by others, could materially affect Corteva’s business, results of operations and financial condition.
Intellectual property rights, including patents, plant variety protection, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to Corteva’s business. Corteva endeavors to protect its intellectual property rights in jurisdictions in which its products are produced or used and in jurisdictions into which its products are imported. However, Corteva may be unable to obtain protection for its intellectual property in key jurisdictions. Further, changes in government policies and regulations, including changes made in reaction to pressure from non-governmental organizations, or the effectpublic generally, could impact the extent of delaying completionintellectual property protection afforded by such jurisdictions.
Corteva has designed and implemented internal controls to restrict use of, access to and distribution of its intellectual property. Despite these precautions, Corteva’s intellectual property is vulnerable to infringement, misappropriation and other unauthorized access, including through employee or licensee error or actions, theft and cybersecurity incidents, and other security breaches. When unauthorized access and use or counterfeit products are discovered, Corteva reports such situations to governmental authorities for investigation, as appropriate, and takes measures to mitigate any potential impact. Protecting intellectual property related to biotechnology is particularly challenging because theft is difficult to detect and biotechnology can be self-replicating.
Competitors are increasingly challenging intellectual property positions and the outcomes can be highly uncertain. Third parties may claim Corteva’s products violate their intellectual property rights. Defending such claims, even those without merit, could be time-consuming and expensive. In addition, any such claim could result in Corteva’s having to enter into license agreements, develop non-infringing products or engage in litigation that could be costly. If challenges are resolved adversely, it could negatively impact Corteva’s ability to obtain licenses on competitive terms, develop and commercialize new products and generate sales from existing products.
In addition, because of the Mergersrapid pace of technological change, the confidentiality of patent applications in some jurisdictions and/or the uncertainty in predicting the outcome of complex proceedings relating to ownership and the scope of patents relating to certain emerging technologies, competitors may be issued patents related to Corteva’s business unexpectedly. These patents could reduce the value of Corteva’s commercial or pipeline products or, to the extent they cover key technologies on which Corteva has relied, require Corteva to seek to obtain licenses (and Corteva cannot ensure it would be able to obtain such conditionsa license on acceptable terms) or cease using the technology, no matter how valuable to Corteva’s business.
Legislation and jurisprudence on patent protection is evolving and changes in laws could affect Corteva’s ability to obtain or maintain patent protection for, and otherwise enforce Corteva’s patents related to, its products.
Part I
ITEM 1A. RISK FACTORS,continued
Corteva’s business may not be satisfiedmaterially affected by competition from manufacturers of generic products.
Competition from manufacturers of generic products is a challenge for an extended periodCorteva’s branded products around the world, and the loss or expiration of time. Such conditionsintellectual property rights can have a significant adverse effect on Corteva’s revenues. The date at which generic competition commences may also impose additional costs or limitations onbe different from the combined company following the completion of the Mergers, including the requirementdate that the respective Dow and DuPont businesses divest certain assets if necessary in order to obtain certainpatent or regulatory approvals, and may limitexclusivity expires. However, upon the abilityloss or expiration of patent protection for one of Corteva’s products or of a product that Corteva licenses, or upon the combined company to integrate parts“at-risk” launch (despite pending patent infringement litigation against the generic product) by a generic manufacturer of the DuPont and Dow businesses and negatively impact the ultimate compositiona generic version of the entities we expect to constitute in connection with the Intended Business Separations. These conditions may therefore reduce the anticipated benefitsone of the Mergers,Corteva’s patented products or of a product that Corteva licenses, Corteva can lose a major portion of revenues for that product, which could alsocan have a material adverse effect on Corteva’s business.
Corteva is dependent on its relationships or contracts with third parties with respect to certain of its raw materials or licenses and commercialization.
Corteva is dependent on third parties in the combined company’sresearch, development and commercialization of its products and enters into transactions including, but not limited to, supply agreements and licensing agreements in connection with Corteva’s business. The majority of Corteva’s corn hybrids and soybean varieties sold to customers contain biotechnology traits that Corteva licenses from third parties under long-term licenses. If Corteva loses its rights under such licenses, it could negatively impact Corteva’s ability to obtain future licenses on competitive terms, commercialize new products and generate sales from existing products. To maintain such licenses, Corteva may elect to out-license its technology, including germplasm. There can be no guarantee that such out-licensing will not ultimately strengthen Corteva’s competition thereby adversely impacting Corteva’s results of operations.
While Corteva relies heavily on third parties for multiple aspects of its business and cash flowscommercialization activities, Corteva does not control many aspects of such third parties’ activities. Third parties may not complete activities on schedule or in accordance with Corteva’s expectations. Failure by one or more of these third parties to meet their contractual or other obligations to Corteva or to comply with applicable laws or regulations, or any disruption in the relationship between Corteva and one or more of these third parties could delay or prevent the development, approval or commercialization of Corteva’s products and could also result in non-compliance or reputational harm, all with potential negative implications for Corteva’s business.
In addition, Corteva’s agreements with third parties may obligate it to meet certain contractual or other obligations to third parties. For example, Corteva may be obligated to meet certain thresholds or abide by certain boundary conditions. If Corteva were to fail to meet such obligations to the third parties, its relationship with such third parties may be disrupted. Such a disruption could negatively impact certain of Corteva’s licenses on which it depends, could cause reputational harm, and could negatively affect Corteva’s business, results of operations and financial condition.
The costs of complying with evolving regulatory requirements could negatively impact Corteva’s business, results of operations and financial condition. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
Corteva is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, waste water discharges, the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials and the use of genetically modified seeds and crop protection active ingredients by growers.
Environmental and health and safety laws, regulations and standards expose Corteva to the risk of substantial costs and liabilities, including liabilities associated with Corteva’s business and the discontinued and divested businesses and operations of EID. As is typical for businesses like Corteva’s, soil and groundwater contamination has occurred in the past at certain sites and may be identified at other sites in the future. Disposal of waste from Corteva’s business at off-site locations also exposes it to potential remediation costs. Consistent with past practice, Corteva is continuing to monitor, investigate and remediate soil and groundwater contamination at several of these sites.
Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt Corteva’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities, which may be materially higher than Corteva’s accruals.
Part I
ITEM 1A. RISK FACTORS,continued
The degree of public understanding and acceptance or perceived public acceptance of Corteva’s biotechnology and other agricultural products and technologies can affect Corteva’s sales and results of operations by affecting planting approvals, regulatory requirements and DuPont cannot predict what, if any, changes may be requiredcustomer purchase decisions.
Concerns and claims regarding the safe use of seeds with biotechnology traits and crop protection products in general, their potential impact on health and the environment, and the perceived impacts of biotechnology on health and the environment, reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These include concerns and claims that increased use of crop protection products, drift, inversion, volatilization and the use of biotechnology traits meant to reduce the resistance of weeds or pests to control by regulatorycrop protection products, could increase or governmental authorities whose approvals are required. Theaccelerate such resistance and otherwise negatively impact health and the environment. These and other concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, may not be received at all, may not be received in a timely fashion,delayed product launches, lack of market acceptance, product discontinuation, continued pressure for and may contain conditions onadoption of more stringent regulatory intervention and litigation, termination of raw material supply agreements and legal claims. These and other concerns could also influence public perceptions, the completionviability or continued sales of certain of Corteva’s products, Corteva’s reputation and the Mergers.
DuPont or Dow may waive one or more of the closing conditions without re-soliciting stockholder approval.
DuPont or Dow may determinecost to waive, in whole or in part, one or more of the conditions to its obligations to consummate the Mergers. DuPont or Dow currently expect to evaluate the materiality of any waiver and its effect on DuPont stockholders or Dow stockholders, as applicable, in light of the facts and circumstances at the time to determine whether any amendment of the Registration Statement or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the Mergers or as to re-soliciting stockholder approval or amending the Registration Statement ascomply with regulations. As a result, of the waiver will be made by DuPont or Dow, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.
The Merger Agreement may be terminated in accordance with its terms and the Mergers may not be completed.
The completion of the Mergers is subject to the satisfaction or waiver of a number of conditions. Those conditions include: (i) the receipt of certain domestic and foreign regulatory approvals under competition laws, including the termination or expiration of the waiting period under the HSR Act; (ii) the absence of certain governmental restraints or prohibitions preventing completion of the DuPont Merger or the Dow Merger; (iii) the approval of the shares of DowDuPont Common Stock to be issued to DuPont stockholders and Dow stockholders for listing on the NYSE; (iv) the reasonable determination by DuPont and Dow that neither the DuPont Merger nor the Dow Merger will constitute an acquisition of a 50 percent or greater interest in Dow or DuPont, under Section 355(e) of the Code; (v) the truth and correctness of the representations and warranties made by both parties (generally subject to certain “materiality” and “material adverse effect” qualifiers); (vi) the performance by DuPont and Dow of their respective obligations under the Merger Agreement in all material respects; and (vii) the receipt by both parties of legal opinions from their respective tax counsels with respect to the tax-free nature of each of the Mergers.
Part I
ITEM 1A. RISK FACTORS,continued
These conditions to the closing may not be fulfilled and, accordingly, the Mergers may not be completed. In addition, if the Mergers are not completed by March 15, 2017 (subject to extension to June 15, 2017, by either party if certain antitrust-related conditions to the closing have not been satisfied), either DuPont or Dow may choose not to proceed with the Mergers, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Mergers. In addition, DuPont or Dow may elect to terminate the Merger Agreement in certain other circumstances. If the Merger Agreement is terminated, Dow and DuPont may incur substantial fees in connection with termination of the Merger Agreement and will not recognize the anticipated benefits of the Mergers.
Termination of the Merger Agreement could negatively impact DuPont.
If the Merger Agreement is terminated in accordance with its terms and the Mergers are not consummated, the ongoing businesses of DuPont may be adversely affected by a variety of factors. DuPont's respective businesses may be adversely impacted by the failure to pursue other beneficial opportunities during the pendency of the Mergers, by the failure to obtain the anticipated benefits of completing the Mergers, by payment of certain costs relating to the Mergers, and by the focus of DuPont's management on the Mergers for an extended period of time rather than on management opportunities or other issues. The market price of DuPont common stock might decline as a result of any such failures to the extent that the current market prices reflect a market assumption that the Mergers will be completed.
In addition, if the Merger Agreement is terminated under certain circumstances, DuPont or Dow may be required to pay a termination fee of $1.9 billion to the other party, depending on the circumstances surrounding the termination. DuPont may also be negatively impacted if the Merger Agreement is terminated and it seeks but is unable to find another business combination or strategic transaction offering equivalent or more attractive consideration than the consideration to be provided in the Mergers, or if DuPont becomes subject to litigation related to entering into or failing to consummate the Mergers, including direct actions by DuPont stockholders against the directors and/or officers of DuPont for breaches of fiduciary duty, and stockholder derivative actions.
There can be no assurance that the expected benefits of the Mergers, including the Intended Business Separations, will occur or be fully or timely realized.
The success of the Mergers will depend, in part, on the combined company’s ability to successfully combine the businesses of DuPont and Dow. If the combined company is not able to successfully combine the businesses of DuPont and Dow in an efficient and effective manner, including if the Intended Business Separations are delayed or ultimately not consummated, the anticipated benefits, synergies, operational efficiencies and cost savings may not be realized fully or at all, or may take longer to realize than expected, and the value of common stock, the revenues, levels of expenses and results of operations of the combined company may be adversely affected.
The combination of two independent businesses is a complex, costly and time consuming process, and the management of the combined company may face significant challenges in implementing such integration, including, without limitation:
latent impacts resulting from the diversion of management’s attention from ongoing business concerns as a result of the devotion of management’s attention to the Mergers and resulting performance shortfalls;
ongoing diversion of the attention of management from the operation of the combined company’s business as a result of the Intended Business Separations;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
difficulties in managing a larger combined company addressing differences in business culture and retaining key personnel;
the possibility of faulty assumptions underlying expectations regarding the integration process, including with respect to the Intended Business Separations;
unanticipated issues in integrating information technology, communications programs, financial procedures and operations, and other systems, procedures and policies;
unanticipated changes in applicable laws and regulations;
managing tax costs or inefficiencies associated with integrating the operations of the combined company and the Intended Business Separations;
coordinating geographically separate organizations; and unforeseen expenses or delays associated with the Mergers.
Part I
ITEM 1A. RISK FACTORS,continued
Some of these factors will be outside of the control of management and any one of them could result in increased costs and diversion of management’s time and energy, as well as decreases in the amount of expected revenues which could materially impact the company’s business, financial conditions and results of operations. The integration process and other disruptions resulting from the Mergers may also adversely affect the combined company’s relationships with employees, suppliers, customers, distributors, licensors and others with whom DuPont and Dow have business or other dealings, and difficulties in integrating the businesses or regulatory functions of DuPont and Dow could harm the reputation of the combined company.
If the combined company is not able to successfully combine the businesses of DuPont and Dow in an efficient, cost-effective and timely manner, the anticipated benefits and cost savings of the Mergers (including the Intended Business Separations) may not be realized fully, or at all, or may take longer to realize than expected, and the value of DowDuPont common stock, the revenues, levels of expenses and results of operations may be affected adversely. If the combined company is not able to adequately address integration challenges, the combined company may be unable to integrate successfully DuPont’s and Dow’s operations, effect the Intended Business Separations or to realize the anticipated benefits of the transactions.
DuPont will be subject to business uncertainties and contractual restrictions until the Mergers are consummated.
Uncertainty about the completion or effect of the Mergers on employees, suppliers, customers, distributors, licensors and licensees as well as regulatory permits, licenses, contracts and other agreements, particularly for which the Mergers could be deemed a “change-in-control” under the applicable terms and conditions may have an adverse effect on DuPont, Dow and consequently on the combined company. Changes to existing business relationships, including termination or modification, could negatively affect each of DuPont’s and/or Dow's revenues, earnings and cash flow, as well as the market price of its common stock. These uncertainties may impair each party’s ability to attract, retain and motivate key personnel until the consummation of the Mergers, and could cause suppliers, customers and others that deal with the parties to seek to change existing business relationships with them. Retention of employees could be challenging during the pendency of the Mergers due to uncertainty about their future roles. If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the businesses, the combined company’s business following the consummation of the Mergers could be negatively impacted. Further, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of DuPont and Dow to the same extent that DuPont and Dow have previously been able to attract or retain their employees.
In addition, the Merger Agreement restricts each of DuPont and Dow, without the consent of the other party, from making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and expenditures, paying dividends in excess of certain thresholds, repurchasing or issuing securities outside of existing share repurchase and equity award programs, and taking other specified actions until the earlier of the completion of the Mergers or the termination of the Merger Agreement. These restrictions may prevent or delay pursuit of strategic corporate or business opportunities that may arise prior to the consummation of the Mergers. Adverse effects arising during the pendency of the Mergers could be exacerbated by any delays in consummation of the Mergers or termination of the Merger Agreement.
Inability to access the debt capital markets could impair DuPont's liquidity, business or financial condition.
DuPont has relied and continues to rely on access to the debt capital markets to finance its day-to-day and long-term operations. In connection with the Mergers, Dow and DuPont do not intend for DowDuPont to incur debt obligations or guarantee the debt obligations of Dow or DuPont.
Any limitation on DuPont’s ability to raise money in the debt markets could have a substantial negative effect on its liquidity. Access to the debt capital markets in amounts adequate to finance DuPont's activities could be impaired as a result of the existence of material nonpublic information about the Intended Business Separations and other potential factors, including factors that are not specific to DuPont, such as a severe disruption of the financial markets and interest rate fluctuations.
DuPont expects to incur substantial transaction-related costs in the connection with the Mergers.
DuPont expects to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the transaction. During the years ended December 31, 2016 and 2015, the company incurred transaction-related costs of $386 million and $10 million, respectively. The substantial majority of these costs are and will continue to be expenses relating to the Mergers and the Intended Business Separations, including costs relating to integration and separation planning. These costs could adversely affect the financial condition and results of operation of DuPont prior to the Mergers and of the combined company following the Mergers.
Part I
ITEM 1A. RISK FACTORS,continued
The determination to proceed with the Intended Business Separations will not be made at the time of the consummation of the Mergers, and the expected benefits of such transactions, if they occur, will be uncertain.
In connection with the Mergers, Dow and DuPont have announced their intention that the combined company will pursue the separation of the combined company’s agriculture business, material science business and specialty products business through one or more tax-efficient transactions, resulting in three independent, publicly traded companies. However, consummation of the Mergers is not conditioned on the Intended Business Separations, and the determination as to whether to pursue such transactions will be made by the DowDuPont Board following the consummation of the Mergers. Following the consummation of the Mergers, the DowDuPont Board may ultimately determine to abandon one or more of the Intended Business Separations, and such determination could have an adverse impact on the value of the combined company. Additionally, there are many determinations with respect to the Intended Business Separations that, by their nature, cannot be determined until the completion of the Mergers, including definitive determinations with regard to the capital structure of the various businesses and allocation of liabilities among them. As such, there are many factors that could, through the closing and prior to the determination by the DowDuPont Board to proceed with the Intended Business Separations, impact the structure or timing of, the anticipated benefits from, or determination to ultimately proceed with, the Intended Business Separations, including, among others, global economic conditions, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, tax considerations, and other challenges that could affect the global economy, specific market conditions in one or more of the industries of the businesses proposed to be separated, and changes in the regulatory or legal environment. Such changes could adversely impact the value of one or more of the Intended Business Separations to the combined company’s stockholders. Additionally, to the extent the DowDuPont Board determines to proceed with the Intended Business Separations, the consummation of such transactions is a complex, costly and time consuming process, and there can be no assurance that the intended benefits of such transactions will be achieved. An inability to realize the full extent of the anticipated benefits of the Intended Business Separations, as well as any delays encountered in the process, could have an adverse effect upon the revenues, level of expenses and operating results of the agricultureCorteva’s business, the specialty products business, the material science business and/or the combined company.
Risks Related to the Company’s Operations
The company's operations could be affected by various risks, many of which are beyond its control. Based on current information, the company believes that the following identifies the most significant risk factors that could affect its businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
The company’s operations outside the United States are subject to risks and restrictions, which could negatively affect our results of operations, financial condition and cash flows.
The company’s operations outside
Changes in agricultural and related policies of governments and international organizations may prove unfavorable.
In many markets there are various pressures to reduce government subsidies to farmers, which may inhibit the United States are subject to risks and restrictions, including fluctuationsgrowth in currency values and foreign-currency exchange rates; exchange control regulations; changesthese markets of products used in local political or economic conditions; import and trade restrictions; import or export licensing requirements and trade policy and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. Although DuPont has operations throughout the world, sales outsideagriculture. In addition, government programs that create incentives for farmers (for example, the U.S. in 2016 were principallyRenewable Fuel Standard) may be modified or discontinued. However, it is difficult to customers in Eurozone countries, China, Brazil,predict accurately whether, and Japan. Further,if so when, such changes will occur. Corteva expects that the company’s largest currency exposures are the European euro, the Chinese yuan, the Brazilian real,policies of governments and the Japanese yen. Market uncertainty or an economic downturn in these geographic areas could reduce demand for the company’s products and result in decreased sales volume, which could have a negative impact on DuPont’s results of operations. In addition, changes in exchange rates mayinternational organizations will continue to affect the company’s results from operations, financial condition and cash flows in future periods. The company actively manages currency exposures that are associated with net monetary asset positions, committed currency purchases and sales, foreign currency-denominated revenues and other assets and liabilities created in the normal course of business.
Volatility in energy and raw materials costs could have a significant impact on the company's sales and earnings.
The company's manufacturing processes consume significant amounts of energy and raw materials, the costs of which are subject to worldwide supply and demandplanting choices made by growers as well as other factors beyond the controlincome available to growers to purchase products used in agriculture and, accordingly, the operating results of the company. Significant variations in the cost of energy, which primarily reflect market prices for oil, natural gas, and raw materials affect the company's operating results from period to period. Legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility.agriculture industry.
Part I
ITEM 1A. RISK FACTORS,continued
When possible, the company purchases raw materials through negotiated long-term contracts to minimize the impact of price fluctuations. Additionally, the company enters into over-the-counter and exchange traded derivative commodity instruments to hedge its exposure to price fluctuations on certain raw material purchases. The company takes actions to offset the effects of higher energy and raw material costs through selling price increases, productivity improvements and cost reduction programs. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If the company is not able to fully offset the effects of higher energy and raw material costs, it could have a significant impact on the company's financial results.
The company'sCorteva’s business, results of operations and financial condition could be seriously impactedadversely affected by businessindustrial espionage and other disruptions and security breaches, including cybersecurity incidents.to its supply chain, information technology or network systems.
Business and/or supply chain disruptions, plant and/or power outages and information technology system and/or network disruptions, regardless of cause including acts of sabotage, employee error or other actions, geo-political activity, local epidemics or pandemics, weather events and natural disasters could seriously harm the company'sCorteva’s operations as well as the operations of its customers and suppliers. FailureFor example, a pandemic in locations where Corteva has significant operations, sales, or key suppliers could have a material adverse effect on Corteva’s results of operations. In addition, terrorist attacks and natural disasters have increased stakeholder concerns about the security and safety of chemical production and distribution.
Business and/or supply chain disruptions may also be caused by security breaches, which could include, for example, attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error or actions or other disruptions. Corteva and/or its suppliers may fail to effectively prevent, detect and recover from these or other security breaches including attacks on information technology and, infrastructure by hackers; viruses;as a consequence, such breaches due to employee error or actions; or other disruptions could result in misuse of the company'sCorteva’s assets, business disruptions, loss of property including trade secrets and confidential business information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales and interference with regulatory compliance.
Like most major corporations, the companyCorteva is the target of industrial espionage, including cyber-attacks, from time to time. The companyCorteva has determined that these attacksincidents have resulted, and could result in the future, in unauthorized parties gaining access to at least certain confidential business information. However, to date, the companyCorteva has not experienced any material financial impact, changes in the competitive environment or impact on business operations that it attributes tofrom these attacks.events. Although management does not believe that the companyCorteva has experienced any material losses to date related to industrial espionage and security breaches, including cybersecurity incidents, there can be no assurance that itCorteva will not suffer such losses in the future. The company
Corteva actively manages the risks within its control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, the companyCorteva may be required to expend significant resources to enhance its control environment, processes, practices and other protective measures. Despite these efforts, such events could have a material adverse effect on the company'sCorteva’s business, financial condition or results of operations.
Unpredictable
Part I
ITEM 1A. RISK FACTORS,continued
Corteva’s sales to its customers may be adversely affected should a company successfully establish an intermediary platform for the sale of Corteva’s products or otherwise position itself between Corteva and its customers.
Corteva expects its distribution model will service customers primarily through the Pioneer direct sales channel in key agricultural geographies, including the United States. In addition, Corteva expects to supplement this approach with strong retail channels, including distributors, agricultural cooperatives and dealers, and with digital solutions that assist farmer decision-making with a view to optimize their product selection and maximize their yield and profitability. While Corteva expects the indirect channels and its digital platform will extend its reach and increase exposure of its products to other potential customers, including smaller farmers or farmers in less concentrated areas, there can be no assurance that Corteva will be successful in this regard. If a competitor were to successfully establish an intermediary platform for distribution of Corteva’s products, especially with respect to Corteva’s digital platform, it may disrupt Corteva’s distribution model and inhibit Corteva’s ability to provide a complete go-to-market strategy covering the direct, dealer and retail channels. In such a circumstance, Corteva’s sales may be adversely affected.
Volatility in Corteva’s input costs, which include raw materials and production costs, could have a significant impact on Corteva’s business, results of operations and financial condition.
Corteva’s input costs are variable based on the costs associated with production or with raw materials Corteva uses. For example, Corteva’s production costs vary, especially on a seasonal basis where changes in weather influence supply and demand. In addition, Corteva’s manufacturing processes consume significant amounts of raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond Corteva’s control. Corteva refers to these costs collectively as input costs. Significant variations in input costs affect Corteva’s operating results from period to period.
When possible, Corteva purchases raw materials through negotiated long-term contracts to minimize the impact of price fluctuations. Corteva also enters into over-the-counter and exchange traded derivative commodity instruments to hedge its exposure to price fluctuations on certain raw material purchases. In addition, Corteva takes actions to offset the effects of higher input costs through selling price increases, productivity improvements and cost reduction programs. Success in offsetting higher input costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If Corteva is not able to fully offset the effects of higher input costs, it could have a significant impact on its financial results.
Corteva may be unable to achieve all the benefits that it expects to achieve from the Internal Reorganization and future restructuring and other cost savings initiatives. Combining the agriculture businesses of EID and DAS may be more difficult, costly or time-consuming than expected, which may adversely affect Corteva’s results and negatively affect the value of Corteva common stock.
Since the Merger, Corteva has benefited from and expects to continue to benefit from significant cost synergies through the DowDuPont Cost Synergy Program (the “Synergy Program”) which was designed to integrate and optimize the organization in preparation for the separation of DowDuPont’s materials science business through the separation and distribution of Dow (which occurred on April 1, 2019) and the separation of DowDuPont’s agriculture business through Corteva’s separation and distribution (which occurred on June 1, 2019). This integration and optimization was designed to be achieved through production cost efficiencies, enhancement of the agricultural supply chain, elimination of duplicative agricultural research and development programs, optimization of Corteva’s global footprint across manufacturing, sales and research and development, the reduction of corporate and leveraged services costs, and the realization of significant procurement synergies. In addition, Corteva’s management also expects Corteva will achieve growth synergies and other meaningful savings and benefits as a result of Corteva’s separation, as well as any future restructuring or cost savings initiatives.
Combining EID and DAS's independent agriculture businesses and preparing for Corteva’s separation and distribution were complex, costly and time-consuming processes and management may face significant challenges in implementing or realizing the expected synergies from Corteva’s separation and distribution, many of which may be beyond the control of management, including, without limitation:
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
the possibility of faulty assumptions underlying expectations regarding the integration or separation process, including with respect to the intended tax efficient transactions;
Part I
ITEM 1A. RISK FACTORS,continued
unanticipated issues in integrating, replicating or separating information technology, communications programs, financial procedures and operations, and other systems, procedures and policies;
addressing differences in business culture and retaining key personnel;
unanticipated changes in applicable laws and regulations;
managing tax costs or inefficiencies associated with integrating the operations of Corteva and the intended tax efficient separation transactions;
coordinating geographically separate organizations;
failing to successfully optimize Corteva’s facilities footprint;
failing to take advantage of Corteva’s global supply chain;
failing to identify and eliminate duplicative programs; and
failing to otherwise integrate EID’s or DAS’s respective agriculture businesses, including their technology platforms.
Some of these factors are outside of Corteva’s control and any one of them could result in increased costs and diversion of management’s time and energy, as well as decreases in the amount of expected revenue which could materially impact Corteva’s business, financial condition and results of operations.
If the anticipated benefits and cost savings from the Synergy Program or other future restructurings or cost initiatives are not realized fully or take longer to realize than expected, the value of Corteva’s common stock, revenues, levels of expenses and results of operations may be affected adversely. There can be no assurance that Corteva, as an independent, separate public company, will be able to sustain any or all the cost savings generated from actions under the Synergy Program or through future restructurings or cost initiatives.
Corteva’s liquidity, business, results of operations and financial condition could be impaired if it is unable to raise capital through the capital markets or short-term debt borrowings.
Any limitation on Corteva’s ability to raise money in the capital markets or through short-term debt borrowings could have a substantial negative effect on Corteva’s liquidity. Corteva’s ability to affordably access the capital markets and/or borrow short-term debt in amounts adequate to finance its activities could be impaired as a result of a variety of factors, including factors that are not specific to Corteva, such as a severe disruption of the financial markets and, in the case of debt securities or borrowings, interest rate fluctuations. Due to the seasonality of Corteva’s business and the credit programs Corteva may offer its customers, net working capital investment and corresponding debt levels will fluctuate over the course of the year.
Corteva regularly extends credit to its customers to enable them to purchase seeds or crop protection products at the beginning of the growing season. The customer receivables may be used as collateral for short-term financing programs. Any material adverse effect upon Corteva’s ability to own or sell such customer receivables, including seasonal factors that may impact the amount of customer receivables Corteva owns, may materially impact Corteva’s access to capital.
Corteva has additional agreements with financial institutions to establish programs that provide financing for select customers of Corteva’s seed and crop protection products in the United States, Latin America, Europe and Asia. The programs are renewed on an annual basis. In most cases, Corteva guarantees the extension of such credit to such customers. If Corteva is unable to renew these agreements or access the debt markets to support customer financing, Corteva’s sales may be negatively impacted, which could result in increased borrowing needs to fund working capital.
Corteva’s earnings, operations and business, among other things, will impact its credit ratings, costs and availability of financing. A decrease in the ratings assigned to Corteva or EID by the ratings agencies may negatively impact Corteva’s access to the debt capital markets and increase Corteva’s cost of borrowing and the financing of its seasonal working capital.
Part I
ITEM 1A. RISK FACTORS,continued
There can be no assurance that Corteva or EID will maintain its current or prospective credit ratings. Any actual or anticipated changes or downgrades in such credit ratings may have a negative impact on Corteva’s liquidity, capital position or access to capital markets.
Corteva’s customers may be unable to pay their debts to Corteva, which could adversely affect Corteva’s results.
Corteva offers its customers financing programs with credit terms generally less than one year from invoicing in alignment with the growing season. Due to these credit practices as well as the seasonality of Corteva’s operations, Corteva may need to issue short-term debt at certain times of the year to fund its cash flow requirements. Corteva’s customers may be exposed to a variety of conditions that could adversely affect their ability to pay their debts. For example, customers in economies experiencing an economic downturn or in a region experiencing adverse growing conditions may be unable to repay their obligations to Corteva, which could adversely affect Corteva’s results.
Increases in pension and other post-employment benefit plan funding obligations may adversely affect Corteva’s results of operations, liquidity or financial condition.
Through Corteva's ownership of EID, Corteva maintains EID defined benefit pension and other post-employment benefit plans. For some of these plans, including EID’s principal U.S. pension plan, Corteva continues as sponsor for the entire plan regardless of whether participants, including retirees, are or were associated with EID’s agriculture business. Corteva uses many assumptions in calculating its expected future payment obligations under these plans. Significant adverse changes in credit or market conditions could result in actual rates of returns on pension investments being lower than assumed. In addition, expected future payment obligations may be adversely impacted by changes in assumptions regarding participants, including retirees. In 2020, Corteva expects to contribute approximately $60 million to its pension plans other than the principal U.S. pension plan, and about $240 million for its other post-employment benefit ("OPEB") plans. Additionally, Corteva may make potential discretionary contributions to the principal U.S. pension plan in 2020. Corteva, furthermore, may be required to make significant contributions to its pension plans in the future, which could adversely affect Corteva’s results of operations, liquidity and financial condition.
Corteva’s business, results of operations and financial condition could be adversely affected by environmental, litigation and other commitments and contingencies.
As a result of Corteva’s operations, including past operations and those related to divested businesses and discontinued operations of EID, Corteva incurs environmental operating costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewater treatment, emissions testing and monitoring and obtaining permits. Corteva also incurs environmental operating costs related to environmental related research and development activities including environmental field and treatment studies as well as toxicity and degradation testing to evaluate the environmental impact of products and raw materials. In addition, Corteva maintains and periodically reviews and adjusts its accruals for probable environmental remediation and restoration costs.
Corteva expects to continue to incur environmental operating costs since it will operate global manufacturing, product handling and distribution facilities that are subject to a broad array of environmental laws and regulations. These rules are subject to change by the implementing governmental agency, which Corteva monitors closely. Corteva’s policy will require that its operations fully meet or exceed legal and regulatory requirements. In addition, Corteva expects to continue certain voluntary programs, and could consider additional voluntary actions, to reduce air emissions, minimize the generation of hazardous waste, decrease the volume of water use and discharges, increase the efficiency of energy use and reduce the generation of persistent, bioaccumulative and toxic materials. Costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, are significant and Corteva expects these costs will continue to be significant for the foreseeable future. Over the long term, such expenditures are subject to considerable uncertainty and could fluctuate significantly.
Corteva accrues for environmental matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. As remediation activities vary substantially in duration and cost from site to site, it is difficult to develop precise estimates of future site remediation costs. Corteva expects to base such estimates on several factors, including the complexity of the geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (“PRPs”) at multi-party sites and the number of, and financial viability of, other PRPs. Considerable uncertainty exists with respect to environmental remediation costs and, under adverse changes in circumstances, the potential liability may be materially higher than Corteva’s accruals.
Part I
ITEM 1A. RISK FACTORS,continued
Corteva faces risks arising from various unasserted and asserted litigation matters arising out of the normal course of its current and former business operations, including intellectual property, commercial, product liability, environmental and antitrust lawsuits. Corteva has noted a trend in public and private suits being filed on behalf of states, counties, cities and utilities alleging harm to the general public and the environment, including waterways and watersheds. Claims alleging harm to the public and the environment may be brought against Corteva, notwithstanding years of scientific evidence and regulatory determinations supporting the safety of crop protection products. The litigation involving Monsanto’s Roundup® non-selective glyphosate containing weedkiller products has resulted in negative publicity and sentiment and may lead to similar suits with respect to glyphosate-containing products and/or other established crop protection products. Claims and allegations that Corteva’s products or products that Corteva manufactures or markets on behalf of third parties are not safe could result in litigation, damage to Corteva’s reputation and have a material adverse effect on Corteva’s business. It is not possible to predict the outcome of these various proceedings. An adverse outcome in any one or more of these matters could be material to Corteva’s financial results. Various factors or developments can lead to changes in current estimates of liabilities. Such factors and developments may include, but are not limited to, additional data, safety or risk assessments, as well as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development could result in future charges that could have a material adverse effect on Corteva.
The company, pursuant to the Chemours Separation Agreement and the Corteva Separation Agreement, is entitled to indemnification from Chemours, Dow and DuPont, as applicable, for certain litigation, environmental, workers’ compensation and other liabilities related to its historical operations. In connection with the recognition of liabilities related to these matters, Corteva records an indemnification asset when recovery is deemed probable. These estimates of recovery are subject to various factors and developments that could result in differences from future estimates or the actual recovery. As of December 31, 2019, the indemnification assets pursuant to the Chemours Separation Agreement and the Corteva Separation Agreement are in aggregate $120 million within accounts and notes receivable - net and $359 million within other assets in the company’s Consolidated Balance Sheet. Any failure by, or inability to pay, these liabilities in line with the indemnification provisions of the Separation Agreements may have a material adverse effect on Corteva and its financial condition and results of operations.
In the ordinary course of business, Corteva may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses and issue guarantees of third party obligations. If Corteva were required to make payments as a result, they could exceed the amounts accrued, thereby adversely affecting Corteva’s financial condition and results of operations.
Corteva’s operations outside the United States are subject to risks and restrictions, which could negatively affect Corteva’s business, results of operations and financial condition.
Corteva’s operations outside the United States are subject to risks and restrictions, including fluctuations in foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; import and trade restrictions; import or export licensing requirements and trade policy; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. In addition, Corteva’s international operations are sometimes in countries with unstable governments, economic or fiscal challenges, military or political conflicts, local epidemics or pandemics, significant levels of crime and organized crime, or developing legal systems. This may increase the risk to the company's employees, subcontractors or other parties, and to other liabilities, such as property loss or damage to the company's products, and may affect Corteva's ability to safely operate in, or import into, or receive raw materials from these countries. For example, in December 2019, a strain of coronavirus reported to have surfaced in Wuhan, China slowed international commerce with China. While at this point, the extent to which the coronavirus may impact the company's results is uncertain, it may result in delays in receiving key raw materials for the company's products or decreased demand for the company's products, which may negatively impact Corteva's business.
Additionally, Corteva’s ability to export its products and its sales outside the United States has been, and may continue to be adversely affected by significant changes in trade, tax or other policies, including the risk that other countries may retaliate through the imposition of their own trade restrictions and/or increased tariffs in response to substantial changes to U.S. trade and tax policies.
Part I
ITEM 1A. RISK FACTORS,continued
Although Corteva has operations throughout the world, Corteva’s sales outside the United States in 2019 were principally to customers in Brazil, Eurozone countries, and Canada. Further, Corteva’s largest currency exposures are the Euro and the Brazilian Real. Market uncertainty or an economic downturn in these geographic areas could reduce demand for Corteva’s products and result in decreased sales volume, which could have a negative impact on Corteva’s results of operations. In addition, changes in exchange rates may affect Corteva’s results of operations, financial condition and cash flows in future periods. Corteva actively manages currency exposures that are associated with net monetary asset positions and committed purchases.
Climate change and unpredictable seasonal and weather factors could impact Corteva’s sales and earnings from the company’s Agriculture segment.earnings.
The agriculture industry is subject to seasonal and weather factors, which can vary unpredictably from period to period. Weather factors can affect the presence of disease and pests on a regional basis and, accordingly, can positively or adversely affect the demand for crop protection products, including the mix of products used.used or the level of returns. The weather also can affect the quality, volume and cost of seedsseed produced for sale as well as demand and product mix. Seed yields can be higher or lower than planned, which could lead to higher inventory and related-write-offsrelated write-offs. Climate change may increase the frequency or intensity of extreme weather such as storms, floods, heat waves, droughts and other events that could affect the ability to supply.
Inability to discover, developquality, volume and protect new technologiescost of seed produced for sale as well as demand and enforce the company's intellectual property rights could adverselyproduct mix. Climate change may also affect the company's financial results.availability and suitability of arable land and contribute to unpredictable shifts in the average growing season and types of crops produced.
Corteva’s business may be adversely affected by the availability of counterfeit products.
A counterfeit product is one that has been deliberately and fraudulently mislabeled as to its identity and source. A counterfeit Corteva product, therefore, is one manufactured by someone other than Corteva, but which appears to be the same as an authentic Corteva product. The company competes with major global companies that have strong intellectual property estates, including intellectual property rights supporting the useprevalence of biotechnology to enhancecounterfeit products particularly agricultural and bio-based products. Speed in discovering, developing and protecting new technologies and bringing related products to market is a significant competitive advantage.and growing industry-wide issue due to a variety of factors, including, but not limited to, the following: the widespread use of the Internet, which has greatly facilitated the ease by which counterfeit products can be advertised, purchased and delivered to individual consumers; the availability of sophisticated technology that makes it easier for counterfeiters to make counterfeit products; and the relatively modest risk of penalties faced by counterfeiters compared to the large profits that can be earned by them from the sale of counterfeit products. Further, laws against counterfeiting vary greatly from country to country, and the enforcement of existing laws varies greatly from jurisdiction to jurisdiction. For example, in some countries, counterfeiting is not a crime; in others, it may result in only minimal sanctions. In addition, those involved in the distribution of counterfeit products use complex transport routes to evade customs controls by disguising the true source of their products.
Corteva’s global reputation makes its products prime targets for counterfeiting organizations. Counterfeit products pose a risk to consumer health and safety because of the conditions under which they are manufactured (often in unregulated, unlicensed, uninspected and unsanitary sites) as well as the lack of regulation of their contents. Failure to predictmitigate the threat of counterfeit products, which is exacerbated by the complexity of the supply chain, could adversely impact Corteva’s business by, among other things, causing the loss of consumer confidence in Corteva’s name and respond effectivelyin the integrity of its products, potentially resulting in lost sales and an increased threat of litigation.
Corteva undertakes significant efforts to this competition could causecounteract the company'sthreats associated with counterfeit products, including, among other things, working with regulatory authorities and multinational coalitions to combat the counterfeiting of products and supporting efforts by law enforcement authorities to prosecute counterfeiters; assessing new and existing or candidatetechnologies to seek to make it more difficult for counterfeiters to copy Corteva’s products and easier for consumers to become less competitive, adversely affecting sales. Competitors are increasingly challenging intellectual property positionsdistinguish authentic from counterfeit products; working diligently to raise public awareness about the dangers of counterfeit products; working collaboratively with wholesalers, customs offices and law enforcement agencies to increase inspection coverage, monitor distribution channels and improve surveillance of distributors; and working with other members of an international trade association of agrochemical companies to promote initiatives to combat counterfeiting activity. No assurance can be given, however, that Corteva’s efforts and the outcomes canefforts of others will be highly uncertain. If challenges are resolved adversely, it could negatively impactentirely successful, and the company's abilitypresence of counterfeit products may continue to obtain licenses on competitive terms, commercialize new products and generate sales from existing products.increase.
Intellectual property rights, including patents, plant variety protection, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to the company's business. The company endeavors to protect its intellectual property rights in jurisdictions in which its products are produced or used and in jurisdictions into which its products are imported. However, the company may be unable to obtain protection for its intellectual property in key jurisdictions. Further, changes in government policies and regulations, including changes made in reaction to pressure from non-governmental organizations, could impact the extent of intellectual property protection afforded by such jurisdictions.
Part I
ITEM 1A. RISK FACTORS,continued
The company has designed and implemented internal controls to restrict access to and distribution of its intellectual property. Despite these precautions, the company's intellectual property is vulnerable to unauthorized access through employee error or actions, theft and cybersecurity incidents, and other security breaches. When unauthorized access and use or counterfeit products are discovered, the company reports such situations to governmental authorities for investigation, as appropriate, and takes measures to mitigate any potential impact. Protecting intellectual property related to biotechnology is particularly challenging because theft is difficult to detect and biotechnology can be self-replicating. Accordingly, the impact of such theft can be significant. See Part I, Item 1 for additional details on the company's intellectual property.
Market acceptance, government policies, rules, regulations and competition could affect the company's ability in certain markets to generate and sustain sales or affect profitability from products based on biotechnology.
The company is using biotechnology to create and improve products, particularly in its Agriculture and Industrial Biosciences segments. The company is also using biotechnology in the development of certain products and pre-commercial programs in Other. These products enable cost and process benefits, better product performance and functionality, and improve environmental outcomes in a broad range of products, technologies and processes such as seeds, enzymes, animal nutrition, detergents, food ingredients, ethanol production and industrial applications. The company's ability to generate and sustain sales from such products could be impacted by market acceptance, including perception of benefits and costs relative to products based on conventional technologies, as well as governmental policies, laws and regulations that affect the development, manufacture and commercialization of products, particularly the testing and planting of seeds containing biotechnology traits and the import of grains, food and food ingredients and other products derived from those seeds.
In order to maintain its right to produce or sell existing products or to commercialize new products containing biotechnology traits, particularly seed products, the company must be able to demonstrate its ability to satisfy the requirements of regulatory agencies. Sales into and use of seeds with biotechnology traits in jurisdictions where cultivation has been approved could be affected if key import markets have not approved the import of grains, food and food ingredients and other products derived from those seeds. If import of grains, food and food ingredients and other products derived from those seeds containing such biotechnology traits occurs in these markets, it could lead to disruption in trade and potential liability for the company.
In addition, the company’s regulatory compliance could be affected by the detection of low level presence of biotechnology traits in conventional seed or products produced from such seed. Furthermore, the detection of biotechnology traits not approved in the country of cultivation may affect the company’s ability to supply product and could affect exports of products produced from such seeds and even result in crop destruction or product recalls.
DuPont’s ability to obtain and maintain regulatory approval for some of its products in the Agriculture segment could limit sales or affect profitability in certain markets.
In most jurisdictions, the company must test the safety, efficacy and environmental impact of its Agricultural products to satisfy regulatory requirements and obtain the necessary approvals. In certain jurisdictions the company must periodically renew its approvals which may require it to demonstrate compliance with then-current standards. The regulatory environment is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. The regulatory environment may be impacted by the activities of non-governmental organizations and special interest groups and stakeholder reaction to actual or perceived impacts of new technology, products or processes on safety, health and the environment. Obtaining and maintaining regulatory approvals requires submitting a significant amount of information and data, which may require participation from technology providers. Regulatory standards and trial procedures are continuously changing. The pace of change together with the lack of regulatory harmony could result in unintended noncompliance.
Responding to these changes and meeting existing and new requirements may involve significant costs or capital expenditures or require changes in business practice that could result in reduced profitability. The failure to receive necessary permits or approvals could have near- and long-term effects on the company’s ability to produce and sell some current and future products.
Part I
ITEM 1A. RISK FACTORS,continued
Failure to effectively manage acquisitions, divestitures, alliances and other portfolio actions could adversely impact ourCorteva’s future results.
From time to time the companyCorteva evaluates acquisition candidates that may strategically fit itsCorteva’s business and/or growth objectives. If the companyCorteva is unable to successfully integrate and develop acquired businesses, the companyCorteva could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on the company’sCorteva’s financial results. The companyCorteva continually reviews its portfolio of assets for contributions to the company’sits objectives and alignment with its growth strategy. However, the companyCorteva may not be successful in separating underperforming or non-strategic assets and gains or losses on the divestiture of, or lost operating income from, such assets may affect the company’sCorteva’s earnings. Moreover, the companyCorteva might incur asset impairment charges related to acquisitions or divestitures that reduce its earnings. In addition, if the execution or implementation of acquisitions, divestitures, alliances, joint ventures and other portfolio actions is not successful, it could adversely impact Corteva’s financial condition, cash flows and results of operations.
An impairment of goodwill or intangible assets could require Corteva to record a significant non-cash charge and negatively impact Corteva’s financial results.
Corteva assesses both goodwill and indefinite-lived intangible assets for impairment on an annual basis, or more frequently if conditions indicate that an impairment may have occurred. An impairment is recorded when the carrying value of a reporting unit exceeds its fair value. For the seed reporting unit, the excess fair value over carrying value is approximately 12%, and therefore carries a higher risk of impairment charges in future periods. Future impairments of goodwill or intangible assets could be recorded as a non-cash charge in results of operations due to changes in assumption, estimates or circumstances and there can be no assurance that such impairments would be immaterial to Corteva.
Risks Related to The Separation
The company'scompany may be unable to achieve some or all of the benefits that it expected to achieve from the Separation from DowDuPont.
As an independent, publicly-traded company, Corteva continues to, among other things, focus its financial and operational resources on its specific business, growth profile and strategic priorities, design and implement corporate strategies and policies targeted to its operational focus and strategic priorities, guide its processes and infrastructure to focus on its core strengths, implement and maintain a capital structure designed to meet its specific needs and more effectively respond to industry dynamics, all of which are benefits the company expected to achieve from its Separation. However, the company may be unable to fully achieve some or all of these benefits.
For example, in order to position itself for the Separation and Distribution, the company undertook a series of strategic, structural and process realignment and restructuring actions within its operations. These actions may not provide the benefits the company expected, and could lead to disruption of operations, loss of, or inability to recruit, key personnel needed to operate and grow its businesses following the Separation and Distribution, weakening of its internal standards, controls or procedures and impairment of its key customer and supplier relationships. If the company fails to achieve some or all of the benefits that it expected to achieve as an independent company, or does not achieve them in the time expected, its business, financial condition and results of operations could be materially and adversely affected.
In connection with the Separation the company has assumed, and agreed to indemnify DuPont and Dow for, certain liabilities. If the company is required to make payments pursuant to these indemnities, the company may need to divert cash to meet those obligations and its financial results could be negatively impacted. In addition, DuPont and Dow will indemnify Corteva for certain liabilities. These indemnities may not be sufficient to insure the company against the full amount of liabilities it incurs, and DuPont and/or Dow, and/or their historical separated businesses, may not be able to satisfy their indemnification obligations in the future.
Pursuant to the Separation Agreement, the Employee Matters Agreement and the Tax Matters Agreement with DuPont and Dow, the company agreed to assume, and indemnify DuPont and Dow for, certain liabilities for uncapped amounts, which may include, among other items, associated defense costs, settlement amounts and judgments, as discussed further in Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements and Part I - Item 3 - Legal Proceedings. Payments pursuant to these indemnities may be significant and could negatively impact the company’s business, particularly indemnities relating to certain litigation for Historical DuPont operations or its actions that could impact the tax-free nature of the Corteva Distribution.
Part I
ITEM 1A. RISK FACTORS,continued
Third parties could also seek to hold the company responsible for any of the liabilities allocated to DuPont and Dow, including itsthose related to DowDuPont’s specialty products and/or materials science businesses, respectively, and those related to discontinued and/or divested businesses and operations of Historical Dow, which have been allocated to Dow. DuPont and/or Dow, as applicable, will agree to indemnify Corteva for such liabilities, but such indemnities may not be sufficient to protect the company against the full amount of such liabilities. In addition, DuPont and/or Dow, as applicable, may not be able to fully satisfy their indemnification obligations with respect to the liabilities the company incurs. Even if the company ultimately succeeds in recovering from DuPont and/or Dow, as applicable, any amounts for which the company is held liable, the company may be temporarily required to bear these losses itself. Each of these risks could negatively affect the company’s business, financial condition, results of operations and reputation,cash flows.
Additionally, the company generally has assumed and is responsible for the payment of its share of (i) certain liabilities of DowDuPont relating to, arising out of or resulting from certain general corporate matters of DowDuPont, (ii) certain liabilities of Historical DuPont relating to, arising out of or resulting from general corporate matters of Historical DuPont and discontinued and/or divested businesses and operations of Historical DuPont, including its spin-off of Chemours, and (iii) certain separation expenses not otherwise allocated to DuPont or Dow (or allocated specifically to Corteva) pursuant to the Corteva Separation Agreement, and third parties could seek to hold Corteva responsible for DuPont’s or Dow’s share of any such liabilities. For more information, see Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements and Part I - Item 3 - Legal Proceedings. DuPont and/or Dow, as applicable, will indemnify Corteva for their share of any such liabilities; however, such indemnities may not be sufficient to protect Corteva against the full amount of such liabilities, and/or DuPont and/or Dow may not be able to fully satisfy their respective indemnification obligations. In addition, even if the company ultimately succeeds in recovering from DuPont and/or Dow any amounts for which the company is held liable in excess of its agreed share, the company may be temporarily required to bear these losses itself and may not be able to fully insure itself to cover these risks. Each of these risks could materially affect the company’s business, financial condition, results of operations and cash flows.
The Separation and related transactions may expose Corteva to potential liabilities arising out of state and federal fraudulent conveyance laws
Although the company received a solvency opinion from an investment bank confirming that the company and DuPont were each adequately capitalized following the Distribution, the Separation could be adversely affected by process safetychallenged under various state and product stewardship issues.
Failurefederal fraudulent conveyance laws. In connection with fraudulent conveyances or transfers are generally defined to appropriately manage safety, human health, product liability and environmental risks associatedinclude transfers made or obligations incurred with the company's products, product life cyclesactual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. Any unpaid creditor could claim that DuPont did not receive fair consideration or reasonably equivalent value in the Separation and production processesCorteva Distribution, and that the Separation and Corteva Distribution left DuPont insolvent or with unreasonably small capital or that DuPont intended or believed it would incur debts beyond its ability to pay such debts as they matured. Additionally, under its indemnity provisions of the Separation Agreement, the company could find its liabilities increased as a result of a court concluding that Historical DuPont, Historical Dow or DowDuPont executed a fraudulent conveyance in connection with divestitures and spin-offs of any one of their historical operations, including Chemours. If a court were to agree with such a plaintiff, then such court could void the Separation and Distribution as a fraudulent transfer or impose substantial liabilities on Corteva, which could materially adversely impact employees, communities, stakeholders, the environment, the company's reputationaffect its financial condition and its results of operations. Public perceptionAmong other things, the court could return some of Corteva’s assets or shares of Corteva common stock to DuPont, provide DuPont with a claim for money damages against Corteva in an amount equal to the difference between the consideration received by DuPont and the fair market value of Corteva at the time of the risks associated withCorteva Distribution, or require Corteva to fund liabilities of other companies involved in the company's productsInternal Reorganization and production processes could impact product acceptance and influenceBusiness Realignment for the regulatory environmentbenefit of creditors.
The Distribution is also subject to review under state corporate Distribution statutes. Under the Delaware General Corporation Law (the “DGCL”), a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the company operates. Whiledividend is declared and/or the preceding fiscal year. Although the Distribution was made out of DowDuPont’s surplus and the company received an opinion that DowDuPont has procedures and controlsadequate surplus under Delaware law to manage process safety risks, issuesdeclare the dividend of Corteva common stock in connection with the Corteva Distribution, there can be no assurance that a court will not later determine that some or all of the Corteva Distribution was unlawful.
Part I
ITEM 1A. RISK FACTORS,continued
If the Corteva Distribution, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the company could be createdsubject to significant tax and indemnification liability and stockholders receiving Corteva common stock in the Corteva Distribution could be subject to significant tax liability.
DowDuPont received an IRS Tax Ruling and tax opinion that, among other things, the Corteva Distribution and certain related transactions will qualify as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code (the "Code). The IRS Ruling and tax opinion will rely on certain facts, assumptions, and undertakings, and certain representations from DowDuPont and Corteva, regarding the past and future conduct of both respective businesses and other matters. Despite the tax opinion and the IRS Ruling, the IRS could determine on audit that the Distribution or certain related transactions should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the Distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions of the tax opinion.
If the Corteva Distribution ultimately is determined to be taxable, then a stockholder of DuPont that received shares of Corteva common stock would be treated as having received a distribution of property in an amount equal to the fair market value of such shares (including any fractional shares sold on behalf of such stockholder) on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of DuPont’s current and accumulated earnings and profits, which would include any earnings and profits attributable to the gain recognized by DuPont on the taxable distribution and could include earnings and profits attributable to certain internal transactions preceding the Corteva Distribution. Any amount that exceeded DuPont’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in its shares of DuPont stock with any remaining amount being taxed as a gain on the DuPont stock. In the event the Distribution is ultimately determined to be taxable, DuPont would recognize corporate level taxable gain on the Distribution in an amount equal to the excess, if any, of the fair market value of Corteva common stock distributed to DuPont stockholders on the distribution date over DuPont’s tax basis in such stock. In addition, if certain related transactions fail to qualify for tax-free treatment under U.S. federal, state, local tax and/or foreign tax law, Corteva and DuPont could incur significant tax liabilities under U.S. federal, state, local and/or foreign tax law.
Generally, taxes resulting from the failure of the Separation and Distributions to qualify for non-recognition treatment for U.S. federal income tax purposes would be imposed on DuPont or DuPont stockholders. Under the Tax Matters Agreement that the company entered into with DuPont and Dow, subject to the exceptions described below, the company is generally obligated to indemnify DuPont against such taxes imposed on DuPont. However, if the Distributions fail to qualify for non-recognition treatment for U.S. federal income tax purposes for certain reasons relating to the overall structure of the Merger and the Distributions, then under the Tax Matters Agreement, DuPont and Dow would share the tax liability resulting from such failure in accordance with their relative equity values on the first full trading day following the Dow Distribution. The company and DuPont would share any liabilities of DuPont described in the preceding sentence in accordance with its relative equity values on the first full trading day following the Corteva Distribution. Furthermore, under the terms of the Tax Matters Agreement, the company also generally will be responsible for any taxes imposed on DuPont or Dow that arise from the failure of the Corteva Distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Code or the failure of certain related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events outsideor transactions relating to its, or its affiliates’, stock, assets or business, or any breach of its control including natural disasters, severe weatherrepresentations made in any representation letter provided to its counsel in connection with the tax opinion. DuPont and Dow will be separately responsible for any taxes imposed on Corteva that arise from the failure of the Corteva Distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Code or the failure of certain related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events actsor transactions relating to such company’s or its affiliates’ stock, assets or business, or any breach of sabotage and substandard performance by third partiessuch company’s representations made in connection with whichthe IRS Ruling or in the representation letter provided to counsel in connection with the tax opinion. Events triggering an indemnification obligation under the tax matters agreement include events occurring after the Corteva Distribution that cause DuPont to recognize a gain under Section 355(e) of the Code, as discussed further below. Such tax amounts could be significant. To the extent that the company collaborates.is responsible for any liability under the tax matters agreement, there could be a material adverse impact on Corteva’s business, financial condition, results of operations and cash flows in future reporting periods.
Part I
ITEM 1A. RISK FACTORS,continued
The company agreed to numerous restrictions to preserve the tax-free treatment of the transactions separating it from DowDuPont in the United States, which may reduce Corteva’s strategic and operating flexibility.
The company’s ability to engage in certain transactions is limited or restricted to preserve, for U.S. federal income tax purposes, the tax-free nature of the Distributions by DowDuPont, and certain aspects of the Internal Reorganization and Business Realignment. As a result of these limitations, under the company's currentTax Matters Agreement that the company entered into with DuPont and past operations,Dow, for the two-year period following the Distribution, the company is prohibited, except in certain circumstances, from, among other things:
entering into any transaction resulting in acquisitions of a certain percentage of its assets, whether by merger or otherwise;
dissolving, merging, consolidating or liquidating;
undertaking or permitting any transaction relating to Corteva stock, including operationsissuances, redemptions or repurchases other than certain, limited, permitted issuances and repurchases;
affecting the relative voting rights of Corteva stock, whether by amending Corteva’s certificate of incorporation or otherwise; or
ceasing to actively conduct its business.
These restrictions may significantly limit Corteva’s ability to pursue certain strategic transactions or other transactions that the company may believe to otherwise be in the best interests of its stockholders or that might increase the value of its business.
The IRS may assert that the Merger causes the Distributions and other related transactions to divested businesses,be taxable to DuPont, in which case the company could incurbe subject to significant environmental liabilities.indemnification liability.
Even if the Distributions otherwise constitutes a tax-free transaction to stockholders under Section 355 of the Code, DuPont may be required to recognize corporate level tax on the Distributions and certain related transactions under Section 355(e) of the Code if, as a result of the Merger or other transactions considered part of a plan with the Distributions, there is a 50 percent or greater change of ownership in DuPont or Corteva. In connection with the Merger, DowDuPont received a private letter ruling from the IRS regarding the proper time, manner and methodology for measuring common ownership in the stock of DowDuPont, Historical DuPont and Historical Dow for purposes of determining whether there has been a 50 percent or greater change of ownership under Section 355(e) of the Code as a result of the Merger. The tax opinion relied on the continued validity of the private letter ruling, as well as certain factual representations from DowDuPont as to the extent of common ownership in the stock of Historical DuPont and Historical Dow immediately prior to the Merger. Based on the representations made by DowDuPont as to the common ownership in the stock of Historical DuPont and Historical Dow immediately prior to the Merger and assuming the continued validity of the IRS Ruling, the tax opinion concluded that there was not a 50 percent or greater change of ownership in DowDuPont, Historical DuPont or Historical Dow for purposes of Section 355(e) as a result of the Merger. Notwithstanding the tax opinion and the IRS Ruling, the IRS could determine that the Distributions or a related transaction should nevertheless be treated as a taxable transaction to DuPont if it determines that any of the facts, assumptions, representations or undertakings of DowDuPont is not correct or that the Distributions should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the tax opinion that are not covered by the private letter ruling. If DuPont is required to recognize corporate level tax on either of the Distributions and certain related transactions under Section 355(e) of the Code, then under the Tax Matters Agreement, the company may be required to indemnify DuPont and/or Dow for all or a portion of such taxes, which could be a material amount, if such taxes were the result of either direct or indirect transfers of Corteva common stock or certain reasons relating to the overall structure of the Merger and the Distributions.
Part I
ITEM 1A. RISK FACTORS,continued
The company is subject to various lawscontinuing contingent tax-related liabilities of DowDuPont following the Distribution.
There are several significant areas where the liabilities of DowDuPont may become Corteva’s obligations either in whole or in part. For example, under the Code and the related rules and regulations, aroundeach corporation that was a member of DowDuPont’s consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the world governingeffective time of the environment, includingDistribution is jointly and severally liable for the dischargeU.S. federal income tax liability of pollutantsthe entire consolidated tax reporting group for such taxable period. Additionally, to the extent that any subsidiary of Corteva was included in the consolidated tax reporting group of either Historical DuPont or Historical Dow for any taxable period or portion of any taxable period ending on or before the effective date of the Merger, such subsidiary is jointly and severally liable for the managementU.S. federal income tax liability of the entire consolidated tax reporting group of Historical DuPont or Historical Dow, as applicable, for such taxable period. In connection with the Distributions, on April 1, 2019, the company entered into the Tax Matters Agreement with DuPont and disposal of hazardous substances. As a result of its operations, including its past operationsDow that allocates the responsibility for prior period consolidated taxes among Corteva, DuPont and operations of divested businesses,Dow. If DuPont or Dow were unable to pay any prior period taxes for which it is responsible, however, the company could incur substantial costs,be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including remediation and restoration costs. The costs of complying with complex environmental laws and regulations,governing tax-qualified pension plans, as well as internal voluntary programs,other contingent liabilities.
Restrictions under the intellectual property cross-license agreements limit Corteva’s ability to develop and commercialize certain products and services and/or prosecute, maintain and enforce certain intellectual property.
The company is dependent to a certain extent on DuPont and Dow to maintain and enforce certain of the intellectual property licensed under the Intellectual Property Cross-License Agreements. For example, DuPont and Dow are significantresponsible for filing, prosecuting and will continuemaintaining (at their respective discretion) patents on trade secrets and know-how that they each respectively license to be so forCorteva. They also have the foreseeable future. The ultimate costsfirst right to enforce their respective trade secrets and know-how licensed to Corteva. If DuPont or Dow, as applicable, fails to fulfill its obligations or chooses to not enforce the licensed patents, trade secrets or know-how under environmental laws and the timing of these costs are difficult to predict. The company's accruals for such costs and liabilitiesIntellectual Property Cross-License Agreements, the company may not be adequate becauseable to prevent competitors from making, using and selling competitive products and services.
In addition, Corteva’s use of the estimatesintellectual property licensed to it under the Intellectual Property Cross-License Agreements is restricted to certain fields, which could limit Corteva’s ability to develop and commercialize certain products and services. For example, the licenses granted to Corteva under the agreement will not extend to all fields of use that the company may decide to enter into in the future. These restrictions may make it more difficult, time consuming and/or expensive for Corteva to develop and commercialize certain new products and services, or may result in certain of its products or services being later to market than those of its competitors.
Neither Corteva’s financial information nor its unaudited pro forma combined financial information are necessarily representative of the results the company would have achieved as an independent, publicly traded company and may not be a reliable indicator of its future results.
The financial information of Corteva and the unaudited pro forma financial information included herein (refer to supplemental unaudited pro forma financial statements on whichpage 51) may not reflect what Corteva’s financial condition, results of operations and cash flows would have been had the accruals arecompany been an independent, publicly traded company comprised solely of DowDuPont’s agriculture business during the periods presented or what its financial condition, results of operations and cash flows will be in the future as an independent company. This is primarily because:
The historical financial information of Corteva does not reflect the changes that the company expects to experience in connection with the Separation, including the distribution of Historical DuPont’s businesses aligned with DowDuPont’s non-agriculture businesses.
Prior to the Separation, Corteva’s business was operated under the corporate umbrella of DowDuPont. As part of the DowDuPont corporate organization, Corteva’s business was principally operated by Historical DuPont, with certain portions of its business being operated by Historical Dow as part of its internal corporate organization, rather than being operated as part of a consolidated agriculture business.
The historical financial information of Corteva reflects only corporate expenses of Historical DuPont and allocated corporate expenses from Historical Dow, and thus is not necessarily representative of the costs the company will incur for similar services as an independent company following the Separation and Distribution.
Part I
ITEM 1A. RISK FACTORS,continued
Corteva’s business has historically principally satisfied its working capital requirements and obtained capital for its general corporate purposes, including acquisitions and capital expenditures, as part of Historical DuPont’s company-wide cash management practices, with certain portions of its business having satisfied such requirements through the practices of Historical Dow. Although these practices have historically generated sufficient cash to finance the working capital and other cash requirements of its business, following the Separation and Distribution, the company will no longer have access to Historical Dow’s cash pools nor will its cash generating revenue streams mirror those of Historical DuPont and/or Historical Dow. The company may, therefore, need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities or other arrangements.
In addition, the unaudited pro forma financial information included in this annual report is based depend on a number of factors includingestimates and assumptions. These estimates and assumptions may prove to be inaccurate, and accordingly, Corteva’s unaudited pro forma financial information should not be assumed to be indicative of what the naturecompany’s financial condition or results of operations actually would have been as a standalone company during the matter,time periods presented nor to be a reliable indicator of what its financial condition or results of operations actually may be in the complexity offuture. For additional information about the site, site geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (PRPs) at multi-party sitesunaudited pro forma financial statements, Historical DuPont’s past financial performance and the numberbasis of presentation of Corteva’s financial statements, see Corteva’s consolidated financial statements and financial viability of other PRPs.
At December 31, 2016, the company had recognized a liability of $457 million related to the matters. Since considerable uncertainty exists, under adverse changes in circumstances, the potential liability may range up to $900 million above the amount accrued at December 31, 2016. As described in Note 3 to the Consolidated Financial Statements, DuPont and Chemours entered into a Separation Agreement in connection with the spin-off of Chemours on July 1, 2015. Pursuant to the Separation Agreement, the company is indemnified by Chemours for certain environmental matters, included in the liability of $457 million, that have an estimated liability of $250 million as of December 31, 2016 and a potential exposure that ranges up to approximately $500 million above the amount accrued. As such, the company has recorded an indemnification asset of $250 million corresponding to the company’s accrual balance related to these matters at December 31, 2016. If the company could no longer continue to recognize the related indemnification asset due to potential disputes related to recovery or solvency of Chemours, it could adversely impact DuPont’s financial position and results of operations.
Additional details on the company’s risks associated with environmental laws, regulations and environmental liabilities can be found in Part I, Item 1, Part II, Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, on page 48Operations.
Traditionally, the company’s business was operated under the umbrella of this reportDowDuPont’s corporate organization, with portions of its businesses being integrated with the businesses of Historical DuPont and Note 15Historical Dow. This integration has historically permitted its business (or portions thereof) to enjoy economies of scope and scale in costs, employees, vendor relationships and customer relationships, both as part of the Consolidated Financial Statements.
Part I
ITEM 1A. RISK FACTORS,continued
DowDuPont organization and within the Historical DuPont and Historical Dow internal corporate structures. The company's resultsloss of operations could be adversely affected by litigation and other commitments and contingencies.
The company faces risks arising from various unasserted and asserted litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. The company has noted a nationwide trend in purported class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site remediation and punitive damages arising from alleged environmental torts without claiming present personal injuries. The company also has noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities and utilities alleging harm to the general public. Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development could result in future charges thatthese benefits could have a material adverse effect on the company. An adverse outcome in any one or more of these matters could be material to the company's financial results.
In the ordinary course ofcompany’s business, the company may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses and issue guarantees of third party obligations. If the company were required to make payments as a result, they could exceed the amounts accrued, thereby adversely affecting the company's results of operations.operations and financial condition.
Pursuant to the Separation Agreement, Chemours indemnifies DuPont against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. If the company could no longer continue to recognize the related indemnification asset due to potential disputes related to recovery or solvency of Chemours, it could adversely impact DuPont’s financial position and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The company's corporatecompany operates out of its headquarters are located in Wilmington, Delaware. The company'sIt also maintains one global business center in Johnston, Iowa, for its seed business and another in Indianapolis, Indiana, for its crop protection business. Its manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers, are located throughout the world. Additional information with respect to the company's property, plant and equipment and leases is contained in Notes 10, 15 and 20 to the Consolidated Financial Statements.
The company has investments in property, plant and equipment related to global104 manufacturing operations. Collectively there are approximately 290 principal sites in total. The number of sites used by their applicable segment(s) by majorthe following geographic area around the world is as follows:regions:
| | | | Number of Sites | Number of Sites |
| | Agriculture | Electronics & Communications | Industrial Biosciences | Nutrition & Health | Performance Materials | Protection Solutions | Other | Total 1 | Crop | Seed | Total |
North America1 | | 7 |
| 43 |
| 50 |
|
EMEA2 | | 5 |
| 16 |
| 21 |
|
| Asia Pacific | 23 |
| 10 |
| 2 |
| 12 |
| 16 |
| 6 |
| 2 |
| 71 |
| 7 |
| 5 |
| 12 |
|
EMEA2 | 26 |
| 3 |
| 8 |
| 28 |
| 6 |
| 3 |
| — |
| 74 |
| |
| Latin America | 22 |
| — |
| 1 |
| 10 |
| 1 |
| 1 |
| 2 |
| 37 |
| 10 |
| 11 |
| 21 |
|
| U.S. & Canada | 60 |
| 16 |
| 11 |
| 17 |
| 13 |
| 6 |
| 1 |
| 124 |
| |
| | 131 |
| 29 |
| 22 |
| 67 |
| 36 |
| 16 |
| 5 |
| 306 |
| |
| Total | | 29 |
| 75 |
| 104 |
|
| |
1. | Sites that are used by multiple segments are included more than once in the figures above.North America consists of U.S. & Canada.. |
| |
2. | Europe, Middle East, and Africa (EMEA)("EMEA"). |
The company's principal sites include facilities which, in the opinion of management, are suitable and adequate for their use and have sufficient capacity for the company's current needs and expected near-term growthgrowth. In 2019, the company announced an expansion to increase its Spinosyns fermentation capacity (refer to page 61 for further discussion). Properties are primarily owned by the company; however, certain properties are leased. No title examination of the properties has been made for the purpose of this report and certain properties are shared with other tenants under long-term leases.
Part I
ITEM 3. LEGAL PROCEEDINGS
The company is subject to various litigation matters,legal proceedings, including, but not limited to, product liability, patent infringement,intellectual property, antitrust, claims, and claims for third partycommercial, property damage, or personal injury, stemmingenvironmental and regulatory matters arising out of the normal course of its current businesses or legacy EID businesses unrelated to Corteva’s current businesses but allocated to Corteva as part of the Separation of Corteva from alleged environmental torts.DowDuPont. Information regarding certain of these matters is set forth below and in Note 1518 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.
Litigation related to Corteva’s current businesses
PFOA: EnvironmentalCanadian Competition Bureau Formal Inquiry
On January 30, 2020, the Canadian Competition Bureau (the “Bureau”) filed a court order for the company to produce records and information as part of a formal inquiry under civil sections of Canada’s competition laws. The inquiry is in response to allegations by the Farmers Business Network ("FBN") that Corteva and other seeds and crop protection manufacturers and wholesalers unilaterally or in coordination refused, restricted and/or impaired supply of products to FBN in western Canada. This inquiry follows an informal request for information from the Bureau pursuant to which the company voluntarily provided documents and engaged in discussions with the Bureau outlining how its conduct was and continues to be compliant with Canadian competition laws. Corteva continues to cooperate with the Bureau’s inquiries, but believes the likelihood of material liability is remote.
Litigation Proceedingsrelated to legacy EID businesses unrelated to Corteva’s current businesses
ForAs discussed below and in Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, certain of the environmental proceedings and litigation allocated to Corteva as part of the Separation from DuPont relate to the legacy EID businesses, including their use of PFOA, which, for purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including the ammonium salt and does not distinguish between the two forms. Informationforms, and PFAS, which means per- and polyfluoroalkyl substances, including PFOA, PFOS (perfluorooctanesulfonic acid), GenX and other perfluorinated chemicals and compounds ("PFCs"). While it is reasonably possible that the company could incur liabilities related to these actions, any such liabilities are not expected to be material.
Pursuant to the Separation Agreements, the company is entitled to indemnification for certain liabilities related to legacy EID businesses. On May 13, 2019, Chemours filed a complaint in the Delaware Court of Chancery against DuPont, Corteva, and EID alleging, among other things, that the litigation and environmental liabilities allocated to Chemours under the Chemours Separation Agreement were underestimated and asking that the Court either limit the amount of Chemours’ indemnification obligations or, alternatively, order the return of the $3.91 billion dividend Chemours paid to EID prior to its separation. Further information with respect to this matterproceeding is includedset forth in Note 1518 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements underStatements. The company believes the heading PFOA.probability of liability with respect to Chemours' suit to be remote.
La Porte Plant, La Porte, Texas - Crop Protection - release Incident Investigations
On November 15, 2014, there was a release of methyl mercaptan at the company’s La Porte facility. The release occurred at the site’s Crop Protection unit resulting in four employee fatalities inside the unit. DuPont continues to cooperate with governmental agencies, including the U.S. Environmental Protection Agency (EPA) and the Department of Justice (DOJ), still conducting investigations. These investigations could result in sanctions and penalties against the company.
Environmental Proceedings
The company believes it is remote that the following matters will have a material impact on its financial position, liquidity or results of operations. The descriptions below are included per Regulation S-K, Item 103(5)(c) of Regulation S-K of the Securities Exchange Act of 1934.1934, as amended.
Related to Corteva’s current businesses
La Porte Plant, La Porte, Texas - Crop Protection - Release Incident Investigations
On November 15, 2014, there was a release of methyl mercaptan at EID's La Porte, Texas, facility. The release occurred at the site’s crop protection unit resulting in four employee fatalities inside the unit. The Chemical Safety Board (“CSB”) issued its final report on June 18, 2019, which included recommendations related to the emergency response program at La Porte. Corteva responded to the CSB on September 30, 2019 outlining the actions it has taken to date to address the recommendations for the site and providing its plan to address the CSB’s remaining recommendations. Corteva continues to cooperate with the ongoing criminal U.S. Environmental Protection Agency ("EPA") and the Department of Justice ("DOJ") investigations. These investigations could result in sanctions and criminal penalties against Corteva.
La Porte Plant, La Porte, Texas - EPA Multimedia Inspection
The EPA conducted a multimedia inspection at the La Porte facility in January 2008. DuPont,EID, the EPA and the DOJ began discussions in the fallFall 2011 relating to the management of certain materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions. These negotiationsdiscussions continue.
Part I
ITEM 3. LEGAL PROCEEDINGS
Related to legacy EID businesses unrelated to Corteva’s current businesses
Sabine Plant, Orange, Texas - EPA Multimedia Inspection
In June 2012, DuPontEID began discussions with the EPA and the DOJ related to a multimedia inspection that the EPA conducted at the Sabine facility in March 2009 and December 2015. The discussions involve the management of materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions, including leak detection and repair. These negotiationsdiscussions continue. Under the Separation Agreement, Corteva and DuPont will share any future liabilities proportionally on the basis of 29% and 71%, respectively.
Divested Neoprene Facility, La Porte Plant, La Porte, TexasPlace, Louisiana - OSHA Release Incident CitationsEPA Compliance Inspection
In May 2015,2016, the Occupational Safety & Health Administration (OSHA) citedEPA conducted a focused compliance investigation at the Denka Performance Elastomer LLC (“Denka”) neoprene manufacturing facility in La Place, Louisiana. EID sold the neoprene business, including this manufacturing facility, to Denka in the fourth quarter of 2015. In the spring of 2017, the EPA, the DOJ, the Louisiana Department of Environmental Quality, EID and Denka began discussions relating to the inspection conclusions and allegations of noncompliance arising under the Clean Air Act, including leak detection and repair. These discussions, which include potential settlement options, continue. Under the Separation Agreement, DuPont is defending and indemnifying the company in connectionthis matter.
New Jersey Directive PFAS
On March 25, 2019, the New Jersey Department of Environmental Protection (“NJDEP”) issued a Statewide PFAS Directive to a number of companies, including Chemours, DuPont, and EID. The Directive seeks information relating to the use and environmental release of PFAS and PFAS-replacement chemicals at and from two former EID sites in New Jersey, Chambers Works and Parlin, and a funding source for costs related to the NJDEP’s investigation of PFAS issues and PFAS testing and remediation.
Chemours has agreed, with reservations, to defend and indemnify EID in this matter.
New Jersey Directive Pompton Lakes
On March 27, 2019, the NJDEP issued to Chemours and EID a Natural Resource Damages Directive relating to chemical contamination (non-PFAS) at and around EID’s former Pompton Lakes facility in New Jersey. The Directive alleges that this contamination has harmed the natural resources of New Jersey. It seeks $125,000 as reimbursement for the cost of preparing a natural resource damages assessment, which the State will use to determine the extent of such damage and the amount it expects to seek to restore the affected natural resources to their pre-damage state.
Chemours has agreed, with reservations, to defend and indemnify EID in this matter.
Natural Resource Damage Cases
Since May 2017, a number of municipal water districts and state attorneys general have filed lawsuits against EID, Corteva, Chemours, 3M, and others, claiming contamination of public water systems by PFCs, including but not limited to PFOA. These actions are currently pending in Alabama, New Hampshire, South Dakota, Vermont, New York, Ohio, Michigan and New Jersey with the November 2014 releasemunicipalities and states seeking economic impact damages for 14 violations (twelve serious, one repeatalleged harm to natural resources, punitive damages, present and one other-than-serious) with an aggregate associated penalty of $99,000. The company has contested the citationsfuture costs to cleanup PFOA contamination and the matter is beforeabatement of alleged nuisance with filtration systems. Chemours has accepted the U.S. Occupational Safetydefense and Health Review Commission (the OSHRC). A hearing before an administrativeindemnification of EID in these cases subject to a reservation of rights as to product scope and has declined defense and indemnity to Corteva. Furthermore, Chemours declined to defend certain state law judge appointed by OSHRC is scheduled for the first quarter 2017.and fraudulent conveyance claims.
La Porte Plant, La Porte, Texas - OSHA Process Safety Management (PSM) AuditIn 2015, OSHA conducted a PSM audit of the Crop Protection and Fluoroproducts units at the La Porte Plant. In July 2015, OSHA cited the company for three willful, one repeat and five serious PSM violations and placed the company in its Severe Violator Enforcement Program. OSHA has proposed a penalty of $273,000. The company has contested the citations and the matter is before the OSHRC. A hearing before an administrative law judge appointed by OSHRC is scheduled for the first quarter 2017.ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Registrant's Common Equity and Related Stockholder Matters
The company's common stock is listed on the New York Stock Exchange, Inc. (symbol DD)(symbol: CTVA). The number of record holders of common stock was approximately 59,00081,000 at January 31, 2017.2020.
Holders ofIn June 2019, the company'scompany began declaring quarterly dividends. During 2019, the company paid two quarterly dividends on its common stock are entitled to receive dividends when they are declared by the Board of Directors. While it is not a guarantee of future conduct, the company has continuously paid a quarterly dividend since the fourth quarter 1904. Dividends on common stock and preferred stock are usually declared in January, April, July and October. When dividends on common stock are declared, they are usually paid mid-March, June, September and December. Preferred dividends are paid on or about the 25th of January, April, July and October. The Stock Transfer Agent and Registrar is Computershare Trust Company, N.A.$0.13 per share each.
The company's quarterly high and low trading stock prices and dividends per common share for 2016 and 2015 are shown below.
|
| | | | | | | | | | |
| | Market Prices1 | | |
| 2016 | High | Low | Per Share Dividend Declared | |
| Fourth Quarter | $ | 75.86 |
| $ | 66.19 |
| $ | 0.38 |
| |
| Third Quarter | 71.09 |
| 61.12 |
| 0.38 |
| |
| Second Quarter | 69.40 |
| 61.62 |
| 0.38 |
| |
| First Quarter | 65.70 |
| 50.71 |
| 0.38 |
| |
| | | | | |
| 2015 | |
| |
| |
| |
| Fourth Quarter | $ | 75.72 |
| $ | 47.43 |
| $ | 0.38 |
| 2 |
| Third Quarter | 61.93 |
| 47.11 |
| 0.38 |
| 2 |
| Second Quarter | 75.80 |
| 63.55 |
| 0.49 |
| |
| First Quarter | 80.65 |
| 70.19 |
| 0.47 |
| |
| |
1.
| Historical market prices do not reflect any adjustment for the impact of the spin-off of The Chemours Company (Chemours). |
| |
2.
| Per share dividend declared includes impact of the spin-off of Chemours. |
Issuer Purchases of Equity Securities
In connection with the completion of the spin-off of Chemours, the Board of Directors authorized the use of the distribution proceeds received from Chemours to buy back about $4 billion shares of the company's common stock as follows: $2 billion to be purchased and retired by December 31, 2015 with the remainder to be purchased and retired by December 31, 2016. During 2015, the company purchased and retired 35 million shares through a $2 billion accelerated share repurchase agreement. The company had limited opportunity to repurchase shares in 2016, primarily due to the planned merger with The Dow Chemical Company (Dow). However, during 2016, the company purchased and retired 13.2 million shares in the open market for a cost of $916 million. As of January 1, 2017, the share authorization under this buyback program has expired.
In January 2014, the company's Board of Directors authorized a $5 billion share buyback plan. The company purchased and retired 34.7 million shares for a total cost of $2.4 billion under this program. As a result, $2.6 billion buyback authority remains under this program. There is no required completion date for purchases under this plan.
See Part II,III, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 40 of this report and Note 1611. Executive Compensation for information relating to the Consolidated Financial Statements for additional information.company’s equity compensation plans.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES,continued
The following table summarizes information with respect to the company's purchase of its common stock during the three months ended December 31, 2016:
|
| | | | | | | | | | |
| Month | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Value of Shares that May Yet Be Purchased Under the Program(1) (Dollars in millions) |
| November: | | | | |
| Open Market Purchases | 5,752,436 |
| $ | 69.48 |
| 5,752,436 |
| |
| December: | | | | |
| Open Market Purchases | 1,386,149 |
| $ | 72.35 |
| 1,386,149 |
| |
| Total | 7,138,585 |
| | 7,138,585 |
| $ | 2,647 |
|
1.Represents approximate value of shares that may yet be purchased under the 2014 plan.
Stock Performance Graph
The following graph presentsillustrates the cumulative five-year total shareholder return forto Corteva stockholders following the company'scompletion of the Separation and beginning as of the closing price of its first NYSE listing date, June 3, 2019. The Chart compares the cumulative total return of Corteva’ s common stock compared with the S&P 500 Stock Index and the Dow Jones Industrial Average.S&P 500 Chemicals Index.
|
| | | | | | | | | | | | | | | | | | |
| | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 |
| DuPont | $ | 100 |
| $ | 102 |
| $ | 152 |
| $ | 178 |
| $ | 173 |
| $ | 196 |
|
| S&P 500 Index | 100 |
| 116 |
| 154 |
| 175 |
| 177 |
| 198 |
|
| Dow Jones Industrial Average | 100 |
| 110 |
| 143 |
| 157 |
| 158 |
| 184 |
|
|
| | | | | | | | | | | | |
| | June 3, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 |
| Corteva | $ | 100 |
| $ | 119 |
| $ | 113 |
| $ | 120 |
|
| S&P 500 Index | 100 |
| 107 |
| 109 |
| 119 |
|
| S&P 500 Chemicals Index | 100 |
| 107 |
| 107 |
| 112 |
|
The graph assumes thatchart depicts a hypothetical $100 investment in each of the values of DuPontCorteva common stock, the S&P 500 Stock Index and the Dow Jones Industrial Average wereS&P 500 Chemicals Index as of the closing price on June 3, 2019 and illustrates the value of each $100 oninvestment over time (assuming the reinvestment of dividends) until December 31, 2011 and that all dividends were reinvested.2019.
Part II
ITEM 6. SELECTED FINANCIAL DATA
|
| | | | | | | | | | | | | | | |
| (Dollars in millions, except per share) | 2016 | 2015 | 2014 | 2013 | 2012 |
Summary of operations1 | | | | | |
| Net sales | $ | 24,594 |
| $ | 25,130 |
| $ | 28,406 |
| $ | 28,998 |
| $ | 27,610 |
|
| Employee separation / asset related charges, net | $ | 552 |
| $ | 810 |
| $ | 476 |
| $ | 112 |
| $ | 457 |
|
| Income from continuing operations before income taxes | $ | 3,265 |
| $ | 2,591 |
| $ | 4,313 |
| $ | 2,566 |
| $ | 1,290 |
|
| Provision for income taxes on continuing operations | $ | 744 |
| $ | 696 |
| $ | 1,168 |
| $ | 360 |
| $ | 122 |
|
| Net income attributable to DuPont | $ | 2,513 |
| $ | 1,953 |
| $ | 3,625 |
| $ | 4,848 |
| $ | 2,755 |
|
| Basic earnings per share of common stock from continuing operations | $ | 2.86 |
| $ | 2.10 |
| $ | 3.42 |
| $ | 2.36 |
| $ | 1.21 |
|
| Diluted earnings per share of common stock from continuing operations | $ | 2.85 |
| $ | 2.09 |
| $ | 3.39 |
| $ | 2.34 |
| $ | 1.20 |
|
| Financial position at year-end | | | | | |
Working capital2,3 | $ | 8,220 |
| $ | 7,071 |
| $ | 8,220 |
| $ | 10,055 |
| $ | 6,866 |
|
| Total assets | $ | 39,964 |
| $ | 41,166 |
| $ | 50,490 |
| $ | 52,142 |
| $ | 50,339 |
|
| Borrowings and capital lease obligations | | | | | |
| Short-term | $ | 429 |
| $ | 1,165 |
| $ | 1,422 |
| $ | 1,721 |
| $ | 1,275 |
|
| Long-term | $ | 8,107 |
| $ | 7,642 |
| $ | 9,233 |
| $ | 10,699 |
| $ | 10,429 |
|
| Total equity | $ | 10,196 |
| $ | 10,200 |
| $ | 13,378 |
| $ | 16,286 |
| $ | 10,299 |
|
| General | | | | | |
| For the year | | | | | |
Purchases of property, plant & equipment and investments in affiliates | $ | 1,038 |
| $ | 1,705 |
| $ | 2,062 |
| $ | 1,940 |
| $ | 1,890 |
|
Depreciation1 | $ | 939 |
| $ | 978 |
| $ | 1,006 |
| $ | 1,027 |
| $ | 1,065 |
|
Research and development expense1 | $ | 1,641 |
| $ | 1,898 |
| $ | 1,958 |
| $ | 2,037 |
| $ | 2,001 |
|
| Weighted-average number of common shares outstanding (millions) | | | | | |
| Basic | 873 |
| 894 |
| 915 |
| 926 |
| 933 |
|
| Diluted | 877 |
| 900 |
| 922 |
| 933 |
| 942 |
|
Dividends per common share4 | $ | 1.52 |
| $ | 1.72 |
| $ | 1.84 |
| $ | 1.78 |
| $ | 1.70 |
|
| At year-end | | | | | |
Employees (thousands)5 | 46 |
| 52 |
| 54 |
| 55 |
| 61 |
|
| Closing stock price | $ | 73.40 |
| $ | 66.60 |
| $ | 73.94 |
| $ | 64.97 |
| $ | 44.98 |
|
| Common stockholders of record (thousands) | 59 |
| 63 |
| 66 |
| 70 |
| 74 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Successor | Predecessor |
| (Dollars in millions, except per share) | 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 | For the Year Ended December 31, 2015 |
Summary of operations1 | | | | | | |
| Net sales | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
| $ | 8,133 |
| $ | 8,326 |
|
| Loss from continuing operations before income taxes | $ | (316 | ) | $ | (6,806 | ) | $ | (461 | ) | $ | (37 | ) | $ | (527 | ) | $ | (647 | ) |
| Net (loss) income attributable to Corteva | $ | (959 | ) | $ | (5,065 | ) | $ | 1,182 |
| $ | 1,734 |
| $ | 2,513 |
| $ | 1,953 |
|
| Basic (loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
| $ | (0.29 | ) | $ | (0.56 | ) |
| Diluted (loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
| $ | (0.29 | ) | $ | (0.56 | ) |
| Financial position at year-end | | | | | | |
Working capital2 | $ | 5,281 |
| $ | 3,740 |
| $ | 4,468 |
| | $ | 2,916 |
| $ | 2,827 |
|
Total assets3,4 | $ | 42,397 |
| $ | 108,683 |
| $ | 120,366 |
| | $ | 40,041 |
| $ | 41,224 |
|
| Borrowings and finance lease obligations | | | | | | |
| Short-term borrowings and finance lease obligations | $ | 7 |
| $ | 2,154 |
| $ | 2,752 |
| | $ | 425 |
| $ | 1,156 |
|
| Long-term debt | $ | 115 |
| $ | 5,784 |
| $ | 10,299 |
| | $ | 8,059 |
| $ | 7,587 |
|
| Total equity | $ | 24,555 |
| $ | 75,153 |
| $ | 79,593 |
| | $ | 10,196 |
| $ | 10,200 |
|
| General | | | | | | |
| Dividends per common share | $ | 0.26 |
| | | $ | 1.14 |
| $ | 1.52 |
| $ | 1.72 |
|
| |
1. | Information has been restatedrecasted to reflect the impact of discontinued operations, as applicable. See Note 1 - Background and Basis of Presentation, of the Consolidated Financial Statements for further information. |
| |
2. | Working capital has been recasted to exclude the assets and liabilities related to discontinued operations. Refer to Note 5 - Divestitures and Other Transactions, and Note 3 - Recent Accounting Guidance, of the Consolidated Financial Statements for further information. |
| |
2.3.
| Working capitalThe 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 been restatedelected to excludeapply the assets and liabilities relatedtransition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented. |
| |
4. | Periods prior to the Performance Chemicals segment. The assets and liabilities related to the Performance Chemicals business are presented asDecember 31, 2019 includes total assets of discontinued operations and liabilities of discontinued operations, respectively, in the Consolidated Balance Sheets for all periods presented. At December 31, 2012, working capital included approximately $2 billion of net assets related to the Performance Coatings business, of which approximately $1.3 billion was previously considered to be noncurrent and was classified as held for sale as of December 31, 2012. Working capital at December 31, 2013 includes cash received from the sale of the Performance Coatings business.operations. See Note 3 to5 - Divestitures and Other Transactions, of the Consolidated Financial Statements for further information. |
| |
3.
| Working capital has been restated for all years presented to reflect the impact of the reclassification of deferred tax assets and liabilities from current to non-current in connection with the company's adoption of Accounting Standards Update (ASU) No. 2015-17. See Note 1 to the Consolidated Financial Statements for further information. |
| |
4.
| Per share dividend declared in 2015 includes impact of the spin-off of The Chemours Company (Chemours). |
| |
5.
| Number of employees excludes employees associated with the Performance Chemicals segment for all periods presented. |
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” or other words of similar meaning. All statements that address expectations or projections about the future, including statements about the company'sCorteva’s strategy for growth, product development, regulatory approval, market position, 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, and timing of, as well as expected benefits including synergies, from, the planned merger with The Dow Chemical Company (Dow) and the the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (the Intended Business Separations),Corteva from DuPont, 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 the company'sCorteva’s control. While the list of factors presented herebelow is and the list of factors presented in the Registration Statement are, 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 Dow’s or DuPont’s consolidated financial condition,Corteva’s business, results of operations credit rating or liquidity.and financial condition. Some of the important factors that could cause the company'sCorteva’s actual results to differ materially from those projected in any such forward-looking statements are:
Risks relatedinclude: (i) failure to successfully develop and commercialize Corteva’s pipeline; (ii) effect of competition and consolidation in Corteva’s industry; (iii) failure to obtain or maintain the agreement enterednecessary regulatory approvals for some Corteva’s products; (iv) failure to enforce Corteva’s intellectual property rights or defend against intellectual property claims asserted by others; (v) effect of competition from manufacturers of generic products; (vi) impact of Corteva’s dependence on December 11, 2015 between DuPontthird parties with respect to certain of its raw materials or licenses and Dow tocommercialization; (vii) costs of complying with evolving regulatory requirements and the effect an all-stock merger of equals, including the completionactual or alleged violations of environmental laws or permit requirements; (viii) effect of the proposed transactiondegree of public understanding and acceptance or perceived public acceptance of Corteva’s biotechnology and other agricultural products; (ix) effect of changes in agricultural and related policies of governments and international organizations; (x) effect of industrial espionage and other disruptions to Corteva’s supply chain, information technology or network systems; (xi) competitor’s establishment of an intermediary platform for distribution of Corteva's products; (xii) effect of volatility in Corteva’s input costs; (xiii) failure to raise capital through the capital markets or short-term borrowings on anticipated terms and timing, the abilityacceptable to fully and timelyCorteva; (xiv) failure of Corteva’s customers to pay their debts to Corteva, including customer financing programs; (xv) failure to realize the expectedanticipated benefits of the proposed transaction andinternal reorganizations taken by DowDuPont in connection with the spin-off of Corteva, including failure to benefit from significant cost synergies; (xvi) risks related to the Intended Business Separations contemplated to occur after the completionindemnification obligations of the proposed transaction. Important risk factors relating to the proposed transaction and Intended Business Separations include, but are not limited to, (i) the completion of the proposed transaction on anticipated terms and timing, including obtaining regulatory approvals, anticipated tax treatment, unforeseenlegacy EID liabilities future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the various approvals, authorizations and declarations of non-objections from certain regulatory and governmental authorities may not be obtained, on a timely basis or otherwise, including that these regulatory or governmental authorities may impose conditions on the granting of such approvals, including regarding the respective Dow and DuPont businesses to divest certain assets if necessary to obtain certain regulatory approval or otherwise limiting the ability of the combined company to integrate parts of the Dow and DuPont businesses, (iii) the ability of Dow and DuPont to integrate the businesses successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separations, including anticipated timing, any changes to the configuration of businesses included in the potential separation if implemented, (iv) the intended separation of the agriculture, material science and specialty products businesses of the combined company post-mergers in one or more tax efficient transactions on anticipated terms and timing, including a number of conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances, disruptions in the financial markets or other potential barriers, (v) continued availability of capital and financing and rating agency actions, (vi) potential business uncertainty, including changes to existing business relationships, during the pendency of the merger that could affect DuPont’s financial performance, (vii) certain restrictions during the pendency of the merger that may impact DuPont’s ability to pursue certain business opportunities or strategic transactions. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus included in the Registration Statement.
Volatility in energy and raw material prices;
Failure to develop and market new products and optimally manage product life cycles;
Outcome of significant litigation and environmental matters, including those related to divested businesses, including realization of associated indemnification assets, if any;
Failure to appropriately manage process safety and product stewardship issues;
Ability to obtain and maintain regulatory approval for its products especially in the Agriculture segment;
Failure to realize all of the expected benefits from cost and productivity initiatives to the extent and as anticipated;
Effect of changes in tax, environmental and other laws and regulations or political conditions in the United States of America (U.S.) and other countries in which the company operates;
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Conditions in the global economy and global capital markets, including economic factors such as inflation, deflation, fluctuation in currency rates, interest rates and commodity prices;
Failure to appropriately respond to market acceptance, government rules, regulations and policies affecting products based on biotechnology;
Impact of business disruptions, including supply disruptions, and security threats, regardless of cause, including acts of sabotage, cyber-attacks, terrorism or war, natural disasters and weather events and patterns which could affect demand as well as availability of product, particularly in the Agriculture segment;
Ability to discover, develop and protect new technologies and enforce the company's intellectual property rights; and
Successful integration of acquired businesses and separation of underperforming or non-strategic assets or businesses.
For some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements, see the Risk Factors discussion set forth under Part I, Item 1A beginning on page 9.
Overview
DuPont Dow Merger of Equals On December 11, 2015, DuPont and Dow announced entry into an Agreement and Plan of Merger (the Merger Agreement), under which the companies will combine in an all-stock merger of equals (the Merger Transaction), subject to satisfaction of customary closing conditions, including receipt of regulatory approval. The combined company will be named DowDuPont Inc. (DowDuPont). DuPont's special meeting of stockholders was held on July 20, 2016, which resulted in a vote for adoption of the Merger Agreement and approval of related matters. Closing of the Merger Transaction is expected to occur in the first half of 2017, pending satisfaction of customary closing conditions, including receipt of regulatory approval.
Following the consummation of the merger, Dow and DuPont intend to pursue, subject to the receipt of approval by the board of directors of DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (the Intended Business Separations). Dow and DuPont currently anticipate that the Intended Business Separations will occur about 18 months after the merger is consummated.
During the years ended December 31, 2016 and 2015, the company incurred $386 million and $10 million, respectively, of costs in connection with the planned merger with Dow and the Intended Business Separations, including costs relating to integration and separation planning. These costs were recordedof Corteva; (xvii) increases in selling, general and administrative expenses in the company's Consolidated Income Statements and primarily include financial advisory, legal, accounting, consultingpension and other advisory feespost-employment benefit plan funding obligations; (xviii) effect of compliance with laws and expenses.
See the discussion entitled DuPont Dow Mergerrequirements and adverse judgments on litigation; (xix) risks related to Corteva’s global operations; (xx) effect of Equals under Part 1, Item 1 Businessclimate change and unpredictable seasonal and weather factors; (xxi) effect of this report, Part 1, Item 1A, Risk Factors,counterfeit products; (xxii) failure to effectively manage acquisitions, divestitures, alliances and Note 2other portfolio actions; (xxiii) risks related to non-cash charges from impairment of goodwill or intangible assets; and (xxiv) other risks related to the Consolidated Financial Statements for further detailsSeparation 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 relatedand uncertainties which may cause results and events to the transaction.
Purpose DuPont’s businesses serve markets where the increasing demand for more and healthier food, renewably sourced materials and fuels, and advanced industrial materialsdiffer materially from such forward-looking statements is creating substantial growth opportunities. The company’s unique combination of sciences, proven research and development (R&D) engine, broad global reach, and deep market penetration are distinctive competitive advantages that position the company to continue capitalizing on this enormous potential.
DuPont has dramatically refined its portfolio to focus investment in areas where it sees significant opportunity and secular growth; enhanced its innovation platform to deliver substantial revenues from new products; increased focus on efficiency, cost discipline, and accountability; and expanded markets geographically.
The company is committed to maintaining a strong balance sheet and to return excess cash to shareholders unless there is a compelling opportunity to invest for growth.
Results DuPont 2016 sales were $24.6 billion, 2 percent below last year, reflecting a 1 percent decline from the negative impact of weaker currencies and a 1 percent decline due to lower prices and product mix. Volume growth in Performance Materials, Nutrition & Health, and Industrial Biosciences was offset by declinesincluded in the other segments. Income from continuing operations before taxessection titled “Risk Factors” (Part I, Item 1A of $3.3 billion was up 26 percent versus $2.6 billion in prior year, on cost savings and lower pension and other post employment benefits (OPEB) costs. Pension and OPEB costs were down 63 percent year over year, primarily due to curtailment gains recognized as a result of changes made to the U.S. Pension and OPEB benefits in 2016.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 - 4 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). As a result, the accompanying Consolidated Financial Statements and Notes thereto include the results of DAS as of the Merger Effectiveness Time. See 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 (loss) income, stockholder's equity and cash flows related to EID ECP have not been segregated and are included in the Consolidated Statements of Comprehensive (Loss) Income, Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for all periods presented. 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 (loss) income, 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 (Loss) Income, Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for all periods presented. 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.
Predecessor / Successor Reporting
For purposes of DowDuPont's financial statement presentation, Historical Dow was determined to be the accounting acquirer in the Merger and Historical DuPont's assets and liabilities are reflected at fair value as of the close of the Merger in the financial statements of DowDuPont. In connection with the Merger and the related accounting determination, Historical DuPont elected to apply push-down accounting and reflect in its financial statements, the fair value of its assets and liabilities. For purposes of Corteva’s financial statement presentation, periods following the close of the Merger are labeled “Successor” and reflect DowDuPont’s basis in the fair values of the assets and liabilities of Corteva/EID. All periods prior to the closing of the Merger reflect the historical accounting basis in EID 's assets and liabilities and are labeled “Predecessor.” The Consolidated Financial Statements and Footnotes include a black line division between the columns titled "Predecessor" and "Successor" to signify that the amounts shown for the periods prior to and following the Merger are not comparable. In addition, the company elected to make certain changes in presentation to harmonize its accounting and reporting with that of DowDuPont in the Successor periods. See Note 2 - Summary of Significant Accounting Policies, to the Consolidated Financial Statements for further discussion of these changes.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
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. 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 - Short-Term Borrowings, 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. The unaudited pro forma financial information for the year ended December 31, 2017 gives effect to the above noted transactions in addition to the common control business combination with DAS, as if it 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, 2019:
The company reported net sales of $13,846 million, down 3 percent versus the year ended December 31, 2018, reflecting a 3 percent decline in currency.
Cost of goods sold ("COGS") totaled $8,575 million, down from $9,948 million for the year ended December 31, 2018, primarily driven by lower volumes as a result of weather-related planting delays in North America as well as lower amortization of inventory step-up. All inventory step-up has been amortized.
Restructuring and asset related charges - net were $222 million, a decrease from $694 million for the year ended December 31, 2018.
Integration and separation costs were $744 million, down from $992 million for the year ended December 31, 2018, reflecting post-Merger integration and Business Separation activities.
Loss from continuing operations after income taxes was $(270) million, as compared to a loss of $(6,775) million for the year ended December 31, 2018.
The company realized cost synergies of approximately $350 million for the year ended December 31, 2019, on track to deliver $1.2 billion through 2021.
Pro forma operating EBITDA was $1,987 million, down from $2,072 million for the year ended December 31, 2018. Refer to page 58 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, 2019:
The company launched a new pure play agriculture company with the new Corteva brand, new values, and a new purpose.
The company returned approximately $220 million to shareholders since the Separation through its previously announced share repurchase program and common stock dividends.
| |
| • | During the fourth quarter of 2019, the company decided to accelerate the ramp-up of its Enlist E3™ soybeans, as well as its Enlist One® and Enlist Duo® herbicides, in the U.S. and Canada. Refer to Prepaid Royalties within the Critical Accounting Estimates section on page 70 for additional information. |
The company agreed to sell Chlorpyrifos assets in India; Bensulfuron-Methyl assets in Asia Pacific (excluding China); Quinoxyfen business assets; and a selection of U.S. herbicide brands during the fourth quarter. These actions are aligned with the company’s commitment to driving an active portfolio management approach focused on margin expansion and shareholder value creation.
Priorities
Corteva is committed to making an impact for its customers, while focusing on five priorities for shareholder value creation: (1) instilling a strong culture, (2) driving disciplined capital allocation, (3) developing innovative solutions, (4) attaining best-in-class cost structure and (5) delivering above market growth.
The company believes the following key pillars will enable it to create significant value for its customers while delivering strong financial returns to its shareholders:
| |
| • | Developing and launching new offerings that address market needs by continuing to leverage its robust pipeline to introduce new proprietary seed traits and crop protection formulations that anticipate and meet evolving customer needs. |
| |
| • | Utilizing its multi-channel and multi-brand capabilities to drive profitable growth by strategically aligning its brands and capabilities across different sales channels and creating a comprehensive multi-channel, multi-brand strategy. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
| |
| • | Continuing to develop and maintain close connections with customers by working closely with farmers throughout the entire growing season to ensure all their seed and crop protection needs are anticipated and satisfied. |
| |
| • | Focusing on operational excellence 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. |
| |
| • | Furthering its commitment to sustainable and responsible agriculture by focusing on integrating sustainability criteria early in the product discovery and development phases as well as promoting the development of responsible solutions focused on reducing the environmental impact of agriculture over time. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Analysis of Operations
2016 Global Cost Savings
Debt Redemptions/Repayments
On March 22, 2019, EID issued notices of redemption in full of all of its outstanding notes (the “Make Whole Notes”) listed in the table below:
|
| | | |
| (in millions) | Amount |
| 4.625% Notes due 2020 | $ | 474 |
|
| 3.625% Notes due 2021 | 296 |
|
| 4.250% Notes due 2021 | 163 |
|
| 2.800% Notes due 2023 | 381 |
|
| 6.500% Debentures due 2028 | 57 |
|
| 5.600% Senior Notes due 2036 | 42 |
|
| 4.900% Notes due 2041 | 48 |
|
| 4.150% Notes due 2043 | 69 |
|
| Total | $ | 1,530 |
|
The Make Whole Notes were redeemed on April 22, 2019 at the make-whole redemption prices set forth in the respective Make Whole Notes. On and Restructuring Plan On December 11, 2015, DuPont announced a 2016 global cost savingsafter the date of redemption, the Make Whole Notes were no longer deemed outstanding, interest on the Make Whole Notes ceased to accrue and restructuring plan (the 2016 global cost savings and restructuring plan) designed to reduce costs in 2016 by $730 million compared with 2015, which represents a reduction of operating costs on a run-rate basis of about $1.0 billion by the end of 2016. As partall rights of the plan,holders of the company committedMake Whole Notes were terminated.
In March 2016, EID entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4.5 billion (as amended, from time to take structural actions across all businessestime, the "Term Loan Facility") under which EID could make up to seven term loan borrowings and staff functions globally to operate more efficiently by further consolidating businessesamounts repaid or prepaid were not available for subsequent borrowings. On May 2, 2019, EID terminated its Term Loan Facility and aligning staff functions more closely with them. repaid the aggregate outstanding principal amount of $3 billion plus accrued and unpaid interest through and including May 1, 2019.
In connection with the repayment of the Make Whole Notes and the Term Loan Facility, Corteva paid a total of $4.6 billion in the second quarter 2019, which included breakage fees and accrued and unpaid interest on the Make Whole Notes and Term Loan Facility. The repayment of the Make Whole Notes and Term Loan Facility was funded with cash from operations and a contribution from DowDuPont.
On May 7, 2019, DowDuPont publicly announced the record date in connection with the Corteva Distribution. In connection with such announcement, EID was required to redeem $1.25 billion aggregate principal amount of 2.200% Notes due 2020 and $750 million aggregate principal amount of Floating Rate Notes due 2020 (collectively, the Special Mandatory Redemption, or “SMR Notes”) setting forth the date of redemption of the SMR Notes. On May 17, 2019 EID redeemed and paid a total of $2.0 billion, which included accrued and unpaid interest on the SMR Notes. EID funded the payment with a contribution from DowDuPont. Following the redemption, the SMR Notes are no longer outstanding and no longer bear interest, and all rights of the holders of the SMR Notes have terminated.
EID recorded a loss on the early extinguishment of debt of $13 million related to the difference between the redemption price and the par value of the Make Whole Notes, the Term Loan Facility, and the SMR Notes, partially offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt.
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.") and Mexico ratified the United States-Mexico-Canada Agreement ("USMCA"). 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, requires companies to pay a one-time transition tax (“transition tax”) on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves 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 ($2,813 million benefit in the period September 1 through December 31, 2017 and $34 million benefit during 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 ($746 million charge in the period September 1 through December 31, 2017 and $182 million charge during 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. The company recorded a pre-tax charge to earnings of $798$84 million, recognized in restructuring and asset related charges - net in the fourth quarter 2015,company's Consolidated Statement of Operations comprised of $656$78 million of severance and related benefit costs $109and $6 million ofrelated to asset related charges, and $33 million of contract termination costs. Duringcharges.
For the year ended December 31, 2016, in connection with the restructuring actions,2019, the company recorded a net pre-tax benefit to earnings of $85$14 million, recognized in restructuring and asset related charges - net in the company's Consolidated Statement of Operations comprised of a net reduction$17 million of $154severance and related benefit credits and $3 million related to asset related charges. The company's actions related to this program are complete.
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 pre-tax restructuring charges of $845 million inception-to-date under the Synergy Program, consisting of severance and related benefit costs offset by $53of $319 million, contract termination costs of asset$193 million, and asset-related charges of $333 million. Actions associated with the Synergy Program, including employee separations, are substantially complete.
Future cash payments related charges,to this program are anticipated to be approximately $69 million, related to the payment of severance and $16 million ofrelated benefits and contract termination costs. This was primarily due to a reduction in severance and related benefit costs partially offset by the identification of additional projects in certain segments. The reduction in severance and related benefit costs was driven by elimination of positions at a lower cost than expected as a result of redeployments and attrition as well as lower than estimated individual severance costs.
The 2016 global costcompany anticipates including cumulative savings and restructuring plan delivered the target cost reductions versus prior year. The restructuring actions associated with this charge affected approximately 10 percentthese actions within its cost synergy commitment of DuPont’s workforce and are now substantially complete.
Redesign Initiative and 2014 Restructuring Plan In June 2014, DuPont announced its global, multi-year initiative to redesign its global organization and operating model to reduce costs and improve productivity and agility across all businesses and functions. DuPont commenced a restructuring plan to realign and rebalance staff function support, enhance operational efficiency, and to reduce residual costs associated with the separation of its Performance Chemicals segment. As a result, during the year ended December 31, 2014, a pre-tax charge of $541 million was recorded. Cost reductions from the 2014 operational redesign were essentially completed during 2015 and for full year 2015, the company delivered incremental cost savings of approximately $440 million year over year.$1.2 billion through 2021. Additional details related to this plan can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, on page 44 of this report and Note 47 - Restructuring and Asset Related Charges - Net, to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
FMC Transactions
On March 31, 2017, EID and FMC Corporation ("FMC") entered into a definitive agreement (the "FMC Transaction Agreement"). Under the FMC Transaction Agreement, and effective upon the closing of the transaction on November 1, 2017, FMC acquired the crop protection business and R&D assets that EID was required to divest in order to obtain European Commission approval of the Merger Transaction, (the "Divested Ag Business") and EID agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products (the "H&N Business") (collectively, the "FMC Transactions"). The sale of the Divested Ag Business meets the criteria for discontinued operations and as such, earnings are included within (loss) income from discontinued operations after income taxes in the Consolidated Statements of Operations for all periods presented.
On November 1, 2017, EID completed the FMC Transactions through the disposition of the Divested Ag Business and the acquisition of the H&N Business. The fair value, as determined by the company, of the H&N Business was $1,970 million. The FMC Transactions included a cash consideration payment to EID of approximately $1,200 million, which reflects the difference in value between the Divested Ag Business and the H&N Business, as well as favorable contracts with FMC of $495 million. The carrying value of the Divested Ag Business approximated the fair value of the consideration received, thus no resulting gain or loss was recognized on the sale. The H&N Business was transferred to DowDuPont as part of the EID Specialty Products Entities. Refer to Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for further information.
Separation of Performance ChemicalsIn October 2013, DuPont announced its intention to separate its Performance Chemicals segment through a U.S. tax-free spin-off to shareholders, subject to customary closing conditions. In
On July 1, 2015, DuPontEID completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (Chemours)("Chemours"). In connection with the separation, EID and Chemours entered into a Separation Agreement and a Tax Matters Agreement as well as certain ancillary agreements. In accordance with generally accepted accounting principles in the U.S. ("GAAP"), the results of operations of its former Performance Chemicals segment are presented as discontinued operations and, as such, are included within (loss) income from discontinued operations after income taxes in the Consolidated Statements of Operations for all periods presented. Additional details regarding the separation and other related agreements can be found in Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements.
Settlement of PFOA MDL
As previously reported, approximately 3,550 lawsuits were consolidated in multi-district litigation (“MDL”); these lawsuits alleged personal injury from exposure to perfluorooctanoic acid and its salts, including the ammonium salt ("PFOA"), in drinking water as a result of the historical manufacture or use of PFOA. The plant operating units involved in the allegations are owned and operated by Chemours. The MDL was settled in early 2017 for $670.7 million in cash, with Chemours and EID (without indemnification from Chemours) each paying half. See Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements for additional information
Net Sales
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Net Sales | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Net Sales | $ | 13,846 |
| $ | 14,287 |
| $ | 14,241 |
|
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| NET SALES | $ | 24,594 |
| $ | 25,130 |
| $ | 28,406 |
|
20162019 versus 2015 The table below shows a regional breakdown of 2016 consolidated net sales based on location of customers and percentage variances from prior year:
|
| | | | | | | | | | | | | |
| | Percent Change Due to: |
| (Dollars in billions) | 2016 Net Sales | Percent Change vs. 2015 | Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| Worldwide | $ | 24.6 |
| (2 | ) | (1 | ) | (1 | ) | — |
| — |
|
| U.S. & Canada | 10.4 |
| (3 | ) | (2 | ) | — |
| — |
| (1 | ) |
EMEA1 | 5.7 |
| (5 | ) | 1 |
| (3 | ) | (2 | ) | (1 | ) |
| Asia Pacific | 5.8 |
| 3 |
| (1 | ) | (1 | ) | 4 |
| 1 |
|
| Latin America | 2.7 |
| (3 | ) | 2 |
| (2 | ) | (2 | ) | (1 | ) |
| |
1.
| Europe, Middle East, and Africa (EMEA). |
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 $24.6 billion were 2 percent below prior year, reflecting a 1 percent reduction due to currencycrop protection products and a 1 percent decrease due to lower local prices. Negative currency impact was primarily due to the weaker European euro, Mexican peso,reduction in planted area for soybeans. Pricing gains from new product launches and Chinese yuan, partly offset by the stronger Japanese yen and Brazilian real. The 1 percent negative impact from lower local prices primarily reflects lower pricesfavorable mix in Performance Materials, largely polymers, lower Electronics & Communications prices and flat prices for Agriculture where higher prices in EMEA and Latin America were offset by declinescompetitive pricing pressure, increases in replant, and increased grower incentive program discounts in North America. Worldwide volume
2018 versus 2017
Net sales were $14,287 million for the year ended December 31, 2018 compared to $3,790 million for the period September 1 through December 31, 2017 and $6,894 million for the period January 1 through August 31, 2017. The increase was primarily driven by the inclusion of DAS for the full year in 2018 versus only four months in 2017 ($3,432 million increase).
Pro forma net sales were $14,287 million for the year ended December 31, 2018 compared to pro forma net sales of $14,241 million for the year ended December 31, 2017. The increase was primarily driven by a 2 percent increase in local price, partially offset by a 2 percent decline in currency. The increase in local price was driven by a favorable mix in North America as well as increases in crop protection pricing in Latin America to offset currency pressure. Volume was flat as growthgains in Performance Materials, Nutrition & Health,crop protection due to new product launches, including VESSARYATM in Latin America, ENLISTTM products in North America and Industrial Biosciences wasLatin America, and PYRAXALTTM in Asia Pacific, were offset by lower volumeplanted area in Electronics & Communications, Protection Solutions,North America and Agriculture, the latter due to lower sales of crop protection products. Net sales in developing markets, were $8.4 billion, up 2 percent, with 4 percent higher volume, principally due to strong growth in Agriculture, Performance Materials, Electronics & Communications, and Nutrition & Health, in developing Asia Pacific. Sales growth in developing markets was partly offset by a negative currency impact. Representing 34 percent of total company sales, developing markets include China, India, and countries in Southeast Asia, Latin America Eastern and Central Europe, Middle East, and Africa.lower demand for nitrogen stabilizers in North America.
|
| | | | | | | | | | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| | Net Sales | % of Net Sales | Net Sales | % of Net Sales | Net Sales | % of Net Sales | Net Sales | % of Net Sales |
| Worldwide | $ | 13,846 |
| 100 | % | $ | 14,287 |
| 100 | % | $ | 3,790 |
| 100 | % | $ | 6,894 |
| 100 | % |
| North America | 6,929 |
| 50 | % | 7,412 |
| 52 | % | 1,224 |
| 32 | % | 4,579 |
| 66 | % |
| EMEA | 2,740 |
| 20 | % | 2,765 |
| 19 | % | 535 |
| 14 | % | 1,287 |
| 19 | % |
| Asia Pacific | 1,288 |
| 9 | % | 1,293 |
| 9 | % | 428 |
| 11 | % | 380 |
| 6 | % |
| Latin America | 2,889 |
| 21 | % | 2,817 |
| 20 | % | 1,603 |
| 43 | % | 648 |
| 9 | % |
|
| | | | | | | | | | | | | |
| | Year Ended December 31, 2019 vs. 2018 | Percent Change Due To: |
| | Net Sales Change (GAAP) | Local Price & |
|
| Portfolio / |
| (in millions) | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | (483 | ) | (7 | )% | (2 | )% | (4 | )% | (1 | )% | — | % |
| EMEA | (25 | ) | (1 | )% | 2 | % | 5 | % | (8 | )% | — | % |
| Asia Pacific | (5 | ) | — | % | 2 | % | 1 | % | (3 | )% | — | % |
| Latin America | 72 |
| 3 | % | 4 | % | 4 | % | (5 | )% | — | % |
| Total | $ | (441 | ) | (3 | )% | — | % | — | % | (3 | )% | — | % |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2015 versus 2014 The table below shows a regional breakdown of 2015 consolidated net sales based on location of customers and percentage variances from prior year: |
| | | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| | Net Sales | % of Net Sales | Pro Forma Net Sales | % of Pro Forma Net Sales |
| Worldwide | $ | 14,287 |
| 100 | % | $ | 14,241 |
| 100 | % |
| North America | 7,412 |
| 52 | % | 7,589 |
| 53 | % |
| EMEA | 2,765 |
| 19 | % | 2,637 |
| 19 | % |
| Asia Pacific | 1,293 |
| 9 | % | 1,205 |
| 8 | % |
| Latin America | 2,817 |
| 20 | % | 2,810 |
| 20 | % |
|
| | | | | | | | | | | | | |
| | Percent Change Due to: |
| (Dollars in billions) | 2015 Net Sales | Percent Change vs. 2014 | Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| Worldwide | $ | 25.1 |
| (12 | ) | — |
| (7 | ) | (3 | ) | (2 | ) |
| U.S. & Canada | 10.8 |
| (6 | ) | (2 | ) | (1 | ) | (2 | ) | (1 | ) |
EMEA1 | 6.0 |
| (17 | ) | 2 |
| (15 | ) | (2 | ) | (2 | ) |
| Asia Pacific | 5.6 |
| (9 | ) | (2 | ) | (3 | ) | (2 | ) | (2 | ) |
| Latin America | 2.7 |
| (23 | ) | 2 |
| (15 | ) | (9 | ) | (1 | ) |
| |
1.
| Europe, Middle East, and Africa (EMEA). |
|
| | | | | | | | | | | | | |
| | Year Ended December 31, 2018 vs. 2017 | Percent Change Due To: |
| | Net Sales Change (Pro Forma) | Local Price & | | | Portfolio / |
| (in millions) | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | (177 | ) | (2 | )% | 2 | % | (4 | )% | — | % | — | % |
| EMEA | 128 |
| 5 | % | — | % | (1 | )% | 6 | % | — | % |
| Asia Pacific | 88 |
| 7 | % | 2 | % | 7 | % | (2 | )% | — | % |
| Latin America | 7 |
| — | % | 3 | % | 9 | % | (12 | )% | — | % |
| Total | $ | 46 |
| — | % | 2 | % | — | % | (2 | )% | — | % |
Net sales of $25.1 billion were down 12 percent
COGS
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| COGS | $ | 8,575 |
| $ | 9,948 |
| $ | 2,915 |
| $ | 3,409 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma COGS | $ | 8,386 |
| $ | 8,449 |
| $ | 8,338 |
|
2019 versus prior2018
COGS was $8,575 million for the year reflecting a 7 percent negative impact from weaker currencies, particularlyended December 31, 2019 compared to $9,948 million for the Brazilian real and the European euro, 3 percent lower volume and a 2 percent negative impact from the absence of sales from divested businesses. Lower volume principally reflects a 6 percent decline in Agriculture thatyear ended December 31, 2018. The decrease was primarily driven by lower seed volume and reduced demand for insect control productsamortization of remaining inventory step up compared to the prior year ($272 million in Latin America, a 7 percent decline2019 compared to $1,554 million in volumes for Electronics & Communications,2018).The remaining COGS decrease was primarily driven by competitive pressures impacting saleslower volumes as a result of Solamet® paste,weather-related planting delays in North America, cost synergies and a 2 percent decline in volumescurrency benefit, partially offset by higher input costs for Industrial Biosciences due to lower demand for biomaterialsboth seed and clean technologies offerings. These declines more than offset volume growth for Performance Materials, Nutrition & Health, and Protection Solutions. Portfolio and other reflects the impact of the prior year sales of Glass Laminating Solutions/Vinyls within the Performance Materials segment and Sontara® within the Protection Solutions segment. The impact from local prices and product mix was about even with prior year as 3 percent higher Agriculture prices were offset primarily by lower prices in Performance Materials and Electronics & Communications. Net sales in developing markets were $8.2 billion, 33 percent of total company net sales versus 34 percent in 2014, representing a slight decline principally due to lower Agriculture volume in Latin America. Developing markets include China, India, countries located in Latin America, Eastern and Central Europe, Middle East, Africa and South East Asia.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| COST OF GOODS SOLD | $ | 14,469 |
| $ | 15,112 |
| $ | 17,023 |
|
| As a percent of net sales | 59 | % | 60 | % | 60 | % |
2016 versus 2015 Cost of goods sold (COGS) decreased $0.6 billion, or 4 percent, principally due to lower raw material costs, lower pension and OPEB costs, and the strengthening of the U.S. dollar versus global currencies.crop protection. COGS as a percentage of net sales was 5962 percent versus 60and 70 percent lastfor the year principally due to lower raw material costsended December 31, 2019 and lower pension2018, respectively. The amortization of inventory step-up was 2 percent and OPEB costs.
2015 versus 2014 COGS decreased $1.9 billion, or 11 percent principally reflecting declines fromof net sales for the year ended December 31, 2019 and 2018, respectively.
On a pro forma basis, COGS was$8,386 million for theyear ended December 31, 2019 and $8,449 million 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 due to the strengthening of the U.S. dollar versus global currencies, productivity improvements, impacts of portfolio changes, lower volumebenefit, partially offset by higher input costs for both seed and lower raw material costs.crop protection.Pro forma COGS as a percentpercentage of pro forma net sales was unchanged from prior year at 60 percent as the benefit of productivity improvements offset the negative impact of currency which decreased sales by 761 percent and COGS by 4 percent.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| OTHER OPERATING CHARGES | $ | 686 |
| $ | 459 |
| $ | 645 |
|
| As a percent of net sales | 3 | % | 2 | % | 2 | % |
2016 versus 2015 Other operating charges increased $227 million, or 4959 percent reflecting a $152 million decrease in Imprelis® herbicide insurance recoveries,for the year ended December 31, 2019 and a $23 million reduction in the estimated liability related2018, respectively. The increase was due to Imprelis® herbicide claims versus a $130 million accrual reduction in the prior year.
2015 versus 2014 Other operating charges decreased $186 million, or 29 percent, principally reflecting $130 million reduction in the estimated liability related to Imprelis® herbicide claims, cost savings from the company's operational redesign initiativehigher input costs for both seed and crop protection, partially offset by lower insurance recoveries year over year related to Imprelis® herbicide claims.cost synergies.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | $ | 4,319 |
| $ | 4,615 |
| $ | 4,891 |
|
| As a percent of net sales | 18 | % | 18 | % | 17 | % |
2016 versus 2015COGS was $9,948 million for the year ended December 31, 2018 compared to $2,915 million for the period September 1 through December 31, 2017 and $3,409 million for the period January 1 through August 31, 2017. The $296 million decreaseincrease was primarily driven by the inclusion of DAS for the full year in 2018 versus only four months in 2017 ($2,383 million increase), the amortization of the inventory step-up of $1,554 million for the year ended December 31, 2018 (compared to $425 million period September 1 through December 31, 2017), increased expenses due to lower coststhe elimination of the other operating charges financial statement line item subsequent to the Merger, and higher depreciation related to the 2016 global cost savingsfair value step up of property, plant and restructuring plan, lower selling expense, and a decrease in pension and OPEB costs, partially offset by $386 million of transaction costs associated with the planned merger with Dow.equipment.
2015 versus 2014 The $276 million decrease was primarily due to the strengthening of the U.S. dollar versus global currencies, cost savings from the company's 2014 operational redesign initiative, and lower selling and commission expense, mainly within the Agriculture segment, partially offset by an increase in pension and OPEB costs. Selling, general and administrative expensesCOGS as a percentage of net sales was 70 percent, 77 percent, and 49 percent for the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. The amortization of the inventory step-up was 11 percent of net sales for the year ended December 31, 2018 and the period September 1 through December 31, 2017, respectively. The elimination of the other operating charges financial statement line item would have increased COGS as a percentage of net sales by 3 percent for the period January 1 percent, primarily due to lowerthrough August 31, 2017. The remaining COGS change as a percentage of net sales between the Predecessor and higher pensionSuccessor periods of 2017 and OPEB costs.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| RESEARCH AND DEVELOPMENT EXPENSE | $ | 1,641 |
| $ | 1,898 |
| $ | 1,958 |
|
| As a percent of net sales | 7 | % | 8 | % | 7 | % |
2016 versus 2015 The $257 million decrease2018 was primarily due to lowerhigher raw material costs, related to the 2016 global cost savings and restructuring plan, a decrease in pension and OPEB costs and the strengthening of the U.S. dollar versus global currencies. Research and development expense as a percent of sales decreased 1 percent, primarily due to cost savings from the company’s 2016 global cost savings and restructuring plan and a decrease in pension and OPEB costs.
2015 versus 2014 The $60 million decrease was primarily due to the strengthening of the U.S. dollar versus global currencies, cost savings from the company's operational redesign initiative, partially offset by synergies.
Pro forma COGS for the year ended December 31, 2018 was $8,449 million compared to $8,338 million for the year ended December 31, 2017. The increase was primarily driven by higher pensionraw material costs and OPEB costs. Researchroyalty expense, partially offset by synergies and development expensea currency benefit. Pro forma COGS as a percentage of pro forma net sales was 59 percent of sales increased due to lower sales.for both the year ended December 31, 2018 and the year ended December 31, 2017.
Other Operating Charges
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| OTHER INCOME, NET | $ | 708 |
| $ | 697 |
| $ | 1,277 |
|
|
| | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Other Operating Charges | | | | $ | 195 |
|
20162018 versus 2015 The $112017
Other operating charges were $195 million increase wasfor the period January 1 through August 31, 2017. In the Successor periods, other operating charges are included primarily due to gains on salesin COGS, as well as selling, general and administrative expenses and amortization of businesses and other assets, including a $369 million gain on the saleintangibles. See Note 2 - Summary of DuPont (Shenzhen) Manufacturing Limited, partially offset by an increase in pre-tax exchange losses and the absence of a $145 million gain associated with the company's settlement of a legal claim in the prior year related to the Protection Solutions segment. Pre-tax exchange losses increased $136 million compared to prior year. See Notes 5 and 19Significant Accounting Policies, to the Consolidated Financial Statements for further discussion of the company's policychanges in presentation.
Research and Development Expense ("R&D")
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| R&D | $ | 1,147 |
| $ | 1,355 |
| $ | 484 |
| $ | 591 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma R&D | $ | 1,147 |
| $ | 1,352 |
| $ | 1,439 |
|
2019 versus 2018
R&D expense was $1,147 million (8 percent of hedgingnet sales) for the foreign currency-denominated monetary assetsyear ended December 31, 2019 and liabilities.
2015 versus 2014 $1,355 million (9 percent of net sales) for the year ended December 31, 2018. The $580 million decrease was primarily due to the absence of prior year gains on sales of businesses and other assets, including a $391 million gain on the sale of GLS/Vinyls, within the Performance Materials segment, and a $240 million gain on the sale of copper fungicides and land management businesses, both within the Agriculture segment, partially offset by gains on sales of businesses and assets in 2015, primarily in the Agriculture and Performance Materials segments. In addition, pre-tax exchange gains decreased $166 million compared to prior year driven by lower gains on foreign currency exchange contracts. See Notes 5cost synergies and 19additional actions taken to the Consolidated Financial Statements for further discussion of the company's policy of hedging the foreign currency-denominated monetary assets and liabilities. These decreases were partially offset by $145 million gain associated with the company's settlement of a legal claim related to the Protection Solutions segment and $85 million increase in equity in earnings of affiliates, primarily due to the absence of $65 million for charges associated with the restructuring actions of a joint venture within the Performance Materials segment recorded in 2014.curtail spending.
Additional information related to the company's other income, net is included in Note 5 to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| INTEREST EXPENSE | $ | 370 |
| $ | 342 |
| $ | 377 |
|
The $28Pro forma R&D expensewas $1,147 million increase in 2016 was primarily due to lower capitalized interest related to construction projects partially offset by lower interest on borrowings.
The $35 million decrease in 2015 was primarily due to lower average borrowings partially offset by slightly higher average interest rates compared to prior year.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| EMPLOYEE SEPARATION/ASSET RELATED CHARGES, NET | $ | 552 |
| $ | 810 |
| $ | 476 |
|
The $552 million in charges recorded during 2016 in employee separation / asset related charges,(8 percent of pro forma net consist of $593 million of asset impairment charges discussed below, and a $68 million charge related to the decision to not re-start the Agriculture segment’s insecticide manufacturing facility at the La Porte site located in La Porte, Texas. These charges were partially offset by a net $88 million benefit related to the 2016 restructuring plan, primarily due to a reduction in severance and related benefit costs driven by the elimination of positions at a lower cost than expected, and a $21 million benefit related to the 2014 restructuring plansales) for adjustments to the previously recognized severance costs.
The $810 million in charges recorded during 2015 in employee separation / asset related charges, net consist of a $793 million charge related to the 2016 restructuring plan discussed below, and a $38 million impairment charge discussed below, partly offset by a $21 million net benefit related to the 2014 restructuring plan. The $21 million net benefit was recorded to adjust the estimated costs associated with the 2014 restructuring program due to lower than estimated individual severance costs and workforce reductions achieved through non-severance programs, offset by the identification of additional projects in certain segments.
On December 11, 2015, DuPont announced a 2016 global cost savings and restructuring plan designed to reduce $730 million in costs compared to 2015. As part of the plan, the company committed to take structural actions across all businesses and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with them. As a result, during the year ended December 31, 2015, a pre-tax charge2019 and $1,352 million (9 percent of $798 million was recorded, consisting of $793 million of employee separation / asset related charges,pro forma net and $5 million in other income, net. The charges consisted of $656 million in severance and related benefit costs, $109 million in asset related charges, and $33 million in contract termination charges.
The $476 million in charges recorded during 2014 in employee separation / asset related charges, net related to the 2014 global, multi-year initiative to redesign its global organization and operating model to improve productivity and agility across all businesses and functions. DuPont commenced a restructuring plan to realign and rebalance staff function support, enhance operational efficiency, and to reduce residual costs associated with the separation of its Performance Chemicals segment. As a result, duringsales) for the year ended December 31, 2014,2018. The decrease was primarily driven by the factors described above.
2018 versus 2017
R&D expense was $1,355 million (9 percent of net sales) for the year ended December 31, 2018, $484 million (13 percent of net sales) for the period September 1 through December 31, 2017, and $591 million (9 percent of net sales) for the period January 1 through August 31, 2017. The increase was primarily driven by the inclusion of DAS for the full year in 2018 versus only four months in 2017 ($281 million increase).
Pro forma R&D expense for the year ended December 31, 2018 was $1,352 million (9 percent of pro forma net sales) compared to $1,439 million (10 percent of pro forma net sales) for the year ended December 31, 2017. The decrease was primarily driven by cost synergies, partially offset by investments to support new product launches.
Selling, General and Administrative Expenses ("SG&A")
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| SG&A | $ | 3,065 |
| $ | 3,041 |
| $ | 920 |
| $ | 1,969 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma SG&A | $ | 3,068 |
| $ | 3,042 |
| $ | 3,109 |
|
2019 versus 2018
SG&A was $3,065 million for the year ended December 31, 2019 and $3,041 million for the year ended December 31, 2018. The increase was primarily driven by an increase in performance-based compensation, an increase in sales commissions resulting from commission rate increases and route to market changes in select markets, and settlement of a pre-tax chargelegal matter, partially offset by cost synergies. SG&A as a percentage of $541net sales was 22 percent and 21 percent for the year ended December 31, 2019 and December 31, 2018, respectively.
Pro forma SG&A expense for the year ended December 31, 2019 was $3,068 million (22 percent of pro forma net sales) compared to $3,042 million (21 percent of pro forma net sales) for the year ended December 31, 2018. The increase was recorded, consistingprimarily driven by the factors described above.
2018 versus 2017
SG&A was $3,041 million for the year ended December 31, 2018, $920 million for the period September 1 through December 31, 2017, and $1,969 million for the period January 1 through August 31, 2017. The increase was primarily driven by the inclusion of $476DAS for the full year in 2018 versus only four months in 2017 ($472 million in employeeincrease), partially offset by the inclusion of integration and separation / asset related charges, net and $65 million in other income, net. The charges consisted of $301 million severance and related benefit costs, $17 million of other non-personnel costs and $223 millionamortization of asset related costs, including $65 million of costs associated with the restructuring actions of a joint ventureintangibles within the Performance Materials segment.
Asset Impairments
During 2016, the company recorded an asset impairment charge of $435 million related to its uncompleted enterprise resource planning (ERP) system. The company intends to complete the ERP system project, however, given the uncertainties related to timing as well as potential developments and changes to technologiesSG&A in the market place atPredecessor period.
SG&A as a percentage of net sales was 21 percent, 24 percent, and 29 percent for the timeyear ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. Integration and separation costs were 5 percent of restart, usenet sales for the period January 1 through August 31, 2017.
Pro forma SG&A expense for the year ended December 31, 2018 was $3,042 million compared to $3,109 million for the year ended December 31, 2017. The decrease was primarily driven by synergies and lower variable compensation, partially offset by increased commissions due to a change in the route to market.
Pro formaSG&A as a percentage of pro forma net sales was 21 percent and 22 percent for the ERP system can no longer be considered probable. See Note 4year ended December 31, 2018 and 2017, respectively. The decrease was primarily due to the Consolidated Financial Statements for additional details related to this charge.reasons discussed above.
During 2016, the company recorded a $158 million impairment charge related to indefinite-lived intangible trade names within the Industrial Biosciences segment as a result of the realignment of brand marketing strategies and a determination to phase out the use of certain acquired trade names.
During 2015, the company recorded an impairment charge of $38 million in the Other segment, the majority relating to an impairment of a cost basis investment.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Additional details related to the restructuring programs and asset impairments discussed above can be found in Note 4 to the Consolidated Financial Statements.
Below is a summaryAmortization of the net impact related to items recorded in employee separation / asset related charges, net:Intangibles
|
| | | | | | | | | |
| (Dollars in millions) | 2016 (Charges) and Credits | 2015 (Charges) and Credits | 2014 (Charges) and Credits |
| Agriculture | $ | (85 | ) | $ | (164 | ) | $ | (134 | ) |
| Electronics & Communications | 4 |
| (78 | ) | (84 | ) |
| Industrial Biosciences | (152 | ) | (61 | ) | (20 | ) |
| Nutrition & Health | 9 |
| (50 | ) | (15 | ) |
| Performance Materials | 3 |
| (58 | ) | (34 | ) |
| Protection Solutions | 14 |
| (40 | ) | (45 | ) |
| Other | (11 | ) | (40 | ) | (10 | ) |
| Corporate expenses | (334 | ) | (319 | ) | (134 | ) |
| Total Charges | $ | (552 | ) | $ | (810 | ) | $ | (476 | ) |
|
| | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Amortization of Intangibles | $ | 475 |
| $ | 391 |
| $ | 97 |
| |
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| PROVISION FOR INCOME TAXES ON CONTINUING OPERATIONS | $ | 744 |
| $ | 696 |
| $ | 1,168 |
|
| Effective income tax rate | 22.8 | % | 26.9 | % | 27.1 | % |
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Amortization of Intangibles | $ | 475 |
| $ | 391 |
| $ | 270 |
|
In 2016,2019 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. Beginning in 2020, the company recorded a tax provision on continuing operations of $744 million, reflecting a marginalexpects annual amortization expense to increase from 2015.by approximately $250 million. The decreaseremaining increase in the 2016 effective tax rate compared to 2015 was largelyamortization expense is primarily due to the impactreclassification of reduced net exchange losses recognized onamounts from indefinite-lived in-process research and development ("IPR&D") to developed technology as a result of the re-measurement of net monetary asset positions which were not tax deductible in the relevant local jurisdictions.
In 2015, the company recorded a tax provision on continuing operations of $696 million, reflecting a $472 million decrease from 2014. The decrease was largely due to the impact associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilitiescompany's launch of its operations,Qrome® corn hybrids following the absencereceipt of 2014 gains on sales of businesses and other assets in the Performance Materials and Agriculture segments, as well as increased tax benefits on employee separation / asset related charges.
regulatory approval from China. See Note 615 - Goodwill and Other Intangible Assets, to the Consolidated Financial Statements, for additional detailsinformation for above items.
2018 versus 2017
Intangible asset amortization was $391 million for the year ended December 31, 2018 and $97 million for the period September 1 through December 31, 2017. In the Predecessor period, amortization of intangibles was included within SG&A, other operating charges, R&D, and COGS. Pro forma intangible asset amortization for the year ended December 31, 2018 was $391 million compared to $270 million for the year ended December 31, 2017. The increase was primarily driven by the inclusion of a full year of amortization expense in 2018 related to the provisionfavorable supply contracts entered into with FMC, upon closing of the FMC Transactions in November of 2017 (see page 38 for income taxes on continuing operations, as well as items that significantly impactfurther information) and a full year of amortization expense for the company's effective income tax rate.intangible assets acquired related to Granular, Inc. in August of 2017.
Restructuring and Asset Related Charges - Net
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES | $ | 2,521 |
| $ | 1,895 |
| $ | 3,145 |
|
Income from continuing operations after income taxes for 2016 was $2.5 billion compared to $1.9 billion in 2015 and $3.1 billion in 2014. The changes between periods were due to the reasons noted above.
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Restructuring and Asset Related Charges - Net | $ | 222 |
| $ | 694 |
| $ | 270 |
| $ | 12 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Restructuring and Asset Related Charges - Net | $ | 222 |
| $ | 694 |
| $ | 271 |
|
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
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.
2018 versus 2017
Restructuring and asset related charges - net were $694 million for the year ended December 31, 2018, $270 million for the period September 1 through December 31, 2017, and $12 million for the period January 1 through August 31, 2017. The activity for the year ended December 31, 2018 was comprised of a $484 million charge related to the Synergy Program, a $126 million of asset related charges (discussed in the "Asset Impairment" section, below), and a $84 million charge related to the DowDuPont Agriculture Division Restructuring Program. The $270 million charge for the period September 1 through December 31, 2017 was primarily related to $135 million of severance and related benefit costs, $94 million of asset related charges and $40 million of contract termination charges as part of the Synergy Program. The $12 million charge for the period January 1 through August 31, 2017 was primarily comprised of severance and related benefit costs associated with previous restructuring programs.
Pro forma restructuring and asset related charges - net for the year ended December 31, 2018 were $694 million compared to $271 million for the year ended December 31, 2017. The charge for the year ended December 31, 2017 was primarily related to the Synergy Program.
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.
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
|
| | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Integration and Separation Costs | $ | 744 |
| $ | 992 |
| $ | 255 |
| |
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
Pro Forma Integration and Separation Costs1 | $ | 632 |
| $ | 571 |
| $ | 217 |
|
| |
| 1. | Beginning in the second quarter of 2019, this includes both integration and separation costs. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2019 versus 2018
Integration and separation costs were $744 million for the year ended December 31, 2019 and $992 million for the year ended December 31, 2018. 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 year 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.
2018 versus 2017
Integration and separation costs were $992 million for the year ended December 31, 2018 and $255 million for the period September 1 through December 31, 2017. In the Predecessor period, integration and separation costs were included within SG&A. See Note 2 - Summary of Significant Accounting Policies, to the Consolidated Financial Statements for further discussion of the changes in presentation. Pro forma integration costs for the year ended December 31, 2018 were $571 million compared to $217 million for the year ended December 31, 2017. 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 integration of EID’s Pioneer and Crop Protection businesses with DAS.
Goodwill Impairment Charge
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Goodwill Impairment Charge | $ | — |
| $ | 4,503 |
| $ | — |
| $ | — |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Goodwill Impairment Charge | $ | — |
| $ | 4,503 |
| $ | — |
|
The company recorded a non-cash goodwill impairment charge of $4,503 million in 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 regarding the company’s goodwill impairment charge.
Other Income (Expense) - Net
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Other Income (Expense) - Net | $ | 215 |
| $ | 249 |
| $ | 805 |
| $ | (501 | ) |
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Other Income (Expense) - Net | $ | 215 |
| $ | 249 |
| $ | (899 | ) |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2019 versus 2018
Other income (expense) - 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 (expense) - 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. See Note 9 - Supplementary Information, to the Consolidated Financial Statements for additional information.
2018 versus 2017
Other income (expense) - net was income of $249 million for the year ended December 31, 2018, income of $805 million for the period September 1 through December 31, 2017 and an expense of $(501) million for the period January 1 through August 31, 2017. Other income (expense) - net for the period September 1 through December 31, 2017was primarily driven by a gain on the sale of the DAS Divested Ag Business of $671 million (See Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information) and non-operating pension and other post employment benefit credits, partially offset by net exchange losses. Other income (expense) - net for the period January 1 through August 31, 2017 is primarily driven by net exchange losses and non-operating pension and other post employment benefit costs, partially offset by royalty and interest income. In the Successor periods, royalty income is included in net sales.
Pro forma other income (expense) - net for the year ended December 31, 2018 was income of $249 million compared to expense of $(899) million for the year ended December 31, 2017. The expense for the year ended December 31, 2017 was primarily comprised of a $(469) million loss associated with an arbitration proceeding (included within the DAS combined financial statements for the period January 1 through August 31, 2017), net exchange losses of $(373) million, and a non-operating pension and other post employment benefit cost of $(189) million, partially offset by interest income of $109 million.
See Note 9 - Supplementary Information, to the Consolidated Financial Statements for additional information.
Loss on Early Extinguishment of Debt
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Loss on Early Extinguishment of Debt | $ | 13 |
| $ | 81 |
| $ | — |
| $ | — |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Loss on Early Extinguishment of Debt | $ | 13 |
| $ | — |
| $ | — |
|
The company recorded a loss from early extinguishment of debt of $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 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 62 of this report and Note 17 - Short-Term Borrowings, 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
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Interest Expense | $ | 136 |
| $ | 337 |
| $ | 115 |
| $ | 254 |
|
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Interest Expense | $ | 91 |
| $ | 76 |
| $ | 87 |
|
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.
2018 versus 2017
Interest expense was $337 million for the year ended December 31, 2018, $115 million for the period September 1 through December 31, 2017, and $254 million for the period January 1 through August 31, 2017. The change was primarily driven by amortization of the step-up of debt as a result of push-down accounting, partially offset by higher borrowing rates.Pro forma interest expense for the year ended December 31, 2018 was $76 million compared to $87 million for the year ended December 31, 2017. The decrease was primarily driven by lower debt balances.
Provision for Income Taxes on Continuing Operations
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Benefit from Income Taxes on Continuing Operations | $ | (46 | ) | $ | (31 | ) | $ | (2,221 | ) | $ | (395 | ) |
| Effective Tax Rate | 14.6 | % | 0.5 | % | 481.8 | % | 1,067.6 | % |
|
| | | | | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 |
| Pro Forma Provision for (Benefit from) Income Taxes on Continuing Operations | $ | 1 |
| $ | 395 |
| $ | (2,910 | ) |
| Effective Tax Rate | 3.7 | % | (8.7 | )% | 748.1 | % |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
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 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 - Short-Term Borrowings, 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 - Short-Term Borrowings, 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.
2017
For the period September 1 through December 31, 2017, the company’s effective tax rate of 481.8 percent on pre-tax loss from continuing operations of $(461) million was favorably impacted by a provisional net benefit of $(2,067) million that the company recognized due to the enactment of The Act, a net benefit of $261 million related to an internal legal entity restructuring associated with the Business Separations, as well as the geographic mix of earnings. Those impacts were partially offset by the non-tax deductible amortization of the fair value step-up in inventories as a result of the Merger, certain net exchange losses recognized on the remeasurement of the net monetary asset positions which were not tax deductible in their local jurisdictions, as well as the tax impact of costs associated with the Merger with Historical Dow and restructuring and asset related charges.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
For the period January 1 through August 31, 2017, the company’s effective tax rate of 1,067.6 percent on pre-tax loss from continuing operations of $(37) million was favorably impacted by the geographic mix of earnings, certain net exchange gains recognized on the remeasurement of the net monetary asset positions which were not taxable in their local jurisdictions, net favorable tax consequences of the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, tax benefits related to a reduction in the company’s unrecognized tax benefits due to the closure of various tax statutes of limitations, as well as tax benefits on costs associated with the Merger with Historical Dow and restructuring and asset related charges.
The company's effective tax rate was 748.1 percent on pre-tax pro forma loss from continuing operations of $(389) million for the year ended December 31, 2017. The pro forma pre-tax loss excludes pre-tax charges of $482 million, $204 million, and $195 million, primarily related to the removal expenses directly attributable to the Merger, removal of interest expense related to paying off or retiring portions of EID’s existing debt liabilities (as discussed in Note 17 - Short-Term Borrowings, 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 benefit from income taxes on continuing operations excludes net tax (benefits) charges of $(175) million, $(74) million and $(71) million related to the above items, respectively. Additionally, the pro forma benefit from income taxes on continuing operations reflects a $378 million reduction to the benefit as if Historical DuPont and DAS were consolidated affiliates for the Predecessor period. In addition, the pro forma pre-tax loss includes a pre-tax loss of $(772) million for DAS for the period January 1 through August 31, 2017, and a tax benefit of $236 million related to the loss.
(Loss) Income from Discontinued Operations After Tax
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| (Loss) Income from Discontinued Operations After Taxes | $ | (671 | ) | $ | 1,748 |
| $ | (568 | ) | $ | 1,403 |
|
2019 versus 2018
(Loss) income from discontinued operations after tax 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.
2018 versus 2017
(Loss) income from discontinued operations after tax was $1,748 million for the year ended December 31, 2018, $(568) million for the period September 1 through December 31, 2017, and $1,403 million for the period January 1 through August 31, 2017. The amounts are primarily driven by the divestitures of EID ECP, the EID Specialty Products Entities, the Divested Ag Business, and Performance Chemicals. Refer to Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information.
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
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.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Provision for Income Taxes
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 48, 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
Globally, GDPGlobal demand for agriculture products continues to be strong, but growth is slow. Slower growth in China and industrial productionother key emerging markets is impacting the outlook for demand for commodity grains and oilseeds. Additionally, the recent U.S. - China Phase 1 trade agreement and the United States-Mexico-Canada Agreement are expected to grow 2.7have a positive impact on demand for U.S. agriculture products. It is expected that corn and 2.4 percent, respectively,soybean area and production will be higher in 2017. 2020 and the United States Department of Agriculture (“USDA”) estimates that farm prices will increase modestly.
The company expects this growth will be challengeda 4 - 5 percent increase in net sales, driven by the current difficult global economica return to more normalized conditions in agriculture, economic uncertainty inNorth America and continued penetration of new product sales. Additionally, the U.S., political and economic uncertainty in Europe and slowing conditions in China from the continued shift of industrial productioncompany expects year over year currency impacts to services and consumer sectors. be minimal.
The company expects headwinds from currency dueOperating EBITDA to increase approximately 12 percent and Operating Earnings Per Share to increase approximately 5 percent, driven by the continued strengtheningabove increase in sales, synergies and productivity actions. Refer to further discussion of Non-GAAP metrics on pages 58 - 60.
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 U.S. dollar against most currencies.
Incompany’s control, such as Significant Items, without unreasonable effort (refer to page 59 for Significant Items recorded in the agriculture sector, commodity prices are under pressure from record yieldsyears ended December 31, 2019, 2018 and crop productions. As farmers look to relative economics between crop alternatives,2017). However, the company expects them to favor soybeans over corn in North America which is generally less favorable to the company’s overall income from continuing operations. In crop protection, the company expects the industry decline to ease in 2017, but continuesnon-operating benefits - net, to be negatively impacted by high inventory levels,slightly higher, as a stronger U.S. dollar,result of an increase in long-term employee benefit credits, and the continued penetration of insect-resistant soybeans.
In the auto sector, accordingexpects an increase in amortization expense in 2020. Refer to IHS, auto growth is expected to slow in 2017, with 1 percent growth year over year.
As the company prepares for the close of the planned merger with Dow, the company expects income from continuing operations in 2017 to be impacted by transaction related costs associated with the mergerNote 15 - Goodwill and the Intended Business Separations, including costs related to integration and separation planning.
Recent Accounting Pronouncements
See Note 1Other Intangible Assets, to the Consolidated Financial Statements and to the company's discussion on Long-term Employee Benefits on page 72. Additionally, beginning January 1, 2020, the company expects to recognize 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 a description of recent accounting pronouncements.Prepaid Royalties on page 70.
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 - Short-Term Borrowings, 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. The unaudited pro forma statement of operations for the year ended December 31, 2017 gives effect to the above noted transactions in addition to the common control business combination with DAS, as if it had been consummated on January 1, 2016, which the Company believes provides meaningful information to investors as a useful comparison of year over year results.
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, 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 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. |
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, 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
|
| | | | | | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma Statement of Operations | For the Year Ended December 31, 2017 |
| (In millions, except per share amounts) | For the Period January 1 through August 31, 2017 (As Reported - GAAP) | For the period September 1 through December 31, 2017 (As Reported - GAAP) | DAS for the Period January 1 through August 31, 20171 | Merger 2 | Debt Retirement 3 | Separations Related 4 | Pro Forma |
| Net sales | $ | 6,894 |
| $ | 3,790 |
| $ | 3,561 |
| $ | (4 | ) | $ | — |
| $ | — |
| $ | 14,241 |
|
| Cost of goods sold | 3,409 |
| 2,915 |
| 2,285 |
| (326 | ) | — |
| 55 |
| 8,338 |
|
| Other operating charges | 195 |
|
|
| — |
| (195 | ) | — |
| — |
| — |
|
| Research and development expense | 591 |
| 484 |
| 356 |
| 10 |
| — |
| (2 | ) | 1,439 |
|
| Selling, general and administrative expenses | 1,969 |
| 920 |
| 548 |
| (329 | ) | — |
| 1 |
| 3,109 |
|
| Amortization of intangibles |
|
| 97 |
| 11 |
| 162 |
| — |
| — |
| 270 |
|
| Restructuring and asset related charges - net | 12 |
| 270 |
| (1 | ) | (10 | ) | — |
| — |
| 271 |
|
| Integration and separation costs |
|
| 255 |
| 25 |
| 186 |
| — |
| (249 | ) | 217 |
|
| Other (expense) income - net | (501 | ) | 805 |
| (1,107 | ) | (96 | ) | — |
| — |
| (899 | ) |
| Interest expense | 254 |
| 115 |
| 2 |
| (80 | ) | (204 | ) | — |
| 87 |
|
| Loss from continuing operations before income taxes | (37 | ) | (461 | ) | (772 | ) | 482 |
| 204 |
| 195 |
| (389 | ) |
| Benefit from income taxes on continuing operations | (395 | ) | (2,221 | ) | (236 | ) | 175 |
| 74 |
| (307 | ) | (2,910 | ) |
| Income from continuing operations after income taxes | 358 |
| 1,760 |
| (536 | ) | 307 |
| 130 |
| 502 |
| 2,521 |
|
| Net income from continuing operations attributable to noncontrolling interests | 8 |
| 10 |
| 17 |
| — |
| — |
| — |
| 35 |
|
| Net income attributable to Corteva | $ | 350 |
| $ | 1,750 |
| $ | (553 | ) | $ | 307 |
| $ | 130 |
| $ | 502 |
| $ | 2,486 |
|
| |
| Per share common data | |
| Earnings per share of common stock from continuing operations - basic | $ | 3.32 |
|
| Earnings per share of common stock from continuing operations - diluted | $ | 3.32 |
|
|
| Weighted-average common shares outstanding - basic | 749.4 |
|
| Weighted-average common shares outstanding - diluted | 749.4 |
|
| |
| 1. | Represents DAS results for the period January 1 through August 31, 2017; the removal of the results of the DAS Brazil corn seed business which was sold to CITIC Agri Fund in the fourth quarter of 2017 as a condition of regulatory approval of the Merger between Historical Dow and Historical DuPont; and certain reclassification adjustments to align the financial statement presentation of DAS to that of Corteva. |
| |
| 2. | Adjustments directly attributable to the Merger include the following: elimination of intercompany transactions between DAS and EID; reclassification of the Predecessor period financial statement presentation to align with Successor presentation; additional depreciation expense related to the fair value step-up of EID's agriculture business' property, plant and equipment; additional amortization expense related to the fair value step-up of EID's agriculture business' intangible assets; elimination of one time transaction costs directly attributable to the Merger; reduction in interest expense related to the amortization of the fair value adjustment to EID's long-term debt; the removal of amortization of EID’s agriculture business’ inventory step-up recognized in connection with the Merger; the reclassification of interest associated with uncertain tax positions; and the related tax impacts of these items. |
| |
| 3. | Represents removal of interest expense related to the debt redemptions/repayments. |
| |
| 4. | 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
SegmentThe 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, below-ground 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, 2019, December 31, 2018 and December 31, 2017. For all periods presented, 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. Additionally, segment sales for the year ended December 31, 2017 are calculated on a pro forma basis. Pro forma adjustments used in the calculation of pro forma segment operating EBITDA were determined in accordance with Article 11 of Regulation S-X. 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 - Short-Term Borrowings, 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 year ended December 31, 2017, in addition to the above, the adjustments give effect to the common control business combination with DAS, as if it 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 is defined as(i.e., income (loss) from continuing operations before income taxestaxes) before interest, depreciation, amortization, corporate expenses, non-operating costs-net and foreign exchange gains (losses), excluding the impact of significant pre-tax benefits (charges),items (including goodwill impairment charges). Non-operating costs-net consists of non-operating pension and OPEB costs, exchange gains (losses), corporate expensestax indemnification adjustments, environmental remediation and interest. Non-operating pensionlegal costs associated with legacy EID businesses and OPEB costs includes allsites. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the components of net periodic benefit cost from continuing operations with the exceptionapplication of the service cost component.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 2125 - Segment Information, to the Consolidated Financial Statements for details related to significant pre-tax benefits (charges) excluded from segment operating earnings.EBITDA. All references to prices are based on local price unless otherwise specified.
A reconciliation of pro forma segment operating earningsEBITDA to income from continuing operations before income taxes for 2016, 2015the years ended December 31, 2019 and 20142018 is included in Note 2125 - Segment Information, to the Consolidated Financial Statements.
As previously noted, the Predecessor period reflects the results of operations and assets and liabilities of Historical DuPont Sustainable Solutions, previously withinand excludes the DAS business. As a result, the company's former Safety & Protection segment (now Protection Solutions), was comprisedresults for the Predecessor and Successor periods of two business units: clean technologies2017 do not reflect the manner in which the company's CODM assesses performance and consulting solutions. Effective January 1, 2016,allocates resources, therefore the clean technologies business unit became partcompany determined that presenting segment results for each standalone period in 2017 would not be meaningful to the reader. Therefore, segment metrics are not presented for the Successor and Predecessor periods of 2017, and instead are presented for the Industrial Biosciencesfull year of 2017 on a pro forma basis. Refer to page 60 for reconciliation of pro forma income from continuing operations after income taxes to pro forma segment withoperating EBITDA, for the focus on working with customers to improve the performance, productivity and sustainability of their products and processes. The company is exploring a range of options to maximize the growth of the consulting solutions business unit which effective January 1, 2016 is reported within Other. Reclassifications of prior year data have been made to conform to current year classifications.ended December 31, 2017.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
AGRICULTURE
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 9,516 |
| $ | 9,798 |
| $ | 11,296 |
|
| Operating earnings | $ | 1,758 |
| $ | 1,646 |
| $ | 2,352 |
|
| Operating earnings margin | 18 | % | 17 | % | 21 | % |
|
| | | | | | | | | | | | | | | |
| Seed | Successor | Predecessor | Pro Forma |
| In millions | 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 | 2017 |
| Net sales | $ | 7,590 |
| $ | 7,842 |
| $ | 1,520 |
| $ | 5,865 |
| $ | 8,056 |
|
Pro forma segment operating EBITDA | $ | 1,040 |
| $ | 1,139 |
| | | $ | 1,170 |
|
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | — | % | 3 | % |
| Currency | (2 | )% | (9 | )% |
| Volume | (1 | )% | (6 | )% |
| Portfolio and Other | — | % | (1 | )% |
| Total change | (3 | )% | (13 | )% |
|
| | | | | | | | | | | | | |
| Seed | 2019 vs. 2018 | Percent Change Due To: |
| | Net Sales Change (GAAP) | Local Price & | | | Portfolio / |
| In millions | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | (250 | ) | (5 | )% | (2 | )% | (3 | )% | — | % | — | % |
| EMEA | (30 | ) | (2 | )% | 1 | % | 5 | % | (8 | )% | — | % |
| Asia Pacific | — |
| — | % | 2 | % | 2 | % | (4 | )% | — | % |
| Latin America | 28 |
| 3 | % | 8 | % | (1 | )% | (4 | )% | — | % |
| Total | $ | (252 | ) | (3 | )% | — | % | (1 | )% | (2 | )% | — | % |
2016 versus 2015Full year 2016 segment |
| | | | | | | | | | | | | |
| Seed | 2018 vs. 2017 | Percent Change Due To: |
| | Net Sales Change (Pro Forma) | Local Price & | | | Portfolio / |
| In millions | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | (246 | ) | (5 | )% | 1 | % | (6 | )% | — | % | — | % |
| EMEA | 113 |
| 9 | % | 4 | % | (1 | )% | 6 | % | — | % |
| Asia Pacific | 15 |
| 4 | % | 6 | % | 4 | % | (6 | )% | — | % |
| Latin America | (96 | ) | (8 | )% | (3 | )% | 4 | % | (9 | )% | — | % |
| Total | $ | (214 | ) | (3 | )% | 1 | % | (3 | )% | (1 | )% | — | % |
Seed
Seed net sales of $9.5 billion decreased 3were $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 negativeBrazilian 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 lower crop protection volumes. Lower crop protection volumes areinput costs, and volume declines more than offset cost synergies and ongoing productivity.
Seed net sales were $7,842 million in 2018, $1,520 million for the period September 1 through December 31, 2017 and $5,865 million for the period January 1 through August 31, 2017. Pro forma net sales for the year ended December 31, 2017 were $8,056 million. The decrease in pro forma net sales was primarily due to a 3 percent decline in volume and a 1 percent decline in currency, partially offset by a 1 percent increase in local price. Volume declines represented lower insecticide volumes from low pest pressure and high inventories, and lower fungicide volumes. Seed volumes were flat year over year as increased corn seed volumesplanted area in LatinNorth America and North America dueLatin America. Increases in local price and product mix were driven by continued penetration of new corn hybrids and A-Series soybeans.
Seed pro forma operating EBITDA was $1,139 million in 2018, down 3 percent from $1,170 million in 2017. Cost synergies were more than offset by lower volume, higher raw material costs and royalty expense, and investments to higher acreage andsupport new product launches were offset by the shift in timing of seed sales primarily related to the southern U.S. route-to-market change and lower soybean volumes. The shift in timing moved approximately $200 million of sales from fourth quarter 2016 to first quarter 2017.digital platforms.
2016 operating earnings and operating earnings margin increased as cost savings and lower product costs were partially offset by timing of seed deliveries, primarily related to the southern U.S. route-to-market change and the negative impact of currency.
2015 versus 2014 Full year 2015 segment net sales of $9.8 billion decreased $1.5 billion, or 13 percent, primarily due to the negative impact of currency and lower seed and crop protection volumes, primarily in Brazil and North America, which were partly offset by higher local corn seed prices. In Brazil, lower corn seed volume reflects the impact of a reduction in summer planted hectares of corn and fall armyworm resistance impacting performance of certain corn hybrids. In North America, lower soybean volume reflects between 1 and 2 points of share loss and lower soybean planted area; lower corn planted area was partially offset by higher local corn seed prices. Lower crop protection volume is primarily due to low expected insect pressure, the adoption of insect protected soybean varieties, higher inventories, and a challenging macro environment. Insect control volumes were also impacted by the shutdown of the La Porte manufacturing facility in Texas.
2015 operating earnings and operating earnings margin decreased primarily due to the negative impact of currency of $538 million, lower sales, and an approximately $120 million negative impact of the shutdown of the La Porte manufacturing facility and the absence of prior year impacts from performance-based compensation adjustments, partially offset by cost reductions and continued productivity improvements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
ELECTRONICS & COMMUNICATIONS
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 1,960 |
| $ | 2,070 |
| $ | 2,381 |
|
| Operating earnings | $ | 358 |
| $ | 359 |
| $ | 336 |
|
| Operating earnings margin | 18 | % | 17 | % | 14 | % |
|
| | | | | | | | | | | | | | | |
| Crop Protection | Successor | Predecessor | Pro Forma |
| In millions | 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 | 2017 |
| Net sales | $ | 6,256 |
| $ | 6,445 |
| $ | 2,270 |
| $ | 1,029 |
| $ | 6,185 |
|
Pro forma segment operating EBITDA | $ | 1,066 |
| $ | 1,074 |
| | | $ | 936 |
|
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | (2 | )% | (4 | )% |
| Currency | — | % | (2 | )% |
| Volume | (3 | )% | (7 | )% |
| Portfolio and Other | — | % | — | % |
| Total change | (5 | )% | (13 | )% |
|
| | | | | | | | | | | | | |
| Crop Protection | 2019 vs. 2018 | Percent Change Due To: |
| | Net Sales Change (GAAP) | Local Price & | | | Portfolio / |
| In millions | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | (233 | ) | (10 | )% | (3 | )% | (6 | )% | — | % | (1 | )% |
| EMEA | 5 |
| — | % | 2 | % | 5 | % | (7 | )% | — | % |
| Asia Pacific | (5 | ) | (1 | )% | 3 | % | — | % | (3 | )% | (1 | )% |
| Latin America | 44 |
| 3 | % | 1 | % | 7 | % | (5 | )% | — | % |
| Total | $ | (189 | ) | (3 | )% | — | % | 1 | % | (3 | )% | (1 | )% |
2016 versus 2015 Full year 2016 segment |
| | | | | | | | | | | | | |
| Crop Protection | 2018 vs. 2017 | Percent Change Due To: |
| | Net Sales Change (Pro Forma) | Local Price & | | | Portfolio / |
| In millions | $ | % | Product Mix | Volume | Currency | Other |
| North America | $ | 69 |
| 3 | % | 5 | % | (2 | )% | — | % | — | % |
| EMEA | 15 |
| 1 | % | (3 | )% | (2 | )% | 6 | % | — | % |
| Asia Pacific | 73 |
| 8 | % | — | % | 8 | % | — | % | — | % |
| Latin America | 103 |
| 6 | % | 9 | % | 12 | % | (15 | )% | — | % |
| Total | $ | 260 |
| 4 | % | 3 | % | 3 | % | (2 | )% | — | % |
Crop Protection
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 $2.0 billion decreased 5currency, and higher input costs more than offset cost synergies, sales from new products, and ongoing productivity.
Crop protection net sales were $6,445 million in 2018, $2,270 million for the period September 1 through December 31, 2017 and $1,029 million for the period January 1 through August 31, 2017. Pro forma net sales for the year ended December 31, 2017 were $6,185 million. The increase in pro forma net sales was primarily due to a 3 percent due largely toincrease in volume and a 3 percent increase in local price, partially offset by a 2 percent decline in currency. Volume gains were driven by new product launches such as VessaryaTM fungicides, EnlistTM products, and IsoclastTM, Pyraxalt™ and Spinosyn™ insecticides and were partly offset by lower demand for products for the consumer electronics market. In photovoltaics materials, share gainsnitrogen stabilizers in Solamet® pasteNorth America and higher pricing from the pass-through of higher average metalcurrency pressures in Latin America. Increases in local prices were offsetdriven by volume declinescontinuing efforts to capture value in Tedlar® filmestablished brands across the crop protection portfolio globally.
Crop Protection pro forma operating EBITDA was $1,074 million in 2018, up 15 percent from $936 million in 2017. Cost synergies and price pressure in both Solamet® and Tedlar®.
2016 operating earningssales gains from new product launches were flat with prior year as cost savings were offset by lower sales and a $16 million litigation expense. Operating earnings margin increased primarily due to cost savings.
2015 versus 2014 Full year 2015 segment net sales of $2.1 billion decreased $0.3 billion, or 13 percent, primarily due to competitive pressures impacting Solamet® paste and lower pricing from the pass-through of lower metals prices and the negative impact of currency, partially offset by volume growth in Tedlar® filminvestments, including for photovoltaicsnew product launches, higher raw material costs and products for the consumer electronics market.unfavorable impact of currency.
2015 operating earnings and operating earnings margin increased as cost reductions and continued productivity improvements more than offset lower sales.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
INDUSTRIAL BIOSCIENCESNon-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 pro forma operating EBITDA and pro forma operating earnings per share. 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 all periods presented, 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, which are reconciled to the GAAP reported figures. See Article 11 Pro Forma Combined Statements of Operations on page 51.
Pro Forma Operating EBITDA is defined as earnings (i.e., income from continuing operations before income taxes) before interest, depreciation, amortization, non-operating benefits, net and foreign exchange gains (losses), excluding the impact of significant items (including goodwill impairment charges). Non-operating benefits, net consists of non-operating pension and OPEB credits, tax indemnification adjustments, 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. Pro forma 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, 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 Pro Forma Income from Continuing Operations after Income Taxes to Pro Forma Operating EBITDA
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 1,500 |
| $ | 1,478 |
| $ | 1,624 |
|
| Operating earnings | $ | 270 |
| $ | 243 |
| $ | 269 |
|
| Operating earnings margin | 18 | % | 16 | % | 17 | % |
|
| | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2019 | 2018 | 2017 |
| Pro forma income (loss) from continuing operations after income taxes | $ | 26 |
| $ | (4,937 | ) | $ | 2,521 |
|
| Pro forma provision for (benefit from) income taxes on continuing operations | 1 |
| 395 |
| (2,910 | ) |
| Pro forma income (loss) from continuing operations before income taxes | 27 |
| (4,542 | ) | (389 | ) |
| Depreciation and amortization | 1,000 |
| 909 |
| 771 |
|
| Interest income | (59 | ) | (86 | ) | (109 | ) |
| Interest expense | 91 |
| 76 |
| 87 |
|
| Exchange losses - net | 66 |
| 77 |
| 373 |
|
| Non-operating (benefits) costs - net | (129 | ) | (211 | ) | 265 |
|
| Goodwill impairment charge | — |
| 4,503 |
| — |
|
| Significant items charge | 991 |
| 1,346 |
| 957 |
|
| Pro forma Operating EBITDA (Non-GAAP) | $ | 1,987 |
| $ | 2,072 |
| $ | 1,955 |
|
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | — | % | (3 | )% |
| Currency | (2 | )% | (4 | )% |
| Volume | 2 | % | (2 | )% |
| Portfolio and Other | 1 | % | — | % |
| Total change | 1 | % | (9 | )% |
2016 versus 2015 Full year 2016 segment net sales of $1.5 billion increased 1 percent, as volume growth in biomaterials and bioactives and portfolio changes were partially offset by weak demand in clean technologies and a negative impact from currency. Volume growth in biomaterials and bioactives was primarily driven by increased demand in apparel markets and for enzymes, principally for food products and home and personal care,
2016 operating earnings and operating earnings margin increased as cost savings and higher sales were partially offset by the negative impact of currency.
2015 versus 2014 Full year 2015 segment net sales of $1.5 billion decreased 9 percent, primarily due to the negative impact of currency, lower prices and demand for biomaterials and clean technologies offerings, partially offset by volume growth in enzymes, principally for home and personal care, food markets and ethanol production.
2015 operating earnings and operating earnings margin decreased primarily due to lower sales, partially offset by cost reductions and continued productivity improvements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
NUTRITION & HEALTH
As discussed in Note 25 - Segment Information, the Predecessor period reflects the results of operations and assets and liabilities of Historical DuPont and excludes the DAS business. As a result, the company's segment results for the Predecessor and Successor periods of 2017 do not reflect the manner in which the company's chief operating decision maker assesses performance and allocates resources, therefore the company determined that presenting segment results for each standalone period in 2017 would not be meaningful to the reader. Below is a reconciliation of pro forma income from continuing operations after income taxes to pro forma segment operating EBITDA for the year ended December 31, 2017.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 3,268 |
| $ | 3,256 |
| $ | 3,529 |
|
| Operating earnings | $ | 504 |
| $ | 373 |
| $ | 369 |
|
| Operating earnings margin | 15 | % | 11 | % | 10 | % |
|
| | | |
| | Year Ended December 31, |
| (In millions) | 2017 |
| Pro forma income from continuing operations after income taxes | $ | 2,521 |
|
| Pro forma benefit from income taxes on continuing operations | (2,910 | ) |
| Pro forma loss from continuing operations before income taxes | (389 | ) |
| Depreciation and amortization | 771 |
|
| Interest income | (109 | ) |
| Interest expense | 87 |
|
| Exchange losses - net | 373 |
|
| Non-operating costs - net | 265 |
|
| Goodwill impairment charge | — |
|
| Significant items charge | 957 |
|
| Corporate expenses | 151 |
|
| Pro forma Segment Operating EBITDA (Non-GAAP) | $ | 2,106 |
|
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | — | % | — | % |
| Currency | (2 | )% | (9 | )% |
| Volume | 2 | % | 2 | % |
| Portfolio and Other | — | % | (1 | )% |
| Total change | — | % | (8 | )% |
|
| | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2019 | 2018 | 2017 |
| Integration and separation costs | $ | 632 |
| $ | 571 |
| $ | 217 |
|
| Restructuring and asset related charges - net | 222 |
| 694 |
| 271 |
|
| Gain on sale of assets | — |
| (24 | ) | — |
|
| Loss on deconsolidation of subsidiary | — |
| 53 |
| — |
|
| Loss on divestiture | 24 |
| 2 |
| — |
|
| Amortization of inventory step-up | 67 |
| — |
| — |
|
| Argentina currency devaluation | 33 |
| — |
| — |
|
| Loss on early extinguishment of debt | 13 |
| — |
| — |
|
| Bayer CropScience arbitration | — |
| — |
| 469 |
|
| Income tax related items | — |
| 50 |
| — |
|
| Total pretax significant items charge | 991 |
| 1,346 |
| 957 |
|
Total tax benefit impact of significant items1 | (135 | ) | (239 | ) | (290 | ) |
Tax only significant item (benefit) charge2 | (72 | ) | 347 |
| (2,332 | ) |
| Total significant items charge (benefit), net of tax | $ | 784 |
| $ | 1,454 |
| $ | (1,665 | ) |
2016 versus 2015 Full year 2016 segment net sales of $3.3 billion were flat with prior year as broad-based volume growth led by probiotics, ingredient systems, and specialty proteins was offset by the negative impact of currency.
2016 operating earnings and operating earnings margin increased on cost savings, volume growth and a $27 million gain on the sale of an asset.
2015 versus 2014 Full year 2015 segment net sales of $3.3 billion decreased 8 percent, primarily due to the negative impact of currency. Volume growth in probiotics, ingredient systems, texturants and cultures was partially offset by lower volumes in specialty proteins due to competitive challenges.
2015 operating earnings and operating earnings margin increased as cost reductions and continued productivity improvements and volume gains were mostly offset by the negative impact from currency of $53 million and the absence of the prior year $18 million gain from the termination of a distribution agreement.
| |
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 Business Separations, and a net tax benefit of $(102) million related to an internal legal entity restructuring associated with the Business Separations. Unless specifically addressed above, the income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment. |
| |
2. | The tax only significant item (benefits) charges are primarily related to effects of U.S. and Swiss Tax Reform, the Internal Reorganizations and Business Separations, and the release of a tax valuation allowance recorded against the net deferred tax asset position of a Swiss legal entity. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
PERFORMANCE MATERIALS
Reconciliation of Pro Forma Income (Loss) from Continuing Operations Attributable to Corteva and Pro Forma Earnings (Loss) Per Share of Common Stock from Continuing Operations - Diluted to Pro Forma Operating Earnings and Pro Forma Operating Earnings Per Share
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 5,249 |
| $ | 5,305 |
| $ | 6,059 |
|
| Operating earnings | $ | 1,297 |
| $ | 1,216 |
| $ | 1,267 |
|
| Operating earnings margin | 25 | % | 23 | % | 21 | % |
|
| | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2019 | 2018 | 2017 |
| Pro forma income (loss) from continuing operations attributable to Corteva | $ | 13 |
| $ | (4,966 | ) | $ | 2,486 |
|
| Less: Non-operating benefits (costs) - net, after tax | 100 |
| 165 |
| (170 | ) |
| Less: Amortization of intangibles (existing as of Separation), after tax | (376 | ) | (313 | ) | (186 | ) |
| Less: Goodwill impairment charge, after tax | — |
| (4,503 | ) | — |
|
| Less: Significant items (charge) benefit, after tax | (784 | ) | (1,454 | ) | 1,665 |
|
| Pro forma Operating Earnings (Non-GAAP) | $ | 1,073 |
| $ | 1,139 |
| $ | 1,177 |
|
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | (3 | )% | (4 | )% |
| Currency | (1 | )% | (6 | )% |
| Volume | 3 | % | 1 | % |
| Portfolio and Other | — | % | (3 | )% |
| Total change | (1 | )% | (12 | )% |
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | 2018 | 2017 |
| Pro forma earnings (loss) per share of common stock from continuing operations - diluted | $ | 0.02 |
| $ | (6.63 | ) | $ | 3.32 |
|
| Less: Non-operating benefits (costs) - net, after tax | 0.13 |
| 0.22 |
| (0.23 | ) |
| Less: Amortization of intangibles (existing as of Separation), after tax | (0.50 | ) | (0.42 | ) | (0.25 | ) |
| Less: Goodwill impairment charge, after tax | — |
| (6.01 | ) | — |
|
| Less: Significant items (charge) benefit, after tax | (1.04 | ) | (1.94 | ) | 2.22 |
|
| Pro forma Operating Earnings Per Share (Non-GAAP) | $ | 1.43 |
| $ | 1.52 |
| $ | 1.58 |
|
Diluted Shares Outstanding (in millions) | 749.5 |
| 749.4 |
| 749.4 |
|
2016 versus 2015 Full year 2016 segment net sales of $5.3 billion decreased 1 percent, as lower local price, driven by pricing pressure for raw materials pass-through, and a negative impact from currency were partially offset by increased volume for polymers in global automotive markets, primarily in Asia Pacific.
2016 operating earnings and operating earnings margin increased as cost saving and increased volumes were partially offset by a $63 million negative impact from currency. The net benefit of lower product costs was offset by the absence of $49 million of benefits from the prior year discussed below.
2015 versus 2014 Full year 2015 segment net sales of $5.3 billion decreased $0.8 billion, or 12 percent, primarily due to the negative impact of currency, lower ethylene pricing and the portfolio impact of the sale of Glass Laminating Solutions/Vinyls (GLS/Vinyls) in June 2014 (see Note 3 to the Consolidated Financial Statements for additional information). Partially offsetting the declines are increased ethylene volumes due to the prior year scheduled outage at the ethylene unit in Orange, Texas and increased demand for polymers in automotive markets, primarily in the U.S. and Europe in the second half of 2015.
2015 operating earnings decreased as cost reductions and continued productivity improvements were more than offset by the negative impact of currency of $132 million and lower selling prices. 2015 operating earnings includes $49 million of benefits, comprised of a net benefit from a joint venture, the sale of a business and the realization of tax benefits associated with a manufacturing site. Operating earnings margin increased due primarily to cost reductions and continued productivity improvements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
PROTECTION SOLUTIONS
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Net sales | $ | 2,954 |
| $ | 3,039 |
| $ | 3,304 |
|
| Operating earnings | $ | 668 |
| $ | 641 |
| $ | 672 |
|
| Operating earnings margin | 23 | % | 21 | % | 20 | % |
|
| | | | |
| | 2016 | 2015 |
| Change in net sales from prior period due to: | | |
| Local Price and Product Mix | (1 | )% | (1 | )% |
| Currency | — | % | (4 | )% |
| Volume | (2 | )% | 1 | % |
| Portfolio and Other | — | % | (4 | )% |
| Total change | (3 | )% | (8 | )% |
2016 versus 2015 Full year 2016 segment net sales of $3.0 billion decreased 3 percent, due to lower volume and unfavorable mix. Volume declines in Nomex® thermal-resistant fiber, Kevlar® high-strength material, and Tyvek® protective material, were driven by weakness in the oil and gas industry, military, and industrial market demand. Volume declines were partially offset by volume growth in solid surfaces.
2016 operating earnings and operating earnings margin increased as cost savings were partially offset by lower sales.
2015 versus 2014 Full year 2015 segment net sales of $3.0 billion decreased $0.3 billion, or 8 percent, primarily due to the negative impact of currency and the portfolio impact of the Sontara® divestiture. Increased demand for Tyvek® protective material, including medical packaging was partially offset by decreased demand for Nomex® thermal resistant fiber and Kevlar® high strength materials driven by a weakened oil and gas industry and military spending delays.
2015 operating earnings decreased $31 million, or 5 percent, as cost reductions and continued productivity improvements were more than offset by the negative impact of currency of $53 million and lower sales. 2015 operating earnings margin increased from prior year due to cost reductions and continued productivity improvements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Liquidity & Capital Resources
|
| | | | | | |
| | December 31, |
| (Dollars in millions) | 2016 | 2015 |
| Cash, cash equivalents and marketable securities | $ | 5,967 |
| $ | 6,206 |
|
| Total debt | 8,536 |
| 8,807 |
|
Pursuant to its cash discipline policy, the company seeks first to maintain a strong balance sheet and second, to return excess cash to shareholders unless the opportunity to invest for growth is compelling. The company continually reviews its sources of liquidity and debt portfolio and occasionally may make adjustments to one or both to ensure adequate liquidityliquidity.
|
| | | | | | |
| (Dollars in millions) | December 31, 2019 | December 31, 2018 |
| Cash, cash equivalents and marketable securities | $ | 1,769 |
| $ | 2,275 |
|
| Total debt | $ | 122 |
| $ | 7,938 |
|
The company's cash, cash equivalents and an optimummarketable securities at December 31, 2019 and December 31, 2018 were $1.8 billion, and $2.3 billion respectively. Total debt maturity schedule.at December 31, 2019 and December 31, 2018 was $122 million and $7,938 million, respectively. The decrease in cash and debt balances was primarily due to debt redemption/repayment transactions. See further information under Note 17 - Short-term Borrowings, 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 | Credit Watch NegativeStable |
| Moody’s Investors Service | A3 | P-2 | NegativeStable |
| Fitch Ratings | A | F1 | Rating Watch NegativeStable |
| |
| 1. | In addition, Standard & Poor’s has assigned to Corteva, Inc. a long-term issuer rating of A- with Stable outlook. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
The company believes its ability to generate cash from operations and access to capital markets and commercial paper markets will be adequate to meet anticipated cash requirements to fund its operations, including seasonal working capital, capital spending, dividend payments, share repurchases debt maturities and other cash needs and that its currentpension contributions. Corteva's strong financial position, liquidity and credit ratings continue towill provide access as needed to the capital markets.markets and commercial paper markets to fund seasonal working capital needs. The company's liquidity needs can be met through a variety of sources, including cash provided by operating activities, cash and cash equivalents, marketable securities, commercial paper, syndicated credit lines, bilateral credit lines, long-term debt markets, bank financing and committed receivable repurchase facilities and asset sales.facilities.
The company has access to approximately $7.9$6.4 billion in committed and uncommitted unused credit lines with several major financial institutions including unused commitments of $4 billion under the Term Loan Facility described below and a $3 billion revolving credit facility to support its commercial paper program.at December 31, 2019. These unused credit lines provide additional support to meet the company’s short-term liquidity needs and for general corporate purposes which may include funding of pension contributions, severance payments, working capital, capital expenditures, and funding Corteva's expenses.
In November 2018, EID entered into a $3.0 billion five-year revolving credit facility and a $3.0 billion three-year revolving credit facility (the “2018 Revolving Credit Facilities”). The 2018 Revolving Credit Facilities became effective May 2019 in connection with the termination of the EID $4.5 billion Term Loan Facility and the $3.0 billion Revolving Credit Facility dated May 2014. Corteva, Inc. became a party to the 2018 Revolving Credit Facilities upon the Corteva Distribution. The 2018 Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings. The 2018 Revolving Credit Facilities also contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Corteva and its consolidated subsidiaries not exceed 0.60. At December 31, 2019, the company was in compliance with these covenants.
The company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations affecting manufacturing plants, mineral producing properties or research facilities located in the U.S. and the consolidated subsidiaries owning such plants, properties and facilities subject to certain limitations. The outstanding long-term debt also contains customary default provisions.
The company has meaningful seasonal working capital needs based in part on providing financing to its customers. Working capital is funded through multiple methods including letterscommercial paper, a receivable repurchase facility, factoring and cash from operations.
In February 2019, in line with seasonal working capital requirements, the company entered into a committed receivable repurchase agreement of credit.up to $1.3 billion (the "2019 Repurchase Facility") which expired in December 2019. Under the 2019 Repurchase Facility, the company sold a portfolio of available and eligible outstanding customer notes receivables to participating institutions and simultaneously agreed to repurchase at a future date.
In February 2020, the company entered into a new committed receivable repurchase facility of up to $1.3 billion (the "2020 Repurchase Facility") which expires in December 2020. See further discussion of the 2020 Repurchase Facility in Note 27 - Subsequent Events, to the Consolidated Financial Statements.
The company has factoring agreements with third-party financial institutions primarily in Latin America to sell its trade receivables under both recourse and non-recourse agreements in exchange for cash proceeds in an effort to reduce its receivables risk. For arrangements that include an element of recourse, the company provides a guarantee of the trade receivables in the event of customer default. Refer to Note 12 - Accounts and Notes Receivable - Net, to the Consolidated Financial Statements for more information.
The company also organizes agreements with third-party financial institutions who directly provide financing for select customers of its seed and crop protection products in each region. Terms of the third-party loans are less than a year and programs are renewed on an annual basis. In some cases, the company guarantees a portion of the extension of such credit to such customers. Refer to Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements for more information on the company’s guarantees.
Capacity Expansion
The company's Board of Directors authorized an investment of approximately $145 million to increase Spinosyns fermentation capacity by 30% to address global market growth in insecticides that handle chewing insects in specialty and row crops. The additional capacity will be staged to come online over the next few years.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Debt Redemptions/Repayments
In the fourth quarter of 2018, the company offered to purchase for cash approximately $6.2 billion of outstanding debt securities from each registered holder of the applicable series of debt securities (the “Tender Offers”). The company retired $4.4 billion aggregate principal amount of such debt securities in connection with the Tender Offers, which expired on December 11, 2018. The retirement of these debt securities was funded with cash contributions from DowDuPont.
On March 22, 2019, EID issued notices of redemption in full of all of its outstanding notes (the “Make Whole Notes”) listed in the table below:
|
| | | |
| (in millions) | Amount |
| 4.625% Notes due 2020 | $ | 474 |
|
| 3.625% Notes due 2021 | 296 |
|
| 4.250% Notes due 2021 | 163 |
|
| 2.800% Notes due 2023 | 381 |
|
| 6.500% Debentures due 2028 | 57 |
|
| 5.600% Senior Notes due 2036 | 42 |
|
| 4.900% Notes due 2041 | 48 |
|
| 4.150% Notes due 2043 | 69 |
|
| Total | $ | 1,530 |
|
The Make Whole Notes were redeemed on April 22, 2019 at the make-whole redemption prices set forth in the respective Make Whole Notes. On and after the date of redemption, the Make Whole Notes were no longer deemed outstanding, interest on the Make Whole Notes ceased to accrue and all rights of the holders of the Make Whole Notes were terminated. For further information on the Make Whole Notes, see Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the Consolidated Financial Statements and Recent Developments.
In March 2016, the company entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4.5 billion (the Term(as amended, from time to time, the "Term Loan Facility). DuPont mayFacility") under which EID could make up to seven term loan borrowings within one year of the closing date and amounts repaid or prepaid arewere not available for subsequent borrowings. The proceeds fromOn May 2, 2019, EID terminated its Term Loan Facility and repaid the borrowings underaggregate outstanding principal amount of $3 billion plus accrued and unpaid interest through and including May 1, 2019. For further information on the termination of the Term Loan Facility, will be used forsee Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the company's general corporate purposes including debtConsolidated Financial Statements and Recent Developments.
In connection with the repayment working capitalof the Make Whole Notes and share repurchases. Thethe Term Loan Facility, maturesEID paid a total of $4.6 billion in Marchthe second quarter 2019, at which time all outstanding borrowings, includingincluded breakage fees and accrued butand unpaid interest become immediately dueon the Make Whole Notes and payable. As of December 31, 2016, the company had borrowed $0.5 billion and had unused commitments of $4 billion under the Term Loan Facility. The repayment of the Make Whole Notes and Term Loan Facility was funded with cash from operations and a contribution from DowDuPont.
On May 7, 2019, DowDuPont publicly announced the record date in connection with the Corteva Distribution. In addition, in March 2016, the company amended the existing revolving credit facilityconnection with such announcement, EID was required to reduce theredeem $1.25 billion aggregate principal amount of commitments from $4 billion to $3 billion consistent with lower expected commercial paper borrowings.
2.200% Notes due 2020 and $750 million aggregate principal amount of Floating Rate Notes due 2020 (collectively, the Special Mandatory Redemption or “SMR Notes”) setting forth the date of redemption of the SMR Notes. The Term Loan Facilitydate of redemption was May 17, 2019 and the amended revolving credit facility contain customary representationscompany paid a total of $2.0 billion, which included accrued and warranties, affirmativeunpaid interest on the SMR Notes. The company funded the payment with a contribution from DowDuPont. Following the redemption, the SMR Notes are no longer outstanding and negative covenants,no longer bear interest and eventsall rights of default that are typical for companies with similar credit ratingsthe holders of the SMR Notes have terminated.
The company's cash, cash equivalents and generally consistent with those applicable to DuPont’s long-term public debt. The Term Loan Facility and the amended revolving credit facility contain a financial covenant requiring that the ratio of Total Indebtedness to Total Capitalization for DuPont and its consolidated subsidiaries not exceed 0.6667. Atmarketable securities at December 31, 2016, the company2019 and December 31, 2018 are $1.8 billion and $2.3 billion, respectively, of which $1.5 billion at December 31, 2019 and $1.7 billion at December 31, 2018, was held by subsidiaries in compliance with this financial covenant.foreign countries, including United States territories.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
The Term Loan Facility andAct required companies to pay a one-time transition tax on the amended revolving credit facility impose additional affirmative and negative covenants on DuPont and itsuntaxed earnings of foreign subsidiaries after the closing of the proposed merger with Dow, subject to certain limitations, including to:
not sell, lease or otherwise convey to DowDupont, its shareholders or its non-DuPont subsidiaries, any assets or properties of DuPont or its subsidiaries unless the aggregate amount of revenues attributable to all such assets and properties so conveyed after the merger does not exceed 30 percent of the consolidated revenues of DuPont and its subsidiaries as of December 31, 2015 (the Disposition Limitation); and
not guarantee any indebtedness or other obligations of DowDuPont, Dow or ther respective subsidiaries (other than of DuPont and its subsidiaries).
The Term Loan Facility and the amended revolving credit facility will terminate, and the loans and other amounts thereunder would become due and payable, upon the sale, transfer, lease or other disposition of all or substantially all of the assets of the Agriculture line of businesses to DowDuPont, its shareholders or any of its non-DuPont subsidiaries.
In February 2016, in line with seasonal agricultural working capital requirements, the company entered into a committed receivable repurchase facility of up to $1 billion (the 2016 repurchase facility) that expired on November 30, 2016. Under the facility, the company sold a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agreed to repurchase at a future date. In January 2017, the company entered into a new committed receivable repurchase facility of up to $1.3 billion (the 2017 repurchase facility) which expires on November 30, 2017. The 2017 repurchase facility has substantially similar terms and conditions as the 2016 repurchase facility and includes the 2016 repurchase facility change of control language conformed to the Disposition Limitation covenant described above. See further discussion of the 2017 repurchase facility in Item 9B, Other Information and(see Note 2310 - Income Taxes, to the Consolidated Financial Statements.
Statements for further details of The company'sAct). Upon actual repatriation, such earnings could be subject to withholding taxes, foreign and / or U.S. state income taxes, and taxes resulting from the impact of foreign currency movements. The Act also introduced a 100 percent dividends received deduction regarding earnings of foreign subsidiaries. The cash cash equivalentsheld by foreign subsidiaries is generally used to finance the subsidiaries' operational activities and marketable securities atfuture foreign investments. At December 31, 2016 and 2015 are $6.0 billion and $6.2 billion, respectively. Cash, cash equivalents and marketable securities held outside of the U.S. of $5.8 billion and $4.2 billion at December 31, 2016 and 2015, respectively, are generally utilized to fund local operating activities and capital expenditure requirements and are expected to support non-U.S.2019, management believed that sufficient liquidity needs for the next 12 months and the foreseeable future thereafter. The company expects domestic liquidity needs, for at least the next 12 months and the foreseeable future thereafter, will be met through existing cash, cash equivalents and marketable securities heldis available in the U.S. and the various sources of liquidity discussed above. Therefore, the company believes that it has sufficient sources of domestic liquidity to support its assumption that undistributed earnings at December 31, 2016 can be considered reinvested indefinitely.
| | | | | | | | | | Successor | Predecessor |
| (Dollars in millions) | 2016 | 2015 | 2014 | 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 |
| Cash provided by operating activities | $ | 3,300 |
| $ | 2,316 |
| $ | 3,712 |
| |
| Cash provided by (used for) operating activities | | $ | 1,070 |
| $ | 483 |
| $ | 3,674 |
| $ | (3,949 | ) |
Cash provided by operating activities increased $1.0 billionfor the year ended December 31, 2019 was $1,070 million compared to $483 million for the year ended December 31, 2018. The increase in cash provided by operating activities was primarily due todriven by lower pension contributions in 2019, as a higher earningsresult of the company’s 2018 discretionary pension contribution, and a decrease in integration and separation costs, partially offset by the net impact of approximately $0.5 billion, lower year-over-yearnet income tax payments and lower working capital.capital changes as a result of the Internal Reorganizations and Business Realignments in 2019.
Cash provided by operating activities decreased $1.4 billion in 2015 comparedwas $3,674 million for the period September 1 through December 31, 2017, primarily driven by Corteva's seasonal cash flows and a tax refund related to 2014 primarily due to the absence of Chemoursvoluntary pension contributions made in the second halfPredecessor period, partially offset by transaction costs and the PFOA multi-district litigation settlement, which was primarily paid in September.
Cash used for operating activities was $(3,949) million for the period January 1 through August 31, 2017, primarily driven by pension contributions of 2015 compared with a full year of results in 2014 for an impact of approximately $1.0 billion$3,024 million, Corteva's seasonal cash flows, transaction costs and a lower cash earnings contribution from continuing operations of approximately $0.3 billion.tax payments, partially offset by earnings.
| | | | | | | | | | Successor | Predecessor |
| (Dollars in millions) | 2016 | 2015 | 2014 | 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 |
| Cash used for investing activities | $ | (1,514 | ) | $ | (1,828 | ) | $ | (337 | ) | |
| Cash (used for) provided by investing activities | | $ | (904 | ) | $ | (505 | ) | $ | 3,678 |
| $ | (2,382 | ) |
Cash used for investing activities in 2016 decreased by $0.3 billionwas $(904) million for the year ended December 31, 2019 compared to 2015. The change was$(505) million for the year ended December 31, 2018, primarily due to lower purchasesa decrease in net proceeds from sales and maturities of property, plantinvestments, partially offset by a reduction in capital expenditures as a result of the Internal Reorganizations and equipment, lower net purchases of marketable securitiesBusiness Realignments in 2019 and higheran increase in proceeds from sales of property, businesses and other assets. This isconsolidated companies.
Cash provided by investing activities was $3,678 million for the period September 1 through December 31, 2017, primarily driven by approximately $1,200 million of cash received for the FMC Transactions, approximately $1,100 million of cash received for the DAS Divested Ag Business (see Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information) and net proceeds from investments, partially offset by cash outflows relating tocapital expenditures.
Cash used for investing activities was $(2,382) million for the period January 1 through August 31, 2017, primarily driven by net purchases of investments, capital expenditures, payments for the acquisition of Granular and net payments from foreign currency contract settlements. The absence in 2016contracts, partially offset by proceeds from the sale of property plant and equipmentbusinesses.
Capital expenditures relatedtotaled $1,163 million for the year ended December 31, 2019, $1,501 million for the year ended December 31, 2018, $499 million for the period September 1 through December 31, 2017, and $687 million for the period January 1 through August 31, 2017. The company expects 2020 capital expenditures to Chemours accounted for $0.2 billion of the reduction.
be between $500 million and $600 million.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (Dollars in millions) | 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 |
| Cash (used for) provided by financing activities | $ | (2,929 | ) | $ | (2,624 | ) | $ | (3,607 | ) | $ | 5,632 |
|
Cash used for investingfinancing activities in 2015 increased by $1.5 billionwas $(2,929) million for the year ended December 31, 2019 compared to 2014.$(2,624) million for the year ended December 31, 2018. The change was primarily due to lower proceeds received fromrepayments of commercial paper and long-term debt and transfers of cash to DowDuPont in connection with the sale of businessesInternal Reorganization and Business Realignments in 2015 compared to 2014 and increased purchases of marketable securities in 2015 compared to 2014. This was2019, partially offset by lower purchases of property, plant and equipment, mainly due to the absence of Chemours in the second half of 2015 which accounted for $0.3 billion. See Note 19 to the Consolidated Financial Statements for further discussion of marketable securities outstanding at December 31, 2015 and 2014.
Purchases of property, plant and equipment totaled $1.0 billion, $1.6 billion and $2.0 billion in 2016, 2015, and 2014, respectively. The company expects 2017 purchases of property, plant and equipment to be about $1.1 billion.
|
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Cash used for financing activities | $ | (2,328 | ) | $ | (1,823 | ) | $ | (5,074 | ) |
The $0.5 billiona net increase in cashcontributions from Dow and DowDuPont, primarily for repayment of long-term debt, and a decrease in distributions to Dow and DowDuPont which were used to fund a portion of DowDuPont’s dividend payments, and in 2018 to fund a portion of DowDuPont’s share repurchases.
Cash used for financing activities in 2016 was $(3,607) million for the period September 1 through December 31, 2017, primarily duedriven by repayments of commercial paper, distributions to lower borrowings as a result of the prior year distribution of approximately $3.9 billion which Chemours financed through external borrowingsDow and DowDuPont and dividends paid to the company prior to its separation. This wasHistorical DuPont shareholders, partially offset by lower share repurchasesborrowings under the Term Loan. Dividend payments to shareholders of Historical DuPont common stock included a third quarter 2017 dividend declared for common stockholders of record July 31, 2017 and lowerpaid in September 2017.
Cash provided by financing activities was $5,632 million for the period January 1 through August 31, 2017, primarily driven by a debt offering in May of 2017 as well as borrowings from commercial paper, the Repurchase Facility, and the Term Loan Facility, partially offset by dividends paid to stockholders.
The $3.3 billion decrease in cash used for financing activities in 2015 was primarily due to the distribution of Chemours borrowings to the company as part of the separation, partially offset by a reduction in short term borrowings, and an increase in the repurchase of common stock.
Dividends paid to common and preferred shareholders were $1.3 billion, $1.5 billion, and $1.7 billion in 2016, 2015, and 2014, respectively. Dividends per share of common stock were $1.52, $1.72, and $1.84 in 2016, 2015, and 2014, respectively. In January 2017, the Board of Directors declared a first quarter common stock dividend of $0.38 per share. With the first quarter 2017 dividend, the company has paid quarterly consecutive dividends since the company’s first dividend in the fourth quarter 1904.
In the first quarter 2015, DuPont announced its intention to buy back about $4 billion of shares using the distribution proceeds received from Chemours. In connection with the completion of the spin-off of Chemours, the Board of Directors authorized the use of the distribution proceeds to buy back shares of the company's common stock as follows: $2 billion to be purchased and retired by December 31, 2015 with the remainder to be purchased and retired by December 31, 2016. During 2015, the company purchased and retired 35 million shares through a $2 billion accelerated share repurchase (ASR) agreement. The company had limited opportunity to repurchase shares in 2016, primarily due to the planned merger with Dow. However, during 2016, the company purchased and retired 13.2 million shares in the open market at a cost of $916 million. As of January 1, 2017, the authorization under this buyback program has expired.
In January 2014,June 2019, the company's Board of Directors authorized a $5common stock dividend of $0.13 per share, payable on September 13, 2019, to shareholders of record on July 31, 2019. In October 2019, the company's Board of Directors authorized a common
stock dividend of $0.13 per share, payable on December 18, 2019, to shareholders of record on November 29, 2019.
On June 26, 2019, the company announced that the Board of Directors authorized a $1 billion share buyback plan.repurchase program to purchase Corteva, Inc.'s common stock, par value $0.01 per share, without an expiration date. The program is expected to be completed in three years. During 2014,2019, the company purchased and retired 30.1 million824,000 shares for $2 billion under two separate ASR agreements as well as open market purchases. In 2015, the company repurchased and retired 4.6 million shares in the open market for a total cost of $353$25 million. As a result, the company has completed $2.4 billion of repurchases as of December 31, 2016. There is no required completion date for purchases under this plan.
See Note 1619 - Stockholders' Equity, to the Consolidated Financial Statements for additional information relatingrelated to the above share buyback plans.plan.
EID Liquidity Discussion
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 a Liquidity discussion, only for the differences between EID and Corteva, Inc.
Cash provided by operating activities
EID’s cash provided by operating activities for the year ended December 31, 2019 was $996 million compared to $483 million for the year ended December 31, 2018. The increase was primarily driven by the items noted on page 63, under the header “Cash provided by (used for) operating activities,” partially offset by interest incurred on the related party loan between EID and Corteva, Inc.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Cash used for financing activities |
| | | | | | | | | |
| (Dollars in millions) | 2016 | 2015 | 2014 |
| Cash provided by operating activities | $ | 3,300 |
| $ | 2,316 |
| $ | 3,712 |
|
| Purchases of property, plant and equipment | (1,019 | ) | (1,629 | ) | (2,020 | ) |
| Free cash flow | $ | 2,281 |
| $ | 687 |
| $ | 1,692 |
|
FreeEID’s cash flow is a measurement not recognizedused for financing activities was $(2,855) million for the year ended December 31, 2019 compared to $(2,624) million for the year ended December 31, 2018. The change was due to repayments of commercial paper and long-term debt, transfers of cash to DowDuPont in accordance with generally accepted accounting principles in the U.S. (GAAP) and should not be viewed as an alternative to GAAP measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the company's free cash flow definition may not be consistentconnection with the methodologiesInternal Reorganization and Business Realignments in 2019, and a net decrease in contributions from Dow and DuPont, primarily for repayment of long-term debt, partially offset by proceeds received from the related party loan between EID and Corteva, Inc., and a decrease in distributions to Dow and DowDuPont which were used by other companies. The company defines free cash flow as cash provided by operating activities less purchasesto fund a portion of property, plantDowDuPont’s dividend payments, and equipment, and therefore indicates operating cash flow availablein 2018 to fund a portion of DowDuPont’s share repurchases.
See Note 2 - Related Party Transactions, to the EID Consolidated Financial Statements for payment of dividends, other investing activities and other financing activities. Free cash flow is useful to investors and management to evaluate the company's cash flow and financial performance, and is an integral financial measure used in the company's financial planning process.
For further information relating toon the change in cash provided by operating activities, see discussion above under cash provided by operating activities.related party loan between EID and Corteva, Inc.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Critical Accounting Estimates
The company's significant accounting policies are more fully described in Note 12 - Summary of Significant Accounting Policies, to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the company to provide the users of the financial statements with useful and reliable information about the company's operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with GAAPgenerally accepted accounting principles ("GAAP") in the United States of America requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental matters and litigation. Management's estimates are based on historical experience, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. The company reviews these matters and reflects changes in estimates as appropriate. Management believes that the following representsrepresent some of the more critical judgment areas in the application of the company's accounting policies which could have a material effect on the company's financial position, liquidity or results of operations.
Long-term EmployeePension Plans and Other Post Employment Benefits
Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan assets are two critical assumptions in measuring the cost and benefit obligation of the company's pension and other post employment benefit (OPEB)OPEB plans. Management reviews these two key assumptions annually as of December 31st.when plans are re-measured. These and other assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate. As permitted by GAAP, actual results that differ from the assumptions are accumulated on a plan by plan basis and to the extent that such differences exceed 10 percent of the greater of the plan's benefit obligation or the applicable plan assets, the excess is amortized over the average remaining service period of active employees.employees or the average remaining life expectancy of the inactive participants if all or almost all of a plan’s participants are inactive.
About 80 percentSubstantially all of the company's benefit obligation for pensions and essentially all of the company's OPEB obligations are attributable to the benefit plans in the U.S. In the U.S., the single equivalent discount rate is developed by matching the expected cash flow of the benefit plans to a yield curve constructed from a portfolio of high quality fixed-income instruments provided by the plans' actuaries as of the measurement date. Effective in 2016, theThe company began to measuremeasures the service and interest cost components utilizing a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The company made this change as it believes it is a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The company considers this a change in estimate, and, accordingly, has accounted for it on a prospective basis. This change does not affect the measure of the total benefit obligation. Historically, the service and interest cost components were estimated utilizing a single weighted-average discount rate derived from the yield curve and cash flow for measurement of the benefit obligation at the beginning of the period. For non-U.S. benefit plans, historically the company utilizesutilized prevailing long-term high quality corporate bond indices to determine the discount rate, applicable to each country, at the measurement date.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Within the U.S., the company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset-liability studies are also taken into consideration. The long-term expected return on plan assets in the U.S. is based upon historical real returns (net of inflation) for the asset classes covered by the investment policy, expected performance, and projections of inflation and interest rates over the long-term period during which benefits are payable to plan participants. Consistent with prior years, the long-term expected return on plan assets in the U.S. reflects the asset allocation of the plan and the effect of the company's active management of the plan's assets. In connection with pension contributions of $2,900 million to its principal U.S. pension plan for the period of January 1, 2017 through August 31, 2017, an investment policy study was completed for the principal U.S. pension plan. The study resulted in new target asset allocations for the U.S. pension plan with resulting changes to the expected return on plan assets. The long-term rate of return on assets decreased from 8.00 percent for the Predecessor period to 6.25 percent for the Successor period in 2017.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
InIn determining annual expense for the principal U.S. pension plan, the company uses a market-related value of assets rather than its fair value. The market-related value of assets is calculated by averaging market returns over 36 months. Accordingly, there may be a lag in recognition of changes in market valuation. As a result, changes in the fair value of assets are not immediately reflected in the company's calculation of net periodic pension cost. Generally, the market-related value of assets is calculated by averaging market returns over 36 months, however, as a result of the Merger, for the Successor periods, the market-related value of assets was calculated by averaging market returns from September 1, 2017 through the respective year ends.
The following table shows the market-related value and fair value of plan assets for the principal U.S. pension plan:
| | | (Dollars in billions) | 2016 1 | 2015 | 2014 | December 31, 2019 | December 31, 2018 | December 31, 2017 |
| Market-related value of assets | $ | 13.5 |
| $ | 15.1 |
| $ | 15.9 |
| $ | 16.4 |
| $ | 16.6 |
| $ | 16.6 |
|
Fair value of plan assets | 13.5 |
| 14.4 |
| 15.8 |
| 16.6 |
| 15.7 |
| 16.7 |
|
| |
1.
| During 2016, the plan's trust fund paid about $550 million to a group of separated, vested plan participants who elected a limited-time opportunity to receive a lump sum payout. See further discussion under "Long Term Employee Benefits" beginning on page 47. |
For plans other than the principal U.S. pension plan, pension expense is determined using the fair value of assets.
The following table highlights the potential impact on the company's pre-tax earnings due to changes in certain key assumptions with respect to the company's pension and OPEB plans, based on assets and liabilities at December 31, 2016:2019:
|
| | | | | | |
Pre-tax Earnings Benefit (Charge) (Dollars in millions) | 1/2 Percentage Point Increase | 1/2 Percentage Point Decrease |
| Discount rate | $ | 51 |
| $ | (55 | ) |
| Expected rate of return on plan assets | 80 |
| (80 | ) |
In October 2014, the Society of Actuaries released final reports of new mortality tables and a mortality improvement scale for measurement of retirement program obligations in the U.S. The Society of Actuaries published other mortality improvement scales in October 2015 and October 2016. The company adopted these tables in measuring the 2015 and 2016 long-term employee benefit obligations, respectively. The effect of these adoptions is amortized into net periodic benefit cost for the years following the adoption.
|
| | | | | | |
Pre-tax Earnings Benefit (Charge)
(Dollars in millions) | 1/4 Percentage Point Increase | 1/4 Percentage Point Decrease |
| Discount rate | $ | (35 | ) | $ | 28 |
|
| Expected rate of return on plan assets | 40 |
| (40 | ) |
Additional information with respect to pension and OPEB expenses, liabilities and assumptions is discussed under "Long-term Employee Benefits" beginning on page 4772 and in Note 1720 - Pension Plans and Other Post Employment Benefits, to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Environmental Matters
DuPont accruesAccruals for remediation activitiesenvironmental matters are recorded when it is probable that a liability has been incurred and a reasonable estimatethe amount of the liability can be made. The company has recorded a liability of $457 million as ofreasonably estimated. At December 31, 2016; these2019, the company had accrued liabilities exclude claims against third partiesobligations of $336 million for probable environmental remediation and are not discounted.restoration costs, including $51 million for the remediation of Superfund sites. As remediation activities vary substantially in duration and cost from site to site, it is difficult to develop precise estimates of future site remediation costs. The company's estimates are based on a number of factors, including the complexity of the geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (PRPs)("PRPs") at multi-party sites and the number of and financial viability of other PRPs. Therefore, considerable uncertainty exists with respect to environmental remediation and costs, and, under adverse changes in circumstances, it is reasonably possible that the potential liability mayultimate cost with respect to these particular matters could range up to $900$620 million above that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the amount accrued ascompany’s results of December 31, 2016.operations, financial condition and cash flows. It is the opinion of the company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the company’s results of operations, financial condition or cash flows. For further discussion, see Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3 - Recent Accounting Guidance, and Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Legal Contingencies
The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement and antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. The company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms, and the matter's current status. Considerable judgment is required in determining whether to establish a litigation accrual when an adverse judgment is rendered against the company in a court proceeding. In such situations, the company will not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of significant litigation matters is contained in Note 1518 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.
Indemnification Assets
Pursuant to the Separation Agreement discussed in Note 3 to the Consolidated Financial Statements,The company has entered into various agreements where the company is indemnified for certain liabilities by Chemours against certain litigation, environmental, workers' compensationDuPont, Dow, and other liabilities that arose prior to the separation.Chemours. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these indemnified matters, the company records an indemnification asset when recovery is deemed probable. In assessing the probability of recovery, the company considers the contractual rights under the Separation Agreementseparation agreements and any potential credit risk. Future events, such as potential disputes related to recovery as well as the solvency of DuPont, Dow, and / or Chemours, could cause the indemnification assets to have a lower value than anticipated and recorded. The company evaluates the recovery of the indemnification assets recorded when events or changes in circumstances indicate the carrying values may not be fully recoverable. See Note 5 - Divestitures and Other Transactions, to the Consolidated Financial Statements for additional information related to indemnifications.
Income Taxes
The breadth of the company's operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes the company will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. The resolution of these uncertainties may result in adjustments to the company's tax assets and tax liabilities. It is reasonably possible that net reductionschanges to the company’s global unrecognized tax benefits could be insignificant; however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of $70 million to $90 millionincreases or decreases that may occur within the next 12twelve months with the majority due to the settlement of uncertain tax positions with various tax authorities.cannot be made.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Deferred income taxes result from differences between the financial and tax basis of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. For example, changes in facts and circumstances that alter the probability that the company will realize deferred tax assets could result in recording a valuation allowance, thereby reducing the deferred tax asset and generating a deferred tax expense in the relevant period. In some situations, these changes could be material. See Note 10 - Income Taxes, to the Consolidated Financial Statements for additional information.
At December 31, 2016,2019, the company had a net deferred tax assetliability balance of $2.9 billion, net$633 million, inclusive of a valuation allowance of $1.3 billion.$457 million. Realization of thesedeferred tax assets is expected to occur over an extended period of time. As a result, changes in tax laws, assumptions with respect to future taxable income, and tax planning strategies could result in adjustments to thesedeferred tax assets. See Note 610 - Income Taxes, to the Consolidated Financial Statements for additional details related to the deferred tax assetliability balance.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Valuation of Assets and Impairment Considerations
The assets and liabilities of acquired businesses are measured at their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired, including identified intangibles, is recorded as goodwill. The determination and allocation of fair value to the assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, including estimates based on historical information, current market data and future expectations. The principal assumptions utilized in the company's valuation methodologies include revenue growth rates, operating margin estimates, royalty rates, and discount rates. Although the estimates are deemed reasonable by management based on information available at the dates of acquisition, those estimates are inherently uncertain.
Assessment of the potential impairment of goodwill, other intangible assets, property, plant and equipment, and investments in nonconsolidated affiliates, and other assets is an integral part of the company's normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management's best estimates at a particular point in time. The dynamic economic environmentsenvironment in which the company's diversified businessessegments operate, and key economic and business assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized. In addition, the company continually reviews its diverse portfolio of assets to ensure they are achieving their greatest potential and are aligned with the company's growth strategy. Strategic decisions involving a particular group of assets may trigger an assessment of the recoverability of the related assets. Such an assessment could result in impairment losses.
Based on the results of the company'sThe company performs its annual goodwill impairment test, completedassessment during the fourth quarter at the reporting unit level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business in which discrete financial information is available and regularly reviewed by segment management. The company aggregates certain components into reporting units based on economic similarities. As a result of the third quarter 2016, we determined thatInternal Reorganizations and Realignments, the company changed its reportable segments to seed and crop protection to reflect the manner in which the company's chief operating decision maker assesses performance and allocates resources. The change in reportable segments resulted in changes to the company's reporting units for goodwill impairment testing to align with the level at which discrete financial information is available for review by management. The company’s reporting units include seed, crop protection and digital. In connection with the change in reportable segments and reporting units, goodwill was reassigned from the former agriculture reporting unit to the seed, crop protection and digital reporting units using a relative fair value of each of the reporting units exceeded its carrying value by more than 20 percent, and therefore there were no indications of impairment. The company's methodology for estimating the fair value of its reporting units is using the income approach based on the present value of future cash flows. The income approach has been generally supported by additional market transaction analyses. There can be no assurance that the company's estimates and assumptions regarding forecasted cash flow, revenue and operating income growth rates made forallocation approach.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
For purposes of the annual goodwill impairment test, will provethe company has the option to be accurate predictionsfirst perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed at the company level include, but are not limited to, GDP growth rates, long-term commodity prices, equity and credit market activity, discount rates, foreign exchange rates, and overall financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw material prices, and financial performance of the future. reporting unit. If the company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.
If additional quantitative testing is required, the reporting unit’s fair value is compared with its carrying amount, and an impairment charge, if any, is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The company determined fair values for each of the reporting units using the income approach or market approach.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The company uses its internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the company’s forecasts. The company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in its internally developed forecasts. Discount rates used in the company’s reporting unit valuations ranged from 9.5% to 10.5%. Under the market approach, the company uses metrics of publicly traded companies or historically completed transactions for comparable companies.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods. The company’s assets and liabilities were measured at fair value as of the date of the Merger, and as a result, any declines in projected cash flows or increases in discount rates could have a material, negative impact on the fair value of the company's reporting units and assets and therefore result in an impairment.
As discussed above, in connection with the change in reportable segments and reporting units, the company performed a goodwill impairment analysis for the former agriculture reporting unit immediately prior to the realignment and the newly created reporting units immediately after the realignment. The impairment analysis was performed using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs or a market approach. The company’s significant estimates in this analysis include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategy. The company believes the current assumptions and estimates utilized are both reasonable and appropriate. Based on the goodwill impairment analysis performed both immediately prior to and immediately subsequent to the realignment, the company concluded the fair value of the former agriculture reporting unit and the newly created reporting units exceeded their carrying value, and no goodwill impairment charge was necessary.
During 2016,In the third quarter of 2019, and in connection with strategic product and portfolio reviews, the company determined that the fair value of certain intangible assets classified as developed technology, other intangible assets and IPR&D within the seed segment that primarily relate to heritage DAS intangibles previously acquired from Cooperativa Central de Pesquisa Agrícola's ("Coodetec") was less than the carrying value due to the company’s focus on advancing more competitive products and eliminating redundancy and complexity across the breeding programs. As a result, the company recorded a $158 millionpre-tax, non-cash intangible asset impairment charge relatedof $54 million ($41 million after-tax). The key assumptions used in determining the fair value of these intangibles involve management judgment and estimates relating to indefinite-lived intangible trade names within the Industrial Biosciences segment as a result of the realignment of brand marketing strategiesfuture operating performance and a determinationeconomic conditions that may differ from actual cash flows. Refer to phase out the use of certain acquired trade names. See Note 47 - Restructuring and Asset Related Charges - Net, Note 15 - Goodwill and Other Intangible Assets, and Note 23 - Fair Value Measurements, to the Consolidated Financial Statements for additional details related to this charge.more information.
During 2016, the company recorded an asset impairment charge of $435 million related to its uncompleted ERP system. The company intends to complete the ERP system project, however, given the uncertainties related to timing as well as potential developments and changes to technologies in the market place at the time of restart, use of the ERP system can no longer be considered probable. See Note 4 to the Consolidated Financial Statements for additional details related to this charge.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
In the fourth quarter of 2019, quantitative testing was performed on all of the company’s reporting units. Based on the results of the quantitative testing, the estimated fair value of each of the reporting units exceeded their carrying values. For the seed reporting unit, the excess fair value over carrying value is approximately 12%, and therefore carries a higher risk of impairment charges in future periods. The dynamic economic environments in which the company's diversified product lines operate, and key economic and product line assumptions with respect to projected selling prices, product mix, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors, circumstances and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.
In the fourth quarter of 2019, the company also performed an impairment test on indefinite-lived intangibles and determined that the fair value of certain IPR&D assets had declined as a result of the company’s decision to accelerate the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands over the next five years with minimal use of the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® traits thereafter for the remaining term of the non-exclusive license with the Monsanto Company. This resulted in the company concluding that the recoverability of certain IPR&D projects associated with Roundup Ready 2 Xtend® were impaired, resulting in a pre-tax, non-cash impairment charge of $90 million ($69 million after-tax). Refer to Note 7 - Restructuring and Asset Related Charges - Net, Note 15 - Goodwill and Other Intangible Assets, and Note 23 - Fair Value Measurements, to the Consolidated Financial Statements for more information.
The company’s goodwill and indefinite-lived intangibles for the seed reporting unit at December 31, 2019 is shown below (in millions):
|
| | | | | | |
| Reporting Unit | Goodwill | Indefinite-Lived Intangible Assets |
| Seed | $ | 5,417 |
| $ | 1,881 |
|
Prepaid Royalties
The company’s seed segment currently has certain third-party biotechnology trait license agreements, which require up-front and variable payments subject to the licensor meeting certain conditions. These payments are reflected as other current assets and other assets and are amortized to cost of goods sold as seeds containing the respective trait technology are utilized over the term of the license. The rate of royalty amortization expense recognized is based on the company’s strategic plans which include various assumptions and estimates including product portfolio, market dynamics, farmer preferences, growth rates and projected planted acres. Changes in factors and assumptions included in the strategic plans, including potential changes to the product portfolio in favor of internally developed biotechnology, could impact the rate of recognition of the relevant prepaid royalty.
At December 31, 2019, the balance of prepaid royalties reflected in other current assets and other assets was $440 million and $794 million, respectively. The majority of the balance of prepaid royalties relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto Company's Genuity® Roundup Ready 2 Yield® glyphosate tolerance trait and Roundup Ready 2 Xtend® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”). The prepaid royalty asset relates to a series of up-front, fixed and variable royalty payments to utilize the traits in Pioneer’s soybean product mix. The company’s historical expectation has been that the technology licensed under the Roundup Ready 2 License Agreement would be used as the primary herbicide tolerance trait platform in the Pioneer® brand soybean through the term of the agreement. DAS and MS Technologies, L.L.C. jointly developed and own the Enlist E3TM herbicide tolerance trait for soybeans which provides tolerance to 2, 4-D choline in Enlist Duo® and Enlist One® herbicides, as well as glyphosate and glufosinate herbicides. In connection with the validation of breeding plans and large-scale product development timelines, during the fourth quarter of 2019, the company is accelerating the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer® brands, over the next five years. During the ramp-up period, the company is expected to significantly reduce the volume of products with the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”). The rate of royalty expense is therefore expected to significantly increase through higher amortization of the prepaid royalty as fewer seeds containing the respective trait are expected to be utilized.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
In connection with the departure from these traits in the company's product portfolio, beginning January 1, 2020 the company will present and disclose the accelerated prepaid royalty amortization expense as a component of restructuring and asset related charges - net in the Consolidated Statement of Operations. The accelerated prepaid royalty amortization expense will represent the difference between the rate of amortization based on the revised number of units expected to contain the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® trait technology and the per unit cash rate per the Roundup Ready 2 License Agreement. The non-cash accelerated prepaid royalty amortization expense estimated for 2020 is approximately $160 million, aggregating to approximately $500 million over the next five years.
Further changes in factors and assumptions associated with usage of the trait platform licensed under the Roundup Ready 2 License Agreement, including the Transition Plan, could further impact the rate of recognition of the prepaid royalty and statement of operations presentation of the accelerated prepaid royalty amortization expense.
Off-Balance Sheet Arrangements
Certain Guarantee Contracts
Information with respect to the company's guarantees is included in Note 1518 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements. Historically, the company has not had to make significant payments to satisfy guarantee obligations; however, the company believes it has the financial resources to satisfy these guarantees.
Contractual Obligations
Information related to the company's significant contractual obligations is summarized in the following table:
| | | | | Payments Due In | | Payments Due In |
| (Dollars in millions) | Total at December 31, 2016 | 2017 | 2018 - 2019 | 2020 - 2021 | 2022 and beyond | Total at December 31, 2019 | 2020 | 2021-2022 | 2023-2024 | 2025 and beyond |
Long-term debt obligations1 | $ | 8,137 |
| $ | 4 |
| $ | 2,327 |
| $ | 2,506 |
| $ | 3,300 |
| |
Operating lease and finance lease obligations1 | | $ | 658 |
| $ | 158 |
| $ | 216 |
| $ | 116 |
| $ | 168 |
|
Expected cumulative cash requirements for interest payments through maturity | 2,875 |
| 351 |
| 561 |
| 333 |
| 1,630 |
| 37 |
| 2 |
| 4 |
| 4 |
| 27 |
|
Capital leases1 | 9 |
| — |
| 2 |
| 3 |
| 4 |
| |
| Operating leases | 1,203 |
| 263 |
| 440 |
| 281 |
| 219 |
| |
| Long-term debt | | 111 |
| 1 |
| 1 |
| — |
| 109 |
|
Purchase obligations2 | |
| |
| |
| |
| |
| |
| |
| Information technology infrastructure & services | 187 |
| 93 |
| 92 |
| 2 |
| — |
| 31 |
| 17 |
| 14 |
| — |
| — |
|
Raw material obligations3 | 1,070 |
| 480 |
| 289 |
| 202 |
| 99 |
| |
| Utility obligations | 125 |
| 105 |
| 14 |
| 4 |
| 2 |
| |
License agreements4 | 1,456 |
| 281 |
| 462 |
| 366 |
| 347 |
| |
| Raw material obligations | | 1,868 |
| 485 |
| 880 |
| 374 |
| 129 |
|
| Other | 122 |
| 79 |
| 23 |
| 15 |
| 5 |
| 85 |
| 51 |
| 17 |
| 17 |
| — |
|
| Total purchase obligations | 2,960 |
| 1,038 |
| 880 |
| 589 |
| 453 |
| 1,984 |
| 553 |
| 911 |
| 391 |
| 129 |
|
Other liabilities1,5,6 | |
| |
| |
| |
| |
| |
Other liabilities1,3 | | |
| |
| |
| |
| |
|
| Pension and other post employment benefits | | 6,664 |
| 298 |
| 526 |
| 1,300 |
| 4,540 |
|
| Workers' compensation | 86 |
| 15 |
| 37 |
| 16 |
| 18 |
| 70 |
| 9 |
| 26 |
| 14 |
| 21 |
|
| Environmental remediation | 457 |
| 165 |
| 137 |
| 80 |
| 75 |
| 336 |
| 127 |
| 126 |
| 50 |
| 33 |
|
| Legal settlements | 17 |
| 6 |
| 4 |
| 4 |
| 3 |
| |
Other7 | 153 |
| 43 |
| 25 |
| 19 |
| 66 |
| |
License agreements4 | | 673 |
| 159 |
| 302 |
| 156 |
| 56 |
|
Other5 | | 223 |
| 42 |
| 54 |
| 44 |
| 83 |
|
| Total other long-term liabilities | 713 |
| 229 |
| 203 |
| 119 |
| 162 |
| 7,966 |
| 635 |
| 1,034 |
| 1,564 |
| 4,733 |
|
Total contractual obligations8 | $ | 15,897 |
| $ | 1,885 |
| $ | 4,413 |
| $ | 3,831 |
| $ | 5,768 |
| |
Total contractual obligations6 | | $ | 10,756 |
| $ | 1,349 |
| $ | 2,166 |
| $ | 2,075 |
| $ | 5,166 |
|
| |
1. | Included in the Consolidated Financial Statements. |
| |
2. | Represents enforceable and legally binding agreements in excess of $1 million to purchase goods or services that specify fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the agreement. |
| |
3. | Includes raw material obligations related to supply agreements with Koch Industries, Inc. (INVISTA). |
| |
4.
| Represents remaining minimum payments under DuPont Pioneer license agreements. |
| |
5.
| Pension and OPEB obligations have been excluded from the table above. Expected 2017 funding for the principal U.S. pension plan and non-U.S. plans with plan assets is disclosed below within Long Term Employee Benefits. Contributions beyond 2017 are expected to be made, however, the amount of contributions are dependent on the future economic environment, investment returns on pension trust assets, as well as rules and regulations of the respective country in which the plans operate. The company’s remaining pension plans with no plan assets and other post employment benefit plans are paid from operating cash flows. The benefit payments for these plans are excluded from the table above as the timing and amounts of benefit payments are uncertain. The estimated benefit payments in 2017 for these plans are disclosed below within Long Term Employee Benefits. Refer to Note 17 to the Consolidated Financial Statements for further information regarding the pension and other post employment benefit plans. |
| |
6.
| The company's contractual obligations do not reflect an offset for recoveries associated with indemnifications by Chemours, Dow, and DuPont in accordance with the Chemours Separation Agreement.Agreement and the Separation Agreement (related to the Corteva Distribution), respectively. Refer to Notes 3Note 5 - Divestitures and 15Other Transactions, and Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements for additional detail related to the indemnifications. |
| |
7.4.
| Represents undiscounted remaining payments under Pioneer license agreements ($643 million on a discounted basis). |
| |
5. | Primarily represents employee-related benefits other than pensions and other post employment benefits.benefits and asset retirement obligations. |
| |
8.6.
| Due to uncertainty regarding the completion of tax audits and possible outcomes, the timing of certain payments of obligations related to unrecognized tax benefits cannot be made and have been excluded from the table above. See Note 610 - Income Taxes, to the Consolidated Financial Statements for additional detail. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
The company expects to meet its contractual obligations through its normal sources of liquidity and believes it has the financial resources to satisfy thesethe contractual obligations.obligations that arise in the ordinary course of business.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Long-term Employee Benefits
The company has various obligations to its employees and retirees. The company maintains retirement-related programs in many countries that have a long-term impact on the company's earnings and cash flows. These plans are typically defined benefit pension plans, as well as medical, dental and life insurance benefits for pensioners and survivors and disability benefits for employees (other post employment benefits or OPEB plans). Approximately 80 percentSubstantially all of the company's worldwide benefit obligation for pensions and essentially all of the company's worldwide OPEB obligations are attributable to the U.S. benefit plans.
Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. The company regularly explores alternative solutions to meet its global pension obligations in the most cost effective manner possible as demographics, life expectancy and country-specific pension funding rules change. Where permitted by applicable law, the company reserves the right to change, modify or discontinue its plans that provide pension, medical, dental, life insurance and disability benefits.
Benefits under defined benefit pension plans are based primarily on years of service and employees' pay near retirement. In November 2016, the company announced changes to the U.S. pension and OPEB plans. The company will freezefroze the pay and service amounts used to calculate pension benefits for active employees who participate in the U.S. pension plans at the earlieron November 30, 2018. Therefore, as of the effective date of the first of the Intended Business Separations or November 30, 2018, (the Effective Date). See further discussion of the Intended Business Separations under "DuPont Dow Merger of Equals"beginning on page 2. Therefore, as of the Effective Date, active employees participating in the U.S. pension plans will not accrue additional benefits for future service and eligible compensation received. In addition to the changes to the U.S. pension plans, OPEB eligible employees who will be under the age of 50 at the Effective Dateas of November 30, 2018 will not receive post-retirement medical, dental and life insurance benefits. As a result of these changes, the company recognized a pre-tax curtailment gain of $382 million during the fourth quarter of 2016. The majority of employees hired in the U.S. on or after January 1, 2007 are not eligible to participate in the pension and post-retirement medical, dental and life insurance plans, but receive benefits in the defined contribution plans.
In the fourth quarter 2016, about $550 million of lump-sum payments were made from the principal U.S. pension plan trust fund to a group of separated, vested plan participants who were extended a limited-time opportunity and voluntarily elected to receive their pension benefits in a single lump-sum payment.
Pension benefits are paid primarily from trust funds established to comply with applicable laws and regulations. Unless required by law, the company does not make contributions that are in excess of tax deductible limits. The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable assurance that there will be adequate funds for the payment of benefits. The company contributed $230 milliondid not make contributions to the principal U.S. pension plan in 2016 andfor the company expects to contribute about the same amount to this plan in 2017.year ended December 31, 2019.
Funding for each pension plan other than the principal U.S. pension plan is governed by the rules of the sovereign country in which it operates. Thus, there is not necessarily a direct correlation between pension funding and pension expense. In general, however, improvements in plans' funded status tends to moderate subsequent funding needs. The company contributed $121$39 million, $103 million, $34 million and $67 million to its funded pension plans other than the principal U.S. pension plan in 2016.for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively.
U.S. pension benefits that exceed federal limitations are covered by separate unfunded plans and these benefits are paid to pensioners and survivors from operating cash flows. The company's remaining pension plans with no plan assets are paid from operating cash flows. The company made benefit payments of $184$82 million, $111 million, $35 million and $57 million to its unfunded plans in 2016.for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively.
The company's OPEB plans are unfunded and the cost of the approved claims is paid from operating cash flows. Pre-tax cash requirements to cover actual net claims costs and related administrative expenses were $218$202 million, $237$216 million, $59 million and $233$166 million for 2016, 2015the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014,the period January 1 through August 31, 2017, respectively. Changes in cash requirements reflect the net impact of higher per capita health care costs, demographic changes, plan amendments and changes in participant premiums, co-pays and deductibles.
In 2017,2020, the company expects to contribute $95approximately $60 million forto its pension plans other than the principal U.S. pension plan, $85 million to its remaining plans with no plan assets, and $275about $240 million for its OPEB plans. The company is evaluating potential discretionary contributions in 2020 to the principal U.S. pension plan, that could reduce a portion of the underfunded benefit obligation. Any discretionary contributions depend on various factors including market conditions and tax deductible limits.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
The company's income can be significantly affected by pension and defined contribution benefits as well as OPEB costs. The following table summarizes the extent to which the company's loss from continuing operations before income over each oftaxes for the last 3 yearsyear ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was affected by pre-tax charges related to long-term employee benefits:
| | | | Successor | Predecessor |
| | | | | | | | 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 |
| (Dollars in millions) | 2016 | 2015 | 2014 |
Long-term employee benefit plan charges 1 | $ | 442 |
| $ | 616 |
| $ | 715 |
| |
| Net periodic benefit (credit) cost - pension and OPEB | | $ | (163 | ) | $ | (186 | ) | $ | (71 | ) | $ | 349 |
|
| Defined contributions | | 115 |
| 117 |
| 41 |
| 55 |
|
| Long-term employee benefit plan (credit) charges - continuing operations | | $ | (48 | ) | $ | (69 | ) | $ | (30 | ) | $ | 404 |
|
1.The long-term employee benefit plan charges include discontinued operations of $(5), $(245) and $96 for 2016, 2015 and 2014, respectively.
The above (credit) charges for pension and OPEB are determined as of the beginning of each year.period. Long-term employee credits were $(48) million for the year ended December 31, 2019 and $(69) million for the year ended December 31, 2018. The change is due to decrease in long-term employee benefit expense in 2016 is driven byexpected return on plan assets.
Activities for the curtailment gain recognized in 2016 related toperiod ended December 31, 2018 and for the changes toperiod September 1 through December 31, 2017 benefited from the U.S. long term employee benefits described above. The decrease in 2015 is primarily due to a curtailment gain, which is presented within incomeabsence of the amortization of net losses from discontinued operations, partially offset by a decrease in discount rate.accumulated other comprehensive loss. See "Long-term Employee"Pension Plans and Other Post Employment Benefits" under the Critical Accounting Estimates section beginning on page 4265 of this report for additional information on determining annual expense.
The company's key assumptions used in calculating its pension and other post employmentFor 2020, long-term employee benefits are the expected return on plan assets, the rate of compensation increases and the discount rate (see Note 17 to the Consolidated Financial Statements). For 2017, long term employee benefit expensecredit from continuing operations is expected to increase by about $340 million$180 million. The increase is mainly due to the curtailment gain recognized in 2016. This amount does not include any potential settlement charges related to the company's Pension Restoration Plan which provides lump sum payments to certain eligible retirees.lower interest cost.
Environmental Matters
The company operates global manufacturing, product handling and distribution facilities that are subject to a broad array of environmental laws and regulations. Such rules are subject to change by the implementing governmental agency, and the company monitors these changes closely. Company policy requires that all operations fully meet or exceed legal and regulatory requirements. In addition, the company implements voluntary programs to reduce air emissions, minimize the generation of hazardous waste, decrease the volume of water use and discharges, increase the efficiency of energy use and reduce the generation of persistent, bioaccumulative and toxic materials. Management has noted a global upward trend in the amount and complexity of proposed chemicals regulation. The costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, are significant and will continue to be significant for the foreseeable future.
Pre-tax environmental expenses charged to income from continuing operations before income taxes are summarized below:
| | | | | | | | | | Successor | Predecessor |
| (Dollars in millions) | 2016 | 2015 | 2014 | 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 |
| Environmental operating costs | $ | 370 |
| $ | 380 |
| $ | 380 |
| $ | 136 |
| $ | 142 |
| $ | 51 |
| $ | 67 |
|
| Environmental remediation costs | 60 |
| 65 |
| 35 |
| 29 |
| 48 |
| 16 |
| 51 |
|
| | $ | 430 |
| $ | 445 |
| $ | 415 |
| $ | 165 |
| $ | 190 |
| $ | 67 |
| $ | 118 |
|
About 7585 percent of total pre-tax environmental expensesoperating costs charged to income from continuing operations in 2016for the year ended December 31, 2019 resulted from operations in the U.S. Based on existing facts and circumstances, management does not believe that year over yearyear-over-year changes, if any, in environmental expensesoperating costs charged to current operations will have a material impact on the company's financial position, liquidity or results of operations. Annual expenditures in the near term are not expected to vary significantly from the range of such expenditures experienced in the past few years. Longer term, expenditures are subject to considerable uncertainty and may fluctuate significantly.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Environmental Operating Costs
As a result of its operations, the company incurs costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewater treatment, emissions testing and monitoring, and obtaining permits. The company also incurs costs related to environmental related research and development activities including environmental field and treatment studies as well as toxicity and degradation testing to evaluate the environmental impact of products and raw materials.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Remediation Accrual
Changes in the remediation accrual balance are summarized below:
|
| | | |
| (Dollars in millions) | |
| Balance at December 31, 2014 | $ | 478 |
|
Remediation payments1 | (104 | ) |
Net increase in remediation accrual2 | 118 |
|
| Balance at December 31, 2015 | $ | 492 |
|
Remediation payments1 | (143 | ) |
Net increase in remediation accrual2 | 108 |
|
| Balance at December 31, 2016 | $ | 457 |
|
|
| | | |
| (Dollars in millions) | |
| Balance at December 31, 2017 | $ | 457 |
|
| Remediation payments | (55 | ) |
Net increase in remediation accrual 1 | 48 |
|
Net change, indemnification 2 | (52 | ) |
| Balance at December 31, 2018 | $ | 398 |
|
| Remediation payments | (49 | ) |
Net increase in remediation accrual 1 | 29 |
|
Net change, indemnification 2 | (42 | ) |
| Balance at December 31, 2019 | $ | 336 |
|
| |
| 1. | Excludes indemnified remediation obligations. |
| |
| 2. | Represents the net change in indemnified remediation obligations based on activity as well as the removal from EID's accrued remediation liabilities of obligations that have been fully transferred to Chemours and DuPont. Pursuant to the Chemours Separation Agreement and the Corteva Separation Agreement, as discussed in Note 5 - Divestitures and Other Transactions, and Note 18 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, EID is indemnified by Chemours and DuPont for certain environmental matters. |
1. Includes reductions in the accrual for payments made by indemnified parties. See below for further discussion.
2. Excludes related indemnification asset. See below for further discussion.
Considerable uncertainty exists with respect to environmental remediation costs, and, under adverse changes in circumstances, the potential liability may range up to $900$620 million above the amount accrued as of December 31, 2016.2019. However, based on existing facts and circumstances, management does not believe that any loss, in excess of amounts accrued, related to remediation activities at any individual site will have a material impact on the financial position, liquidity or results of operations of the company.
Pursuant toThe above noted $336 million accrued obligations includes the Separation Agreement discussed in Note 3 to the Consolidated Financial Statements, the company is indemnified by Chemours for certain environmental matters, included in the liability of $457 million, that have an estimated liability of $250 million as of December 31, 2016 and a potential exposure that ranges up to approximately $500 million above the amount accrued. As such, the company has recorded an indemnification asset of $250 million corresponding to the company's accrual balance related to these matters at December 31, 2016. Within the table above, during 2016, the remediation payments made by Chemours are about $90 million and the indemnified portion of the net increase in the remediation accrual is about $50 million.following:
On December 15, 2016, DuPont reached a settlement in principle, valued at about $50 million, with the U.S. Departments of Justice and the Interior and the Commonwealth of Virginia, to resolve remediation claims associated with mercury contamination in the South River and South Fork Shenandoah River watershed. If approved by the U.S. District Court for the Western District of Virginia, the settlement requires DuPont to make a cash payment of about $42 million and undertake certain remediation activities. The full value of the settlement is included in the remediation accrual balance at December 31, 2016. |
| | | | | | | | | |
| | As of December 31, 2019 |
| (In millions) | Indemnification Asset | Accrual balance3 | Potential exposure above amount accrued3 |
| Environmental Remediation Stray Liabilities | | | |
Chemours related obligations - subject to indemnity1,2 | $ | 167 |
| $ | 167 |
| $ | 285 |
|
Other discontinued or divested businesses obligations1 | — |
| 91 |
| 221 |
|
| |
|
|
|
|
|
|
Environmental remediation liabilities primarily related to DuPont - subject to indemnity from DuPont2 | 35 |
| 35 |
| 60 |
|
| |
|
|
|
|
|
|
| Environmental remediation liabilities not subject to indemnity | — |
| 43 |
| 54 |
|
| Total | $ | 202 |
| $ | 336 |
| $ | 620 |
|
| |
1. | Represents liabilities that are subject the $200 million thresholds and sharing arrangements as discussed on page F-61, under Corteva Separation Agreement. |
| |
2. | The company has recorded an indemnification asset related to these accruals, including $30 million related to the Superfund sites. |
| |
3. | Accrual balance represents management’s best estimate of the costs of remediation and restoration, although it is reasonably possible that the potential exposure, as indicated, could range above the amounts accrued, as there are inherent uncertainties in these estimates. |
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
As of December 31, 2016,2019, the company has been notified of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund)("Superfund") or similar state laws at about 500 sites around the U.S., including approximately 100140 sites for which DuPontthe company does not believe it has liability based on current information. Active remediation is under way at approximately 9070 of thesethe 500 sites. In addition, the company has resolved its liability at approximately 70210 sites, either by completing remedial actions with other PRPs or by participating in "de minimis buyouts" with other PRPs whose waste, like the company's, represented only a small fraction of the total waste present at a site. The company received notice of potential liability at one2 new sitesites during 20162018 compared with one and three similar3 notices in 2015 and 2014, respectively.2017. There were no new notices in 2019.
Environmental Capital Expenditures
Capital expenditures for environmental projects, either required by law or necessary to meet the company’s internal environmental goals, were $39approximately $13 million in 2016.for the year ended December 31, 2019. The company currently estimates expenditures for environmental-related capital projects to be about $55approximately $8 million in 2017.2020.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Climate Change
The company believes that climate change is an important global issueenvironmental concern that presents risks and opportunities. Expanding upon significant globalThe Board of Directors maintains oversight of these risks and opportunities. Management regularly assesses and manages climate-related issues.
The company completed a non-financial materiality assessment and identified short-, medium- and long-term climate-related risks and opportunities. The results of this assessment are integrated into the company’s businesses, strategy and financial planning.
Continuing political and social attention to climate change and its impacts has resulted in regulatory and market-based approaches to limit greenhouse gas (GHG) emissionsemissions. The company believes there is a way forward for sustainable climate change mitigation that both enables farmers to meet the demands of a growing population and other environmental footprint reductions made insecures the period 1990-2010, aseconomic future for the vast majority of 2015 the company reducedworld’s population who depend on agriculture for their livelihoods.
Extreme and volatile weather due to climate change may have an adverse impact on customers’ ability to use its environmental footprint, achieving reductions of 7.5 percent in GHG emissions, 7.6 percent in water consumption,products, potentially reducing sales volumes, revenues and 3.3 percent in energy intensity from non-renewable resources versus a 2010 baseline. In 2015, the company announced its 2020 Sustainability Goals, including a goal to achieve a 7 percent reduction in GHG emissions intensity (2015 baseline) and continuation of its goal to achieve a 10 percent improvement in energy intensity (2010 baseline).margins. The company continuously evaluates opportunities for existing and new product and service offerings in light ofto meet the anticipated demands of a low-carbon economy.climate-smart agriculture and mitigate the impact of extreme and volatile weather.
Corteva is working to shrink its role in the emission of greenhouse gasses. The company is seeking ways to reduce its impact and providing tools and incentives for customers to do the same. Corteva champions climate positive agriculture, utilizing carbon storage and other means to remove more carbon from the atmosphere than it emits without sacrificing farmer productivity or ongoing profitability. The company is developing metrics and targets that will be used to assess and manage material and relevant climate-related risks and opportunities.
The company is actively engaged in effortscommitted to develop constructive public policiesengaging with multiple stakeholders and partners around the globe who have innovative and actionable ideas to reduce GHG emissionshelp safeguard the health and encourage lower carbon formswell-being of energy. Such policies may bring higher operating costs as well as greater revenuethe planet and margin opportunities. Legislative effortsits people. The company integrates processes for identifying, assessing and managing climate-related risk into its overall risk management. By doing more to control or limit GHG emissions could affectaddress climate change today, the company's energy source and supply choices as well as increase the cost of energy and raw materials derived from fossil fuels. Such efforts are also anticipated to provide the business community with greater certainty for the regulatory future, help guide investment decisions, and drive growth in demand for low-carbon and energy-efficient products, technologies, and services. Similarly, demandcompany is expectedfortifying its ability to grow for productsfood, grow progress and build a sustainable industry that facilitate adaptation to a changing climate. However, the current unsettled policy environment in the U.S., where many company facilities are located, adds an element of uncertainty to business decisions, particularly those relating to long-term capital investments.
In addition, significant differences in regional or national approaches could present challenges in a global marketplace. An effective global climate policy framework will help drive the market changes that are neededhumanity thrive for generations to stimulate and efficiently deploy new innovations in science and technology, while maintaining open and competitive global markets.come.
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company’s global operations are exposed to financial market risks relating to fluctuations in foreign currency exchange rates, commodity prices, and interest rates. The company has established a variety of programs including the use of derivative instruments and other financial instruments to manage the exposure to financial market risks as to minimize volatility of financial results. In the ordinary course of business, the company enters into derivative instruments to hedge its exposure to foreign currency interest rate and commodity price risks under established procedures and controls. For additional information on these derivatives and related exposures, see Note 1922 - Financial Instruments, to the Consolidated Financial Statements. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility and economic trends. Foreign currency exchange contracts are alsomay be used, from time to time, to manage near-term foreign currency cash requirements.
Foreign Currency Exchange Rate Risks
The company has significant international operations resulting in a large number of currency transactions that result from international sales, purchases, investments and borrowings. The primary currencies for which the company has an exchange rate exposure are the Brazilian Real, European euro (EUR)Euro ("EUR"), Chinese yuan, Brazilian real,Canadian dollar and Japanese yen.Indian rupee. The company uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. In addition to the contracts disclosed in Note 1922 - Financial Instruments, to the Consolidated Financial Statements, from time to time, the company will enter into foreign currency exchange contracts to establish with certainty the U.S. dollar (USD)("USD") amount of future firm commitments denominated in a foreign currency.
Certain foreign entities of the company held USD denominated marketable securities, mainly US government securities, at December 31, 2015. The USD/EUR was the primary foreign exchange exposure for these nonfunctional currency denominated marketable securities. These marketable securities were classified as “available-for-sale” and as such, fluctuations in foreign exchange were recorded in accumulated other comprehensive loss (AOCL) within the Consolidated Statements of Equity. These fluctuations were subsequently reclassified from AOCL to earnings in the period in which the marketable securities were sold.
The following table illustrates the fair values of outstanding foreign currency contracts and nonfunctional currency denominated marketable securities at December 31, 20162019 and 2015,2018, and the effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed at December 31, 20162019 and 2015.2018. The sensitivities for foreign currency contracts and nonfunctional currency denominated marketable securities are based on a 10 percent adverse change in foreign exchange rates.
| | | | Fair Value Asset/(Liability) | Fair Value Sensitivity | Fair Value (Liability)/Asset | Fair Value Sensitivity |
| (Dollars in millions) | 2016 | 2015 | 2016 | 2015 | 2019 | 2018 | 2019 | 2018 |
| Foreign currency contracts | $ | 61 |
| $ | (6 | ) | $ | (567 | ) | $ | (738 | ) | $ | (18 | ) | $ | 51 |
| $ | (296 | ) | $ | (402 | ) |
| Marketable securities | — |
| 788 |
| — |
| (110 | ) | |
Since the company's risk management programs are highly effective, the potential loss in value for each risk management portfolio described above would be largely offset by changes in the value of the underlying exposure.
Concentration of Credit Risk
The company maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed and the company has a policy to limit the dollar amount of credit exposure with any one institution.
As part of the company's financial risk management processes, it continuously evaluates the relative credit standing of all of the financial institutions that service DuPontCorteva and monitors actual exposures versus established limits. The company has not sustained credit losses from instruments held at financial institutions.
The company's sales are not materially dependent on any single customer. As of December 31, 2016, no one individual customer balance represented more than five percent of the company's total outstanding receivables balance. Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with the company's global businesses.product lines.
The company also maintains strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by industry and region.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are included herein, commencing on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Corteva, Inc.
a) Evaluation of Disclosure Controls and Procedures
The company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the company's reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act)("Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.Securities and Exchange Commission. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of December 31, 2016,2019, the company's Chief Executive Officer (CEO)("CEO") and Chief Financial Officer (CFO)("CFO"), together with management, conducted an evaluation of the effectiveness of the company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures are effective.
The company completed the common control combination of the Dow Agrosciences (“DAS") business from DowDuPont on May 2, 2019. As a result, management has excluded from its assessment those disclosure controls and procedures of the DAS business as of December 31, 2019. The total assets of the DAS business that were excluded from the assessment represented approximately 20 percent of the company's total assets as of December 31, 2019. Total net sales from continuing operations of the DAS business that was excluded from the assessment represented approximately 40 percent of the company’s total net sales from continuing operations for the year ended December 31, 2019.
b)Changes in Internal Control over Financial Reporting
There hashave been no changechanges in the company's internal control over financial reporting that occurred during the fourth quarter of 2016ended December 31, 2019 that hashave materially affected, or isare reasonably likely to materially affect, the company's internal control over financial reporting.
In connection with the separations and Corteva Distribution, there are several processes, policies, operations, technologies and information systems that were integrated following the Merger which have been replicated, transferred or separated. The company has completed itscontinues to take steps to ensure that adequate controls are designed and maintained throughout this transition period.
E. I. du Pont de Nemours and Company
a) Evaluation of Disclosure Controls and Procedures
EID maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in their reports filed or submitted under the Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of December 31, 2019, EID's CEO and CFO, together with management, conducted an evaluation of its internalthe effectiveness of EID's disclosure controls and hasprocedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures are effective.
EID completed the company's systemcommon control combination of internalthe Dow Agrosciences (“DAS") business from DowDuPont on May 2, 2019. As a result, management has excluded from its assessment those disclosure controls over financial reporting was effectiveand procedures of the DAS business as of December 31, 2016 (see page F-2).2019. The total assets of the DAS business that were excluded from the assessment represented approximately 20 percent of EID's total assets as of December 31, 2019. Total net sales from continuing operations of the DAS business that was excluded from the assessment represented approximately 40 percent of EID’s total net sales from continuing operations for the year ended December 31, 2019.
b)Changes in Internal Control over Financial Reporting
There have been no changes in EID's internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, EID's internal control over financial reporting.
In connection with the separations and Corteva Distribution, there are several processes, policies, operations, technologies and information systems that were integrated following the Merger which have been replicated, transferred or separated. EID continues to take steps to ensure that adequate controls are designed and maintained throughout this transition period.
ITEM 9B. OTHER INFORMATION
On January 31, 2017,June 1, 2019, Corteva, Inc. became an independent, publicly traded company through the company entered into a committed receivable repurchase facility of up to $1.3 billionpreviously announced separation (the 2017 repurchase facility) that expires on November 30, 2017. Under the 2017 repurchase facility, the company may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agree to repurchase at a future date. The 2017 repurchase facility is considered a secured borrowing with the customer notes receivables, inclusive of those that are sold and repurchased, equal to 105 percent“Separation”) of the agriculture business of DowDuPont Inc. (“DowDuPont”). The separation was effectuated through a pro rata distribution of all of the then-issued and outstanding amounts borrowed utilizedshares of common stock, par value $0.01 per share, of Corteva, Inc., which was then a wholly-owned subsidiary of DowDuPont, to holders of record of DowDuPont common stock as collateral. Borrowingsof the close of business on May 24, 2019. The Separation is intended to qualify as a tax-free spinoff for United States tax purposes under Section 355 of the repurchase facility will have an interest rate of LIBOR + 0.75 percent.Internal Revenue Code.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this Item is incorporated herein by reference to the Proxy, including information within the sections entitled, "Election of Directors," "Governance of the Company-Committees of the Board," "Governance of the Company-Committee Membership," "Section 16(a) Beneficial Ownership Reporting Compliance," and “Stockholder Nominations for Election of Directors.”
The company has adopted a Code of Ethics for its CEO, CFO, and Controller that may be accessed from the company's website at www.dupont.comwww.corteva.com by clicking on "Investors" and then "Corporate Governance." Any amendments to, or waiver from, any provision of the code will be posted on the company's website at the above address.
Executive Officers of the Registrant
The following is a list, as of February 2, 2017,Each of the company's Executive Officers:
|
| | |
| | Age | Executive Officer Since |
| Chair of the Board of Directors and Chief Executive Officer: | | |
| Edward D. Breen | 60 | 2015 |
| Other Executive Officers: | | |
| Benito Cachinero-Sánchez | 58 | 2011 |
| Senior Vice President - Human Resources | | |
| James C. Collins | 54 | 2014 |
| Executive Vice President | | |
| C. Marc Doyle | 47 | 2015 |
| Executive Vice President | | |
| Nicholas C. Fanandakis | 60 | 2009 |
| Executive Vice President and Chief Financial Officer | | |
| Stacy L. Fox | 63 | 2014 |
| Senior Vice President and General Counsel | | |
| Douglas Muzyka | 62 | 2014 |
| Senior Vice President and Chief Science & Technology Officer | | |
The company's Executive Officers are elected or appointed for the ensuing year or for an indefinite term and until their successors are elected or appointed.
Edward D. Breen joined the DuPont Board of Directors in February 2015, was named Interim Chairexecutive officers became officers of the Board and CEOcompany in October 2015, and assumed his current role in November 2015. Mr. Breen served as Chairman and CEO of Tyco International plc (Tyco) from July 2002 until September 2012. Prior to joining Tyco, Mr. Breen held several senior management positions at Motorola from 2000 to 2002, including as President and Chief Operating Officer. From December 1997 to January 2000, he served as Chairman, President and Chief Executive Officer of General Instrument Corporation. Between 1994 and 1997, Mr. Breen was president of the Broadband Networks Group for General Instrument, President of Eastern Operations for the Communications Division and served as Executive Vice President of Terrestrial Systems. Mr. Breen currently serves as a director of Comcast Corporation. He also serves as a member of the advisory board of New Mountain Capital LLC, a private equity firm.May 2019.
Benito Cachinero-Sánchez joined DuPont in April 2011 as Senior Vice President - Human Resources. Prior to joining DuPont, he was Corporate Vice President of Human Resources at Automatic Data Processing (ADP). Prior to ADP, he was Vice President, Human Resources for the Medical Devices & Diagnostics Group of Johnson & Johnson.
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE,continued
James C. Collins, Jr, age 57, is the chief executive officer of Corteva. He previously served as the chief operating officer of the Agriculture Division of DowDuPont Inc. since September 2017. Prior to this appointment, Mr. Collins was executive vice president of DuPont with responsibility for the company’s agriculture segment, including DuPont Pioneer and Crop Protection, since January 2016. Prior to this, beginning in September 2013, he was senior vice president with responsibility for DuPont’s performance materials segment, was named to the position of executive vice president in December 2014, and added responsibility for the electronics & communications segment in July 2015. Previously, Mr. Collins was vice president for acquisition & integration of Danisco, since January 2011, and was named president of DuPont’s industrial biosciences segment in May of that year. From 2004 to 2010, he was responsible for DuPont’s crop protection segment as vice president and general manager and then president. Mr. Collins joined DuPont as an engineer in 1984 as an engineer. He hasand held positions in engineering, supervision and plantbusiness management at a variety of manufacturing sites. In 1993, he joined the Agriculture Salesagriculture sales & Marketing Groupmarketing group where he served in a variety of roles across the globe supporting DuPont’s seed and crop protection businesses. From 2004 to 2010, he was responsible for DuPont Crop Protection as Vice President and General Manager and then President. In January 2011, he was appointed Vice President for Acquisition & Integration of Danisco, and was named President of DuPont Industrial Biosciences in May of that year. Beginning in September 2013, he assumed additional business and functional responsibilities as Senior Vice President. In December 2014, he was named Executive Vice President and had responsibility for the Electronics & Communications, Industrial Biosciences, Performance Materials segments as well as regional management for Europe, Middle East, Africa and Canada and Corporate Communications. In January 2016, Mr. Collins assumed responsibility forcurrently serves on the Agriculture businesses.
C. Marc Doyle joined DuPont in 1995 as a research scientist within DuPont Central Research & Development.board of directors of CropLife International and the U.S. China Business Council. He has held positions in business development, marketing and business management, including strategic planning manager, global displays business manager and regional business directoralso serves on the Advisory Councils of the Asia Pacific region forUniversity of Tennessee Loan Oaks Farm and the Microcircuit Materials business. In February 2008, he became theFood Forever Initiative Global Business Director for DuPont Photovoltaic Solutions within the DuPont Electronics & Communications business. He was named Global Market and Product Director for DuPont Protection Technologies in September 2011. In this role, Mr. Doyle had been responsible for the Kevlar® and Nomex® product lines globally. In June 2013 he was named President of DuPont Protection Technologies. In July 2015, he was named Senior Vice President and assumed responsibility for the Safety & Protection businesses. In January 2016, he was named Executive Vice President and assumed responsibility for the Electronics & Communications, Protection Solutions, Sustainable Solutions, Industrial Biosciences, Nutrition & Health, and Performance Materials businesses.Crop Diversity Trust.
Nicholas C. Fanandakis joined DuPont in 1979 as an accounting and business analyst. Since then, Mr. Fanandakis served in a variety of plant, marketing, and product management and business director roles. Mr. Fanandakis served as Vice President and General Manager—DuPont Chemical Solutions Enterprise from 2003 until February 2007 when he was named Vice President—Corporate Plans. In January 2008, Mr. Fanandakis was named Group Vice President—DuPont Applied BioSciences. In November 2009, he was named Senior Vice President and Chief Financial Officer. In August 2010, he was namedGregory R. Friedman, age 52,is Executive Vice President and Chief Financial Officer.
Stacy L. Fox joinedOfficer of Corteva. Mr. Friedman previously served as chief financial officer of the Agriculture Division of DowDuPont Inc. since September 2018. Prior to this appointment, he served as vice president of investor relations for DuPont since September 2014, general auditor and chief ethics & compliance leader from 2013 to 2014 and was chief financial officer of DuPont Pioneer from 2011 to 2013. Prior to this, he served as assistant treasurer of DuPont from 2010 to 2011 with responsibility for financial risk management, cash operations and leasing. From 2002 to 2010, he served in various business and finance leadership roles after joining DuPont in October 20142001 as Senior Vice President and General Counsel. In January 2016, she assumed responsibility for Corporate Communications. Prior to joining DuPont she served as Deputy Emergency Managerchief financial officer of the City of Detroit. Prior to that role, she was Senior Vice President of Strategy and General Counsel of Sunoco,Polar Vision, Inc. She also served as, a member of the Board of Directors of Sunoco Partners LLC. Earlier, she served asnewly acquired electronics joint venture in Torrance, California.
Rajan Gajaria, age 52,is Executive Vice President, Business Platforms of Corporate TransactionsCorteva. Mr. Gajaria previously served as vice president, global crop protection business platform, of DowDuPont Inc. Prior to this, he served as Vice President, Latin America and Legal AffairsNorth America, for Visteon. Ms. Fox Dow AgroSciences since 2015. He was selected to lead Dow AgroSciences’ Latin America and Asia Pacific geographies in 2012 after being named marketing director for the company’s U.S. business in 2009. Mr. Gajaria advanced through leadership roles at Dow AgroSciences in corporate strategy, marketing, and e-business before serving as global supply chain director. He joined Dow AgroSciences’ Indian joint venture partner in Mumbai in 1993, where he served in sales and marketing roles as well as in human resources before moving to the company’s global headquarters in Indianapolis, Indiana.
Timothy P. Glenn, age 53,is also a founderExecutive Vice President, Chief Commercial Officer of Corteva. Mr. Glenn previously served as Vice President, Global Seed Business Platform of DowDuPont Inc. Prior to this, he served as President, DuPont Crop Protection since 2015, and principalfrom 2014 to 2015 served as vice president, integrated operations and commercial effectiveness for DuPont Pioneer. He previously held other leadership positions at DuPont Pioneer, including regional business director, Latin America and Canada, after rejoining DuPont Pioneer in 2006 as director, North America marketing. In 1997, he joined Dow AgroSciences as corn product manager, Mycogen Seeds, and served in key sales and business leadership roles in the crop protection and seeds businesses of the Roxbury Group.
Douglas Muzyka Dow AgroSciences. He first joined the companyDuPont Pioneer in 1985 as a research scientist1991, and held a variety of research and research management roles. In 1994, he was named Director of Technology and New Business Development for DuPont Nylon, Asia Pacific. In 1998, he was named Global Business Director formarketing roles working in seed markets around the Nylon Industrial Specialties business. In 2001, Mr. Muzyka was then named President and General Manager of DuPont Mexico. In January 2003, he was named President and Chief Executive Officer of DuPont Canada Inc. and in September 2003, concurrently Vice President and General Manager - DuPont Nutrition & Health. In July 2006, he assumed the role of President - DuPont Greater China. In September 2010, he was namedworld.
Meghan Cassidy, age 44,is Senior Vice President, Chief Human Resources Officer of Corteva. Ms. Cassidy previously served as the head of human resources of the Agriculture Division of DowDuPont Inc. since September 2017. Prior to this, Ms. Cassidy was director, global talent management and Chief Scienceleadership development for DuPont since 2015. From 2011 to 2015, she served as chief human resources officer for Sunoco Logistics after joining Sunoco in 2010 as director, corporate human resources. Ms. Cassidy’s early career was spent at ARAMARK, where she held progressive human resources roles before serving as vice president, executive development and Technology Officer. In January 2016,corporate human resources.
Cornel B. Fuerer, age 53,is Senior Vice President, General Counsel and Secretary of Corteva. Mr. Fuerer previously served as senior vice president, general counsel and secretary of the Agriculture Division of DowDuPont Inc. since June 2018 and prior to that served as associate general counsel supporting the Agriculture Division of DowDuPont after the Merger in September 2017. From 2013 to 2017, he assumedserved as associate general counsel of DuPont with responsibility for engineering technologiesthe legal affairs of DuPont’s agriculture business and regional leadership.from 2012 to 2013 he served as the corporate secretary of DuPont. From 2007 to 2012, Mr. Fuerer served as the vice president, general counsel and company secretary of Solae, a food ingredients joint venture between DuPont and Bunge. After joining DuPont in 1995 as an attorney in Geneva, Switzerland, he served in various legal roles around the world until his appointment at Solae in 2007.
Neal Gutterson, age 64,is Senior Vice President, Chief Technology Officer of Corteva. Dr. Gutterson previously served as the head of research and development of the Agriculture Division of DowDuPont Inc. since September 2017. Dr. Gutterson was named vice president, research and development of DuPont Pioneer in 2016 after joining DuPont Pioneer as vice president, Ag Biotec, in 2014. Previously, he served as president, chief executive officer and board member at Mendel Biotechnology from 2007 to 2014. In October 2019, Dr. Gutterson announced his intent to retire in the second half of 2020.
Brian Titus, age 47, is Vice President, Controller and Principal Accounting Officer of Corteva. Mr. Titus previously served as the controller and principal accounting officer of the Agriculture Division of DowDuPont Inc. since February 2019. Prior to this, he was general auditor of DuPont since August 2015 and previously served as the director of corporate accounting from 2014 to 2015 and global finance leader of DuPont Crop Protection from 2013 to 2014. Prior to joining DuPont’s corporate accounting group in 2010, he spent 14 years in public accounting, primarily with PricewaterhouseCoopers LLP, providing audit and transactional support services.
ITEM 11. EXECUTIVE COMPENSATION
Information related to executive compensation and the company's equity compensation plans is contained in the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders of Corteva, Inc. and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to beneficial ownership of Corteva, Inc. common stock by each Director and all Directors and executive officers of the Company as a group is contained in the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders of Corteva, Inc. and is incorporated herein by reference.
Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of Corteva, Inc. common stock is contained in the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders of Corteva, Inc. and is incorporated herein by reference.
Information with respect to compensation plans under which equity securities are authorized for issuance is contained in the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders of Corteva, Inc. and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to this Item is incorporated herein by reference to the Proxy, including information within the sections entitled, "Compensation Discussion"Certain Relationships and Analysis," "Compensation of Executive Officers," "Directors' Compensation," "Compensation Committee InterlocksRelated Transactions", and Insider Participation" and "Compensation Committee Report."Director Independence."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS14. PRINCIPAL ACCOUNTANT FEES AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SERVICES
Information with respect to this Item is incorporated herein by reference to the Proxy, including information within the section entitled, "Ownership of Company Stock."
Securities authorized for issuance under equity compensation plans as of December 31, 2016
(Shares in thousands, except per share)
|
| | | | | | | | | |
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights2 | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans3 | |
Equity compensation plans approved by security holders | 20,447 |
| 1 | $ | 58.11 |
| 36,854 |
| |
Equity compensation plans not approved by security holders | 13 |
| 4 | — |
| — |
| 5 |
| Total | 20,460 |
| | $ | 58.11 |
| 36,854 |
| |
| |
1.
| Includes stock-settled time-vested and performance-based restricted stock units granted and stock units deferred under the company's Equity and Incentive Plan, Stock Performance Plan, Variable Compensation Plan and the Stock Accumulation and Deferred Compensation Plan for Directors. Performance-based restricted stock units reflect the maximum number of shares to be awarded at the conclusion of the performance cycle (200 percent of the original grant). The actual award payouts can range from 0 to 200 percent of the original grant. |
| |
2.
| Represents the weighted-average exercise price of the outstanding stock options only; the outstanding stock-settled time-vested and performance-based restricted stock units and deferred stock units are not included in this calculation. |
| |
3.
| Reflects shares available pursuant to the issuance of stock options, restricted stock, restricted stock units or other stock-based awards under the Equity and Incentive Plan, as amended and restated effective March 14, 2016 (see Note 18 to the Consolidated Financial Statements). The maximum number of shares of stock reserved for the grant or settlement of awards under the Equity and Incentive Plan (Share Limit) shall be 110,000 and shall be subject to adjustment as provided therein; provided that each share in excess of 30,000 issued under the Equity and Incentive Plan pursuant to any award settled in stock, other than a stock option or stock appreciation right, shall be counted against the foregoing Share Limit as four and one-half shares for every one share actually issued in connection with such award. (For example, if 32,000 shares of restricted stock are granted under the Equity and Incentive Plan, 39,000 shall be charged against the Share Limit in connection with that award.) |
| |
4.
| Includes 13 deferred stock units resulting from base salary and short-term incentive (STIP) deferrals under the Management Deferred Compensation Plan (MDCP). Under the MDCP, a select group of management or highly compensated employees can elect to defer the receipt of their base salary, STIP or Long Term Incentive (LTI) award. LTI deferrals are included in footnote 1 to the above chart. The company does not match deferrals under the MDCP. There are seven core investment options under the MDCP for base salary and STIP deferrals, including deferred stock units with dividend equivalents credited as additional stock units. In general, deferred stock units are distributed in the form of DuPont common stock and may be made in the form of lump sum at a specified future date prior to retirement or a lump sum or annual installments after separation from service. Shareholder approval of the MDCP was not required under the rules of the New York Stock Exchange. |
| |
5.
| There is no limit on the number of shares that can be issued under the MDCP and no further shares are available for issuance under the other equity compensation arrangements described in footnote 4 to the above chart. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to this Item is incorporated herein by reference to the Proxy, including information within the sections entitled, "Governance of the Company-Review and Approval of Transactions with Related Persons" and "Governance of the Company-Corporate Governance Guidelines," "Governance of the Company-Committees of the Board," "Governance of the Company-Committee Membership" and "Election of Directors."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to this Item is incorporated herein by reference to the Proxy, including information within the section entitled "Ratification“Ratification of Independent Registered Public Accounting Firm."”
ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
| |
| (a) | Financial Statements, Financial Statement Schedules and Exhibits: |
| |
| 1. | Corteva Financial Statements (See the Index to the Consolidated Financial Statements on page F-1 of this report). |
| |
| 2. | Corteva Financial Statement SchedulesSchedule (presented below) |
| |
| 3. | EID Financial Statements (Starting on page F-100 of this report). |
| |
| 4. | EID Financial Statement Schedule (presented below) |
Schedule II—Valuation and Qualifying Accounts (EID and Corteva, Inc.)
(Dollars in millions)
| | | Year Ended December 31, | 2016 | 2015 | 2014 | |
| | | Successor | Predecessor |
| | | 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 |
| Accounts Receivable—Allowance for Doubtful Receivables | |
| |
| |
| |
| | | |
| Balance at beginning of period | $ | 225 |
| $ | 235 |
| $ | 262 |
| $ | 127 |
| $ | 64 |
| $ | 60 |
| $ | 250 |
|
| Additions charged to expenses | 119 |
| 58 |
| 58 |
| 69 |
| 80 |
| 11 |
| 57 |
|
Deductions from reserves1 | (57 | ) | (68 | ) | (85 | ) | (22 | ) | (17 | ) | (7 | ) | (34 | ) |
| Balance at end of period | $ | 287 |
| $ | 225 |
| $ | 235 |
| $ | 174 |
| $ | 127 |
| $ | 64 |
| $ | 273 |
|
| Inventory—Obsolescence Reserve | | | | | | | |
| Balance at beginning of period | $ | 237 |
| $ | 180 |
| $ | 212 |
| $ | 272 |
| $ | 137 |
| $ | 89 |
| $ | 164 |
|
| Additions charged to expenses | 298 |
| 391 |
| 386 |
| 370 |
| 449 |
| 88 |
| 217 |
|
Deductions from reserves2 | (320 | ) | (334 | ) | (418 | ) | (386 | ) | (314 | ) | (40 | ) | (161 | ) |
| Balance at end of period | $ | 215 |
| $ | 237 |
| $ | 180 |
| $ | 256 |
| $ | 272 |
| $ | 137 |
| $ | 220 |
|
| Deferred Tax Assets—Valuation Allowance | |
| |
| |
| |
| | |
| |
| Balance at beginning of period | $ | 1,529 |
| $ | 1,704 |
| $ | 1,711 |
| $ | 669 |
| $ | 559 |
| $ | 502 |
| $ | 504 |
|
| Net benefits to income tax expense | (184 | ) | (71 | ) | (47 | ) | |
| (Deductions) additions to other comprehensive (loss) income | (37 | ) | (104 | ) | 40 |
| |
| Additions charged to expenses | | 20 |
| 451 |
| 104 |
| 69 |
|
Deductions from reserves3 | | (232 | ) | (341 | ) | (47 | ) | (190 | ) |
| Balance at end of period | $ | 1,308 |
| $ | 1,529 |
| $ | 1,704 |
| $ | 457 |
| $ | 669 |
| $ | 559 |
| $ | 383 |
|
1. | |
1. | Deductions include write-offs, recoveries and currency translation adjustments. |
| |
2. | Deductions include disposals and currency translation adjustments. |
3 Deductions include currency translation adjustments.
2. Deductions include disposals and currency translation adjustments.
Financial Statement Schedules listed under SECthe Securities and Exchange Commission ("SEC") rules but not included in this report are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto incorporated by reference.
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES,continued
The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings:
|
| | |
Exhibit Number | | Description |
| | | |
3.1 | | Company's Restated Certificate of IncorporationSeparation and Distribution Agreement by and among DuPont Inc., Dow Inc. and Corteva, Inc. (incorporated by reference to Exhibit 99.2No. 2.1 to the company’s AnnualAmendment 3 to Corteva’s Registration Statement on Form 10 (Commission file number 001-38710), filed on April 16, 2019). |
| | |
| | Amended and Restated Certificate of Incorporation of Corteva, Inc. (incorporated by reference to Exhibit No. 3.1 to Corteva’s Current Report on Form 8-K (Commission file number 001-38710), filed on June 3, 2019. |
| | |
| | Amended and Restated Bylaws of Corteva, Inc. (incorporated by reference to Exhibit No. 3.1 to Corteva’s Current Report on Form 8-K (Commission file number 001-38710), filed on October 10, 2019. |
| | |
| | Amended and Restated Certificate of Incorporation of E.I. du Pont de Nemours and Company (incorporated by reference to Exhibit 3.1 to E.I. du Pont de Nemours and Company’s Current Report on Form 8-K (Commission file number 1-815) dated September 1, 2017). |
| | |
| | Amended and Restated Bylaws of E.I. du Pont de Nemours and Company (incorporated by reference to Exhibit 3.2 to E.I. du Pont de Nemours and Company's Current Report on Form 8-K (Commission file number 1-815) dated September 1, 2017). |
| | |
| | Description of Corteva, Inc. registered securities. |
| | |
| | Description of E.I. du Pont de Nemours and Company registered securities. |
| | |
| | Amended and Restated Tax Matters Agreement, effective as of June 1, 2019 by and among DowDuPont Inc., Corteva, Inc. and Dow Inc. (incorporated by reference to Exhibit 10.3 of Corteva’s Current Report on Form 8-K (Commission file number 001-38710) filed on June 6, 2019). |
| | |
| | Employee Matters Agreement by and among DowDuPont Inc., Corteva, Inc. and Dow Inc. (incorporated by reference to Exhibit No. 10.2 to Amendment 3 to Corteva’s Registration Statement on Form 10 (Commission file number 001-38710), filed on April 16, 2019). |
| | |
| | SpecCo/AgCo Intellectual Property Cross-License Agreement, effective as of June 1, 2019, by and among DowDuPont Inc., Corteva, Inc. and the other parties identified therein (incorporated by reference to Exhibit 10.1 to Corteva’s Current Report on Form 8-K (Commission file number 001-38710), filed on June 3, 2019). |
| | |
| | Intellectual Property Cross-License Agreement by and between Corteva, Inc. and Dow Inc. (incorporated by reference to Exhibit No. 10.4 to Amendment 3 to Corteva’s Registration Statement on Form 10 (Commission file number 001-38710), filed on April 16, 2019). |
| | |
| | Corteva, Inc. 2019 Omnibus Incentive Plan. (incorporated by reference to Exhibit No. 10.5 to Corteva’s Registration Statement on Form 10 (Commission file number 001-38710), filed on May 6, 2019). |
| | |
| | Fondation de Prevoyance en Faveur du Personnel de DuPont de Nemours International SÁRL. (incorporated by reference to Exhibit No. 10.6 to Corteva’s Registration Statement on Form 10 (Commission file number 001-38710), filed on May 6, 2019). |
| | |
| | Separation Agreement by and between E. I. du Pont de Nemours and Company and The Chemours Company (incorporated by reference to Exhibit 2.1 to E. I. du Pont de Nemours and Company's Current Report on Form 8-K (Commission file number 1-815) dated July 8, 2015). |
| | | |
3.2 | | Company’s Bylaws, as last amended effective October 22, 2015Amendment No. 1 to Separation Agreement by and between E. I. du Pont de Nemours and Company and The Chemours Company, dated August 24, 2017 (incorporated by reference to Exhibit 3.22.1 to the company’sE. I. du Pont de Nemours and Company's Current Report on Form 8-K (Commission file number 1-815) dated August 25, 2017). |
| | |
| | Tax Matters Agreement by and between E. I. du Pont de Nemours and Company and The Chemours Company (incorporated by reference to Exhibit 2.2 to E. I. du Pont de Nemours and Company's Current Report on Form 8-K (Commission file number 1-815) dated July 8, 2015). |
| | |
| | Transaction Agreement, dated as of March 31, 2017, by and between E. I. du Pont de Nemours and Company and FMC Corporation (incorporated by reference to Exhibit 10.25 to E. I. du Pont de Nemours and Company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended September 30, 2015)March 31, 2017). |
| | | |
4 | | The company agreesE. I. du Pont de Nemours and Company Management Deferred Compensation Plan, incorporated by reference to provide the Commission,Exhibit 4.3 to DowDuPont Inc. Registration Statement on request, copies of instruments defining the rights of holders of long-term debt of the company and its subsidiaries.Form S-8 (Commission file number 333-220324) filed September 1, 2017. |
| | | |
10.1* | | The DuPontE. I. du Pont de Nemours and Company Stock Accumulation and Deferred Compensation Plan for Directors, as last amended effective January 1, 2009 (incorporated by reference to Exhibit 10.14.4 to the company's Annual ReportDowDuPont Inc. Registration Statement on Form 10-KS-8 (Commission file number 1-815) for the year ended December 31, 2013).333-220324) filed September 1, 2017.) |
| | | |
10.2* | | Company’s Supplemental Retirement Income Plan, as last amended effective December 18, 1996 (incorporated by reference to Exhibit 10.2 to the company's Annual Report on Form 10-K (Commission file number 1-815) for the year ended December 31, 2011). |
| | |
10.3* | | Company’sE. I. du Pont de Nemours and Company's Pension Restoration Plan, as last amended effective June 29, 2015 (incorporated by reference to Exhibit 10.3 to the company'sE. I. du Pont de Nemours and Company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2015). |
| | | |
10.4* | | E. I. du Pont de Nemours and Company’s Rules for Lump Sum Payments, as last amended effective May 15, 2014 (incorporated by reference to Exhibit 10.4 to the company’sE. I. du Pont de Nemours and Company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2015). |
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES,continued
| | |
10.5* | | Company’s Stock Performance Plan, as last amended effective January 25, 2007 (incorporated by reference to Exhibit 10.5 to the company's Annual Report on Form 10-K (Commission file number 1-815) for the year ended December 31, 2011). |
| | | |
10.6* | | Company’s EquityE. I. du Pont de Nemours and Incentive Plan, as amended and restated effective March 14, 2016 (incorporated by reference to Exhibit 10.06 to the company's Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2016). |
| | |
10.7* | | Form of 2013 Award Terms under the company’s Equity and Incentive Plan (incorporated by reference to Exhibit 10.7 to the company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2013). |
| | |
10.8* | | Company’s Retirement Savings Restoration Plan, as last amended effective May 15, 20142014. (incorporated by reference to Exhibit 10.08 to the company'sE. I. du Pont de Nemours and Company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2014). |
| | | |
10.9* | | E. I. du Pont de Nemours and Company’s Retirement Income Plan for Directors, as last amended January 2011 (incorporated by reference to Exhibit 10.9 to the company'sE. I. du Pont de Nemours and Company’s Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended March 31, 2012). |
| | | |
10.10* | | E. I. du Pont de Nemours and Company's Senior Executive Severance Plan, as amended and restated effective December 10, 2015 (incorporated by reference to Exhibit 10.10 to the company'sE. I. du Pont de Nemours and Company’s Annual Report on Form 10-K (Commission file number 1-815) for the year ended December 31, 2015). The company agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. |
| | | |
10.11* | | Supplemental Deferral Terms for Deferred Long Term Incentive Awards and Deferred Variable Compensation AwardsCorteva, Inc. Severance Plan (incorporated by reference to Exhibit 10.1210.1 to the company's AnnualCorteva’s Current Report on Form 10-K8-K (Commission file number 1-815) for the year ended December 31, 2013)001-38710), filed on June 26, 2019). |
| | | |
10.12* | | FormLetter Agreement effective as of 2014 Award Terms under the Company's EquityJune 1, 2019 by and Incentive Planbetween DowDuPont Inc. and Corteva, Inc. (incorporated by reference to Exhibit 10.13 tofrom the company's Quarterly Report on Form 10-Q8-K (Commission file number 1-815) for the period ended March 31, 2014).001-38710) filed June 3, 2019) |
| | | |
10.13* | | Company’s Management Deferred Compensation Plan, as last amended effective April 15, 2014 (incorporated by reference to Exhibit 10.13 to the company's Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended June 30, 2014). |
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES,continued
|
| | |
| | |
10.14* | | Separation Agreement dated October 5, 2015, by and between E.I. du Pont Nemours and Company and Ellen J. Kullman (incorporated by reference to Exhibit 10.1 to the company's Current Report on Form 8-K (Commission file number 1-815) dated October 5, 2015). |
| | |
10.15* | | Form of 2015 Award Terms under the Company's Equity and Incentive Plan (incorporated by reference to Exhibit 10.15 to the company's Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended March 31, 2015). |
| | |
10.16* | | Form of 2016 Award Terms under the Company’s Equity and Incentive Plan, (incorporated by reference to Exhibit 10.22 to the company's Quarterly Report on Form 10-Q (Commission file number 1-815) for the period ended March 31, 2016). |
| | |
10.17* | | Letter Agreement dated January 4, 2016, by and between the Company and Mr. James C. Borel (incorporated by reference to Exhibit 10.1 to the company's Current Report on Form 8-K (Commission file number 1-815) dated January 22, 2016). |
| | |
10.18** | | Separation Agreement by and between the Company and The Chemours Company (incorporated by reference to Exhibit 2.1 to the company's Current Report on Form 8-K (Commission file number 1-815) dated July 8, 2015). |
| | |
10.19 | | Tax Matters Agreement by and between the Company and The Chemours Company (incorporated by reference to Exhibit 2.2 to the company's Current Report on Form 8-K (Commission file number 1-815) dated July 8, 2015). |
| | |
10.20** | | Agreement and Plan of Merger by and between the Company and The Dow Chemical Company, dated as of December 11, 2015 (incorporated by reference to Exhibit 2.1 to the company's Current Report on Form 8-K (Commission file number 1-815) dated December 11, 2015). |
| | |
10.21** | | Master Repurchase Agreement by and among Cooperatieve Rabobank, U.A. (New York Branch), The Bank of Tokyo Mitsubishi UFJ Ltd. (New York Branch) and PHI Financial Services, Inc. dated as of January 31, 2017. |
| | |
10.22** | | Master Framework Agreement by and among Cooperatieve Rabobank, U.A. (New York Branch), The Bank of Tokyo Mitsubishi UFJ Ltd. (New York Branch) and PHI Financial Services, Inc. dated as of January 31, 2017. |
| | |
12 | | Computation of Ratio of Earnings to Fixed Charges. |
| | |
21 | | Subsidiaries of the Registrant. |
| | | |
23 | | Consent of Independent Registered Public Accounting Firm.Firm, PricewaterhouseCoopers LLP. |
| | | |
| | Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP. |
| | |
| | Rule 13a-14(a)/15d-14(a) Certification of the company’s and EID’s Principal Executive Officer. |
| | | |
| | Rule 13a-14(a)/15d-14(a) Certification of the company’s and EID’s Principal Financial Officer. |
| | | |
| | Section 1350 Certification of the company’s and EID’s Principal Executive Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended. |
| | | |
| | Section 1350 Certification of the company’s and EID’s Principal Financial Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended. |
| | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File – The Cover Page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101.INS) |
|
| |
| * | Management contract or compensatory plan or arrangement. |
** | DuPontUpon request of the U.S. Securities and Exchange Commission, (the “SEC”), Corteva hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreementagreement; provided, however, that Corteva may omit confidential information pursuant to Item 601(b)(10) or request confidential treatment pursuant to Rule 24b-2 of the U.S. Securities and Exchange Commission upon request.Act for any schedule or exhibit so furnished. |
Corteva
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
February 2, 201714, 2020 | | |
| Corteva, Inc. |
| By: | /s/ Brian Titus |
| | Brian Titus
Vice President, Controller
(Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:
|
| | | | |
| Signature | | Title(s) | | Date |
| | | | |
| /s/ James C. Collins, Jr. | | Chief Executive Officer and Director (Principal Executive Officer)
| | February 14, 2020 |
| James C. Collins, Jr. | | |
|
| | | |
|
| /s/ Gregory R. Page | | Non-Executive Chairman of the Board of Directors and Director | | February 14, 2020 |
| Gregory R. Page | | |
|
| | | |
|
| /s/ Lamberto Andreotti | | Director | | February 14, 2020 |
| Lamberto Andreotti | | | |
|
| | | |
|
| /s/ Edward D. Breen | | Director | | February 14, 2020 |
| Edward D. Breen | | | |
|
| | | |
|
| /s/ Robert A. Brown | | Director | | February 14, 2020 |
| Robert A. Brown | | | |
|
| | | |
|
| /s/ Klaus Engel | | Director | | February 14, 2020 |
| Klaus Engel | | | |
|
| | | |
|
| /s/ Michael O. Johanns | | Director | | February 14, 2020 |
| Michael O. Johanns | | | |
|
| | | |
|
| /s/ Lois D. Juliber | | Director | | February 14, 2020 |
| Lois D. Juliber | | | |
|
| | | |
|
| /s/ Rebecca B. Liebert | | Director | | February 14, 2020 |
| Rebecca B. Liebert | | | |
|
| | | |
|
| /s/ Marcos M. Lutz | | Director | | February 14, 2020 |
| Marcos M. Lutz | | | |
|
| | | |
|
| /s/ Lee M. Thomas | | Director | | February 14, 2020 |
| Lee M. Thomas | | | |
|
| | | |
|
| /s/ Patrick J. Ward | | Director | | February 14, 2020 |
| Patrick J. Ward | | | | |
| | | | |
| /s/ Gregory R. Friedman | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer) | | February 14, 2020 |
| Gregory R. Friedman | | | |
E. I. du Pont de Nemours and Company
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| February 14, 2020 | | |
| | E. I. DU PONT DE NEMOURS AND COMPANY |
| | By: | /s/ Nicholas C. FanandakisBrian Titus |
| | | Nicholas C. FanandakisBrian Titus
Executive Vice President, and Chief Financial OfficerController
(Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:
|
| | | | |
| Signature | | Title(s) | | Date |
| | | | | |
/s/ E.D. BreenJames C. Collins, Jr. | | Chair of the Board of Directors and
Chief Executive Officer and Director
(Principal Executive Officer)
| | February 2, 201714, 2020 |
E. D. BreenJames C. Collins, Jr. | | | |
| | | | | |
/s/ L. AndreottiGregory R. Friedman | | Executive Vice President, Chief Financial Officer and Director
(Principal Financial Officer) | | February 2, 201714, 2020 |
L. Andreotti | Gregory R. Friedman | | | |
| | | | | |
/s/ R.A. Brown | | Director | | February 2, 2017 |
R. A. Brown | | | | |
| | | | |
/s/ A.M. Cutler | | Director | | February 2, 2017 |
A. M. Cutler | | | | |
| | | | |
/s/ E.I. du Pont, II | | Director | | February 2, 2017 |
E. I. du Pont, II | | | | |
| | | | |
/s/ J. L. Gallogly | | Director | | February 2, 2017 |
J. L. Gallogly | | | | |
| | | | |
/s/ M.A. Hewson | | Director | | February 2, 2017 |
M. A. Hewson | | | | |
| | | | |
/s/ L.D. Juliber | | Director | | February 2, 2017 |
L. D. Juliber | | | | |
| | | | |
/s/ U. M. Schneider | | Director | | February 2, 2017 |
U. M. Schneider | | | | |
| | | | |
/s/ L. M. Thomas | | Director | | February 2, 2017 |
L. M. Thomas | | | | |
| | | | |
/s/ P. J. Ward | | Director | | February 2, 2017 |
P. J. Ward | | | | |
E.I. du Pont de Nemours and Company
Corteva, Inc.
Index to the Consolidated Financial Statements
|
| |
| | Page(s) |
| Consolidated Financial Statements: | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Management's Reports on Responsibility for Financial Statements and
Internal Control over Financial Reporting
Management's Report on Responsibility for Financial Statements
Management is responsible for the Consolidated Financial Statements and the other financial information contained in this Annual Report on Form 10-K. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP)("GAAP") and are considered by management to present fairly the company's financial position, results of operations and cash flows. The financial statements include some amounts that are based on management's best estimates and judgments. The financial statements have been audited by the company's independent registered public accounting firm, PricewaterhouseCoopers LLP. The purpose of their audit is to express an opinion as to whether the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the company's financial position, results of operations and cash flows in conformity with GAAP. Their report isreports are presented on the following page.pages.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The company's internal control over financial reporting includes those policies and procedures that:
| |
| i. | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| |
| ii. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and |
| |
| iii. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company's assets that could have a material effect on the financial statements. |
Internal control over financial reporting has certain inherent limitations which may not prevent or detect misstatements. In addition, changes in conditions and business practices may cause variation in the effectiveness of internal controls.
Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2016,2019, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)("COSO") in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management concluded that the company maintained effective internal control over financial reporting as of December 31, 2016.2019.
The company completed the common control combination of the Dow Agrosciences (“DAS") business from DowDuPont on May 2, 2019. As a result, management has excluded the DAS business from its assessment of internal control over financial reporting as of December 31, 2019. The total assets of the DAS business that were excluded from the assessment represented approximately 20 percent of the company's total assets as of December 31, 2019. Total net sales from continuing operations of the DAS business that was excluded from the assessment represented approximately 40 percent of the company’s total net sales from continuing operations for the year ended December 31, 2019.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the company's internal control over financial reporting as of December 31, 2019, as stated in their report, which is presented on the following page.pages.
|
| | |
 Chief Executive Officer and Director | | |
Edward D. Breen
Chair of the Board and
Chief Executive Officer
| | Nicholas C. FanandakisGregory R. Friedman
Executive Vice President and and Chief Financial Officer
|
February 2, 201714, 2020
Report of Independent Registered Public Accounting Firm
To theStockholders and the Board of Directors of Corteva, Inc.
E. I. du Pont de Nemours
Opinions on the Financial Statements and Company:Internal Control over Financial Reporting
In our opinion,We have audited the accompanying consolidated balance sheets of Corteva, Inc. and its subsidiaries (Successor) (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income,operations, comprehensive (loss) income, equity and cash flows for each of the two years in the period ended December 31, 2019, and for the period from September 1, 2017 through December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the two years in the period ended December 31, 2019, and for the period from September 1, 2017 through December 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, based on our audits and the report of other auditors with respect to the consolidated financial statements as of and for the year ended December 31, 2018 and for the period from September 1, 2017 through December 31, 2017, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of E. I. du Pont de Nemours andthe Company and its subsidiaries atas of December 31, 20162019 and 2015,2018, and the results of theirits operations and theirits cash flows for each of the threetwo years in the period ended December 31, 20162019, and for the period from September 1, 2017 through December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring OrganizationsCOSO.
We did not audit the combined financial statements of the Treadway Commission (COSO)Dow Agricultural Sciences Business, a business under common control of the Company, which statements reflect total assets of $7,773 million as of December 31, 2018, and total net sales of $5,646 million and $2,214 million for the year ended December 31, 2018 and for the period from September 1, 2017 to December 31, 2017, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Dow Agricultural Sciences Business as of December 31, 2018, for the year ended December 31, 2018 and for the period from September 1, 2017 through December 31, 2017, is based solely on the report of other auditors.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in "Management'sthe accompanying Management’s Report on Internal Control over Financial Reporting" appearing on page F-2.Reporting. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule and on the Company's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded the Dow Agrosciences business from its assessment of internal control over financial reporting as of December 31, 2019 because it was an entity transferred to the Company through a merger of entities under common control during 2019. We have also excluded the Dow Agrosciences business from our audit of internal control over financial reporting. The Dow Agrosciences business is a business under common control whose total assets and total net sales excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 20 percent and 40 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As described in Notes 2 and 15 to the consolidated financial statements, the Company’s consolidated goodwill and intangible asset balances were $10.2 billion and $11.4 billion, respectively, as of December 31, 2019. As disclosed by management, the goodwill associated with the seed reporting unit was $5.4 billion, the indefinite-lived trademark / tradenames intangible assets were $1.9 billion, and the germplasm intangible asset was $6.2 billion as of December 31, 2019. Management tests goodwill for impairment annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. In connection with the change in reportable segments and reporting units in the second quarter of 2019, goodwill was reassigned from the former Agriculture reporting unit to the seed, crop protection and digital reporting units using a relative fair value allocation approach. As a result, management performed a goodwill impairment assessment for the former Agriculture reporting unit immediately prior to the realignment and the newly created reporting units immediately after the realignment.Beginning on October 1, 2019, the Company changed its indefinite life assertion of the germplasm assets to definite lived with a useful life of 25 years. Prior to changing the useful life of the germplasm assets, management tested the assets for impairment, concluding the assets were not impaired. Management performs the goodwill impairment assessment using a discounted cash flow model. Management’s assumptions in this analysis include future cash flow projections, weighted average cost of capital, terminal growth rate, and the tax rate. Management performs the intangible asset impairment assessments using the relief from royalty method. The significant assumptions used by management in the relief from royalty method include projected revenue, royalty rates, and discount rates.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the seed reporting unit and intangible asset (germplasm and trademark / trade names) impairment assessments is a critical audit matter are there was significant judgment by management when developing the fair value measurements of the reporting unit and intangible assets (germplasm and trademark / trade names). This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to management’s cash flow projections, including projected revenue and gross margin, and significant assumptions, including weighted average cost of capital, and terminal growth rate in relation to the goodwill impairment assessment, and the projected revenue, royalty rates, and discount rates in relation to the intangible asset (germplasm and trademark / trade names) impairment assessments. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill and intangible asset (germplasm and trademark/trade names) impairment assessments, including controls over the determination of the fair value of the Company’s reporting units and intangible assets. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow model and relief from royalty method; testing the completeness, accuracy, and relevance of underlying data used in the estimates; and evaluating significant assumptions used by management, including the projected revenue, gross margin, weighted average cost of capital, and terminal growth rate in relation to the goodwill impairment assessment, and the projected revenue, royalty rates, and discount rates in relation to the intangible asset (germplasm and trademark/trade names) impairment assessments. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the underlying businesses, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and relief from royalty method and certain significant assumptions, including the weighted average cost of capital, discount rates, royalty rates, and terminal growth rate.
Goodwill Impairment Assessments - Certain Reporting Units Within Discontinued Operations
As described in Note 5 to the consolidated financial statements, in the second quarter of 2019, management assessed the recoverability of the goodwill within certain reporting units divested for purposes of the business separations, and the overall carrying value of the net assets in the disposal group that was distributed to DowDuPont during the second quarter. Management estimated the fair value of the Company’s reporting units using either a discounted cash flow model or a form of the market approach. Management’s assumptions in the discounted cash flow model included future cash flow projections, weighted average cost of capital, terminal growth rate, and the tax rate. For the reporting unit where management used a form of the market approach, metrics of publicly traded companies or historically completed transactions of comparable businesses were utilized. As a result of these analyses, management determined that the fair value of certain reporting units related to the specialty products businesses were below their carrying value, resulting in pre-tax, non-cash goodwill impairment charges totaling $1,102 million reflected in loss from discontinued operation after income taxes.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of certain divested reporting units is a critical audit matter are there was significant judgment by management when developing the fair value measurements of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to management’s cash flow projections, market approach, and significant assumptions, including projected revenue and gross margin, weighted average cost of capital, terminal growth rate and other market data. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment tests, including controls over the determination of the fair value of the Company’s reporting units. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow model and market approach; testing the completeness, accuracy, and relevance of underlying data used in the estimates; and evaluating significant assumptions used by management, including the projected revenue, gross margin, weighted average costs of capital, terminal growth rate, and other market data. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and certain significant assumptions, including weighted average cost of capital, and terminal growth rates.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 2,14, 2020
We have served as the Company’s or its predecessor’s auditor since 1946.
Report of Independent Registered Public Accounting Firm
To Management of the Dow Agricultural Sciences Business
Opinion on the Financial Statements
We have audited the combined balance sheets of the Dow Agricultural Sciences Business (the “Business”) as of December 31, 2018 and 2017, the related combined statements of income and comprehensive income, cash flows, and equity, for the year ended December 31, 2018 and the four month period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements") (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Business as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended December 31, 2018 and the four month period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Business’ management. Our responsibility is to express an opinion on the Business' financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Business in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Business is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Business’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Midland, Michigan
July 12, 2019
E. I.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Corteva, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive (loss) income, equity and cash flows of Corteva, Inc. and its subsidiaries (Predecessor, formerly known as E.I. du Pont de Nemours and Company) (the “Company”) for the period from January 1, 2017 through August 31, 2017, including the related notes and schedule of valuation and qualifying accounts for the period from January 1, 2017 through August 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2017 through August 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 15, 2018, except for the change in the manner in which the Company accounts for net periodic pension and postretirement benefit costs discussed in Note 9 to the consolidated financial statements, as to which the date is February 11, 2019, and except for the effects of discontinued operations discussed in Note 5 to the consolidated financial statements, as to which the date is February 14, 2020
We have served as the Company’s or its predecessor’s auditor since 1946.
Corteva, Inc.
Consolidated Financial Statements
CONSOLIDATED INCOME STATEMENTS
(Dollars in millions, except per share) OF OPERATIONS
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Net sales | $ | 24,594 |
| $ | 25,130 |
| $ | 28,406 |
|
| Cost of goods sold | 14,469 |
| 15,112 |
| 17,023 |
|
| Other operating charges | 686 |
| 459 |
| 645 |
|
| Selling, general and administrative expenses | 4,319 |
| 4,615 |
| 4,891 |
|
| Research and development expense | 1,641 |
| 1,898 |
| 1,958 |
|
| Other income, net | (708 | ) | (697 | ) | (1,277 | ) |
| Interest expense | 370 |
| 342 |
| 377 |
|
| Employee separation / asset related charges, net | 552 |
| 810 |
| 476 |
|
| Income from continuing operations before income taxes | 3,265 |
| 2,591 |
| 4,313 |
|
| Provision for income taxes on continuing operations | 744 |
| 696 |
| 1,168 |
|
| Income from continuing operations after income taxes | 2,521 |
| 1,895 |
| 3,145 |
|
| Income from discontinued operations after income taxes | 4 |
| 64 |
| 491 |
|
| Net income | 2,525 |
| 1,959 |
| 3,636 |
|
| Less: Net income attributable to noncontrolling interests | 12 |
| 6 |
| 11 |
|
| Net income attributable to DuPont | $ | 2,513 |
| $ | 1,953 |
| $ | 3,625 |
|
| Basic earnings per share of common stock: | | | |
| Basic earnings per share of common stock from continuing operations | $ | 2.86 |
| $ | 2.10 |
| $ | 3.42 |
|
| Basic earnings per share of common stock from discontinued operations | — |
| 0.07 |
| 0.54 |
|
| Basic earnings per share of common stock | $ | 2.87 |
| $ | 2.17 |
| $ | 3.95 |
|
| Diluted earnings per share of common stock: | | | |
| Diluted earnings per share of common stock from continuing operations | $ | 2.85 |
| $ | 2.09 |
| $ | 3.39 |
|
| Diluted earnings per share of common stock from discontinued operations | — |
| 0.07 |
| 0.53 |
|
| Diluted earnings per share of common stock | $ | 2.85 |
| $ | 2.16 |
| $ | 3.92 |
|
| Dividends per share of common stock | $ | 1.52 |
| $ | 1.72 |
| $ | 1.84 |
|
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions, except per share amounts) | 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 |
| Net sales | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
|
| Cost of goods sold | 8,575 |
| 9,948 |
| 2,915 |
| 3,409 |
|
| Other operating charges | | |
|
| 195 |
|
| Research and development expense | 1,147 |
| 1,355 |
| 484 |
| 591 |
|
| Selling, general and administrative expenses | 3,065 |
| 3,041 |
| 920 |
| 1,969 |
|
| Amortization of intangibles | 475 |
| 391 |
| 97 |
|
|
|
| Restructuring and asset related charges - net | 222 |
| 694 |
| 270 |
| 12 |
|
| Integration and separation costs | 744 |
| 992 |
| 255 |
|
|
|
| Goodwill impairment charge | — |
| 4,503 |
| — |
| — |
|
| Other income (expense) - net | 215 |
| 249 |
| 805 |
| (501 | ) |
| Loss on early extinguishment of debt | 13 |
| 81 |
| — |
| — |
|
| Interest expense | 136 |
| 337 |
| 115 |
| 254 |
|
| Loss from continuing operations before income taxes | (316 | ) | (6,806 | ) | (461 | ) | (37 | ) |
| Benefit from income taxes on continuing operations | (46 | ) | (31 | ) | (2,221 | ) | (395 | ) |
| (Loss) income from continuing operations after income taxes | (270 | ) | (6,775 | ) | 1,760 |
| 358 |
|
| (Loss) income from discontinued operations after income taxes | (671 | ) | 1,748 |
| (568 | ) | 1,403 |
|
| Net (loss) income | (941 | ) | (5,027 | ) | 1,192 |
| 1,761 |
|
| Net income attributable to noncontrolling interests | 18 |
| 38 |
| 10 |
| 27 |
|
| Net (loss) income attributable to Corteva | $ | (959 | ) | $ | (5,065 | ) | $ | 1,182 |
| $ | 1,734 |
|
| Basic (loss) earnings per share of common stock: | | | | |
| Basic (loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
|
| Basic (loss) earnings per share of common stock from discontinued operations | (0.90 | ) | 2.32 |
| (0.76 | ) | 1.60 |
|
| Basic (loss) earnings per share of common stock | $ | (1.28 | ) | $ | (6.76 | ) | $ | 1.58 |
| $ | 2.00 |
|
| Diluted (loss) earnings per share of common stock: | | | | |
| Diluted (loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
|
| Diluted (loss) earnings per share of common stock from discontinued operations | (0.90 | ) | 2.32 |
| (0.76 | ) | 1.59 |
|
| Diluted (loss) earnings per share of common stock | $ | (1.28 | ) | $ | (6.76 | ) | $ | 1.58 |
| $ | 1.99 |
|
See Notes to the Consolidated Financial Statements beginning on page F-9.F-15.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in millions, except per share)
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Net income | $ | 2,525 |
| $ | 1,959 |
| $ | 3,636 |
|
| Other comprehensive loss, net of tax: | | | |
| Cumulative translation adjustment | (510 | ) | (1,605 | ) | (876 | ) |
| Adjustments to pension benefit plans | 323 |
| 574 |
| (2,199 | ) |
| Adjustments to other benefit plans | (379 | ) | (240 | ) | (232 | ) |
| Net change in unrealized gains (losses) on securities | 20 |
| (19 | ) | — |
|
| Net gains (losses) on cash flow hedging derivative instruments | 31 |
| (18 | ) | 42 |
|
| Total other comprehensive loss | (515 | ) | (1,308 | ) | (3,265 | ) |
| Comprehensive income | 2,010 |
| 651 |
| 371 |
|
| Comprehensive income attributable to noncontrolling interests, net of tax | 12 |
| 6 |
| 12 |
|
| Comprehensive income attributable to DuPont | $ | 1,998 |
| $ | 645 |
| $ | 359 |
|
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Net (loss) income | $ | (941 | ) | $ | (5,027 | ) | $ | 1,192 |
| $ | 1,761 |
|
| Other comprehensive (loss) income - net of tax: | | |
|
|
|
|
| Cumulative translation adjustments | (274 | ) | (1,576 | ) | (490 | ) | 1,042 |
|
| Adjustments to pension benefit plans | (718 | ) | (715 | ) | 125 |
| 247 |
|
| Adjustments to other benefit plans | (160 | ) | 132 |
| (53 | ) | 10 |
|
| Derivative instruments | 28 |
| (24 | ) | (2 | ) | (10 | ) |
| Total other comprehensive (loss) income | (1,124 | ) | (2,183 | ) | (420 | ) | 1,289 |
|
| Comprehensive (loss) income | (2,065 | ) | (7,210 | ) | 772 |
| 3,050 |
|
| Comprehensive income attributable to noncontrolling interests - net of tax | 18 |
| 38 |
| 10 |
| 27 |
|
| Comprehensive (loss) income attributable to Corteva | $ | (2,083 | ) | $ | (7,248 | ) | $ | 762 |
| $ | 3,023 |
|
See Notes to the Consolidated Financial Statements beginning on page F-9.F-15.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share)
| | | December 31, | 2016 | 2015 | |
| (In millions, except share and per share amounts) | | December 31, 2019 | December 31, 2018 |
| Assets | |
| |
| |
| |
|
| Current assets | |
| |
| |
| |
|
| Cash and cash equivalents | $ | 4,605 |
| $ | 5,300 |
| $ | 1,764 |
| $ | 2,270 |
|
| Marketable securities | 1,362 |
| 906 |
| 5 |
| 5 |
|
| Accounts and notes receivable, net | 4,971 |
| 4,643 |
| |
| Accounts and notes receivable - net | | 5,528 |
| 5,260 |
|
| Inventories | 5,673 |
| 6,140 |
| 5,032 |
| 5,310 |
|
| Prepaid expenses | 506 |
| 398 |
| |
| Other current assets | | 1,190 |
| 1,038 |
|
| Assets of discontinued operations - current | | — |
| 9,089 |
|
| Total current assets | 17,117 |
| 17,387 |
| 13,519 |
| 22,972 |
|
| Investment in nonconsolidated affiliates | | 66 |
| 138 |
|
| Property, plant and equipment | 23,967 |
| 24,130 |
| 7,872 |
| 7,340 |
|
| Less: Accumulated depreciation | 14,736 |
| 14,346 |
| 3,326 |
| 2,796 |
|
| Net property, plant and equipment | 9,231 |
| 9,784 |
| 4,546 |
| 4,544 |
|
| Goodwill | 4,180 |
| 4,248 |
| 10,229 |
| 10,193 |
|
| Other intangible assets | 3,664 |
| 4,144 |
| 11,424 |
| 12,055 |
|
| Investment in affiliates | 649 |
| 688 |
| |
| Deferred income taxes | 3,308 |
| 3,799 |
| 287 |
| 304 |
|
| Other assets | 1,815 |
| 1,116 |
| 2,326 |
| 1,932 |
|
| Total | $ | 39,964 |
| $ | 41,166 |
| |
| Assets of discontinued operations - non-current | | — |
| 56,545 |
|
| Total Assets | | $ | 42,397 |
| $ | 108,683 |
|
| Liabilities and Equity | |
| |
| |
| |
|
| Current liabilities | |
| |
| |
| |
|
| Short-term borrowings and finance lease obligations | | $ | 7 |
| $ | 2,154 |
|
| Accounts payable | $ | 3,705 |
| $ | 3,398 |
| 3,702 |
| 3,798 |
|
| Short-term borrowings and capital lease obligations | 429 |
| 1,165 |
| |
| Income taxes | 101 |
| 173 |
| |
| Other accrued liabilities | 4,662 |
| 5,580 |
| |
| Income taxes payable | | 95 |
| 186 |
|
| Accrued and other current liabilities | | 4,434 |
| 4,005 |
|
| Liabilities of discontinued operations - current | | — |
| 3,167 |
|
| Total current liabilities | 8,897 |
| 10,316 |
| 8,238 |
| 13,310 |
|
| Long-term borrowings and capital lease obligations | 8,107 |
| 7,642 |
| |
| Other liabilities | 12,333 |
| 12,591 |
| |
| Deferred income taxes | 431 |
| 417 |
| |
| Total liabilities | 29,768 |
| 30,966 |
| |
| Long-Term Debt | | 115 |
| 5,784 |
|
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | | 920 |
| 1,480 |
|
| Pension and other post employment benefits - noncurrent | | 6,377 |
| 5,677 |
|
| Other noncurrent obligations | | 2,192 |
| 1,795 |
|
| Liabilities of discontinued operations - non-current | | — |
| 5,484 |
|
| Total noncurrent liabilities | | 9,604 |
| 20,220 |
|
| Commitments and contingent liabilities |
|
|
|
| |
| Stockholders' Equity | |
| |
| |
Preferred stock, without par value – cumulative; 23,000,000 shares authorized; issued at December 31, 2016 and 2015: | |
| |
| |
| $4.50 Series – 1,673,000 shares (callable at $120) | 167 |
| 167 |
| |
| $3.50 Series – 700,000 shares (callable at $102) | 70 |
| 70 |
| |
Common stock, $.30 par value; 1,800,000,000 shares authorized; issued at December 31, 2016 – 950,044,000; 2015 – 958,388,000 | 285 |
| 288 |
| |
| Stockholders’ equity | | |
| |
|
Common stock, $0.01 par value; 1,666,667,000 shares authorized;
issued at December 31, 2019 - 748,577,000 | | 7 |
| — |
|
| Additional paid-in capital | 11,190 |
| 11,081 |
| 27,997 |
| — |
|
| Reinvested earnings | 14,924 |
| 14,510 |
| |
| Divisional equity | | — |
| 78,020 |
|
| Accumulated deficit | | (425 | ) | — |
|
| Accumulated other comprehensive loss | (9,911 | ) | (9,396 | ) | (3,270 | ) | (3,360 | ) |
Common stock held in treasury, at cost (Shares: December 31, 2016 and 2015 – 87,041,000) | (6,727 | ) | (6,727 | ) | |
| Total DuPont stockholders' equity | 9,998 |
| 9,993 |
| |
| Total Corteva stockholders’ equity | | 24,309 |
| 74,660 |
|
| Noncontrolling interests | 198 |
| 207 |
| 246 |
| 493 |
|
| Total equity | 10,196 |
| 10,200 |
| 24,555 |
| 75,153 |
|
| Total | $ | 39,964 |
| $ | 41,166 |
| |
| Total Liabilities and Equity | | $ | 42,397 |
| $ | 108,683 |
|
See Notes to the Consolidated Financial Statements beginning on page F-9.F-15.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF EQUITYCASH FLOWS
(Dollars in millions, except per share) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | Common Stock | Additional Paid-in Capital | Reinvested Earnings | Accumulated Other Compre- hensive Loss | Treasury Stock | Non- controlling Interests | Total Equity |
| 2014 | |
| |
| |
| |
| |
| |
| |
| |
|
| Balance January 1, 2014 | $ | 237 |
| $ | 304 |
| $ | 11,072 |
| $ | 16,633 |
| $ | (5,290 | ) | $ | (6,727 | ) | $ | 57 |
| $ | 16,286 |
|
| Sale of a majority interest in a consolidated subsidiary | |
| |
|
|
| |
| |
| |
| (5 | ) | (5 | ) |
| Net income | |
| |
| |
| 3,625 |
| |
| |
| 11 |
| 3,636 |
|
| Other comprehensive (loss) income | |
| |
| |
| |
| (3,266 | ) | |
| 1 |
| (3,265 | ) |
| Common dividends ($1.84 per share) | |
| |
| |
| (1,695 | ) | |
| |
| (6 | ) | (1,701 | ) |
| Preferred dividends | |
| |
| |
| (10 | ) | |
| |
| |
| (10 | ) |
| Common stock issued - compensation plans | |
| 3 |
| 434 |
| |
| |
| |
| |
| 437 |
|
| Common stock repurchased | |
| |
|
|
| |
| |
| (2,000 | ) | |
| (2,000 | ) |
| Common stock retired | |
| (9 | ) | (332 | ) | (1,659 | ) | |
| 2,000 |
| |
| — |
|
| Balance December 31, 2014 | $ | 237 |
| $ | 298 |
| $ | 11,174 |
| $ | 16,894 |
| $ | (8,556 | ) | $ | (6,727 | ) | $ | 58 |
| $ | 13,378 |
|
| 2015 | | |
| |
| |
| |
| |
| |
| |
|
| Consolidation of a joint venture |
|
|
|
| (1 | ) |
|
|
|
|
|
| 151 |
| 150 |
|
| Net income |
|
|
|
|
|
| 1,953 |
|
|
|
|
| 6 |
| 1,959 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
| (1,308 | ) |
|
|
|
| (1,308 | ) |
| Common dividends ($1.72 per share) |
|
|
|
|
|
| (1,542 | ) |
|
|
|
| (4 | ) | (1,546 | ) |
| Preferred dividends |
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (10 | ) |
| Common stock issued - compensation plans |
|
| 2 |
| 359 |
|
|
|
|
|
|
|
|
| 361 |
|
| Common stock repurchased |
|
|
|
|
|
|
|
|
|
| (2,353 | ) |
|
| (2,353 | ) |
| Common stock retired |
|
| (12 | ) | (451 | ) | (1,890 | ) |
|
| 2,353 |
|
|
| — |
|
| Spin-off of Chemours |
|
|
|
|
|
| (895 | ) | 468 |
|
|
| (4 | ) | (431 | ) |
| Balance December 31, 2015 | $ | 237 |
| $ | 288 |
| $ | 11,081 |
| $ | 14,510 |
| $ | (9,396 | ) | $ | (6,727 | ) | $ | 207 |
| $ | 10,200 |
|
| 2016 | |
| |
| |
| |
| |
| |
| |
| |
|
| Sale of a majority interest in a consolidated subsidiary | | | (4 | ) | | | | (5 | ) | (9 | ) |
| Net income |
|
|
|
|
|
| 2,513 |
|
|
|
|
| 12 |
| 2,525 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
| (515 | ) |
|
|
|
| (515 | ) |
| Common dividends ($1.52 per share) |
|
|
|
|
|
| (1,331 | ) |
|
|
|
| (16 | ) | (1,347 | ) |
| Preferred dividends |
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (10 | ) |
| Common stock issued - compensation plans |
|
| 1 |
| 267 |
|
|
|
|
|
|
|
|
| 268 |
|
| Common stock repurchased |
|
|
|
|
|
|
|
|
|
| (916 | ) |
|
| (916 | ) |
| Common stock retired |
|
| (4 | ) | (154 | ) | (758 | ) |
|
| 916 |
|
|
| — |
|
| Balance December 31, 2016 | $ | 237 |
| $ | 285 |
| $ | 11,190 |
| $ | 14,924 |
| $ | (9,911 | ) | $ | (6,727 | ) | $ | 198 |
| $ | 10,196 |
|
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Operating activities | | | | |
| Net (loss) income | $ | (941 | ) | $ | (5,027 | ) | $ | 1,192 |
| $ | 1,761 |
|
| Adjustments to reconcile net (loss) income to cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization | 1,599 |
| 2,790 |
| 886 |
| 749 |
|
| (Benefit from) provision for deferred income tax | (477 | ) | 31 |
| (2,770 | ) |
|
|
| Net periodic pension (benefit) cost | (264 | ) | (321 | ) | (113 | ) | 295 |
|
| Pension contributions | (121 | ) | (1,314 | ) | (68 | ) | (3,024 | ) |
| Net gain on sales of property, businesses, consolidated companies, and investments | (142 | ) | (11 | ) | (691 | ) | (204 | ) |
| Goodwill impairment charge | 1,102 |
| 4,503 |
| — |
| — |
|
| Loss on early extinguishment of debt | 13 |
| 81 |
| — |
| — |
|
| Restructuring and asset related charges - net | 339 |
| 803 |
| 378 |
|
|
|
| Asset related charges |
|
|
|
|
|
| 279 |
|
| Amortization of inventory step-up | 272 |
| 1,628 |
| 1,573 |
|
|
|
| Other net loss | 246 |
| 262 |
| 106 |
| 481 |
|
| Changes in assets and liabilities, net of effects of acquired and divested companies: |
|
|
|
|
|
|
|
|
| Accounts and notes receivable | (361 | ) | (1,522 | ) | 1,576 |
| (2,269 | ) |
| Inventories | 74 |
| (498 | ) | (903 | ) |
|
|
| Inventories and other operating assets |
|
|
|
|
|
| (202 | ) |
| Accounts payable | 149 |
| 642 |
| 1,106 |
|
|
|
| Accounts payable and other operating liabilities |
|
|
|
|
|
| (1,555 | ) |
| Other assets and liabilities | (418 | ) | (1,564 | ) | 1,402 |
|
|
|
| Accrued interest and income taxes |
|
|
|
|
|
| (260 | ) |
| Cash provided by (used for) operating activities | 1,070 |
| 483 |
| 3,674 |
| (3,949 | ) |
| Investing activities | |
| | |
| |
| Capital expenditures | (1,163 | ) | (1,501 | ) | (499 | ) | (687 | ) |
| Proceeds from sales of property, businesses, and consolidated companies - net of cash divested | 249 |
| 69 |
| 2,351 |
| 300 |
|
| Acquisitions of businesses - net of cash acquired | (10 | ) | — |
| 3 |
| (246 | ) |
| Investments in and loans to nonconsolidated affiliates | (10 | ) | (8 | ) | (5 | ) | (22 | ) |
| Proceeds from sale of ownership interest in non-consolidated affiliates | 21 |
| 9 |
| — |
| — |
|
| Purchases of investments | (138 | ) | (1,257 | ) | (1,043 | ) | (5,457 | ) |
| Proceeds from sales and maturities of investments | 160 |
| 2,186 |
| 2,938 |
| 3,977 |
|
| Foreign currency exchange contract settlements |
|
|
|
|
|
| (206 | ) |
| Other investing activities - net | (13 | ) | (3 | ) | (67 | ) | (41 | ) |
| Cash (used for) provided by investing activities | (904 | ) | (505 | ) | 3,678 |
| (2,382 | ) |
| Financing activities | |
| | |
| |
| Change in short-term (less than 90 days) borrowings | (1,868 | ) | 400 |
| (2,541 | ) | 3,610 |
|
| Proceeds from issuance of long-term debt | 1,001 |
| 756 |
| 499 |
| 2,734 |
|
| Payments on long-term debt | (6,804 | ) | (5,956 | ) | (43 | ) | (229 | ) |
| Repurchase of common stock | (25 | ) | — |
| — |
| — |
|
| Proceeds from exercise of stock options | 47 |
| 85 |
| 30 |
| 235 |
|
| Dividends paid to stockholders | (194 | ) | — |
| (329 | ) | (659 | ) |
| Distributions to Dow and DowDuPont | (317 | ) | (2,806 | ) | (1,200 | ) |
|
|
| Contributions from Dow and DowDuPont | 7,396 |
| 5,363 |
| — |
|
|
|
Corteva, Inc.
Consolidated Financial Statements
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Cash transferred to DowDuPont at Internal Reorganizations | (2,053 | ) | — |
| — |
|
|
|
| Debt extinguishment costs | (79 | ) | (378 | ) | — |
| — |
|
| Other financing activities | (33 | ) | (88 | ) | (23 | ) | (59 | ) |
| Cash (used for) provided by financing activities | (2,929 | ) | (2,624 | ) | (3,607 | ) | 5,632 |
|
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (88 | ) | (244 | ) | (22 | ) | 187 |
|
| Change in cash classified as held for sale | — |
| — |
| 88 |
| (31 | ) |
| (Decrease) increase on cash, cash equivalents and restricted cash | (2,851 | ) | (2,890 | ) | 3,811 |
| (543 | ) |
| Cash, cash equivalents and restricted cash at beginning of period | 5,024 |
| 7,914 |
| 4,103 |
| 4,548 |
|
Cash, cash equivalents and restricted cash at end of period1 | $ | 2,173 |
| $ | 5,024 |
| $ | 7,914 |
| $ | 4,005 |
|
| Supplemental cash flow information | | | | |
| Cash paid (received) during the period for | | | | |
| Interest, net of amounts capitalized | $ | 263 |
| $ | 923 |
| $ | 83 |
| $ | 331 |
|
| Income taxes | 234 |
| 961 |
| (215 | ) | 272 |
|
1. See page F-42 for reconciliation of cash and cash equivalents and restricted cash presented in Consolidated Balance Sheets to total cash, cash equivalents and restricted cash presented in the Consolidated Statements of Cash Flows.
See Notes to the Consolidated Financial Statements beginning on page F-9.F-15.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)EQUITY
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Operating activities | |
| |
| |
|
| Net income | $ | 2,525 |
| $ | 1,959 |
| $ | 3,636 |
|
| Adjustments to reconcile net income to cash provided by operating activities: | |
|
|
|
|
| Depreciation | 939 |
| 1,104 |
| 1,254 |
|
| Amortization of intangible assets | 319 |
| 362 |
| 363 |
|
| Net periodic pension benefit cost | 572 |
| 591 |
| 406 |
|
| Contributions to pension plans | (535 | ) | (308 | ) | (311 | ) |
| Gain on sales of businesses and other assets | (436 | ) | (59 | ) | (726 | ) |
| Asset related charges | 682 |
| 147 |
| 174 |
|
| Other operating activities – net | 366 |
| 106 |
| 192 |
|
| (Increase) decrease in operating assets: | |
|
|
|
|
| Accounts and notes receivable | (270 | ) | (448 | ) | (88 | ) |
| Inventories and other operating assets | (54 | ) | 164 |
| (318 | ) |
| (Decrease) increase in operating liabilities: | |
|
|
|
|
| Accounts payable and other operating liabilities | (704 | ) | (1,063 | ) | (1,064 | ) |
| Accrued interest and income taxes | (104 | ) | (239 | ) | 194 |
|
| Cash provided by operating activities | 3,300 |
| 2,316 |
| 3,712 |
|
| Investing activities | |
| |
| |
|
| Purchases of property, plant and equipment | (1,019 | ) | (1,629 | ) | (2,020 | ) |
| Investments in affiliates | (19 | ) | (76 | ) | (42 | ) |
| Payments for businesses – net of cash acquired | — |
| (152 | ) | — |
|
| Proceeds from sales of businesses and other assets - net | 316 |
| 156 |
| 1,092 |
|
| Purchases of short-term financial instruments | (2,633 | ) | (1,897 | ) | (936 | ) |
| Proceeds from maturities and sales of short-term financial instruments | 2,181 |
| 1,121 |
| 950 |
|
| Foreign currency exchange contract settlements | (385 | ) | 615 |
| 430 |
|
| Other investing activities – net | 45 |
| 34 |
| 189 |
|
| Cash used for investing activities | (1,514 | ) | (1,828 | ) | (337 | ) |
| Financing activities | |
| |
| |
|
| Dividends paid to stockholders | (1,335 | ) | (1,546 | ) | (1,696 | ) |
| Net increase (decrease) in short-term (less than 90 days) borrowings | 387 |
| (1 | ) | (11 | ) |
| Long-term and other borrowings: | |
|
|
| |
|
| Receipts | 813 |
| 3,679 |
| 104 |
|
| Payments | (1,440 | ) | (1,537 | ) | (1,794 | ) |
| Repurchase of common stock | (916 | ) | (2,353 | ) | (2,000 | ) |
| Proceeds from exercise of stock options | 181 |
| 274 |
| 327 |
|
| Cash transferred to Chemours at spin-off | — |
| (250 | ) | — |
|
| Other financing activities – net | (18 | ) | (89 | ) | (4 | ) |
| Cash used for financing activities | (2,328 | ) | (1,823 | ) | (5,074 | ) |
| Effect of exchange rate changes on cash | (153 | ) | (275 | ) | (332 | ) |
| Decrease in cash and cash equivalents | (695 | ) | (1,610 | ) | (2,031 | ) |
| Cash and cash equivalents at beginning of year | 5,300 |
| 6,910 |
| 8,941 |
|
| Cash and cash equivalents at end of year | $ | 4,605 |
| $ | 5,300 |
| $ | 6,910 |
|
| Supplemental cash flow information: | |
| |
| |
|
| Cash paid during the year for | |
| |
| |
|
| Interest, net of amounts capitalized | $ | 386 |
| $ | 341 |
| $ | 394 |
|
| Income taxes | 735 |
| 885 |
| 1,016 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Common Stock | Preferred Stock | Additional Paid-in Capital | Divisional Equity | Retained Earnings (Accum Deficit) | Accumulated Other Comp Loss | Treasury Stock | Non-controlling Interests | Total Equity |
| Predecessor |
| Balance at January 1, 2017 | $ | 285 |
| $ | 237 |
| $ | 11,190 |
| | $ | 14,924 |
| $ | (9,911 | ) | $ | (6,727 | ) | $ | 198 |
| $ | 10,196 |
|
| Net income |
|
|
|
|
|
| | 1,734 |
|
|
|
|
| 27 |
| 1,761 |
|
| Other comprehensive income |
|
|
|
|
|
| |
|
| 1,289 |
|
|
|
|
| 1,289 |
|
| Common dividends ($1.14 per share) |
|
|
|
|
|
| | (991 | ) |
|
|
|
| (4 | ) | (995 | ) |
| Share-based compensation | 2 |
|
|
| 273 |
| |
|
|
|
|
|
|
|
| 275 |
|
| Common stock retired | (26 | ) |
|
| (1,044 | ) | | (5,657 | ) |
|
| 6,727 |
|
|
| — |
|
| Other |
|
|
|
|
|
| |
|
|
|
|
|
| (9 | ) | (9 | ) |
| Balance at August 31, 2017 | $ | 261 |
| $ | 237 |
| $ | 10,419 |
| | $ | 10,010 |
| $ | (8,622 | ) | $ | — |
| $ | 212 |
| $ | 12,517 |
|
| |
| Successor |
| Balance at September 1, 2017 (remeasured upon Merger) | $ | — |
| | $ | — |
| $ | 80,287 |
| $ | — |
| $ | (757 | ) | $ | — |
| $ | 443 |
| $ | 79,973 |
|
| Net income |
|
| |
|
| 1,182 |
|
|
|
|
|
|
| 10 |
| 1,192 |
|
| Other comprehensive loss |
|
| |
|
|
|
|
|
| (420 | ) |
|
|
|
| (420 | ) |
| Distributions to Dow and DowDuPont |
|
| |
|
| (1,200 | ) |
|
|
|
|
|
|
|
| (1,200 | ) |
| Issuance of DowDuPont stock |
|
| |
|
| 30 |
|
|
|
|
|
|
|
|
| 30 |
|
| Share-based compensation |
|
| |
|
| 36 |
|
|
|
|
|
|
|
|
| 36 |
|
| Other |
|
| |
|
| (17 | ) |
|
|
|
|
|
| (1 | ) | (18 | ) |
| Balance at December 31, 2017 | $ | — |
| | $ | — |
| $ | 80,318 |
| $ | — |
| $ | (1,177 | ) | $ | — |
| $ | 452 |
| $ | 79,593 |
|
| Net (loss) income |
|
| |
|
| (5,065 | ) |
|
|
|
|
|
| 38 |
| (5,027 | ) |
| Other comprehensive loss |
|
| |
|
|
|
|
|
| (2,183 | ) |
|
|
|
| (2,183 | ) |
| Distributions to Dow and DowDuPont |
|
| |
|
| (2,806 | ) |
|
|
|
|
|
|
|
| (2,806 | ) |
| Issuance of DowDuPont stock |
|
| |
|
| 85 |
|
|
|
|
|
|
|
|
| 85 |
|
| Share-based compensation |
|
| |
|
| 129 |
|
|
|
|
|
|
|
|
| 129 |
|
| Contributions from Dow and DowDuPont | | | | 5,363 |
| | | | | 5,363 |
|
| Other |
|
| |
|
| (4 | ) |
|
|
|
|
|
| 3 |
| (1 | ) |
| Balance at December 31, 2018 | $ | — |
| | $ | — |
| $ | 78,020 |
| $ | — |
| $ | (3,360 | ) | $ | — |
| $ | 493 |
| $ | 75,153 |
|
| Net (loss) income |
|
| |
|
| (641 | ) | (318 | ) |
|
|
|
| 18 |
| (941 | ) |
| Other comprehensive loss |
|
| |
|
|
|
|
|
| (1,124 | ) |
|
|
|
| (1,124 | ) |
| Common dividends ($0.26 per share) |
|
| | (97 | ) |
|
| (97 | ) |
|
|
|
|
|
| (194 | ) |
| Distributions to Dow and DowDuPont |
|
| | | (317 | ) |
|
|
|
|
|
|
|
| (317 | ) |
| Issuance of DowDuPont stock |
|
| |
|
| 39 |
|
|
|
|
|
|
|
|
| 39 |
|
| Issuance of Corteva stock |
|
| | 8 |
|
|
|
|
|
|
|
|
|
|
| 8 |
|
| Share-based compensation |
|
| | 41 |
| 62 |
|
|
|
|
|
|
|
|
| 103 |
|
| Common Stock Repurchase |
|
| | (25 | ) |
|
|
|
|
|
|
|
|
|
| (25 | ) |
| Contributions from Dow and DowDuPont |
|
| |
|
| 7,396 |
|
|
|
|
|
|
|
|
| 7,396 |
|
| Impact of Internal Reorganizations |
|
| |
|
| (56,479 | ) |
|
| 1,214 |
|
|
| (231 | ) | (55,496 | ) |
| Reclassification of Divisional Equity to Additional Paid-in Capital | 7 |
| | 28,070 |
| (28,077 | ) |
|
|
|
|
|
|
|
| — |
|
| Other |
|
| |
|
| (3 | ) | (10 | ) |
|
|
|
| (34 | ) | (47 | ) |
| Balance at December 31, 2019 | $ | 7 |
| | $ | 27,997 |
| $ | — |
| $ | (425 | ) | $ | (3,270 | ) | $ | — |
| $ | 246 |
| $ | 24,555 |
|
See Notes to the Consolidated Financial Statements beginning on page F-9.F-15.
Corteva, Inc.
Notes to the Consolidated Financial Statements
Table of Contents
|
| | |
| Note | | Page |
| 1 | | |
| 2 | | |
| 3 | | |
| 4 | | |
| 5 | | |
| 6 | | |
| 7 | | |
| 8 | | |
| 9 | | |
| 10 | | |
| 11 | | |
| 12 | | |
| 13 | | |
| 14 | | |
| 15 | | |
| 16 | | |
| 17 | | |
| 18 | | |
| 19 | | |
| 20 | | |
| 21 | | |
| 22 | | |
| 23 | | |
| 24 | | |
| 25 | | |
| 26 | | |
| 27 | | |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
Corteva, Inc. combines the strengths of EID’s Pioneer and Crop Protection businesses and Dow AgroSciences ("DAS") business to create a leading global provider of seed and crop protection solutions focused on the agriculture industry. The company intends to leverage its rich heritage of scientific achievement to advance its robust innovation pipeline and continue to shape the future of responsible agriculture. The company's broad portfolio of agriculture solutions fuels farmer productivity in approximately 140 countries. Corteva has 2 reportable segments: seed and crop protection. See Note 25 - Segment Information, for additional information on the company's reportable segments.
Throughout this Annual Report on Form 10-K, except as otherwise noted by the context, the terms "Corteva" or "company" used herein mean Corteva, Inc. and its consolidated subsidiaries (including EID) and the term “EID” used herein means E. I. du Pont de Nemours and Company and its consolidated subsidiaries or E. I. du Pont de Nemours and Company excluding its consolidated subsidiaries, as the context may indicate. Additionally, on June 1, 2019, DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”), for certain events prior to, or on, June 1, 2019, DuPont may be referred to as DowDuPont.
Principles of Consolidation and Basis of Presentation
On June 1, 2019, Corteva, Inc. became an independent, publicly traded company through the previously announced separation (the “Separation”) of the agriculture business of DuPont de Nemours, Inc. (formerly known as DowDuPont Inc.) (“DowDuPont” or “DuPont”). The separation was effectuated through a pro rata distribution (the “Corteva Distribution”) of all of the then-issued and outstanding shares of common stock, par value $0.01 per share, of Corteva, Inc., which was then a wholly-owned subsidiary of DowDuPont, to holders of record of DowDuPont common stock as of the close of business on May 24, 2019.
Previously, DowDuPont was formed on December 9, 2015, to effect an all-stock merger of equals strategic combination between The Dow Chemical Company ("Historical Dow") and EID. On August 31, 2017 at 11:59 pm ET (the “Merger Effectiveness Time”) pursuant to the Agreement and Plan of Merger, dated as of December 11, 2015, as amended March 31, 2017 (the "Merger Agreement"), Historical Dow and EID each merged with wholly-owned subsidiaries of DowDuPont and became subsidiaries of DowDuPont (the “Merger”). Prior to the Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the Merger Agreement.
Subsequent to the Merger, Historical Dow and EID engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products through a series of tax-efficient transactions (collectively, the "Business Separations”). Effective as of 5:00 pm ET on April 1, 2019, DowDuPont completed the previously announced separation of its materials science business into a separate and independent public company by way of a distribution of Dow Inc. (“Dow”) through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Dow’s common stock, par value $0.01 per share, to holders of DowDuPont's common stock (the “DowDuPont Common Stock”), as of the close of business on March 21, 2019 (the “Dow Distribution” and together with the Corteva Distribution, the “Distributions”).
Prior to the Dow Distribution, Historical Dow conveyed or transferred the assets and liabilities aligned with Historical Dow’s agriculture business to separate legal entities (“Dow Ag Entities”) and the assets and liabilities associated with its specialty products business to separate legal entities (the “Dow SP Entities”). On April 1, 2019, Dow Ag Entities and the Dow SP Entities were transferred and conveyed to DowDuPont.
In furtherance of the Business Separations, EID engaged in a series of internal reorganization and realignment steps (the “Internal Reorganization” and the "Business Realignment," respectively) to realign its businesses into three subgroups: agriculture, materials science and specialty products. As part of the Internal Reorganization:
the assets and liabilities aligned with EID’s materials science business, including EID’s ethylene and ethylene copolymers business, excluding its ethylene acrylic elastomers business, (“EID ECP”) were transferred or conveyed to separate legal entities (the “Materials Science Entities”) that were ultimately conveyed by DowDuPont to Dow;
the assets and liabilities aligned with the EID’s specialty products business were transferred or conveyed to separate legal entities (“EID Specialty Products Entities”);
on April 1, 2019, EID transferred and conveyed its Materials Science Entities to DowDuPont;
on May 1, 2019, EID distributed its Specialty Products Entities to DowDuPont;
on May 2, 2019, DowDuPont conveyed Dow Ag Entities to EID and in connection with the foregoing, EID issued additional shares of its Common Stock to DowDuPont; and
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except
on May 31, 2019, DowDuPont contributed EID to Corteva, Inc.
On May 6, 2019, the Board of Directors of DowDuPont approved the distribution of all the then issued and outstanding shares of common stock of Corteva, Inc., a wholly-owned subsidiary of DowDuPont, to DowDuPont stockholders. On June 1, 2019, DowDuPont completed the Separation. Each DowDuPont stockholder received 1 share of Corteva common stock for every 3 shares of DowDuPont common stock held at the close of business on May 24, 2019, the record date of distribution. Corteva, Inc.'s common stock began trading the "regular way" under the ticker symbol "CTVA" on June 3, 2019, the first business day after June 1, 2019. Upon becoming an independent company, the capital structure of Corteva consisted of 748,815,000 authorized shares of common stock (par value of $0.01 per share), which represents the number of common shares issued on June 3, 2019. Information related to the Corteva Distribution and its effect on the company's financial statements is discussed throughout these Notes to the Consolidated Financial Statements.
As a result of the Business Realignment and the Internal Reorganization discussed above, Corteva owns, directly or indirectly, 100% of the outstanding common stock of EID, and EID owns 100% of DAS. EID is a subsidiary of Corteva, Inc. and continues to be a reporting company, subject to the requirements of the Securities Exchange Act of 1934, as amended.
Certain reclassifications of prior year's data have been made to conform to current year's presentation.
DAS Common Control Business 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). As a result, the accompanying Consolidated Financial Statements and Notes thereto include the results of DAS as of the Merger Effectiveness Time. See Note 4 - Common Control Business Combination, for additional information.
As a result, for periods prior to the Corteva Distribution and after the Merger, the combined results of operations and assets and liabilities of EID and DAS were derived from the Consolidated Financial Statements and accounting records of EID as well as the carve-out financial statements of DAS. The DAS carve-out financial statements reflect the historical results of operations, financial position, and cash flows of Historical Dow's Agricultural Sciences Business and include allocations of certain expenses for services from Historical Dow, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, ethics and compliance, shared services, employee benefits and incentives, insurance, and stock-based compensation. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated under the basis of headcount or other measures. Subsequent to the Corteva Distribution, the financial statements are presented on a consolidated basis.
The company's Consolidated Balance Sheet at December 31, 2019 consists of the consolidated balances subsequent to the Corteva Distribution. The balances reflect the assets and liabilities that were historically included in the EID statements, as well as assets and liabilities transferred to the company as part of the common control combination of DAS. The company's Consolidated Balance Sheet at December 31, 2018 consist of the combined balances of Historical EID and DAS. The Balance Sheets will be referred to as the "Consolidated Balance Sheets" throughout this document.
The company's Consolidated Statements of Operations (the "Consolidated Statements of Operations") for all periods prior to April 30, 2019 consist of the combined results of operations for Historical EID and DAS. The Consolidated Statements of Operations for all periods after May 1, 2019 represent the consolidated balances of the company.
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 (loss) income, stockholder's equity and cash flows related to EID ECP have not been segregated and are included in the Consolidated Statements of Comprehensive (Loss) Income, Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for all periods presented. 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, for additional information.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
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 (loss) income, 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 (Loss) Income, Consolidated Statements of Equity and Consolidated Statements of Cash Flows, respectively, for all periods presented. 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, for additional information.
Divested EID Ag Business
As a condition of the regulatory approval for the Merger, including by the European Commission, EID was required to divest (the “Divested Ag Business”) certain assets related to its crop protection business and research and development ("R&D") organization, specifically EID’s Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, including Rynaxypyr®, Cyazypyr® and Indoxacarb as well as the crop protection R&D pipeline and organization, excluding seed treatment, nematicides, and late-stage R&D programs. On March 31, 2017, EID and FMC Corporation (“FMC”) entered into a definitive agreement (the "FMC Transaction Agreement"). On November 1, 2017, FMC acquired the Divested Ag Business and EID acquired certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products (the "H&N Business") (collectively, the "FMC Transactions"). The H&N Business was transferred to DowDuPont as part of the EID Specialty Products Entities.
The sale of the Divested Ag Business met 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. See Note 5 - Divestitures and Other Transactions, for additional information.
Predecessor / Successor Reporting
For purposes of DowDuPont's financial statement presentation, Historical Dow was determined to be the accounting acquirer in the Merger and Historical DuPont's assets and liabilities are reflected at fair value as of the close of the Merger in the financial statements of DowDuPont. In connection with the Merger and the related accounting determination, Historical DuPont elected to apply push-down accounting and reflect in its financial statements, the fair value of its assets and liabilities. For purposes of Corteva’s financial statement presentation, periods following the close of the Merger are labeled “Successor” and reflect DowDuPont’s basis in the fair values of the assets and liabilities of Corteva/EID. All periods prior to the closing of the Merger reflect the historical accounting basis in EID 's assets and liabilities and are labeled “Predecessor.” The Consolidated Financial Statements and Footnotes include a black line division between the columns titled "Predecessor" and "Successor" to signify that the amounts shown for the periods prior to and following the Merger are not comparable. In addition, the company elected to make certain changes in presentation to harmonize its accounting and reporting with that of DowDuPont in the Successor periods. See Note 2 - Summary of Significant Accounting Policies, to the Consolidated Financial Statements for further discussion of these changes.
1.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company follows generally accepted accounting principles in the United States of America (GAAP). The significant accounting policies described below, together with the other notes that follow, are an integral part of the Consolidated Financial Statements.
Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the company and subsidiaries in which a controlling interest is maintained. For those consolidated subsidiaries in which the company's ownership is less than 100 percent, the outside stockholders' interests are shown as noncontrolling interests. Investments in affiliates over which the company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method.
The company is also involved with certain joint ventures accounted for under the equity method of accounting that are variable interest entities (VIEs)("VIEs"). The company is not the primary beneficiary, as the nature of the company's involvement with the VIEs does not provide it the power to direct the VIEs significant activities. Future events may require these VIEs to be consolidated if the company becomes the primary beneficiary. At December 31, 20162019 and 2015,2018, the maximum exposure to loss related to the unconsolidatednonconsolidated VIEs is not considered material to the Consolidated Financial Statements.
BasisUse of PresentationEstimates in Financial Statement Preparation
Certain reclassifications of prior year's data have been made to conform to current year's presentation, including recasting the segment financial information as a result of the change in reportable segments which impacted the Industrial Biosciences segment, the DuPont Protection Solutions segment and Other. Refer to Note 21 for further information. As noted below under “Recent Accounting Pronouncements”, effective January 1, 2016, the company adopted Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes, which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statementThe preparation of financial position on a retrospective basis. In conjunction with the adoption of ASU No. 2015-17, the company also retrospectively reclassified deferred charges previously recordedstatements in the current deferred income taxes line item to prepaid expenses on the Consolidated Balance Sheets.
On July 1, 2015, the company completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (Chemours). In accordance with U.S. GAAP requires the financial positionuse of estimates and resultsassumptions that affect the reported amounts of operations of the Performance Chemicals segment are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The assets and liabilities, related to the Performance Chemicals segment are presented asdisclosure of contingent assets of discontinued operations and liabilities at the date of discontinued operations in the Consolidated Balance Sheets for all periods presented.financial statements, and the reported amounts of revenues and expenses during the reporting period. The cash flows and comprehensive income related to the Performance Chemicals segment have not been segregated andcompany’s consolidated financial statements include amounts that are included in the Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all periods presented. Amounts related to the Performance Chemicals segment are consistently included or excluded from the Notes to the Consolidated Financial Statements based on management’s best estimates and judgments. Actual results could differ from those estimates.
Changes in Accounting and Reporting
Within the respective financial statement line item. See Note 3 for additional information.
Revenue Recognition
The company recognizes revenue whenSuccessor periods, EID made the earnings process is complete. The company's revenues are from the sale of a wide range of productsfollowing changes in accounting and reporting to a diversified base of customers around the world. Revenue for product sales is recognized upon delivery, when titleharmonize its accounting and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or determinable. A majority of product sales are sold FOB (free on board) shipping point or,reporting with respect to non United States of America (U.S.) customers, an equivalent basis. Accruals are made for sales returns and other allowances based on the company's experience. The company accounts for cash sales incentives as a reduction in sales and noncash sales incentives as a charge to cost of goods sold or selling expense, depending on the nature of the incentive. Amounts billed to customers for shipping and handling fees are included in net sales and costs incurred by the company for the delivery of goods are classified as cost of goods sold in the Consolidated Income Statements. Taxes on revenue-producing transactions are excluded from net sales.
DowDuPont.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Within the Successor periods of the Consolidated Statements of Operations:
Included royalty income within net sales. In the Predecessor period, royalty income is included within other income (expense) - net.
Eliminated the other operating charges line item. In the Successor periods, a majority of these costs are included within cost of goods sold. These costs are also included in millions, except per share)selling, general and administrative expenses and amortization of intangibles in the Successor periods.
Presented amortization of intangibles as a separate line item. In the Predecessor period, amortization is included within cost of goods sold, selling, general and administrative expenses, other operating charges, and research and development expenses.
Presented integration and separation costs as a separate line item. In the Predecessor period, these costs totaled $354 million and are included within selling, general and administrative expenses.
Included interest accrued related to unrecognized tax benefits within the (benefit from) provision for income taxes on continuing operations. In the Predecessor period, interest accrued related to unrecognized tax benefits is included within other income (expense) - net.
Within the Successor periods of the Consolidated Statements of Cash Flows:
Included foreign currency exchange contract settlements within cash flows from operating activities, regardless of hedge accounting qualification. In the Predecessor period, EID reflected non-qualified hedge programs, specifically forward contracts, options and cash collateral activity, within cash flows from investing activities. In the Predecessor period, EID reflected cash flows from qualified programs within the line item it related to (i.e., revenue hedge cash flows presented within changes from accounts receivable).
Aligned the line items within "changes in assets and liabilities, net of effects of acquired and divested companies" to the DowDuPont presentation, including accounts and notes receivable, inventories, accounts payable, and other assets and liabilities. In the Predecessor period, the line item "changes in assets and liabilities, net of effects of acquired and divested companies" includes accounts and notes receivable, inventories and other operating assets, accounts payable and other operating liabilities, and accrued interest and income taxes.
Cash and Cash Equivalents
Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost plus accrued interest.
Restricted Cash
Restricted cash represents trust assets of $409 million and $460 million as of December 31, 2019 and 2018, respectively, and is included within other current assets on the Consolidated Balance Sheets. See Note 9 - Supplementary Information, for further information.
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months at time of purchase. Investments classified as held-to-maturity are recorded at amortized cost. The carrying value approximates fair value due to the short-term nature of the investments. Investments classified as available-for-sale are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). The cost of investments sold is determined by specific identification.
Fair Value Measurements
Under the accounting guidance for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The company periodically entersuses the following valuation techniques to measure fair value for its assets and liabilities:
|
| | |
| Level 1 | – | Quoted market prices in active markets for identical assets or liabilities; |
| | |
| Level 2 | – | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); |
| | |
| Level 3 | – | Unobservable inputs for the asset or liability, which are valued based on management's estimates of assumptions that market participants would use in pricing the asset or liability. |
Foreign Currency Translation
The company's worldwide operations utilize the U.S. dollar ("USD") or local currency as the functional currency, where applicable. The company identifies its separate and distinct foreign entities and groups the foreign entities into prepayment contractstwo categories: 1) extension of the parent or foreign subsidiaries operating in a hyper-inflationary environment (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not align with customerseither category, factors are evaluated and a judgment is made to determine the functional currency.
For foreign entities where the USD is the functional currency, all foreign currency-denominated asset and liability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, goodwill and other intangible assets, which are re-measured at historical rates. Foreign currency income and expenses are re-measured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts re-measured at historical exchange rates. Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the Agriculture segmentperiod in which they occur.
For foreign entities where the local currency is the functional currency, assets and receives advance paymentsliabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive loss in equity. Assets and liabilities denominated in other than the local currency are re-measured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the period.
The company changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Inventories
The company's inventories are valued at the lower of cost or net realizable value. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or net realizable value, whichever is lower; cost is generally determined by the average cost method.
As of December 31, 2019, approximately 59% and 41% of the company's inventories were accounted for productunder the first-in, first-out ("FIFO") and average cost methods, respectively. As of December 31, 2018, approximately 57% and 43% of the company's inventories were accounted for under the FIFO and average cost methods, respectively. Inventories accounted for under the FIFO method are primarily comprised of products with shorter shelf lives such as seeds. See Note 13 - Inventories, for further information.
The company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. In connection with the Merger, the fair value of property, plant and equipment was determined using a market approach and a replacement cost approach. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the Consolidated Balance Sheets and included in determining gain or loss on such disposals.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Goodwill and Other Intangible Assets
The company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. In connection with the Merger Transaction, the company adopted the policy of DowDuPont and performs an annual goodwill impairment test in the fourth quarter.
When testing goodwill for impairment, the company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. The company determined fair values for each of the reporting units using the income approach and the market approach. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the company uses metrics of publicly traded companies or historically completed transactions for comparable companies. See Note 15 - Goodwill and Other Intangible Assets, for further information on goodwill.
Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. Impairment exists when carrying value exceeds fair value. The company's fair value methodology is primarily based on discounted cash flow techniques.
Definite-lived intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 2 years to 25 years. The company continually evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the Consolidated Balance Sheets.
Leases
The company adopted ASU 2016-02, Leases (Topic 842), and associated ASUs related to Topic 842, in the first quarter of 2019. Prior periods are not restated and continue to be delivered in future periods. These advance payments are recorded as deferred revenue (classified as other accrued liabilities) or debt, dependingreported under ASC 840. Under Topic 842, the company determines whether an arrangement is a lease at the inception of the arrangement based on the natureterms and conditions in the contract. A contract contains a lease if there is an identified asset and the company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in other assets on the company’s Consolidated Balance Sheets. Operating lease liabilities are included in accrued and other current liabilities and other noncurrent obligations on the company’s Consolidated Balance Sheets. Finance lease assets are included in property, plant and equipment on the company’s Consolidated Balance Sheets. Finance lease liabilities are included in short-term borrowings and finance lease obligations and long-term debt on the company’s Consolidated Balance Sheets.
Operating lease ROU assets represent the company’s right to use an underlying asset for the lease term and lease liabilities represent the company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the program. Revenue associatedcompany’s leases do not provide the lessor's implicit rate, the company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with advancean initial term of 12 months or less are not recorded on the balance sheet. The company recognizes lease expense for these leases on a straight-line basis over the lease term.
The company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. In the Consolidated Statements of Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term. See Note 16 - Leases, for further information.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other valuation methodologies including present value techniques. Long-lived assets to be disposed of by sale, if material, are classified as shipmentsheld for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are madeclassified as held and title, ownershipused until they are disposed of and riskreported at the lower of loss passcarrying amount or fair value. Depreciation is recognized over the remaining useful life of the assets.
Corteva, Inc.
Notes to the customer.Consolidated Financial Statements (continued)
LicensingDerivative Instruments
Derivative instruments are reported in the Consolidated Balance Sheets at their fair values. The company utilizes derivatives to manage exposures to foreign currency exchange rates and royaltycommodity prices. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. For derivative instruments designated as cash flow hedges, the (loss) gain is reported in accumulated other comprehensive loss until it is cleared to earnings during the same period in which the hedged item affects earnings.
In the event that a derivative designated as a hedge of a firm commitment or an anticipated transaction is terminated prior to the maturation of the hedged transaction, the net gain or loss in accumulated other comprehensive income ("AOCI") generally remains in AOCI until the item that was hedged affects earnings. If a hedged transaction matures, or is recognizedsold, extinguished, or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in accordancethe measurement of the hedged transaction and the derivative is reclassified as for trading purposes. Derivatives designated as hedges of anticipated transactions are reclassified as for trading purposes if the anticipated transaction is no longer probable.
In the Predecessor period, the company reflected non-qualified hedge programs, specifically forward contracts, options and cash collateral activity, within cash flows from investing activities. In the Predecessor period, the company reflected cash flows from qualified programs within the line item it related to (i.e., revenue hedge cash flows presented within changes from accounts receivable). In the Successor periods, the company included foreign currency exchange contract settlements within cash flows from operating activities, regardless of hedge accounting qualification. See Note 22 - Financial Instruments, for additional discussion regarding the company's objectives and strategies for derivative instruments.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets in accrued and other current liabilities and other noncurrent obligations at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as accounts and notes receivable - net.
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Revenue Recognition
The company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the company determines are within the scope of FASB ASU No. 2014-09, Revenue from Contracts with agreed upon terms, whenCustomers (Topic 606), the company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 6 - Revenue, for additional information on revenue recognition.
Prepaid Royalties
The company currently has certain third-party biotechnology trait license agreements, which require up-front and variable payments subject to the licensor meeting certain conditions. These payments are satisfied,reflected as other current assets and other assets and are amortized to cost of goods sold as seeds containing the amountrespective trait technology are utilized over the life of the license. The rate of royalty amortization expense recognized is based on the company’s strategic plans which include various assumptions and estimates including product portfolio, market dynamics, farmer preferences, growth rates and projected planted acres. Changes in factors and assumptions included in the strategic plans, including potential changes to the product portfolio in favor of internally developed biotechnology, could impact the rate of recognition of the relevant prepaid royalty.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
At December 31, 2019, the balance of prepaid royalties reflected in other current assets and other assets was $440 million and $794 million, respectively. The majority of the balance of prepaid royalties relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto Company's Genuity® Roundup Ready 2 Yield® glyphosate tolerance trait and Roundup Ready 2 Xtend® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”). Each of these licensed technologies are now trademarks of the Bayer Group, which acquired the Monsanto Company in 2018. The prepaid royalty asset relates to a series of up-front, fixed or determinable and collectabilityvariable royalty payments to utilize the traits in Pioneer’s soybean product mix. The company’s historical expectation has been that the technology licensed under the Roundup Ready 2 License Agreement would be used as the primary herbicide tolerance trait platform in the Pioneer® brand soybean through the term of the agreement. DAS and MS Technologies, L.L.C. jointly developed and own the Enlist E3TM herbicide tolerance trait for soybeans which provides tolerance to 2, 4-D choline in Enlist Duo® and Enlist One® herbicides, as well as glyphosate and glufosinate herbicides. In connection with the validation of breeding plans and large-scale product development timelines, during the fourth quarter of 2019, the company is reasonably assured.accelerating the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer® brands, over the next five years. During the ramp-up period, the company is expected to significantly reduce the volume of products with the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”). The rate of royalty expense is therefore expected to significantly increase through higher amortization of the prepaid royalty as fewer seeds containing the respective trait are expected to be utilized.
In connection with the departure from these traits, beginning January 1, 2020 the company will present and disclose the non-cash accelerated prepaid royalty amortization expense as a component of Restructuring and Asset Related Charges - Net, in the Consolidated Statement of Operations. The accelerated prepaid royalty amortization expense will represent the difference between the rate of amortization based on the revised number of units expected to contain the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® trait technology and the variable cash rate per the Roundup Ready 2 License Agreement.
Further changes in factors and assumptions associated with usage of the trait platform licensed under the Roundup Ready 2 License Agreement, including the Transition Plan, could further impact the rate of recognition of the prepaid royalty and statement of operations presentation of the accelerated prepaid royalty amortization expense.
CostForeign Currency Translation
The company's worldwide operations utilize the U.S. dollar ("USD") or local currency as the functional currency, where applicable. The company identifies its separate and distinct foreign entities and groups the foreign entities into two categories: 1) extension of Goods Soldthe parent or foreign subsidiaries operating in a hyper-inflationary environment (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated and a judgment is made to determine the functional currency.
Cost of goods sold primarily includes
For foreign entities where the cost of manufactureUSD is the functional currency, all foreign currency-denominated asset and delivery, ingredients or raw materials, direct salaries, wagesliability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and benefits and overhead.
Other Operating Charges
Other operating charges includes product claim charges and recoveries, non-capitalizable costs associated with capital projectsequipment, goodwill and other operational expenses.
Researchintangible assets, which are re-measured at historical rates. Foreign currency income and Development
Research and development costsexpenses are expensed as incurred. Research and development expense includes costs (primarily consisting of employee costs, materials, contract services, research agreements, and other external spend) relatingre-measured at average exchange rates in effect during the year, except for expenses related to the discovery and development of new products, enhancement of existing products and regulatory approval of new and existing products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily include selling and marketing expenses, commissions, functional costs, and business management expenses.
Cash and Cash Equivalents
Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carriedbalance sheet amounts re-measured at cost plus accrued interest.
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months at time of purchase. Investments classified as held-to-maturity are recorded at amortized cost. The carrying value approximates fair value due to the short-term nature of the investments. Investments classified as available-for-sale are carried at estimated fair value with unrealizedhistorical exchange rates. Exchange gains and losses recordedarising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive income (loss).
Fair Value Measurements
Underloss in equity. Assets and liabilities denominated in other than the accounting guidance for fair value measurements and disclosures, a fair value hierarchy was established that prioritizeslocal currency are re-measured into the inputslocal currency prior to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)translation into USD and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level withinresultant exchange gains or losses are included in income in the fair value hierarchy is based onperiod in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the lowest level of any input that is significant to the fair value measurement.period.
The company useschanges the following valuation techniques to measure fair value forfunctional currency of its assetsseparate and liabilities:distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
|
| | |
Level 1 | – | Quoted market prices in active markets for identical assets or liabilities; |
| | |
Level 2 | – | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); |
| | |
Level 3 | – | Unobservable inputs for the asset or liability, which are valued based on management's estimates of assumptions that market participants would use in pricing the asset or liability. |
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Inventories
The company's inventories are valued at the lower of cost or net realizable value. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or net realizable value, whichever is lower; cost is generally determined by the average cost method.
As of December 31, 20162019, approximately 59% and 2015, approximately 55, 30 and 15 percent41% of the company’scompany's inventories were accounted for under the first-in, first-out (FIFO),("FIFO") and average cost methods, respectively. As of December 31, 2018, approximately 57% and last-in, first-out (LIFO)43% of the company's inventories were accounted for under the FIFO and average cost methods, respectively. Inventories accounted for under the FIFO method are primarily comprised of products with shorter shelf lives such as seeds, certain food-ingredients and enzymes.seeds. See Note 13 - Inventories, for further information.
The company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment isare carried at cost less accumulated depreciation. In connection with the Merger, the fair value of property, plant and equipment was determined using a market approach and a replacement cost approach. Depreciation is based on the estimated service lives of depreciable assets and is depreciatedcalculated using the straight-line method. Substantially all equipmentFully depreciated assets are retained in property and buildingsaccumulated depreciation accounts until they are depreciated over useful lives rangingremoved from 15 to 25 years. Capitalizable costs associated with computer software for internal use are amortized on a straight-line basis over 5 to 7 years.service. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the Consolidated Balance Sheets and included in determining gain or loss on such disposals.
Maintenance and repairs are chargedCorteva, Inc.
Notes to operations; replacements and improvements are capitalized.the Consolidated Financial Statements (continued)
Goodwill and Other Intangible Assets
Goodwill representsThe company records goodwill when the future economic benefits arising from other assets acquired inpurchase price of a business combinationacquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that arethe fair value of a reporting unit has more likely than not individually identifieddeclined below its carrying value. In connection with the Merger Transaction, the company adopted the policy of DowDuPont and separately recognized.performs an annual goodwill impairment test in the fourth quarter.
When testing goodwill for impairment, the company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. The company determined fair values for each of the reporting units using the income approach and the market approach. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the company uses metrics of publicly traded companies or historically completed transactions for comparable companies. See Note 15 - Goodwill and indefinite-livedOther Intangible Assets, for further information on goodwill.
Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. Impairment exists when carrying value exceeds fair value. The company's fair value methodology is primarily based on discounted cash flow techniques.
Definite-lived intangible assets such as purchased and licensed technology, patents and customer lists are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 12 years to 20 years or amortized based on units of production.25 years. The company continually evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the Consolidated Balance Sheets.
Leases
The company adopted ASU 2016-02, Leases (Topic 842), and associated ASUs related to Topic 842, in the first quarter of 2019. Prior periods are not restated and continue to be reported under ASC 840. Under Topic 842, the company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in other assets on the company’s Consolidated Balance Sheets. Operating lease liabilities are included in accrued and other current liabilities and other noncurrent obligations on the company’s Consolidated Balance Sheets. Finance lease assets are included in property, plant and equipment on the company’s Consolidated Balance Sheets. Finance lease liabilities are included in short-term borrowings and finance lease obligations and long-term debt on the company’s Consolidated Balance Sheets.
Operating lease ROU assets represent the company’s right to use an underlying asset for the lease term and lease liabilities represent the company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the company’s leases do not provide the lessor's implicit rate, the company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The company recognizes lease expense for these leases on a straight-line basis over the lease term.
The company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. In the Consolidated Statements of Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term. See Note 16 - Leases, for further information.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other valuation methodologies including present value techniques. Long-lived assets to be disposed of other than by sale, are classified as held for use until their disposal. Long-lived assets to be disposed of by saleif material, are classified as held for sale and are reported at the lower of carrying amount or fair market value less cost to sell. Depreciationsell, and depreciation is discontinued for long-livedceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value. Depreciation is recognized over the remaining useful life of the assets.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Derivative Instruments
Derivative instruments are reported in the Consolidated Balance Sheets at their fair values. The company utilizes derivatives to manage exposures to foreign currency exchange rates and commodity prices. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. For derivative instruments designated as cash flow hedges, the (loss) gain is reported in accumulated other comprehensive loss until it is cleared to earnings during the same period in which the hedged item affects earnings.
In the event that a derivative designated as a hedge of a firm commitment or an anticipated transaction is terminated prior to the maturation of the hedged transaction, the net gain or loss in accumulated other comprehensive income ("AOCI") generally remains in AOCI until the item that was hedged affects earnings. If a hedged transaction matures, or is sold, extinguished, or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in the measurement of the hedged transaction and the derivative is reclassified as for sale.trading purposes. Derivatives designated as hedges of anticipated transactions are reclassified as for trading purposes if the anticipated transaction is no longer probable.
Royalty ExpenseIn the Predecessor period, the company reflected non-qualified hedge programs, specifically forward contracts, options and cash collateral activity, within cash flows from investing activities. In the Predecessor period, the company reflected cash flows from qualified programs within the line item it related to (i.e., revenue hedge cash flows presented within changes from accounts receivable). In the Successor periods, the company included foreign currency exchange contract settlements within cash flows from operating activities, regardless of hedge accounting qualification. See Note 22 - Financial Instruments, for additional discussion regarding the company's objectives and strategies for derivative instruments.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets in accrued and other current liabilities and other noncurrent obligations at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as accounts and notes receivable - net.
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Revenue Recognition
The company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the company determines are within the scope of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), the company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 6 - Revenue, for additional information on revenue recognition.
Prepaid Royalties
The company’s Agriculture segmentcompany currently has certain third partythird-party biotechnology trait license agreements, which require up-front and variable payments subject to the licensor meeting certain conditions. These payments are reflected as prepaid expensesother current assets and other assets and are amortized to cost of goods sold as seeds containing the respective trait technology are utilized over the life of the license. The company evaluatesrate of royalty amortization expense recognized is based on the carrying valuecompany’s strategic plans which include various assumptions and estimates including product portfolio, market dynamics, farmer preferences, growth rates and projected planted acres. Changes in factors and assumptions included in the strategic plans, including potential changes to the product portfolio in favor of internally developed biotechnology, could impact the rate of recognition of the relevant prepaid royalties when events or changes in circumstances indicate the carrying value may not be recoverable.royalty.
Environmental
Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities do not include claims against third parties and are not discounted.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
At December 31, 2019, the balance of prepaid royalties reflected in millions, except per share)
Costs related to environmental remediationother current assets and restoration are charged to expense. Other environmental costs are also charged to expense unless they increase the valueother assets was $440 million and $794 million, respectively. The majority of the property or reduce or prevent contamination from future operations,balance of prepaid royalties relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto Company's Genuity® Roundup Ready 2 Yield® glyphosate tolerance trait and Roundup Ready 2 Xtend® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”). Each of these licensed technologies are now trademarks of the Bayer Group, which case, they are capitalized.
Litigation
acquired the Monsanto Company in 2018. The company accrues for liabilities relatedprepaid royalty asset relates to litigation matters whena series of up-front, fixed and variable royalty payments to utilize the information available indicates that it is probable that a liabilitytraits in Pioneer’s soybean product mix. The company’s historical expectation has been incurredthat the technology licensed under the Roundup Ready 2 License Agreement would be used as the primary herbicide tolerance trait platform in the Pioneer® brand soybean through the term of the agreement. DAS and MS Technologies, L.L.C. jointly developed and own the Enlist E3TM herbicide tolerance trait for soybeans which provides tolerance to 2, 4-D choline in Enlist Duo® and Enlist One® herbicides, as well as glyphosate and glufosinate herbicides. In connection with the validation of breeding plans and large-scale product development timelines, during the fourth quarter of 2019, the company is accelerating the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer® brands, over the next five years. During the ramp-up period, the company is expected to significantly reduce the volume of products with the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”). The rate of royalty expense is therefore expected to significantly increase through higher amortization of the prepaid royalty as fewer seeds containing the respective trait are expected to be utilized.
In connection with the departure from these traits, beginning January 1, 2020 the company will present and disclose the non-cash accelerated prepaid royalty amortization expense as a component of Restructuring and Asset Related Charges - Net, in the Consolidated Statement of Operations. The accelerated prepaid royalty amortization expense will represent the difference between the rate of amortization based on the revised number of units expected to contain the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® trait technology and the amountvariable cash rate per the Roundup Ready 2 License Agreement.
Further changes in factors and assumptions associated with usage of the liability can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense intrait platform licensed under the period incurred.
Insurance/Self-Insurance
The company self-insures certain risks where permitted by law or regulation,Roundup Ready 2 License Agreement, including workers' compensation, vehicle liability and employee related benefits. Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors and other actuarial assumptions. For other risks, the company uses a combinationTransition Plan, could further impact the rate of insurance and self-insurance, reflecting comprehensive reviews of relevant risks. A receivable for an insurance recovery is generally recognized when the loss has occurred and collection is considered probable.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basisrecognition of the company's assetsprepaid royalty and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earningsstatement of subsidiaries and affiliates, except for subsidiaries in which earnings are deemed to be indefinitely reinvested. Investment tax credits or grants are accounted for inoperations presentation of the period earned (the flow-through method). Interest accrued related to unrecognized tax benefits is included in miscellaneous income and expenses, net, within other income, net. Income tax related penalties are included in the provision for income taxes.accelerated prepaid royalty amortization expense.
Foreign Currency Translation
The company's worldwide operations utilize the U.S. dollar (USD)("USD") or local currency as the functional currency, where applicable. The company identifies its separate and distinct foreign entities and groups the foreign entities into two categories: 1) extension of the parent or foreign subsidiaries operating in a hyper-inflationary environment (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated and a judgment is made to determine the functional currency.
For foreign entities where the USD is the functional currency, all foreign currency-denominated asset and liability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, goodwill and other intangible assets, which are re-measured at historical rates. Foreign currency income and expenses are re-measured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts re-measured at historical exchange rates. Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive income (loss)loss in equity. Assets and liabilities denominated in other than the local currency are re-measured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the period.
The company changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Inventories
The company's inventories are valued at the lower of cost or net realizable value. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or net realizable value, whichever is lower; cost is generally determined by the average cost method.
As a resultof December 31, 2019, approximately 59% and 41% of the separationcompany's inventories were accounted for under the first-in, first-out ("FIFO") and average cost methods, respectively. As of its Performance Chemicals segment, coupledDecember 31, 2018, approximately 57% and 43% of the company's inventories were accounted for under the FIFO and average cost methods, respectively. Inventories accounted for under the FIFO method are primarily comprised of products with shorter shelf lives such as seeds. See Note 13 - Inventories, for further information.
The company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. In connection with the company’s redesign initiative,Merger, the functional currency at certainfair value of property, plant and equipment was determined using a market approach and a replacement cost approach. Depreciation is based on the company’s foreign entities was re-evaluated which,estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in some cases, resultedproperty and accumulated depreciation accounts until they are removed from service. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the Consolidated Balance Sheets and included in a change in the foreign entities' functional currency during 2015.determining gain or loss on such disposals.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Goodwill and Other Intangible Assets
The company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in millions, except per share)
circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. In connection with the Merger Transaction, the company adopted the policy of DowDuPont and performs an annual goodwill impairment test in the fourth quarter.
Venezuelan Foreign Currency
VenezuelaWhen testing goodwill for impairment, the company has the option to first perform qualitative testing to determine whether it is consideredmore likely than not that the fair value of a highly inflationary economy under GAAPreporting unit is less than its carrying value. If the company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. The company determined fair values for each of the reporting units using the income approach and the USDmarket approach. Under the income approach, fair value is determined based on the functional currencypresent value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the company uses metrics of publicly traded companies or historically completed transactions for comparable companies. See Note 15 - Goodwill and Other Intangible Assets, for further information on goodwill.
Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. Impairment exists when carrying value exceeds fair value. The company's subsidiaries in Venezuela.fair value methodology is primarily based on discounted cash flow techniques.
Definite-lived intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 2 years to 25 years. The official exchange rate continues to be set throughcompany continually evaluates the National Center for Foreign Commerce (CENCOEX, previously CADIVI). Based on its evaluationreasonableness of the restrictions and limitations affecting the availabilityuseful lives of specific exchange rate mechanisms, management concluded in the second quarter of 2014 that the Alternative Currency Exchange System (SICAD 2) auction process would be the most likely mechanism available. As a result, in the second quarter of 2014, the company changedthese assets. Once these assets are fully amortized, they are removed from the official exchange rateConsolidated Balance Sheets.
Leases
The company adopted ASU 2016-02, Leases (Topic 842), and associated ASUs related to the SICAD 2 exchange rate, which resulted in a pre-tax charge of $58. The charge is recorded within other income, net in the company's Consolidated Income Statements for the year ended December 31, 2014.
During the first quarter of 2015, the Venezuelan government enacted additional changes to the country's foreign exchange systems including the introduction of the Foreign Exchange Marginal System (SIMADI) auction process. Management has concluded that the SIMADI auction process would be the most likely exchange mechanism available. As a result, effectiveTopic 842, in the first quarter of 2015,2019. Prior periods are not restated and continue to be reported under ASC 840. Under Topic 842, the company changeddetermines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in other assets on the company’s Consolidated Balance Sheets. Operating lease liabilities are included in accrued and other current liabilities and other noncurrent obligations on the company’s Consolidated Balance Sheets. Finance lease assets are included in property, plant and equipment on the company’s Consolidated Balance Sheets. Finance lease liabilities are included in short-term borrowings and finance lease obligations and long-term debt on the company’s Consolidated Balance Sheets.
Operating lease ROU assets represent the company’s right to use an underlying asset for the lease term and lease liabilities represent the company’s obligation to make lease payments arising from the SICAD 2lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the company’s leases do not provide the lessor's implicit rate, the company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The company recognizes lease expense for these leases on a straight-line basis over the lease term.
The company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. In the Consolidated Statements of Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term. See Note 16 - Leases, for further information.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other valuation methodologies including present value techniques. Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value. Depreciation is recognized over the remaining useful life of the assets.
Corteva, Inc.
Notes to the SIMADI exchange rate, to re-measure its Bolivar Fuertes (VEF) denominated net monetary assets which resulted in a pre-tax charge of $3. The charge is recorded within other income, net in the company's Consolidated IncomeFinancial Statements for the year ended December 31, 2015. The remaining net monetary assets and non-monetary assets are immaterial at December 31, 2016 and 2015, respectively.(continued)
Hedging and Trading ActivitiesDerivative Instruments
Derivative instruments are reported in the Consolidated Balance Sheets at their fair values. For derivative instruments designated as fair value hedges, changes in the fair values of the derivative instruments will generally be offset in the income statement by changes in the fair value of the hedged items. For derivative instruments designated as cash flow hedges, the effective portion of any hedge is reported in accumulated other comprehensive income (loss) until it is clearedThe company utilizes derivatives to earnings during the same period in which the hedged item affects earnings. The ineffective portion of all hedges is recognized in current period earnings.manage exposures to foreign currency exchange rates and commodity prices. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. For derivative instruments designated as cash flow hedges, the (loss) gain is reported in accumulated other comprehensive loss until it is cleared to earnings during the same period in which the hedged item affects earnings.
In the event that a derivative designated as a hedge of a firm commitment or an anticipated transaction is terminated prior to the maturation of the hedged transaction, gainsthe net gain or losses realized at termination are deferred and includedloss in accumulated other comprehensive income ("AOCI") generally remains in AOCI until the measurement of theitem that was hedged transaction.affects earnings. If a hedged transaction matures, or is sold, extinguished, or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in the measurement of the hedged transaction and the derivative is reclassified as for trading purposes. Derivatives designated as hedges of anticipated transactions are reclassified as for trading purposes if the anticipated transaction is no longer probable.
Cash flows from derivative instruments accounted for as either fair value hedges orIn the Predecessor period, the company reflected non-qualified hedge programs, specifically forward contracts, options and cash flow hedges are reported in the same category as thecollateral activity, within cash flows from investing activities. In the items being hedged. CashPredecessor period, the company reflected cash flows from all other derivative instruments are generally reported as investingqualified programs within the line item it related to (i.e., revenue hedge cash flows presented within changes from accounts receivable). In the Successor periods, the company included foreign currency exchange contract settlements within cash flows from operating activities, in the Consolidated Statementsregardless of Cash Flows.hedge accounting qualification. See Note 1922 - Financial Instruments, for additional discussion regarding the company's objectives and strategies for derivative instruments.
Recent Accounting PronouncementsEnvironmental Matters
Accounting Pronouncements ImplementedAccruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in 2016the Consolidated Balance Sheets in accrued and other current liabilities and other noncurrent obligations at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as accounts and notes receivable - net.
In November 2015,
Environmental costs are capitalized if the Financial Accounting Standards Board (FASB) issuedcosts extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Revenue Recognition
The company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the company determines are within the scope of FASB ASU No. 2015-17, Income Taxes2014-09, Revenue from Contracts with Customers (Topic 740)606), Balance Sheet Classificationthe company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 6 - Revenue, for additional information on revenue recognition.
Prepaid Royalties
The company currently has certain third-party biotechnology trait license agreements, which require up-front and variable payments subject to the licensor meeting certain conditions. These payments are reflected as other current assets and other assets and are amortized to cost of Deferred Taxes. The amendments undergoods sold as seeds containing the new guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities asrespective trait technology are utilized over the life of the beginninglicense. The rate of an interim or annual reporting period. The amendmentsroyalty amortization expense recognized is based on the company’s strategic plans which include various assumptions and estimates including product portfolio, market dynamics, farmer preferences, growth rates and projected planted acres. Changes in this ASU may be applied either prospectivelyfactors and assumptions included in the strategic plans, including potential changes to all deferred tax liabilities and assets or retrospectively to all periods presented. The company adopted this guidance effective January 1, 2016 on a retrospective basis. As a resultthe product portfolio in favor of internally developed biotechnology, could impact the rate of recognition of the adoption, $368 and $37 of deferred tax assets and liabilities, respectively, were reclassified from current to noncurrent assets and liabilities, respectively, as of December 31, 2015.relevant prepaid royalty.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
At December 31, 2019, the balance of prepaid royalties reflected in millions, exceptother current assets and other assets was $440 million and $794 million, respectively. The majority of the balance of prepaid royalties relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto Company's Genuity® Roundup Ready 2 Yield® glyphosate tolerance trait and Roundup Ready 2 Xtend® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”). Each of these licensed technologies are now trademarks of the Bayer Group, which acquired the Monsanto Company in 2018. The prepaid royalty asset relates to a series of up-front, fixed and variable royalty payments to utilize the traits in Pioneer’s soybean product mix. The company’s historical expectation has been that the technology licensed under the Roundup Ready 2 License Agreement would be used as the primary herbicide tolerance trait platform in the Pioneer® brand soybean through the term of the agreement. DAS and MS Technologies, L.L.C. jointly developed and own the Enlist E3TM herbicide tolerance trait for soybeans which provides tolerance to 2, 4-D choline in Enlist Duo® and Enlist One® herbicides, as well as glyphosate and glufosinate herbicides. In connection with the validation of breeding plans and large-scale product development timelines, during the fourth quarter of 2019, the company is accelerating the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer® brands, over the next five years. During the ramp-up period, the company is expected to significantly reduce the volume of products with the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”). The rate of royalty expense is therefore expected to significantly increase through higher amortization of the prepaid royalty as fewer seeds containing the respective trait are expected to be utilized.
In connection with the departure from these traits, beginning January 1, 2020 the company will present and disclose the non-cash accelerated prepaid royalty amortization expense as a component of Restructuring and Asset Related Charges - Net, in the Consolidated Statement of Operations. The accelerated prepaid royalty amortization expense will represent the difference between the rate of amortization based on the revised number of units expected to contain the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® trait technology and the variable cash rate per share)the Roundup Ready 2 License Agreement.
Further changes in factors and assumptions associated with usage of the trait platform licensed under the Roundup Ready 2 License Agreement, including the Transition Plan, could further impact the rate of recognition of the prepaid royalty and statement of operations presentation of the accelerated prepaid royalty amortization expense.
Cost of Goods Sold
Successor periods - Cost of goods sold primarily includes the cost of manufacture and delivery, ingredients or raw materials, direct salaries, wages and benefits and overhead, non-capitalizable costs associated with capital projects, royalties and other operational expenses. No amortization of intangibles is included within costs of goods sold.
Predecessor period - Cost of goods sold primarily includes the cost of manufacture and delivery, ingredients or raw materials, direct salaries, wages and benefits, and overhead.
Other Operating Charges
Predecessor period - Other operating charges includes product claim charges and recoveries, non-capitalizable costs associated with capital projects, and other operational expenses.
Research and Development
Research and development costs are expensed as incurred. Research and development expense includes costs (primarily consisting of employee costs, materials, contract services, research agreements, and other external spend) relating to the discovery and development of new products, enhancement of existing products, and regulatory approval of new and existing products.
Selling, General and Administrative Expenses
Successor periods - Selling, general and administrative expenses primarily include selling and marketing expenses, commissions, functional costs, and business management expenses.
Predecessor period - Selling, general and administrative expenses primarily include selling and marketing expenses, commissions, functional costs, business management expenses, and integration and separation costs.
Integration and Separation Costs
Successor periods - Integration and separation costs includes costs incurred to prepare for and close the Merger, post-Merger integration expenses, and costs incurred to prepare for the Business Separations. These costs primarily consist of financial advisory, information technology, legal, accounting, consulting and other professional advisory fees associated with preparation and execution of these activities.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Litigation and Other Contingencies
Accruals for legal matters and other contingencies are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Legal costs, such as outside counsel fees and expenses, are charged to expense in the period incurred.
Severance Costs
Severance benefits are provided to employees under the company's ongoing benefit arrangements. Severance costs are accrued when management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated.
Insurance/Self-Insurance
The company self-insures certain risks where permitted by law or regulation, including workers' compensation, vehicle liability and employee related benefits. Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors and other actuarial assumptions. For other risks, the company uses a combination of insurance and self-insurance, reflecting comprehensive reviews of relevant risks. A receivable for an insurance recovery is generally recognized when the loss has occurred and collection is considered probable.
Income Taxes
The company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date (see Note 10 - Income Taxes, for further information relating to the enactment of the Tax Cuts and Job Act).
The company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The current portion of uncertain income tax positions is included in income taxes payable and the long-term portion is included in other noncurrent obligations in the Consolidated Balance Sheets.
Income tax related penalties are included in the provision for income taxes in the Consolidated Statements of Operations. Interest accrued related to unrecognized tax benefits is included within the (benefit from) provision for income taxes from continuing operations in the Consolidated Statements of Operations in the Successor periods. In the Predecessor period, interest accrued related to unrecognized tax benefits is included within other income (expense) - net in the Consolidated Statements of Operations.
Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the company’s common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.
Segments
As a result of the Corteva Distribution, the company changed its reportable segments to seed and crop protection to reflect the manner in which the company's chief operating decision maker assesses performance and allocates resources. The company also updated its reporting units to align with the level at which discrete financial information is available for review by management.
Prior year segment information has been revised to conform to the current presentation, excluding the Predecessor and Successor periods of 2017. See Note 25 - Segment Information, for further information.
NOTE 3 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In May 2015,February 2016, the FASB issued ASU No. 2015-07, Fair Value Measurement2016-02, Leases (Topic 820)842), Disclosuresand associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on their balance sheet the assets and liabilities for Investmentsthe rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and measurement in Certain Entities that Calculate Net Asset Value per Sharethe financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from previous U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014 (Topic 606).
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The company adopted this standard 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. An entity may choose to use either (1) its Equivalent. This guidance removeseffective date or (2) the requirement to categorize withinbeginning of the fair value hierarchy all investments for which fair value is measured usingearliest comparative period presented in the net asset value per share practical expedient.financial statement as its date of initial application. The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entitycompany has elected to measureapply the fairtransition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods are not restated and continue to be reported in accordance with historic accounting under ASC 840 (Leases). In addition, the company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, does not require reassessment of prior conclusions related to contracts containing a lease, lease classification, and initial direct lease costs. As an accounting policy election, the company chose to not apply the standard to certain existing land easements, excluded short-term leases (term of 12 months or less) from the balance sheet and will account for nonlease and lease components in a contract as a single component for all asset classes. See Note 16 - Leases, for additional information.
The following table summarizes the impact of adoption to the company’s Consolidated Balance Sheet:
|
| | | | | | | | | |
| (In millions, except per share amounts) | As Reported December 31, 20181 | Effect of Adoption of ASU 2016-02 | Updated January 1, 2019 |
| Assets | | | |
| Property, plant and equipment - net of accumulated depreciation | $ | 4,544 |
| $ | 9 |
| $ | 4,553 |
|
| Other assets | $ | 1,932 |
| $ | 546 |
| $ | 2,478 |
|
| Assets of discontinued operations - non-current | $ | 56,545 |
| $ | 461 |
| $ | 57,006 |
|
| | | | |
| Liabilities and Equity | | | |
| Current liabilities | | | |
| Short-term borrowings and finance lease obligations | $ | 2,154 |
| $ | 1 |
| $ | 2,155 |
|
| Accrued and other current liabilities | $ | 4,005 |
| $ | 143 |
| $ | 4,148 |
|
| Liabilities of discontinued operations - current | $ | 3,167 |
| $ | 141 |
| $ | 3,308 |
|
| | | | |
| Long-Term Debt | $ | 5,784 |
| $ | 8 |
| $ | 5,792 |
|
| Other noncurrent obligations | $ | 1,795 |
| $ | 403 |
| $ | 2,198 |
|
| Liabilities of discontinued operations - non-current | $ | 5,484 |
| $ | 320 |
| $ | 5,804 |
|
| |
| 1. | Includes adjustments for discontinued operations and common control business combination. |
The adoption of the new guidance did not have a material impact on the company's Consolidated Statement of Operations and had no impact on the Consolidated Statement of Cash Flows.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. As a result, most of the guidance in ASC 718 associated with employee share-based payments, including most requirements related to classification and measurement, applies to nonemployee share-based payment arrangements. The company adopted the guidance in the first quarter of 2019 and it did not have a material impact to company's financial position, results of operations or cash flows.
In July 2019, the FASB issued ASU 2019-07, “Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update)” (“ASU 2019-07”). ASU 2019-07 aligns the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. ASU 2019-07 was effective immediately. The adoption of ASU 2019-07 did not have a material impact on the company's financial position, results of operations or cash flows.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Accounting Guidance Issued But Not Adopted as of December 31, 2019
In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326): Credit Losses - Measurement of Credit Losses on Financial Statements, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The amortized cost basis of financial assets should be reduced by expected credit losses to present the net carrying value usingin the financial statements at the amount expected to be collected. The measurement of expected credit losses is based on past events, historical experience, current conditions and forecasts that practical expedient.affect the collectability of the financial assets. Additionally, credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The new standard is effective for fiscal years, and periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning January 1, 2019. In 2019, the FASB subsequently issued ASU 2019-04, ASU 2019-05, and ASU 2019-11, respectively, which contained updates to ASU 2016-13. The company does not expect the impact of adoption to be material.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. Accordingly, this amendment added unit of account guidance in Topic 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of Topic 606. In addition, the amendment provides certain guidance on presenting the collaborative arrangement transaction together with Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2015,2019 and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presentedyears and early adoption is permissible.permitted. This ASU is to be applied retrospectively to the date of initial application of Topic 606. The company adopted this guidance effective January 1, 2016. The guidance only impacts disclosure and diddoes not expect the impact the company's Consolidated Financial Statements.
New Accounting Pronouncementsof adoption to be Implementedmaterial.
In October 2016,December 2019, the FASB issued ASU No. 2016-16,2019-12, Income Taxes (Topic 740), Intra-Entity Transfers: Simplifying the Accounting for Income Taxes, which as part of Assets Other Than Inventory.the FASB’s Simplification Initiative to identify, evaluate, and improve areas of U.S. GAAP for which cost and complexity can be reduced, while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU amends ASC 740, Income Taxes, by removing certain exceptions to the general principles, and clarifying and amending current guidance. The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The guidancestandard is effective for annual reporting periods beginning after December 15, 2017, including interimfiscal years, and periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period (as of the first interim period if an entity issues interim financial statements). The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The company is currently evaluating the impact this guidance will have on the Consolidated Financial Statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The new guidance makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years, beginning after December 15, 2017, and interim periods within those fiscal years.2020. Early adoption is permitted, including adoptionhowever all amended guidance must be adopted in an interim period. If an entity early adopts the amendments in an interimsame period any adjustmentsand should be reflected as of the beginning of the fiscal year that includes thatannual period if initially adopted and applied during an interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the company would be required to apply the amendments prospectively as of the earliest date practicable. The company is currently evaluating the impact this guidance will have on the Consolidated Financial Statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The ASU was issued as part of the FASB Simplification Initiative and involves several aspects of accounting for shared-based payment transactions, including income tax consequences, forfeitures and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The company will adopt this standard on January 1, 2017. The primary effects of adoption for the company relate to changes in classification within the Consolidated Statements of Cash Flows and recognition of tax effects related to share-based payments. The new guidance requires all tax related cash flows resulting from share-based payments to be reported as cash provided by operating activities in the Consolidated Statements of Cash Flows. This is a change from the current requirement to present excess tax benefits as cash inflows from financing activities and tax deficiencies as cash outflows from operating activities. As permitted by the standard, the company has elected to adopt this reclassification on a retrospective basis. The updated guidance also requires all tax effects related to share-based payments to be recognized within the provision for income taxes in the Consolidated Income Statements. Previously excess tax benefits and tax deficiencies were recognized in additional paid-in capital in the Consolidated Balance Sheets. The standard does not permit retrospective adoption of this update. As such, the company will adopt this update on a prospective basis. The remaining updates required by this standard are not expected to have a material impact to the company’s Consolidated Financial Statements.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under the new guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, requiring application at the beginning of the earliest comparative period presented. The company is currently evaluating the impact of adopting this guidanceguidance.
NOTE 4 - COMMON CONTROL BUSINESS COMBINATIONS
DAS Common Control Combination
Based on its financial position and results of operations. The company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases as discussed in Note 15.
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was further updated in March, April, May, and December 2016. The new guidance clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (IFRS). The core principlean evaluation of the guidance is that an entity should recognize revenue to depictprovisions of ASC 805 (Business Combinations), Corteva and DAS represent entities under common control, as both shared DowDuPont as their parent company. As a result, the transferassets, liabilities and operations of promised goods or services to customers in an amount that reflectsCorteva and DAS are combined at their historical carrying amounts, and all historical periods are adjusted as if Corteva and DAS had been combined since the consideration to whichMerger Effectiveness Time, when the entity expects to be entitled in exchange for those goods and services. The new standard also will result in additional disclosure requirements to describeentities were first under common control. Accordingly, the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved a deferral of the ASU effective date from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. The standard permits the use of either the retrospective or modified retrospective (cumulative-effect) transition method of adoption. The company continues to evaluate the impact of the new standard on itsaccompanying Consolidated Financial Statements and disclosures. BasedNotes thereto have been retrospectively revised to include the transferred net assets and results of operations of DAS beginning on September 1, 2017. Refer to Note 1 - Background and Basis of Presentation, for additional information on the analysis conducted to date, the company does not believe the impact upon adoption will be material to its Consolidated Financial Statements. The company plans to adopt the standard in the first quarter of 2018 under the modified retrospective transition method.common control combination.
2. PLANNED MERGER WITH DOW
On December 11, 2015, DuPont and The Dow Chemical Company (Dow) announced entry into an Agreement and Plan of Merger (the Merger Agreement), under which the companies will combine in an all-stock merger of equals subject to satisfaction of customary closing conditions, including receipt of regulatory approval. The combined company will be named DowDuPont Inc. (DowDuPont). Following the consummation of the merger, DuPont and Dow intend to pursue, subject to the receipt of approval by the board of directors of DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (collectively, the Intended Business Separations).
Subject to the terms and conditions of the Merger Agreement, each share of common stock, par value $0.30 per share, of DuPont (DuPont Common Stock) issued and outstanding immediately prior to the Effective Time, excluding any shares of DuPont Common Stock that are held in treasury, will be converted into the right to receive 1.2820 shares common stock, par value $0.01 per share, of DowDuPont (DowDuPont Common Stock), for each share of DuPont Common Stock with cash in lieu of any fractional share of DowDuPont. Each share of DuPont Preferred Stock-$4.50 Series and DuPont Preferred Stock-$3.50 Series, in each case issued and outstanding immediately prior to the Effective Time, shall remain issued and outstanding and be unaffected by the merger.
Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time, each share of common stock, par value $2.50 per share, of Dow (the Dow Common Stock) issued and outstanding immediately prior to the Effective Time, excluding any shares of Dow Common Stock that are held in treasury, will be converted into the right to receive one share of DowDuPont Common Stock. On December 30, 2016, (the Dow Preferred Conversion Date) each share of Cumulative Convertible Perpetual Preferred Stock, Series A, par value $1.00 per share, of Dow (the Dow Preferred) issued and outstanding immediately prior thereto, converted to 24.2010 shares of Dow Common Stock. As a result, on the Dow Preferred Conversion Date, Dow issued 96,804,000 shares of Common Stock.
Based on the aforementioned 1.2820 exchange ratio set forth in the Merger Agreement and the conversion of the Dow Preferred to Dow Common Stock, it is expected that DuPont common stockholders and Dow common stockholders will own approximately 48 percent and 52 percent, respectively, of the outstanding shares of DowDuPont Common Stock immediately following the Effective Time.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Conditions to the Merger
The completionfollowing table summarizes the final recording of the merger is subject to the satisfaction or waiverassets and liabilities of certain conditions, including (i) the receipt of certain domestic and foreign approvals under competition laws; (ii) DuPont and Dow reasonably determining that the merger does not constitute an acquisition of a 50 percent or greater interest in DuPont and Dow, respectively, under the principles of Section 355(e) of the Internal Revenue Code; (iii) the absence of governmental restraints or prohibitions preventing the consummation of the merger; and (iv) the approval of the shares of DowDuPont Common Stock to be issued in the merger for listing on the NYSE. The obligation of each of DuPont and Dow to consummate the merger is also conditioned on, among other things, the receipt of a tax opinion from the tax counsel as to the tax-free nature of the merger, and the truth and correctness of the representations and warranties made by the other partyDAS at their respective carrying values as of the closing date (subject to certain “materiality” and “material adverse effect” qualifiers).September 1, 2017:
|
| | | |
| (In millions) | September 1, 2017 |
| Cash and cash equivalents | $ | 98 |
|
| Accounts and notes receivable - net | 1,377 |
|
| Inventories | 2,133 |
|
| Other current assets | 130 |
|
| Investments in nonconsolidated affiliates | 50 |
|
| Property, plant and equipment - net | 1,555 |
|
| Goodwill | 1,472 |
|
| Other intangible assets | 130 |
|
| Deferred income taxes | 230 |
|
| Other assets | 97 |
|
| Short-term borrowings and finance lease obligations | 6 |
|
| Accounts payable | 1,414 |
|
| Income taxes payable | 103 |
|
| Accrued and other current liabilities | 482 |
|
| Long-term debt | 27 |
|
| Deferred income tax liabilities | 66 |
|
| Pension and other post employment benefits - noncurrent | 126 |
|
| Other noncurrent obligations | 170 |
|
Additional information about the Merger Agreement and the Intended Business Separations is set forth in the company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the SEC) on December 11, 2015; the company’s 2015 Annual Report filed with the SEC on February 4, 2016 and the registration statement on Form S-4 (File No. 333-209869) (as amended, the Registration Statement) filed by DowDuPont and declared effective by the SEC on June 9, 2016. The Registration Statement constitutes a prospectus of DowDuPont and includes a joint proxy statement of Dow and DuPont. The joint proxy statement relates to the separate special meetings of the companies’ respective common stock shareholders of record as of the close of business on June 2, 2016, to adopt the Merger Agreement and related matters. DuPont's special meeting of stockholders was held on July 20, 2016, which resulted in a vote for adoption of the Merger Agreement and approval of related matters.
Consummation of the merger is contingent on satisfaction of customary closing conditions, including the receipt of regulatory approval from the U.S., European Union, China, Brazil and Canada. Subject to satisfaction of these customary closing conditions, including the receipt of regulatory approvals, closing would be expected to occur in first half of 2017.
Certain Other Terms of the Merger Agreement
The Merger Agreement contains mutual customary representationsfollowing tables provide supplemental results of EID and warranties made by each of DuPont and Dow, and also contains mutual customary pre-closing covenants, including covenants, among others, (i) to operate its businesses in the ordinary course consistent with past practice and to refrain from taking certain actions without the other party’s consent, (ii) not to solicit, initiate, knowingly encourage or knowingly take any other action designed to facilitate, and, subject to certain exceptions, not to participate in any discussions or negotiations, or cooperate in any way with respect to, any inquiries or the making of, any proposal of an alternative transaction, (iii) subject to certain exceptions, not to withdraw, qualify or modify the support of its Board of DirectorsDAS, as previously reported, for the Merger Agreement and the merger, as applicable, and (iv) to use their respective reasonable best efforts to obtain governmental, regulatory and third party approvals, including by agreeing to any required divestiture of assets or business.
The Merger Agreement contains certain termination rights for each of DuPont and Dow, including in the event that (i) the merger is not consummated on or before March 15, 2017, subject to each party having the right to unilaterally extend the termination date of the Merger Agreement until June 15, 2017 (the Outside Date) in the event that the regulatory closing conditions have not been satisfied or (ii) if any restraint having the effect of preventing the consummation of the merger shall have become final and non-appealable or if any governmental entity that must grant a requisite regulatory approval has denied approval of the merger.
The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, including (i) a change in the recommendation of the Board of Directors of DuPont and Dow or (ii) a termination of the Merger Agreement by DuPont and Dow, because of a material breach by the other party or because the merger is not consummated by the Outside Date, in each case set forth in this clause (ii) at a time when there was an offer or proposal for an alternative transaction with respect to such party and such party enters into or consummates an alternative transaction within 12 months following such date of termination, DuPont and Dow, as the case may be, will pay to the other party a termination fee equal to $1,900 in cash.
During the yearsyear ended December 31, 2016 and 2015, the company incurred $386 and $10, respectively, of costs in connection with the planned merger with Dow2018 and the Intended Business Separations, including costs relating to integrationperiod September 1 through December 31, 2017:
|
| | | | | | | | | | | | |
| For the Year Ended December 31, 2018 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | Corteva |
| Net Sales | $ | 26,279 |
| $ | (17,638 | ) | $ | 5,646 |
| $ | 14,287 |
|
| (Loss) income from continuing operations before income taxes | $ | (4,793 | ) | $ | (2,128 | ) | $ | 115 |
| $ | (6,806 | ) |
| Loss from continuing operations after income taxes | $ | (5,013 | ) | $ | (1,753 | ) | $ | (9 | ) | $ | (6,775 | ) |
|
| | | | | | | | | | | | |
| For the Period September 1 through December 31, 2017 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | Corteva |
| Net Sales | $ | 7,053 |
| $ | (5,477 | ) | $ | 2,214 |
| $ | 3,790 |
|
| (Loss) income from continuing operations before income taxes | $ | (1,586 | ) | $ | 480 |
| $ | 645 |
| $ | (461 | ) |
| Income from continuing operations after income taxes | $ | 1,087 |
| $ | 485 |
| $ | 188 |
| $ | 1,760 |
|
| |
| 1. | Reflects discontinued operations of EID's ECP and Specialty Products Entities and adjustments primarily related to the elimination of intercompany transactions between EID and DAS for periods subsequent to the Merger, as if they were combined affiliates, and adjustments made to align historical financial statement presentation of DAS and Corteva. |
Intercompany balances and separation planning. These costs were recorded in selling, generaltransactions with Historical EID and administrative expenses in the company's Consolidated Income Statements and primarily include financial advisory, legal, accounting, consulting and other advisory fees and expenses.DAS have been eliminated.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
3.NOTE 5 - DIVESTITURES AND OTHER TRANSACTIONS
DuPont (Shenzhen) Manufacturing Limited
Separation Agreements
In March 2016,connection with the Distributions, DuPont, Corteva, and Dow (together, the “Parties” and each a “Party”) have entered into certain agreements to effect the separation, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among the Parties, and provide a framework for Corteva's relationship with Dow and DuPont following the separations and Distributions (collectively, the "Separation Agreements"). The Parties entered into, among other agreements, the following agreements:
Separation and Distribution Agreement - Effective April 1, 2019, the Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Corteva Separation Agreement").
Tax Matters Agreement - The Parties entered into an agreement effective as of April 1, 2019 as amended on June 1, 2019 that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.
Intellectual Property Cross-License Agreement - Effective as of April 1, 2019 Corteva and Dow, and effective June 1, 2019 Corteva and DuPont entered into Intellectual Property Cross-License Agreements. The Intellectual Property Cross-License Agreements set forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, and software, and certain patents and standards, allocated to another Party pursuant to the Corteva Separation Agreement.
Letter Agreement - DuPont and Corteva entered into a Letter Agreement. The Letter Agreement sets forth certain additional terms and conditions related to the Separation, including certain limitations on each party’s ability to transfer certain businesses and assets to third parties without assigning certain of such party’s indemnification obligations under the Corteva Separation Agreement to the other party to the transferee of such businesses and assets or meeting certain other alternative conditions.
DuPont
Pursuant to the Separation Agreements, DuPont and Corteva indemnifies the other against certain litigation, environmental, tax, workers' compensation and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At December 31, 2019, the indemnification assets are $22 million within accounts and notes receivable - net and $57 million within other assets in the Consolidated Balance Sheet. At December 31, 2019, the indemnification liabilities are $4 million within accrued and other current liabilities and $69 million within other noncurrent obligations in the Consolidated Balance Sheet.
Dow
Pursuant to the Separation Agreements, Dow and Corteva indemnifies the other against certain litigation, environmental, tax and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At December 31, 2019, the indemnification assets are $44 million within accounts and notes receivable - net in the Consolidated Balance Sheet. At December 31, 2019, the indemnification liabilities are $115 million within accrued and other current liabilities and $85 million within other noncurrent obligations in the Consolidated Balance Sheet.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
EID ECP Divestiture
As discussed in Note 1 - Background and Basis of Presentation, on April 1, 2019, EID completed the transfer of the entities and related assets and liabilities of EID ECP to Dow.
As a result, the financial results of EID ECP are reflected as discontinued operations, as summarized below:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Net sales | $ | 362 |
| $ | 1,564 |
| $ | 539 |
| $ | 1,066 |
|
| Cost of goods sold | 259 |
| 1,082 |
| 491 |
| 634 |
|
| Research and development expense | 4 |
| 23 |
| 8 |
| 16 |
|
| Selling, general and administrative expenses | 9 |
| 43 |
| 17 |
| 101 |
|
| Amortization of intangibles | 23 |
| 96 |
| 31 |
| |
| Restructuring and asset related charges - net | 2 |
| 12 |
| 16 |
| — |
|
| Integration and separation costs | 44 |
| 135 |
| 31 |
| |
| Other income - net | 2 |
| 13 |
| 6 |
| 23 |
|
| Income (loss) from discontinued operations before income taxes | 23 |
| 186 |
| (49 | ) | 338 |
|
| Provision for (benefit from) income taxes on discontinued operations | 4 |
| 35 |
| (51 | ) | 108 |
|
| Income from discontinued operations after income taxes | $ | 19 |
| $ | 151 |
| $ | 2 |
| $ | 230 |
|
The following table presents the depreciation, amortization of intangibles, and capital expenditures of the discontinued operations related to EID ECP:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Depreciation | $ | 28 |
| $ | 133 |
| $ | 44 |
| $ | 38 |
|
| Amortization of intangibles | $ | 23 |
| $ | 96 |
| $ | 31 |
| $ | — |
|
| Capital expenditures | $ | 16 |
| $ | 77 |
| $ | 31 |
| $ | 49 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2018 related to EID ECP consist of the following:
|
| | | |
| (In millions) | December 31, 2018 |
| Cash and cash equivalents | $ | 55 |
|
| Accounts and notes receivable - net | 194 |
|
| Inventories | 465 |
|
| Other current assets | 12 |
|
| Total current assets of discontinued operations | 726 |
|
| Investment in nonconsolidated affiliates | 108 |
|
| Property, plant and equipment - net | 770 |
|
| Goodwill | 3,587 |
|
| Other intangible assets | 1,143 |
|
| Deferred income taxes | 13 |
|
| Other assets | 1 |
|
| Non-current assets of discontinued operations | 5,622 |
|
| Total assets of discontinued operations | $ | 6,348 |
|
| Short-term borrowings and finance lease obligations | 2 |
|
| Accounts payable | 214 |
|
| Accrued and other current liabilities | 36 |
|
| Total current liabilities of discontinued operations | 252 |
|
| Long-term Debt | 4 |
|
| Deferred income tax liabilities | 432 |
|
| Pension and other post employment benefits - noncurrent | 6 |
|
| Other noncurrent obligations | 2 |
|
| Non-current liabilities of discontinued operations | 444 |
|
| Total liabilities of discontinued operations | $ | 696 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
EID Specialty Products Divestiture
As discussed in Note 1 - Background and Basis of Presentation, on May 1, 2019, the company completed the transfer of the entities and related assets and liabilities of the EID Specialty Products Entities to DuPont.
As a result, the financial results of the EID Specialty Products Entities are reflected as discontinued operations, as summarized below:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Net sales | $ | 5,030 |
| $ | 15,711 |
| $ | 4,916 |
| $ | 9,321 |
|
| Cost of goods sold | 3,352 |
| 10,533 |
| 4,269 |
| 5,978 |
|
| Other operating charges | | | | 309 |
|
| Research and development expense | 204 |
| 626 |
| 205 |
| 414 |
|
| Selling, general and administrative expenses | 573 |
| 1,599 |
| 505 |
| 1,184 |
|
| Amortization of intangibles | 267 |
| 815 |
| 268 |
| |
| Restructuring and asset related charges - net | 115 |
| 97 |
| 93 |
| 311 |
|
| Integration and separation costs | 253 |
| 340 |
| 79 |
| |
| Goodwill impairment | 1,102 |
| — |
| — |
| — |
|
| Other income - net | 57 |
| 241 |
| 60 |
| 365 |
|
| (Loss) income from discontinued operations before income taxes | (779 | ) | 1,942 |
| (443 | ) | 1,490 |
|
| Provision for income taxes on discontinued operations | 80 |
| 340 |
| 50 |
| 436 |
|
| (Loss) income from discontinued operations after income taxes | $ | (859 | ) | $ | 1,602 |
| $ | (493 | ) | $ | 1,054 |
|
EID Specialty Products Impairment
As a result of the Merger and related acquisition method of accounting, Historical DuPont's assets and liabilities were measured at fair value resulting in increases to the company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the company’s reporting units and assets, and therefore could result in an impairment.
As a result of the Internal Reorganization, in the second quarter of 2019, EID assessed the recoverability of the goodwill within the electronics and communications, protection solutions, nutrition and health, transportation and advanced polymers, packaging and specialty plastics, industrial biosciences, and clean technologies reporting units, and the overall carrying value of the net assets in the disposal group that was distributed to DowDuPont on May 1, 2019. As a result of this analysis, the company determined that the fair value of certain reporting units related to the EID specialty products businesses were below carrying value resulting in pre-tax, non-cash goodwill impairment charges totaling $1,102 million reflected in loss from discontinued operations after income taxes. Revised financial projections reflect unfavorable market conditions, driven by slowed demand in the biomaterials business unit, coupled with challenging conditions in U.S. bioethanol markets. These revised financial projections resulted in a reduction in the long-term forecasts of sales and profitability as compared to prior projections.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The company’s analyses above using discounted cash flow models (a form of the income approach) utilized Level 3 unobservable inputs. The company’s significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. The company also used a form of the market approach (utilizes Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, the company believes the current assumptions and estimates utilized are both reasonable and appropriate.
In addition, the company performed an impairment analysis related to the equity method investments held by the EID specialty products businesses, as of May 1, 2019. The company applied the net asset value method under the cost approach to determine the fair value of the equity method investments in the EID specialty products businesses. Based on updated projections, the company determined the fair value of an equity method investment was below the carrying value and had no expectation the fair value would recover in the short-term due to the current economic environment. As a result, management concluded the impairment was other-than-temporary and recorded an impairment charge of $63 million, reflected in loss from discontinued operations after income taxes. Additionally, this impairment is reflected within restructuring and asset related charges - net in the year ended December 31, 2019, within the table above.
The following table presents the depreciation, amortization of intangibles, and capital expenditures of the discontinued operations related to the EID Specialty Products Entities:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Depreciation | $ | 281 |
| $ | 837 |
| $ | 273 |
| $ | 396 |
|
Amortization of intangibles1 | 267 |
| 815 |
| 268 |
| $ | 100 |
|
| Capital expenditures | 481 |
| 911 |
| 271 |
| $ | 429 |
|
| |
| 1. | Included within cost of goods sold, selling, general and administrative expenses, other operating charges, and research and development expenses in the Predecessor period. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2018 related to the EID Specialty Products Entities consist of the following:
|
| | | |
| (In millions) | December 31, 2018 |
| Cash and cash equivalents | $ | 2,199 |
|
| Marketable securities | 29 |
|
| Accounts and notes receivable - net | 2,441 |
|
| Inventories | 3,452 |
|
| Other current assets | 242 |
|
| Total current assets of discontinued operations | 8,363 |
|
| Investment in nonconsolidated affiliates | 1,185 |
|
| Property, plant and equipment - net | 8,138 |
|
| Goodwill | 28,250 |
|
| Other intangible assets | 13,037 |
|
| Deferred income taxes | 122 |
|
| Other assets | 191 |
|
| Non-current assets of discontinued operations | 50,923 |
|
| Total assets of discontinued operations | $ | 59,286 |
|
| Short-term borrowings and finance lease obligations | 15 |
|
| Accounts payable | 1,983 |
|
| Income taxes payable | 33 |
|
| Accrued and other current liabilities | 884 |
|
| Total current liabilities of discontinued operations | 2,915 |
|
| Long-term Debt | 29 |
|
| Deferred income tax liabilities | 3,624 |
|
| Pension and other post employment benefits - noncurrent | 1,125 |
|
| Other noncurrent obligations | 262 |
|
| Non-current liabilities of discontinued operations | 5,040 |
|
| Total liabilities of discontinued operations | $ | 7,955 |
|
Merger Remedy - Divested Ag Business
As discussed in Note 1 - Background and Basis of Presentation, on November 1, 2017, EID completed the FMC Transactions through the disposition of the Divested Ag Business and the acquisition of the H&N Business. The fair value as determined by EID of the H&N Business was $1,970 million. The FMC Transactions included a cash consideration payment to EID of approximately $1,200 million, which reflected the difference in value between the Divested Ag Business and the H&N Business, as well as favorable contracts with FMC of $495 million. Due to the proximity of the Merger and the closing of the sale, the carrying value of the Divested Ag Business approximated the fair value of the consideration received, thus no resulting gain or loss was recognized on the sale.
For the year ended December 31, 2019, the company recorded income from discontinued operations after income taxes related to the Divested Ag Business of $80 million related to changes in accruals for certain prior year tax positions. For the year ended December 31, 2018, the company recorded a loss from discontinued operations before income taxes related to the Divested Ag Business of $10 million ($5 million after tax).
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The following table summarizes the results of operations of the Divested Ag Business presented as discontinued operations for the period September 1 through December 31, 2017 and the period January 1 through August 31, 2017, respectively:
|
| | | | | | |
| | Successor | Predecessor |
| (In millions) | For the Period September 1 through December 31, 20171 | For the Period January 1 through August 31, 2017 |
| Net sales | $ | 199 |
| $ | 1,068 |
|
| Cost of goods sold | 194 |
| 412 |
|
| Other operating charges |
|
| 17 |
|
| Research and development expenses | 30 |
| 95 |
|
Selling, general and administrative expenses2 | 102 |
| 146 |
|
| Other income - net | — |
| 7 |
|
| (Loss) income from discontinued operations before income taxes | (127 | ) | 405 |
|
| (Benefit from) provision for income taxes | (50 | ) | 79 |
|
| (Loss) income from discontinued operations after income taxes | $ | (77 | ) | $ | 326 |
|
| |
1. | Includes results of operations for the period September 1 through October 31, 2017, as the Divested Ag Business was disposed of on November 1, 2017. |
| |
2. | Successor period includes $44 million of transaction costs associated with the disposal of the Divested Ag Business. |
The following table presents depreciation and capital expenditures of the discontinued operations related to the Divested Ag Business:
|
| | | | | | |
| | Successor | Predecessor |
| (In millions) | For the Period September 1 through December 31, 20171 | For the Period January 1 through August 31, 2017 |
| Depreciation | $ | — |
| $ | 21 |
|
| Capital expenditures | $ | 5 |
| $ | 8 |
|
There was no amortization related to the Divested Ag Business for the period September 1 through December 31, 2017 or the period January 1 through August 31, 2017.
Upon closing and pursuant to the terms of the FMC Transaction Agreement, EID and FMC entered into favorable supply agreements and certain ancillary agreements, including manufacturing service agreements and transition service agreements. Under the terms of the favorable supply agreements, FMC will supply product to EID at cost for a period of up to five years and, as a result, EID recorded an intangible asset of $495 million upon closing that will be amortized over a period of five years.
Divestiture of a Portion of DAS Brazil Corn Seed Business
On July 11, 2017, as a condition of regulatory approval of the Merger between Historical Dow and Historical DuPont, Historical Dow announced it had entered into a definitive agreement with CITIC Agro Fund to sell a portion of DAS Brazil corn seed business (the “DAS Divested Ag Business”), including four corn seed production sites and four research centers, a copy of Historical Dow AgroSciences' Brazilian corn germplasm bank, certain commercial and pipeline hybrids, the MORGAN™ trademark and a license to the DOW SEMENTES™ trademark for 12 months. On November 30, 2017, the sale was completed for $1,129 million, net of working capital adjustments, costs to sell and other adjustments, with proceeds subject to customary post-closing adjustments.
In 2017, the company recognized a pretax gain of $671 million on the sale, of its 100 percent ownership interest in DuPont (Shenzhen) Manufacturing Limited to the Feixiang Group. The sale of the entity, which held certain buildings and other assets, resulted in a pre-tax gain of $369 ($214 net of tax). The gain was recordedincluded in other income (expense) - net in the company's Consolidated Income StatementsStatement of Operations for the period September 1 through December 31, 2017.
Other Discontinued Operations Activity
For the year ended December 31, 2016 and reflected as a Corporate item.2019, the company recorded income from discontinued operations after income taxes of $89 million related to the adjustment of certain unrecognized tax benefits for positions taken on items from prior years from previously divested businesses.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Performance Chemicals
On July 1, 2015, (the Distribution Date),Historical DuPont completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (the Separation)"Chemours Separation"). To effect the spin-off, DuPont distributed to its stockholders one share of Chemours common stock, par value $0.01 per share, for every five shares of DuPont common stock, par value $0.30 per share, (the Distribution) outstanding as of 5:00 p.m. June 23, 2015, the record date for the Distribution. In lieu of fractional shares of Chemours, stockholders of DuPont received cash, which generally was taxable. In connection with the Chemours Separation, the companyHistorical DuPont and The Chemours Company ("Chemours") entered into a Separation Agreement (as amended, the "Chemours Separation Agreement"), discussed below, and a Tax Matters Agreement and certain ancillary agreements, including an employee matters agreement, agreements related to transition and site services, and intellectual property cross licensing arrangements. In addition, the companies have entered into certain supply agreements. In the first quarter 2016, the company agreed in principle to prepay $190 for certain goods and services expected to be delivered by Chemours. As of December 31, 2016, the balance of the prepayment was $60 recorded within prepaid expenses on the Consolidated Balance Sheet, which is expected to be fully utilized through delivery of goods and services during 2017.
Separation Agreement
The company and Chemours entered into a Separation Agreement that sets forth, among other things, the agreements between the company and Chemours regarding the principal transactions necessary to effect the Chemours Separation and also sets forth ancillary agreements that govern certain aspects of the company’s relationship with Chemours after the separation. Among other matters, the Chemours Separation Agreement and the ancillary agreements provide for the allocation between Historical DuPont and Chemours of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the completion of the Chemours Separation.
Pursuant to the Chemours Separation Agreement, Chemours indemnifies DuPontthe company against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In 2017, EID and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future perfluorooctanoic acid (“PFOA”) liabilities for a period of five years beginning July 6, 2017. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At December 31, 2016,2019, the indemnified assets are $81$54 million within accounts and notes receivable - net and $444$302 million within other assets along with the corresponding liabilities of $81$54 million within accrued and other current liabilities and $302 million within other accrued liabilities and $444 within other liabilitiesnoncurrent obligations on the Consolidated Balance Sheet. See Note 18 - Commitments and Contingent Liabilities, for further discussion of the amendment to the Chemours Separation Agreement and certain litigation and environmental matters indemnified by Chemours.
The results of operations of the Performance Chemicals segment are presented as discontinued operations as summarized below:
|
| | | |
| | Predecessor |
| (In millions) | For the Period January 1 through August 31, 2017 |
| Other operating charges | $ | 335 |
|
| Other income - net | 3 |
|
| Loss from discontinued operations before income taxes | (332 | ) |
| Benefit from income taxes on discontinued operations | (125 | ) |
| Loss from discontinued operations after income taxes | $ | (207 | ) |
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Net sales | $ | — |
| $ | 2,810 |
| $ | 6,317 |
|
| Cost of goods sold | — |
| 2,215 |
| 4,680 |
|
| Other operating charges | 36 |
| 386 |
| 422 |
|
| Selling, general and administrative expenses | — |
| (87 | ) | 453 |
|
| Research and development expense | — |
| 40 |
| 109 |
|
| Other income, net | (3 | ) | (27 | ) | (46 | ) |
| Interest expense | — |
| 32 |
| — |
|
| Employee separation / asset related charges, net | — |
| 59 |
| 21 |
|
| (Loss) income from discontinued operations before income taxes | (33 | ) | 192 |
| 678 |
|
| (Benefit from) provision for income taxes | (28 | ) | 106 |
| 202 |
|
| (Loss) income from discontinued operations after income taxes | $ | (5 | ) | $ | 86 |
| $ | 476 |
|
Income from discontinued operations after income taxes in the company's Consolidated Statement of Operations for the period January 1 through August 31, 2017 includes a charge of $335 million ($214 million net of tax) in connection with the PFOA multi-district litigation settlement.
NOTE 6 - REVENUE
Revenue Recognition
Products
Substantially all of Corteva's revenue is derived from product sales. Product sales consist of sales of Corteva's products to farmers, distributors, and manufacturers. Corteva considers purchase orders, which in some cases are governed by master supply agreements, to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. However, the company has some long-term contracts which can span multiple years.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Revenue from product sales is recognized when the customer obtains control of the company's product, which occurs at a point in millions, excepttime according to shipping terms. Payment terms are generally less than one year from invoicing. The company elected the practical expedient and will not adjust the promised amount of consideration for the effects of a significant financing component when the company expects it will be one year or less between when a customer obtains control of the company's product and when payment is due. The company has elected to recognize shipping and handling activities when control has transferred to the customer as an expense in cost of goods sold. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. In addition, the company elected the practical expedient to expense any costs to obtain contracts as incurred, as the amortization period for these costs would have been one year or less.
The transaction price includes estimates of variable consideration, such as rights of return, rebates, and discounts, that are reductions in revenue. All estimates are based on the company's historical experience, anticipated performance, and the company's best judgment at the time the estimate is made. Estimates of variable consideration included in the transaction price utilize either the expected value method or most likely amount depending on the nature of the variable consideration. These estimates are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. The majority of contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per share)
unit. For contracts with multiple performance obligations, the company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.
DuringLicenses of Intellectual Property
Corteva enters into licensing arrangements with customers under which it licenses its intellectual property. Revenue from the years endedmajority of intellectual property licenses is derived from sales-based royalties. Revenue for licensing agreements that contain sales-based royalties is recognized at the later of (i) when the subsequent sale occurs or (ii) when the performance obligation to which some or all of the royalty has been allocated is satisfied.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. The company had remaining performance obligations related to material rights granted to customers for contract renewal options of $108 million and $102 million at December 31, 2016, 20152019 and 2014,December 31, 2018, respectively. The company expects revenue to be recognized for the remaining performance obligations over the next 1 year to 6 years.
Contract Balances
Contract liabilities primarily reflect deferred revenue from prepayments under contracts with customers where the company incurred $35, $306, and $175receives advance payments for products to be delivered in future periods. Corteva classifies deferred revenue as current or noncurrent based on the timing of costs, respectively, in connection withwhen the transactioncompany expects to recognize revenue. Contract assets primarily include amounts related to professional fees associated with preparation of regulatory filings and separation activities within finance, tax, legal, and information system functions. Income from discontinued operations duringcontractual rights to consideration for completed performance not yet invoiced. Accounts receivable are recorded when the years ended December 31, 2016, 2015 and 2014, includes $35, $260 and $142 of these costs, respectively. Income from continuing operations during the years ended December 31, 2015 and 2014, includes $26 and $33 of these costs, respectively, recorded in other operating charges in the company's Consolidated Income Statements. Income from continuing operationsright to consideration becomes unconditional.
|
| | | | | | |
| Contract Balances | December 31, 2019 | December 31, 2018 |
| (In millions) |
Accounts and notes receivable - trade1 | $ | 4,396 |
| $ | 3,843 |
|
Contract assets - current2 | $ | 20 |
| $ | 18 |
|
Contract assets - noncurrent3 | $ | 49 |
| $ | 46 |
|
Deferred revenue - current4 | $ | 2,584 |
| $ | 2,209 |
|
Deferred revenue - noncurrent5 | $ | 108 |
| $ | 150 |
|
| |
1. | Included in accounts and notes receivable - net in the Consolidated Balance Sheets. |
| |
2. | Included in other current assets in the Consolidated Balance Sheets. |
| |
3. | Included in other assets in the Consolidated Balance Sheets. |
| |
4. | Included in accrued and other current liabilities in the Consolidated Balance Sheets. |
| |
5. | Included in other noncurrent obligations in the Consolidated Balance Sheets. |
Revenue recognized during the year ended December 31, 2015 also2019 from amounts included $20in deferred revenue at the beginning of transaction costs incurred for a premium associated with the early retirement of DuPont debt. The company exchanged notes received from Chemours in May 2015 (as part of a dividend payment) for DuPont debt that it then retired. These costs were reported in interest expense in the company's Consolidated Income Statements.
During the year ended December 31, 2015, in connection with the separation, the company recorded an other post employment benefit plan curtailment gain of $274 and a pension curtailment gain of $7. See Note 17 for further discussion.
Income from discontinued operationsperiod was $2,146 million. Revenue recognized during the year ended December 31, 2015,2018 from amounts included a restructuring charge of $59, consisting of severance and related benefit costs associated within deferred revenue at the Performance Chemicals segment to achieve fixed cost and operational productivity improvements for Chemours post-spin.
In connection with the spin-off, the company received a dividend from Chemours in May 2015 of $3,923 comprised of a cash distribution of $3,416 and a distribution in-kind of $507 of 7 percent senior unsecured notes due 2025 (Chemours Notes Received). Chemours financed the dividend payment through issuance of approximately $4,000 of debt, including the Chemours Notes Received (Chemours' Debt). Net assets of $431 were transferred to Chemours on July 1, 2015, including the $4,000 of Chemours' Debt.
The following table presents the depreciation, amortization and purchases of property, plant and equipmentbeginning of the discontinued operations related to Performance Chemicals:period was $1,967 million.
|
| | | | | | |
| For the year ended December 31, | 2015 | 2014 |
| Depreciation | $ | 126 |
| $ | 248 |
|
| Amortization of intangible assets | 2 |
| 3 |
|
| Purchases of property, plant and equipment | 235 |
| 525 |
|
Glass Laminating Solutions/Vinyls
In June 2014, the company sold Glass Laminating Solutions/Vinyls (GLS/Vinyls), a part of the Performance Materials segment, to Kuraray Co. Ltd. The sale resulted in a pre-tax gain of $391 ($273 net of tax). The gain was recorded in other income, net in the company's Consolidated Income Statements for the year ended December 31, 2014.
Performance Coatings
In February 2013, the company sold its Performance Coatings business to Flash Bermuda Co. Ltd., a Bermuda exempted limited liability company formed by affiliates of The Carlyle Group (collectively referred to as "Carlyle").
The results of discontinued operations related to Performance Coatings are summarized below:
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Net sales | $ | — |
| $ | — |
| $ | — |
|
Income (loss) from discontinued operations before income taxes1,2 | $ | 6 |
| $ | (23 | ) | $ | — |
|
Benefit from income taxes3 | (3 | ) | (1 | ) | (15 | ) |
| Income (loss) from discontinued operations after income taxes | $ | 9 |
| $ | (22 | ) | $ | 15 |
|
| |
1.
| The year ended December 31, 2016 includes a pre-tax benefit of $6 primarily related to a postretirement settlement gain. |
| |
2.
| The year ended December 31, 2015 includes a pre-tax net charge of $(23) related to a postretirement settlement charge and other employee related settlement adjustments. |
| |
3.
| The year ended December 31, 2014 includes a tax benefit of $(15) related to a change in estimate of income taxes resulting from the filing of various tax returns impacted by the sale of Performance Coatings. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Disaggregation of Revenue
Corteva's operations are classified into two reportable segments: seed and crop protection. The company disaggregates its revenue by major product line and geographic region, as the company believes it best depicts the nature, amount and timing of its revenue and cash flows. Net sales by major product line are included below:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Corn | $ | 5,111 |
| $ | 5,180 |
| $ | 1,205 |
| $ | 3,941 |
|
| Soybean | 1,371 |
| 1,494 |
| 163 |
| 1,384 |
|
| Other oilseeds | 561 |
| 607 |
| 143 |
| 423 |
|
| Other | 547 |
| 561 |
| 9 |
| 117 |
|
| Seed | 7,590 |
| 7,842 |
| 1,520 |
| 5,865 |
|
| Herbicides | 3,270 |
| 3,415 |
| 1,150 |
| 377 |
|
| Insecticides | 1,652 |
| 1,506 |
| 567 |
| 108 |
|
| Fungicides | 1,081 |
| 1,142 |
| 406 |
| 544 |
|
| Other | 253 |
| 382 |
| 147 |
| — |
|
| Crop Protection | 6,256 |
| 6,445 |
| 2,270 |
| 1,029 |
|
| Total | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
|
4. EMPLOYEE SEPARATION/
Sales are attributed to geographic regions based on customer location. Net sales by geographic region and segment are included below:
|
| | | | | | | | | | | | |
| Seed | Successor | Predecessor |
| (In millions) | 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 |
North America1 | $ | 4,724 |
| $ | 4,974 |
| $ | 437 |
| $ | 4,227 |
|
EMEA2 | 1,378 |
| 1,408 |
| 256 |
| 1,017 |
|
| Asia Pacific | 358 |
| 358 |
| 107 |
| 231 |
|
| Latin America | 1,130 |
| 1,102 |
| 720 |
| 390 |
|
| Total | $ | 7,590 |
| $ | 7,842 |
| $ | 1,520 |
| $ | 5,865 |
|
| |
| 1. | Represents U.S. & Canada. |
| |
| 2. | Europe, Middle East, and Africa ("EMEA"). |
|
| | | | | | | | | | | | |
| Crop Protection | Successor | Predecessor |
| (In millions) | 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 |
| North America | $ | 2,205 |
| $ | 2,438 |
| $ | 787 |
| $ | 352 |
|
| EMEA | 1,362 |
| 1,357 |
| 279 |
| 270 |
|
| Asia Pacific | 930 |
| 935 |
| 321 |
| 149 |
|
| Latin America | 1,759 |
| 1,715 |
| 883 |
| 258 |
|
| Total | $ | 6,256 |
| $ | 6,445 |
| $ | 2,270 |
| $ | 1,029 |
|
Refer to Note 24 - Geographic Information, for the breakout of consolidated net sales by geographic region.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
NOTE 7 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
La Porte Plant, La Porte, Texas
In March 2016, DuPont announced its decision to not re-start theDowDuPont Agriculture segment’s insecticide manufacturing facility at the La Porte site located in La Porte, Texas. The facility manufactures Lannate® and Vydate® insecticides and has been shut down since November 2014. As a result of this decision, during the year ended December 31, 2016, a pre-tax charge of $68 was recorded in employee separation / asset related charges, net which included $41 of asset related charges, $11 of contract termination costs, and $16 of employee severance and related benefit costs.
2016 Global Cost Savings andDivision Restructuring Program
In December 2015, DuPont committedDuring the fourth quarter of 2018 and in connection with the ongoing integration activities, DowDuPont approved restructuring actions to take structural actions across all businessessimplify and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with them as partoptimize certain organizational structures in preparation for the Business Separations. From inception-to-date, the company has recorded total net pre-tax restructuring charges of a 2016 global cost savings and restructuring plan. As a result, during the year ended December 31, 2015, a pre-tax charge$70 million, comprised of $798 was recorded, consisting$61 million of $793 of employee separation / asset related charges, net and $5 in other income, net in the company's Consolidated Income Statements. The charges consisted of $656 in severance and related benefit costs $109 in asset related charges, and $33 in contract termination charges.
During the year ended December 31, 2016, in connection with the restructuring actions, the company recorded a net pre-tax benefit to earnings of $(85), consisting of $(88) in employee separation / asset related charges, net, and a $3 charge to other income, net in the company's Consolidated Income Statements. The net benefit was comprised of a reduction of $(154) in severance and related benefit costs, offset by $53$9 million of asset related charges, and $16 of contract termination costs. This was primarily duecharges. The actions related to a reduction in severance and related benefit costs partially offset by the identification of additional projects in certain segments. The reduction in severance and related benefit costs was driven by elimination of positions at a lower cost than expected as a result of redeployments and attrition as well as lower than estimated individual severance costs.this program are complete.
The restructuring actions associated with this charge impacted approximately 10 percent of DuPont’s workforce and are substantially complete.
The 2016 restructuring programDowDuPont Agriculture Division Restructuring Program (benefits) charges related to the segments, as well as corporate expenses, were as follows:
|
| | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 |
| Seed | $ | 3 |
| $ | 5 |
|
| Crop Protection | (4 | ) | 1 |
|
| Corporate expenses | (13 | ) | 78 |
|
| Total | $ | (14 | ) | $ | 84 |
|
|
| | | | | | |
| For the year ended December 31, | 2016 | 2015 |
| Agriculture | $ | 23 |
| $ | 161 |
|
| Electronics & Communications | (2 | ) | 93 |
|
| Industrial Biosciences | (5 | ) | 60 |
|
| Nutrition & Health | (7 | ) | 47 |
|
| Performance Materials | (4 | ) | 61 |
|
| Protection Solutions | (13 | ) | 44 |
|
| Other | 11 |
| 2 |
|
| Corporate Expenses | (88 | ) | 330 |
|
| | $ | (85 | ) | $ | 798 |
|
At December 31, 2016 and 2015, total liabilitiesThe below is a summary of net (benefits) charges incurred related to the restructuring program were $122DowDuPont Agriculture Division Restructuring Program for the year ended December 31, 2019 and $680, respectively.
the year ended December 31, 2018:
|
| | | | | | |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 |
| Severance and related benefit (credits) costs - net | $ | (17 | ) | $ | 78 |
|
| Asset related charges | 3 |
| 6 |
|
| Total restructuring and asset related (benefits) charges - net | $ | (14 | ) | $ | 84 |
|
E. I. du Pont de Nemours
Account balances and Companyactivity for the DowDuPont Agriculture Division Restructuring Programare summarized below:
|
| | | | | | | | | |
| (In millions) | Severance and Related Benefit (Credits) Costs | Asset Related Charges | Total |
| Balance at December 31, 2018 | $ | 77 |
| $ | — |
| $ | 77 |
|
| (Benefits) charges to loss from continuing operations for the year ended December 31, 2019 | (17 | ) | 3 |
| (14 | ) |
| Payments | (45 | ) | — |
| (45 | ) |
| Asset write-offs | — |
| (3 | ) | (3 | ) |
Separation adjustment1 | (6 | ) | — |
| (6 | ) |
| Balance at December 31, 2019 | $ | 9 |
| $ | — |
| $ | 9 |
|
1. Adjustment reflects severance liabilities associated with DAS employees who were terminated by Dow prior to Separation and were recognized within the Consolidated Balance Sheet, as of December 31, 2018, but did not transfer to Corteva as part of the common control combination.
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 inception-to-date under the Synergy Program, consisting of severance and related benefit costs of $319 million, contract termination costs of $193 million, and asset related charges of $333 million. Actions associated with the Synergy Program, including employee separations, are substantially complete.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Account balances and activity for the restructuring program are summarized below:
|
| | | | | | | | | | | | |
| | Severance and Related Benefit Costs | Asset Related Charges | Other Non-Personnel Charges1 | Total |
| Balance at December 31, 2015 | $ | 648 |
| $ | — |
| $ | 32 |
| $ | 680 |
|
| Payments | (393 | ) | — |
| (26 | ) | (419 | ) |
| Net translation adjustment | (1 | ) | — |
| — |
| (1 | ) |
| Other adjustments | (154 | ) | 53 |
| 16 |
| (85 | ) |
| Asset write-offs | — |
| (53 | ) | — |
| (53 | ) |
| Balance at December 31, 2016 | $ | 100 |
| $ | — |
| $ | 22 |
| $ | 122 |
|
1. Other non-personnel charges consist of contractual obligation costs.
2014 Restructuring Program
In June 2014, DuPont announced its global, multi-year initiative to redesign its global organization and operating model to reduce costs and improve productivity and agility across all businesses and functions. DuPont commenced a restructuring plan to realign and rebalance staff function support, enhance operational efficiency, and to reduce residual costs associated with the separation of its Performance Chemicals segment. At December 31, 2016 and 2015, total liabilities related to the 2014 restructuring program were $9 and $78, respectively. During the year ended December 31, 2016 a benefit of $(21) was recorded in employee separation / asset related charges, net in the company's Consolidated Income Statements to reduce the accrual for severance costs.
During the year ended December 31, 2015, a net benefit of $(21) was recorded to adjust the estimated costs associated with the 2014 restructuring program in employee separation / asset related charges, net in the company's Consolidated Income Statements. This was primarily due to lower than estimated individual severance costs and workforce reductions achieved through non-severance programs, offset by the identification of additional projects in certain segments.
During the year ended December 31, 2014 a pre-tax charge of $541 was recorded, consisting of $476 in employee separation / asset related charges, net and $65 in other income, net in the company's Consolidated Income Statements. The charges consisted of $301 of severance and related benefit costs, $17 of other non-personnel charges, and $223 of asset related charges, including $65 of charges associated with the restructuring actions of a joint venture within the Performance Materials segment.
The 2014 restructuring programSynergy Program net charges (benefits) charges related to the segments, as well as corporate expenses, were as follows:
|
| | | | | | | | | |
| | Successor |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Period September 1 through December 31, 2017 |
| Seed | $ | 66 |
| $ | 237 |
| $ | 133 |
|
| Crop Protection | 27 |
| 57 |
| (2 | ) |
| Corporate expenses | (1 | ) | 190 |
| 138 |
|
| Total | $ | 92 |
| $ | 484 |
| $ | 269 |
|
The below is a summary of net charges (benefits) incurred related to the Synergy Program for the year ended December 31, 2019, the year ended December 31, 2018, and the period September 1 through December 31, 2017:
|
| | | | | | | | | |
| | Successor |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Period September 1 through December 31, 2017 |
| Severance and related benefit (credits) costs - net | $ | (7 | ) | $ | 191 |
| $ | 135 |
|
| Contract termination charges | 69 |
| 84 |
| 40 |
|
| Asset related charges | 30 |
| 209 |
| 94 |
|
| Total restructuring and asset related charges - net | $ | 92 |
| $ | 484 |
| $ | 269 |
|
Account balances and activity for the Synergy Program are summarized below:
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Agriculture | $ | (1 | ) | $ | 3 |
| $ | 134 |
|
| Electronics & Communications | (2 | ) | (15 | ) | 84 |
|
| Industrial Biosciences | (1 | ) | 1 |
| 20 |
|
| Nutrition & Health | (2 | ) | 3 |
| 15 |
|
| Performance Materials | (1 | ) | 1 |
| 99 |
|
| Protection Solutions | (1 | ) | (4 | ) | 45 |
|
| Other | — |
| 1 |
| 10 |
|
| Corporate Expenses | (13 | ) | (11 | ) | 134 |
|
| | $ | (21 | ) | $ | (21 | ) | $ | 541 |
|
|
| | | | | | | | | | | | |
| (In millions) | Severance and Related Benefit (Credits) Costs | Costs Associated with Exit and Disposal Activities1 | Asset Related Charges | Total |
| Balance at December 31, 2018 | $ | 154 |
| $ | 61 |
| $ | — |
| $ | 215 |
|
| (Benefits) charges to loss from continuing operations for the year ended December 31, 2019 | (7 | ) | 69 |
| 30 |
| 92 |
|
| Payments | (118 | ) | (90 | ) | (1 | ) | (209 | ) |
| Asset write-offs | — |
| — |
| (29 | ) | (29 | ) |
| Balance at December 31, 2019 | $ | 29 |
| $ | 40 |
| $ | — |
| $ | 69 |
|
| |
1. | Relates primarily to contract terminations charges. |
Asset Impairment
During the third and fourth quarters of 2019, the company recognized non-cash impairment charges of $54 million pre-tax ($41 million after-tax) and $90 million pre-tax ($69 million after-tax), respectively, in restructuring and asset related charges - net in the company's Consolidated Statements of Operations related to certain in-process research and development ("IPR&D") assets within the seed segment. Refer to Note 15 - Goodwill and Other Intangible Assets, and Note 23 - Fair Value Measurements, for further information.
During the third quarter of 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 within the seed segment. Refer to Note 15 - Goodwill and Other Intangible Assets, and Note 23 - Fair Value Measurements, for further information.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
In addition, based on updated projections for the company’s investments in millions, except per share)
Asset Impairments
Innonconsolidated affiliates in China related to the fourth quarter 2015,seed segment, management determined the company elected to defer further testing and deployment of a multi-year, phased implementation of an enterprise resource planning (ERP) system; which had not been placed in service as of year-end 2016. At December 31, 2016, the company had capitalized costs associated with the ERP system of $435. In connection with IT strategy reviews conducted during the fourth quarter of 2016, the company reviewed considerations around the timing of restarting testing and deploymentfair values of the ERP system.investments in nonconsolidated affiliates were below the carrying values and had no expectation the fair values would recover due to the continuing unfavorable regulatory environment including lack of intellectual property protection, uncertain product registration timing and limited freedom to operate. As a result, management concluded the company intends to completeimpairment was other than temporary and place in service the ERP system, however, given the uncertainties related to implementation timing as well as potential developments and changes to technologies in the market place at the timethird quarter of restart, use of this ERP system can no longer be considered probable. As a result, due to the specificity of the design related to the ERP system, the company determined that the uncompleted ERP system has a fair value of zero and2018 recorded a pre-taxnon-cash impairment charge of $435$41 million in employee separation /restructuring and asset related charges - net in the company's Consolidated Income Statements duringof Operations, none of which is tax-deductible. Refer to Note 23 - Fair Value Measurements, for further information.
NOTE 8 - RELATED PARTY TRANSACTIONS
Services Provided by and to Historical Dow and its affiliates
Following the Merger and prior to the Dow Distribution, Corteva reports transactions with Historical Dow and its affiliates as related party transactions. At December 31, 2018 there was $110 million due to Historical Dow and its affiliates, reflected in liabilities from discontinued operations - current.
Purchases from Historical Dow and its affiliates were $42 million, $149 million, and $42 million for the year ended December 31, 2016.
The company recognized a $158 pre-tax impairment charge in employee separation / asset related charges, net in the company's Consolidated Income Statements during2019, the year ended December 31, 2016 related2018, and the period September 1 through December 31, 2017.
Transactions with DowDuPont
In November 2017, DowDuPont's Board of Directors authorized an initial $4,000 million share repurchase program to indefinite-lived intangible trade names within the Industrial Biosciences segment. In connection with business strategy reviews and brand realignment conducted duringbuy back shares of DowDuPont common stock. The $4,000 million share repurchase program was completed in the third quarter 2016,of 2018. In February, May, August and November 2018, the company decidedBoard declared first, second, third and fourth quarter dividends per share of DowDuPont common stock payable on March 15, 2018, June 15, 2018, September 15, 2018 and December 14, 2018, respectively. For the year ended December 31, 2018 and the period September 1 through December 31, 2017, EID declared and paid distributions in cash to phase out the useDowDuPont of certain acquired trade names within the segment resulting inabout $2,806 million and $829 million, respectively, primarily to fund a change from an indefinite life to a finite useful lifeportion of DowDuPont’s share repurchases and dividend payments for these assets. As a result of these changes, the carrying valueperiods. In addition, in 2019 and 2018, DowDuPont contributed cash to Corteva to fund portions of the trade name assets exceededcompany's debt redemption/repayment transactions. See Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, for additional information.
In February 2019, the fair value.DowDuPont Board declared first quarter dividends per share of DowDuPont common stock payable on March 15, 2019. EID declared and paid distributions to DowDuPont of about $317 million for the year ended December 31, 2019 to fund a portion of DowDuPont’s dividend payments.
The basis
In addition, at December 31, 2018 EID had a payable to DowDuPont of $103 million included in accounts payable in the Consolidated Balance Sheets related to its estimated tax liability for the period beginning with the Merger through the date of the fair valueDow Distribution, during which time the parties filed a consolidated US tax return. See Note 10 - Income Taxes, for the charges was calculated utilizing an income approach (relief from royalty method) using Level 3 inputs within the fair value hierarchy, as described in Note 1. The key assumptions used in the calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. After the recognition of the impairment charge, the remaining net book value of the trade names was $28, which represented fair value.additional information.
During the first quarter 2015, a $38 pre-tax impairment charge was recorded in employee separation / asset related charges, net within the Other segment in the company's Consolidated Income Statements. The majority relates to a cost basis investment in which the assessment resulted from the venture's revised operating plan reflecting underperformance of its European wheat based ethanol facility and deteriorating European ethanol market conditions. One of the primary investors communicated that they would not fund the revised operating plan of the investee. As a result, the carrying value of DuPont's 6 percent cost basis investment in this venture exceeds its fair value by $37, such that an impairment charge was recorded.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
NOTE 9 - SUPPLEMENTARY INFORMATION
|
| | | | | | | | | | | | |
| Other Income (Expense) - Net | Successor | Predecessor |
| (In millions) | 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 |
Royalty Income1 | | |
|
| $ | 60 |
|
| Interest income | $ | 59 |
| $ | 86 |
| $ | 50 |
| 59 |
|
| Equity in losses of affiliates - net | (9 | ) | (1 | ) | (3 | ) | (7 | ) |
Net gain on sales of businesses and other assets2 | 64 |
| 62 |
| 689 |
| 10 |
|
Net exchange losses3,4 | (99 | ) | (127 | ) | (23 | ) | (364 | ) |
Non-operating pension and other post employment benefit credit (cost)5 | 191 |
| 275 |
| 103 |
| (296 | ) |
Miscellaneous income (expenses) - net6 | 9 |
| (46 | ) | (11 | ) | 37 |
|
| Other income (expense) - net | $ | 215 |
| $ | 249 |
| $ | 805 |
| $ | (501 | ) |
1 In the Successor periods, royalty income is included in millions, except per share)
5. OTHER INCOME, NET
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Royalty income | $ | 170 |
| $ | 138 |
| $ | 156 |
|
| Interest income | 107 |
| 129 |
| 129 |
|
| Equity in earnings (loss) of affiliates, net | 99 |
| 49 |
| (36 | ) |
Net gains on sales of businesses and other assets1 | 435 |
| 92 |
| 710 |
|
| Net exchange (losses) gains | (106 | ) | 30 |
| 196 |
|
Miscellaneous income and expenses, net2 | 3 |
| 259 |
| 122 |
|
| Other income, net | $ | 708 |
| $ | 697 |
| $ | 1,277 |
|
net sales.
| |
1.2
| Includes a $671 million gain on the sale of assets for the period September 1 through December 31, 2017 related to the divestiture of the DAS Divested Ag Business. Refer to Note 5 - Divestitures and Other Transactions, for additional information. |
| |
3 | Includes a net $(51) million and $(68) million pre-tax gainexchange loss associated with the devaluation of $369 ($214 net of tax)the Argentine peso for the year ended December 31, 2016 related to the sale of DuPont (Shenzhen) Manufacturing Limited. See Note 3 for additional information.2019 and December 31, 2018, respectively. |
| |
2.4
| Includes a $(50) million foreign exchange loss for the year ended December 31, 2018 related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform, which is included within significant items. |
| |
5 | Includes non-service related components of net periodic benefit credits (costs) (interest cost, expected return on plan assets, amortization of unrecognized (gain) loss, amortization of prior service benefit and curtailment/settlement gain). The company adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) on January 1, 2018, retrospectively, and recorded the other components of net periodic benefit cost in other income (expense) - net. |
| |
6 | Miscellaneous income and expenses,(expenses) - net, includes interest items, gainslosses from sale of receivables, tax indemnification adjustments related to litigation settlements, gains/losses on available-for-sale securitieschanges in indemnification balances as a result of the application of the terms of the Tax Matters Agreement, between Corteva and Dow and/or DuPont, and other items. In addition, the year ended December 31, 2018 includes a $(53) million loss related to the deconsolidation of a subsidiary (refer to Note 25 - Segment Information). Refer to Note 12 - Accounts and Notes Receivable - Net, for additional information on losses on the sale of receivables. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The following table summarizes the impacts of the company's foreign currency hedging program on the company's results from operations for the years ended December 31, 2016, 2015 and 2014.of operations. The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The hedging program gains (losses) are largely taxable (tax deductible) in the U.S.United States (U.S.), whereas the offsetting exchange lossesgains (losses) on the re-measurementremeasurement of the net monetary asset positions are often not tax deductibletaxable (tax deductible) in their local jurisdictions. The net pre-tax exchange gains (losses) are recorded in other income (expense) - net and the related tax impact is recorded in provision for (benefit from) income taxes on continuing operations onin the Consolidated Income Statements.Statements of Operations.
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Subsidiary Monetary Position (Loss) Gain | | | | |
Pre-tax exchange (loss) gain1 | $ | (41 | ) | $ | (221 | ) | $ | (114 | ) | $ | 67 |
|
| Local tax benefits (expenses) | 2 |
| (31 | ) | 4 |
| 216 |
|
| Net after-tax impact from subsidiary exchange (loss) gain | $ | (39 | ) | $ | (252 | ) | $ | (110 | ) | $ | 283 |
|
| | | | | |
| Hedging Program (Loss) Gain | | | | |
Pre-tax exchange (loss) gain2 | $ | (58 | ) | $ | 94 |
| $ | 91 |
| $ | (431 | ) |
| Tax benefits (expenses) | 13 |
| (21 | ) | (33 | ) | 155 |
|
| Net after-tax impact from hedging program exchange (loss) gain | $ | (45 | ) | $ | 73 |
| $ | 58 |
| $ | (276 | ) |
| | | | | |
| Total Exchange (Loss) Gain | | | | |
Pre-tax exchange loss1,2 | $ | (99 | ) | $ | (127 | ) | $ | (23 | ) | $ | (364 | ) |
| Tax benefits (expenses) | 15 |
| (52 | ) | (29 | ) | 371 |
|
| Net after-tax exchange (loss) gain | $ | (84 | ) | $ | (179 | ) | $ | (52 | ) | $ | 7 |
|
| |
1. | Includes a net $(51) million and $(68) million pre-tax exchange loss associated with the devaluation of the Argentine peso for the year ended December 31, 2019 and December 31, 2018, respectively. |
| |
2. | Includes a $(50) million foreign exchange loss for the year ended December 31, 2018 related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform. |
Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash (included in other current assets) presented in the Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash presented in the Consolidated Statements of Cash Flows.
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Subsidiary/Affiliate Monetary Position Gain (Loss) | | | |
| Pretax exchange gain (loss) | $ | 198 |
| $ | (404 | ) | $ | (411 | ) |
| Local tax expenses | (126 | ) | (61 | ) | (207 | ) |
| Net after-tax impact from subsidiary exchange gain (loss) | $ | 72 |
| $ | (465 | ) | $ | (618 | ) |
| | | | |
| Hedging Program Gain (Loss) | | | |
| Pretax exchange (loss) gain | $ | (304 | ) | $ | 434 |
| $ | 607 |
|
| Tax benefits (expenses) | 110 |
| (157 | ) | (212 | ) |
| Net after-tax impact from hedging program exchange (loss) gain | $ | (194 | ) | $ | 277 |
| $ | 395 |
|
| | | | |
| Total Exchange Gain (Loss) | | | |
| Pretax exchange (loss) gain | $ | (106 | ) | $ | 30 |
| $ | 196 |
|
| Tax expenses | (16 | ) | (218 | ) | (419 | ) |
| Net after-tax exchange loss | $ | (122 | ) | $ | (188 | ) | $ | (223 | ) |
|
| | | | | | |
| (In millions) | December 31, 2019 | December 31, 2018 |
| Cash and cash equivalents | $ | 1,764 |
| $ | 2,270 |
|
| Restricted cash | 409 |
| 460 |
|
| Total cash, cash equivalents and restricted cash | 2,173 |
| 2,730 |
|
Cash and cash equivalents of discontinued operations1 | — |
| 2,254 |
|
Restricted cash of discontinued operations2 | — |
| 40 |
|
| Total cash, cash equivalents and restricted cash | $ | 2,173 |
| $ | 5,024 |
|
| |
| 1. | Refer to Note 5 - Divestitures and Other Transactions, for additional information. |
| |
| 2. | Amount included in other current assets within assets of discontinued operations - current. Refer to Note 5 - Divestitures and Other Transactions, for additional information. |
EID entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring EID to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. Restricted cash at December 31, 2019 and December 31, 2018 is related to the Trust.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
6. PROVISION FORAccrued and other current liabilities
Accrued and other current liabilities were $4,434 million at December 31, 2019 and $4,005 million at December 31, 2018. Refer to Note 6 - Revenue, for discussion of deferred revenue, which is a component of accrued and other current liabilities. No other components of accrued and other current liabilities were more than 5 percent of total current liabilities.
Accounts payable
Accounts payable was $3,702 million at December 31, 2019 and $3,798 million at December 31, 2018. Accounts payable - trade, which is a component of accounts payable, was $2,577 million at December 31, 2019 and $2,602 million at December 31, 2018. No other components of accounts payable were more than 5 percent of total current liabilities.
NOTE 10 - INCOME TAXES
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Current tax expense on continuing operations: | |
| |
| |
|
| U.S. federal | $ | 40 |
| $ | 218 |
| $ | 656 |
|
| U.S. state and local | 11 |
| 7 |
| 38 |
|
| International | 592 |
| 466 |
| 449 |
|
| Total current tax expense on continuing operations | 643 |
| 691 |
| 1,143 |
|
| Deferred tax expense on continuing operations: |
|
|
|
|
|
|
| U.S. federal | 27 |
| 139 |
| 91 |
|
| U.S. state and local | (29 | ) | 4 |
| (42 | ) |
| International | 103 |
| (138 | ) | (24 | ) |
| Total deferred tax expense on continuing operations | 101 |
| 5 |
| 25 |
|
| Provision for income taxes on continuing operations | $ | 744 |
| $ | 696 |
| $ | 1,168 |
|
As a result of The significant components ofAct, the company remeasured its U.S. federal deferred income 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 ($2,813 million benefit in the period September 1 through December 31, 20162017 and 2015$34 million benefit in the year ended December 31, 2018) to the provision for (benefit from) income taxes on continuing operations with respect to the remeasurement of the company's deferred tax balances. Of the $34 million benefit recorded in the year ended December 31, 2018, $114 million relates to the company's discretionary pension contribution in 2018, which was deducted on a 2017 tax return. The remaining charges relate to purchase accounting adjustments made throughout 2018.
The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”), are as follows:which results in a one-time transition tax. The company recorded a cumulative charge of $928 million ($746 million charge in the period September 1 through December 31, 2017 and $182 million charge in the year ended December 31, 2018) to the provision for (benefit from) income taxes on continuing operations with respect to the one-time transition tax.
In the year ended December 31, 2018, the company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to inventory was a $16 million charge to provision for income taxes on continuing operations.
For tax years beginning after December 31, 2017, The Act introduces 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.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | | | | | | | |
| Geographic Allocation of (Loss) Income and Provision for (Benefit from) Income Taxes | Successor | Predecessor |
| (In millions) | 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 |
| (Loss) Income from continuing operations before income taxes | | | | |
| Domestic | $ | (1,352 | ) | $ | (5,040 | ) | $ | (961 | ) | $ | (519 | ) |
| Foreign | 1,036 |
| (1,766 | ) | 500 |
| 482 |
|
| Loss from continuing operations before income taxes | $ | (316 | ) | $ | (6,806 | ) | $ | (461 | ) | $ | (37 | ) |
| Current tax expense (benefit) | | | | |
| Federal | $ | (11 | ) | $ | (112 | ) | $ | 8 |
| $ | (581 | ) |
| State and local | 1 |
| (32 | ) | 11 |
| (117 | ) |
| Foreign | 317 |
| 446 |
| 287 |
| 81 |
|
| Total current tax expense (benefit) | $ | 307 |
| $ | 302 |
| $ | 306 |
| $ | (617 | ) |
| Deferred tax (benefit) expense | | | | |
| Federal | $ | (392 | ) | $ | (124 | ) | $ | (2,373 | ) | $ | 188 |
|
| State and local | 156 |
| (39 | ) | 3 |
| 79 |
|
| Foreign | (117 | ) | (170 | ) | (157 | ) | (45 | ) |
| Total deferred tax (benefit) expense | $ | (353 | ) | $ | (333 | ) | $ | (2,527 | ) | $ | 222 |
|
| Benefit from income taxes on continuing operations | (46 | ) | (31 | ) | (2,221 | ) | (395 | ) |
| Net (loss) income from continuing operations after taxes | $ | (270 | ) | $ | (6,775 | ) | $ | 1,760 |
| $ | 358 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | | | | | | | |
| | 2016 | 2015 |
| | Asset | Liability | Asset | Liability |
| Depreciation | $ | — |
| $ | 742 |
| $ | — |
| $ | 953 |
|
| Accrued employee benefits | 4,529 |
| 410 |
| 4,812 |
| 374 |
|
| Other accrued expenses | 617 |
| 222 |
| 624 |
| 61 |
|
| Inventories | 163 |
| 144 |
| 89 |
| 99 |
|
| Unrealized exchange gains/losses | — |
| 346 |
| — |
| 224 |
|
| Tax loss/tax credit carryforwards/backs | 1,808 |
| — |
| 2,124 |
| — |
|
| Investment in subsidiaries and affiliates | 126 |
| 230 |
| 133 |
| 154 |
|
| Amortization of intangibles | 210 |
| 1,345 |
| 187 |
| 1,331 |
|
| Other | 257 |
| 86 |
| 215 |
| 77 |
|
| Valuation allowance | (1,308 | ) | — |
| (1,529 | ) | — |
|
| | $ | 6,402 |
| $ | 3,525 |
| $ | 6,655 |
| $ | 3,273 |
|
| Net deferred tax asset | $ | 2,877 |
| |
| $ | 3,382 |
| |
|
An analysis of the company's effective income tax rate (EITR) on continuing operations is as follows:
|
| | | | | | |
| | 2016 | 2015 | 2014 |
| Statutory U.S. federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
Exchange gains/losses1 | 1.6 |
| 8.0 |
| 8.1 |
|
| Domestic operations | (3.7 | ) | (2.8 | ) | (2.8 | ) |
| Lower effective tax rates on international operations-net | (9.3 | ) | (11.1 | ) | (11.4 | ) |
| Tax settlements | (0.1 | ) | (0.7 | ) | (0.6 | ) |
| Sale of a business | (0.1 | ) | (0.2 | ) | (0.4 | ) |
| U.S. research & development credit | (0.6 | ) | (1.3 | ) | (0.8 | ) |
| | 22.8 | % | 26.9 | % | 27.1 | % |
|
| | | | | | | | |
| Reconciliation to U.S. Statutory Rate | Successor | Predecessor |
| | 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 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 35.0 | % | 35.0 | % |
| Equity earning effect | 0.1 |
| 0.1 |
| 1.9 |
| (2.7 | ) |
Effective tax rates on international operations - net 1 | (18.4 | ) | 0.4 |
| 24.3 |
| 244.9 |
|
Acquisitions, divestitures and ownership restructuring activities 2, 3, 4 | (10.7 | ) | (2.3 | ) | 63.0 |
| (64.7 | ) |
| U.S. research and development credit | 7.0 |
| 0.1 |
| 1.4 |
| 24.4 |
|
Exchange gains/losses 5 | (1.8 | ) | (1.3 | ) | (8.8 | ) | 650.1 |
|
SAB 118 Impact of Enactment of U.S. Tax Reform6 | — |
| (3.0 | ) | 371.2 |
| — |
|
Impact of Swiss Tax Reform7 | 11.9 |
| — |
| — |
| — |
|
| Excess tax benefits (tax deficiency) from stock compensation | (0.6 | ) | 0.1 |
| 1.0 |
| 38.3 |
|
Tax settlements and expiration of statute of limitations8 | 3.9 |
| (0.1 | ) | — |
| 146.4 |
|
Goodwill impairment 9 | — |
| (15.2 | ) | — |
| — |
|
| Other - net | 2.2 |
| 0.7 |
| (7.2 | ) | (4.1 | ) |
| Effective tax rate on income from continuing operations | 14.6 | % | 0.5 | % | 481.8 | % | 1,067.6 | % |
| |
| 1. | Includes the effects of local and U.S. taxes related to earnings of non-U.S. subsidiaries, changes in the amount of unrecognized tax benefits associated with these earnings, losses at non-U.S. subsidiaries without local tax benefits due to valuation allowances, and other permanent differences between tax and U.S. GAAP results. |
| |
| 2. | 1.See Notes 4 - Common Control Business Combination, and Note 5 - Divestitures and Other Transactions, for additional information.
|
| |
| 3. | Includes a net tax charge of $50 million related to repatriation activities to facilitate the Business Separations for the year ended December 31, 2018. |
| |
| 4. | Includes a net tax charge of $25 million and a net tax benefit of $261 million for the year ended December 31, 2018 and the period September 1 through December 31, 2017, respectively, related to an internal legal entity restructuring associated with the Business Separations. |
| |
| 5. | Principally reflects the impact of foreign exchange gains and losses on net monetary assets for which no corresponding tax benefitimpact is realized. Further information about the company's foreign currency hedging program is included in Note 59 - Supplementary Information, and Note 1922 - Financial Instruments, under the heading Foreign Currency Risk. |
| |
| 6. | Reflects a net tax benefit of $2,067 million and a net tax charge of $164 million associated with the company's completion of the accounting for the tax effects of The Act for the period September 1 through December 31, 2017 and the year ended December 31, 2018, respectively. |
| |
| 7. | Reflects tax benefits of $38 million associated with the enactment of the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Reform"). |
| |
| 8. | The period January 1 through August 31, 2017 includes a tax benefit of $46 million related to changes in accruals for certain prior year tax positions and the tax effect of the associated accrued interest reversals. |
| |
| 9. | Reflects the impact of the non-tax-deductible, non-cash 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 for the year ended December 31, 2018. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Consolidated income from continuing operations before income taxes for U.S. and international operations was as follows:
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| U.S. (including exports) | $ | 1,457 |
| $ | 1,397 |
| $ | 2,537 |
|
| International | 1,808 |
| 1,194 |
| 1,776 |
|
| Income from continuing operations before income taxes | $ | 3,265 |
| $ | 2,591 |
| $ | 4,313 |
|
|
| | | | | | | | | | | | |
| Deferred Tax Balances at December 31 | 2019 | 2018 |
| (In millions) | Assets | Liabilities | Assets | Liabilities |
| Property | $ | — |
| $ | 369 |
| $ | — |
| $ | 344 |
|
Tax loss and credit carryforwards1 | 761 |
| — |
| 842 |
| — |
|
| Accrued employee benefits | 1,717 |
| — |
| 1,392 |
| — |
|
| Other accruals and reserves | 135 |
| — |
| 263 |
| — |
|
| Intangibles | — |
| 2,738 |
| — |
| 2,648 |
|
| Inventory | 25 |
| — |
| — |
| 40 |
|
| Long-term debt | — |
| — |
| 24 |
| — |
|
| Investments | 53 |
| — |
| 7 |
| — |
|
| Unrealized exchange gains/losses | — |
| 39 |
| — |
| 140 |
|
| Other – net | 279 |
| — |
| 137 |
| — |
|
| Subtotal | $ | 2,970 |
| $ | 3,146 |
| $ | 2,665 |
| $ | 3,172 |
|
Valuation allowances2 | (457 | ) | — |
| (669 | ) | — |
|
| Total | $ | 2,513 |
| $ | 3,146 |
| $ | 1,996 |
| $ | 3,172 |
|
| Net Deferred Tax Liability | $ | (633 | ) | | $ | (1,176 | ) | |
| |
| 1. | Primarily related to the realization of recorded tax benefits on tax loss and credit carryforwards from operations in the United States, Brazil, and Spain. |
| |
| 2. | During the year ended December 31, 2019, the company released a valuation allowance against the net deferred tax asset position of a legal entity in Switzerland in connection with an internal merger, resulting in a tax benefit of $34 million. During the year ended December 31, 2018, the company established a full valuation allowance against the net deferred tax asset position of a legal entity in Brazil due to revised financial projections, resulting in tax expense of $75 million. See Note 15 - Goodwill and Other Intangible Assets, for additional information. |
|
| | | | | | |
| Operating Loss and Tax Credit Carryforwards | Deferred Tax Asset |
| (In millions) | 2019 | 2018 |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 131 |
| $ | 78 |
|
| Expire after 5 years or indefinite expiration | 400 |
| 559 |
|
| Total operating loss carryforwards | $ | 531 |
| $ | 637 |
|
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 30 |
| $ | 27 |
|
| Expire after 5 years or indefinite expiration | 200 |
| 178 |
|
| Total tax credit carryforwards | $ | 230 |
| $ | 205 |
|
| Total Operating Loss and Tax Credit Carryforwards | $ | 761 |
| $ | 842 |
|
The increase in international pre-tax earnings from continuing operations from 2015 to 2016 is primarily driven by the gain on the sale of DuPont (Shenzhen) Manufacturing Limited in 2016 in addition
Corteva, Inc.
Notes to the absence of 2015 employee separation / asset related charges, net.Consolidated Financial Statements (continued)
The decrease in pre-tax earnings from continuing operations from 2014 to 2015 is primarily driven by lower worldwide sales volume, the absence of 2014 gains on sales of businesses primarily in the U.S., higher employee separation / asset related charges, net, as well as the results of the company’s hedging program. |
| | | | | | | | | | | | |
| Total Gross Unrecognized Tax Benefits | Successor | Predecessor |
| (In millions) | 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 |
| Total unrecognized tax benefits as of beginning of period | $ | 749 |
| $ | 741 |
| $ | 709 |
| $ | 596 |
|
| Decreases related to positions taken on items from prior years | (167 | ) | (44 | ) | (2 | ) | (19 | ) |
| Increases related to positions taken on items from prior years | 77 |
| 74 |
| 9 |
| 3 |
|
| Increases related to positions taken in the current year | 54 |
| 9 |
| 28 |
| 49 |
|
| Settlement of uncertain tax positions with tax authorities | (9 | ) | (13 | ) | 1 |
| (6 | ) |
| Impact of Internal Reorganizations | (278 | ) | — |
| — |
| — |
|
| Decreases due to expiration of statutes of limitations | — |
| (5 | ) | (5 | ) | (86 | ) |
| Exchange (gain) loss | — |
| (13 | ) | 1 |
| 1 |
|
| Total unrecognized tax benefits as of end of period | $ | 426 |
| $ | 749 |
| $ | 741 |
| $ | 538 |
|
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 188 |
| $ | 45 |
| $ | 51 |
| $ | 131 |
|
| Total amount of interest and penalties (benefits) recognized in provision for (benefit from) income taxes on continuing operations | $ | (4 | ) | $ | 11 |
| $ | 1 |
| $ | (27 | ) |
| Total accrual for interest and penalties associated with unrecognized tax benefits at end of period | $ | 24 |
| $ | 45 |
| $ | 47 |
| $ | 40 |
|
In 2016 and 2015, the U.S. recorded a net exchange (loss) gain associated with the hedging program of $(304) and $434, respectively. While the taxation of the amounts reflected on the chart above does not correspond precisely to the jurisdiction of taxation (due to taxation in multiple countries, exchange gains/losses, etc.), it represents a reasonable approximation of the income before income taxes split between U.S. and international jurisdictions. See Note 19 for additional information regarding the company's hedging program.
Under the tax laws of various jurisdictions in which the company operates, deductions or credits that cannot be fully utilized for tax purposes during the current year may be carried forward or back, subject to statutory limitations, to reduce taxable income or taxes payable in future or prior years. At December 31, 2016, the tax effect of such carryforwards/backs, net of valuation allowance approximated $516. Of this amount, $285 has no expiration date, $3 expires after 2016 but before the end of 2021 and $228 expires after 2021.
At December 31, 2016, unremitted earnings of subsidiaries outside the U.S. totaling $17,380 were deemed to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S.
Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company's financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. It is reasonably possible that net reductionschanges to the company’s global unrecognized tax benefits could be insignificant; however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of $70 to $90increases or decreases that may occur within the next 12twelve months withcannot be made.
Tax years that remain subject to examination for the majority due to the settlement of uncertaincompany’s major tax positions with various tax authorities.
jurisdictions are shown below:
|
| |
| Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, | Earliest Open Year |
| Jurisdiction |
| Argentina | 2013 |
| Brazil | 2014 |
| Canada | 2013 |
| China | 2008 |
| France | 2016 |
| India | 1996 |
| Italy | 2015 |
| Switzerland | 2015 |
| United States: | |
| Federal income tax | 2012 |
| State and local income tax | 2001 |
E. I. du Pont de Nemours and Company
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
The company and/or itsUndistributed earnings of foreign subsidiaries file income tax returns inand related companies that are deemed to be permanently invested amounted to $4,614 million at December 31, 2019. In addition to the U.S. federal jurisdiction, and various states and non-U.S. jurisdictions. With few exceptions, thetax imposed by The Act on all accumulated unrepatriated earnings through December 31, 2017, The Act introduced additional U.S. federal tax on foreign earnings, effective as of January 1, 2018. The undistributed foreign earnings as of December 31, 2019 may still be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. The company is no longer subjectstill asserting indefinite reinvestment related to U.S.certain investments in foreign subsidiaries. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings due to the complexity of the hypothetical calculation.
For periods between the Merger Effectiveness Time and the Corteva Distribution, Corteva and its subsidiaries were included in DowDuPont's consolidated federal state and local, or non-U.S. income tax examinations bygroup and consolidated tax authorities for years before 2004. A reconciliationreturn. Generally, the consolidated tax liability of the beginningDowDuPont U.S. tax group for each year was apportioned among the members of the consolidated group based on each member’s separate taxable income. Corteva, DuPont and ending amountsDow intend that to the extent Federal and/or State corporate income tax liabilities are reduced through the utilization of unrecognized tax benefits isattributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax sharing agreement and/or tax matters agreement. See Note 5 - Divestitures and Other Transactions, for further information related to indemnifications between Corteva, Dow and DuPont.
NOTE 11 - EARNINGS PER SHARE OF COMMON STOCK
On June 1, 2019, the date of the Corteva Distribution, 748,815,000 shares of the company’s common stock were distributed to DowDuPont shareholders of record as follows:of May 24, 2019.
The following tables provide earnings per share calculations for the periods indicated below: |
| | | | | | | | | | | | |
| Net (Loss) Income for Earnings Per Share Calculations - Basic and Diluted | Successor | Predecessor |
| (In millions) | 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 |
| (Loss) income from continuing operations after income taxes | $ | (270 | ) | $ | (6,775 | ) | $ | 1,760 |
| $ | 358 |
|
| Net income attributable to continuing operations noncontrolling interests | 13 |
| 29 |
| 10 |
| 8 |
|
| (Loss) income from continuing operations attributable to Corteva common stockholders | (283 | ) | (6,804 | ) | 1,750 |
| 350 |
|
| (Loss) income from discontinued operations, net of tax | (671 | ) | 1,748 |
| (568 | ) | 1,403 |
|
| Net income attributable to discontinued operations noncontrolling interests | 5 |
| 9 |
| — |
| 19 |
|
| (Loss) income from discontinued operations attributable to Corteva common stockholders | (676 | ) | 1,739 |
| (568 | ) | 1,384 |
|
| Net (loss) income attributable to common stockholders | $ | (959 | ) | $ | (5,065 | ) | $ | 1,182 |
| $ | 1,734 |
|
|
| | | | | | | | | | | | |
| (Loss) Earnings Per Share Calculations - Basic | Successor | Predecessor |
| (Dollars per share) | 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 |
| (Loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
|
| (Loss) earnings per share of common stock from discontinued operations | (0.90 | ) | 2.32 |
| (0.76 | ) | 1.60 |
|
| (Loss) earnings per share of common stock | $ | (1.28 | ) | $ | (6.76 | ) | $ | 1.58 |
| $ | 2.00 |
|
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Total unrecognized tax benefits as of January 1 | $ | 846 |
| $ | 986 |
| $ | 901 |
|
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken during the prior period | (41 | ) | (98 | ) | (50 | ) |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken during the prior period | 32 |
| 13 |
| 84 |
|
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken during the current period | 55 |
| 69 |
| 92 |
|
Amount of decreases in the unrecognized tax benefits relating to settlements with taxing authorities | (314 | ) | (58 | ) | (15 | ) |
Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations | (30 | ) | (30 | ) | (3 | ) |
| Exchange loss (gain) | 2 |
| (36 | ) | (23 | ) |
| Total unrecognized tax benefits as of December 31 | $ | 550 |
| $ | 846 |
| $ | 986 |
|
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 429 |
| $ | 651 |
| $ | 818 |
|
| Total amount of interest and penalties recognized in the Consolidated Income Statements | $ | 20 |
| $ | (8 | ) | $ | 5 |
|
| Total amount of interest and penalties recognized in the Consolidated Balance Sheets | $ | 98 |
| $ | 105 |
| $ | 117 |
|
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
7. EARNINGS PER SHARE OF COMMON STOCK |
| | | | | | | | | | | | |
| (Loss) Earnings Per Share Calculations - Diluted | Successor | Predecessor |
| (Dollars per share) | 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 |
| (Loss) earnings per share of common stock from continuing operations | $ | (0.38 | ) | $ | (9.08 | ) | $ | 2.34 |
| $ | 0.40 |
|
| (Loss) earnings per share of common stock from discontinued operations | (0.90 | ) | 2.32 |
| (0.76 | ) | 1.59 |
|
| (Loss) earnings per share of common stock | $ | (1.28 | ) | $ | (6.76 | ) | $ | 1.58 |
| $ | 1.99 |
|
Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:
|
| | | | | | | | | |
| | 2016 | 2015 | 2014 |
| Numerator: | |
| |
| |
|
| Income from continuing operations after income taxes attributable to DuPont | $ | 2,509 |
| $ | 1,889 |
| $ | 3,135 |
|
| Preferred dividends | (10 | ) | (10 | ) | (10 | ) |
| Income from continuing operations after income taxes available to DuPont common stockholders | $ | 2,499 |
| $ | 1,879 |
| $ | 3,125 |
|
| |
|
|
|
|
|
|
| Income from discontinued operations after income taxes | $ | 4 |
| $ | 64 |
| $ | 490 |
|
| |
|
|
|
|
|
|
| Net income available to common stockholders | $ | 2,503 |
| $ | 1,943 |
| $ | 3,615 |
|
| |
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
| Weighted-average number of common shares outstanding – Basic | 872,560,000 |
| 893,992,000 |
| 914,752,000 |
|
| Dilutive effect of the company's equity compensation plans | 4,476,000 |
| 5,535,000 |
| 7,121,000 |
|
| Weighted-average number of common shares outstanding – Diluted | 877,036,000 |
| 899,527,000 |
| 921,873,000 |
|
|
| | | | | | | | |
| Share Count Information | Successor | Predecessor |
| (Shares in millions) | 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 |
Weighted-average common shares - basic1 | 749.5 |
| 749.4 |
| 749.4 |
| 867.9 |
|
Plus dilutive effect of equity compensation plans2 | — |
| — |
| — |
| 4.5 |
|
| Weighted-average common shares - diluted | 749.5 |
| 749.4 |
| 749.4 |
| 872.4 |
|
Potential shares of common stock excluded from EPS calculations3 | 14.4 |
| — |
| — |
| — |
|
| |
| 1. | Share amounts for all periods prior to the Corteva Distribution were based on 748.8 million shares of Corteva, Inc. common stock distributed to holders of DowDuPont's common stock on June 1, 2019, plus 0.6 million of additional shares in which accelerated vesting conditions have been met. |
| |
| 2. | Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. |
| |
| 3. | These outstanding potential shares of common stock were excluded from the calculation of diluted earnings per share because the effect of including them would have been anti-dilutive. |
The weighted-average number of common shares outstanding in 2016 and 2015 decreased as a result of the company's repurchase and retirement of its common stock, partially offset by the issuance of new shares from the company's equity compensation plans(see Notes 16 and 18, respectively).
The following average number of stock options are antidilutive and therefore, are not included in the diluted earnings per share calculation:
|
| | | | | | |
| | 2016 | 2015 | 2014 |
| Average number of stock options | 4,794,000 |
| 4,715,000 |
| 3,000 |
|
The change in the average number of stock options that were antidilutive in 2016 and 2015 was due to changes in the company's average stock price.
8.NOTE 12 - ACCOUNTS AND NOTES RECEIVABLE - NET
| | | December 31, | 2016 | 2015 | |
| (In millions) | | December 31, 2019 | December 31, 2018 |
Accounts receivable – trade1 | $ | 3,610 |
| $ | 3,435 |
| $ | 4,225 |
| $ | 3,649 |
|
Notes receivable – trade1,2 | 206 |
| 301 |
| |
Notes receivable – trade2 | | 171 |
| 194 |
|
Other3 | 1,155 |
| 907 |
| 1,132 |
| 1,417 |
|
| | $ | 4,971 |
| $ | 4,643 |
| |
| Total accounts and notes receivable - net | | $ | 5,528 |
| $ | 5,260 |
|
| |
1. | Accounts and notes receivable – trade areis net of allowances of $287$174 million at 2016December 31, 2019 and $225$127 million at 2015.December 31, 2018. Allowances are equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions, and review of the current status of customers' accounts. |
| |
2. | Notes receivable – trade primarily consists of receivables within the Agriculture segment for deferred payment loan programs for the sale of seed products to customers. These loans have terms of one year or less and are primarily concentrated in North America. The company maintains a rigid pre-approval process for extending credit to customers in order to manage overall risk and exposure associated with credit losses. As of December 31, 20162019 and 2015,2018, there were no significant past due notes receivable which required a reserve, nor were there any significant impairments related to current loan agreements. |
| |
3. | Other includes receivables in relation to fair value of derivative instruments, indemnification assets, value added tax, general sales tax and other taxes. No individual group represents more than ten percent of total receivables. In addition, Other includes amounts due from nonconsolidated affiliates of $119 million and $101 million as of December 31, 2019 and 2018, respectively. |
Accounts and notes receivable are carried at amounts that approximate fair value.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
The company enters into various factoring agreements with third-party financial institutions to sell its trade receivables under both recourse and non-recourse agreements in millions, except per share)
exchange for cash proceeds. These financing arrangements result in a transfer of the company's receivables and risks to the third-party. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are derecognized from the Consolidated Balance Sheets upon transfer, and the company receives a payment for the receivables from the third-party within a mutually agreed upon time period. For arrangements involving an element of recourse, which is typically provided through a guarantee of accounts in the event of customer default, the guarantee obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Balance Sheets.
9. INVENTORIESTrade receivables sold under these agreements were $328 million, $133 million, $67 million, and $6 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. The trade receivables sold that remained outstanding under these agreements which include an element of recourse as of December 31, 2019 and December 31, 2018 were $171 million and $37 million, respectively. The net proceeds received were included in cash provided by operating activities in the Consolidated Statements of Cash Flows. The difference between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of receivables in other income (expense) - net in the Consolidated Statements of Operations. The loss on sale of receivables were $44 million, $25 million, and $19 million, for the year ended December 31, 2019, the year ended December 31, 2018, and the period September 1 through December 31, 2017, respectively. The guarantee obligations recorded as of December 31, 2019 and December 31, 2018 in the Consolidated Balance Sheets were not material. See Note 18 - Commitments and Contingent Liabilities, for additional information on the company’s guarantees.
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Finished products | $ | 3,113 |
| $ | 3,779 |
|
| Semi-finished products | 2,009 |
| 1,780 |
|
| Raw materials, stores and supplies | 719 |
| 783 |
|
| | 5,841 |
| 6,342 |
|
| Adjustment of inventories to a LIFO basis | (168 | ) | (202 | ) |
| | $ | 5,673 |
| $ | 6,140 |
|
10.NOTE 13 - INVENTORIES
|
| | | | | | |
| (In millions) | December 31, 2019 | December 31, 2018 |
| Finished products | $ | 2,684 |
| $ | 3,022 |
|
| Semi-finished products | 1,850 |
| 1,821 |
|
| Raw materials and supplies | 498 |
| 467 |
|
| Total inventories | $ | 5,032 |
| $ | 5,310 |
|
As a result of the Merger, a fair value step-up of $2,297 million was recorded for inventories. Of this amount, $272 million, $1,554 million, and $425 million was recognized in cost of goods sold within (loss) income from continuing operations for the year ended December 31, 2019, the year ended December 31, 2018, and the period September 1 through December 31, 2017, respectively.
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | |
| (In millions) | December 31, 2019 | December 31, 2018 |
| Land and land improvements | $ | 459 |
| $ | 468 |
|
| Buildings | 1,508 |
| 1,430 |
|
| Machinery and equipment | 5,323 |
| 4,863 |
|
| Construction in progress | 582 |
| 579 |
|
| Total property, plant and equipment | 7,872 |
| 7,340 |
|
| Accumulated depreciation | (3,326 | ) | (2,796 | ) |
| Total property, plant and equipment - net | $ | 4,546 |
| $ | 4,544 |
|
Buildings, machinery and equipment and land improvements are depreciated over useful lives on a straight-line basis ranging from 1 year to 25 years. Capitalizable costs associated with computer software for internal use are amortized on a straight-line basis over 1 year to 8 years.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Buildings | $ | 4,495 |
| $ | 4,468 |
|
| Equipment | 17,534 |
| 17,410 |
|
| Land | 514 |
| 506 |
|
Construction1 | 1,424 |
| 1,746 |
|
| | $ | 23,967 |
| $ | 24,130 |
|
| |
1.
| The decrease in construction is the result of an impairment charge of $435 related to the company's uncompleted ERP system. See Note 4 for additional information. |
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Depreciation expense | $ | 525 |
| $ | 518 |
| $ | 173 |
| $ | 154 |
|
11.NOTE 15 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table summarizes changes in the carrying amount of goodwill by segment for the years ended December 31, 20162019 and 2015, by reportable segment:December 31, 2018 respectively.
|
| | | | | | | | | | | | | | | |
| | Balance as of December 31, 2016 | Goodwill Adjustments and Acquisitions | Balance as of December 31, 2015 | Goodwill Adjustments and Acquisitions | Balance as of December 31, 2014 |
| Agriculture | $ | 343 |
| $ | 7 |
| $ | 336 |
| $ | 18 |
| $ | 318 |
|
| Electronics & Communications | 149 |
| — |
| 149 |
| — |
| 149 |
|
| Industrial Biosciences | 1,175 |
| (34 | ) | 1,209 |
| (9 | ) | 1,218 |
|
| Nutrition & Health | 2,053 |
| (39 | ) | 2,092 |
| (101 | ) | 2,193 |
|
| Performance Materials | 381 |
| (2 | ) | 383 |
| 8 |
| 375 |
|
| Protection Solutions | 34 |
| — |
| 34 |
| — |
| 34 |
|
| Other | 45 |
| — |
| 45 |
| — |
| 45 |
|
| Total | $ | 4,180 |
| $ | (68 | ) | $ | 4,248 |
| $ | (84 | ) | $ | 4,332 |
|
|
| | | | | | | | | | | | |
| (In millions) | Agriculture | Crop Protection | Seed | Total |
| Balance as of December 31, 2017 | $ | 14,873 |
| $ | — |
| $ | — |
| $ | 14,873 |
|
| Currency translation adjustment | (271 | ) | — |
| — |
| (271 | ) |
Measurement period adjustments - Merger1 | 94 |
| — |
| — |
| 94 |
|
| Goodwill impairment | (4,503 | ) | — |
| — |
| (4,503 | ) |
| Balance as of December 31, 2018 | $ | 10,193 |
| $ | — |
| $ | — |
| $ | 10,193 |
|
| Currency translation adjustment | (28 | ) | — |
| — |
| (28 | ) |
Other goodwill adjustments and acquisitions2 | 14 |
| — |
| — |
| 14 |
|
| Realignment of segments | (10,179 | ) | 4,726 |
| 5,453 |
| — |
|
| Balance as of June 1, 2019 | — |
| 4,726 |
| 5,453 |
| 10,179 |
|
| Currency translation adjustment | — |
| 28 |
| 32 |
| 60 |
|
Other goodwill adjustments and acquisitions3 | — |
| (11 | ) | 1 |
| (10 | ) |
| Balance as of December 31, 2019 | $ | — |
| $ | 4,743 |
| $ | 5,486 |
| $ | 10,229 |
|
| |
1. | See Note 1 - Background and Basis of Presentation, for further discussion of the Merger. |
| |
2. | Primarily consists of the acquisition of a distributor in Greece. |
| |
3. | Primarily consists of the goodwill included in the sale of a business in crop protection. |
The company tests goodwill for impairment annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. As mentioned in Note 2 - Summary of Significant Accounting Policies, as a result of the Internal Reorganizations and Business Realignments, the company changed its reportable segments to seed and crop protection to reflect the manner in which the company's chief operating decision maker assesses performance and allocates resources. The change in reportable segments resulted in changes to the company's reporting units for goodwill impairment testing to align with the level at which discrete financial information is available for review by management. The company’s reporting units include seed, crop protection and digital.
Changes
In connection with the change in reportable segments and reporting units in the second quarter of 2019, goodwill in 2016 and2015 primarily relatewas reassigned from the former agriculture reporting unit to currency translation adjustments. In 2016the seed, crop protection and 2015,digital reporting units using a relative fair value allocation approach. As a result, the company performed a goodwill impairment testsassessment for the former agriculture reporting unit immediately prior to the realignment and the newly created reporting units immediately after the realignment. The impairment assessment was performed using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs or a market approach. The company’s significant assumptions in this analysis include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company believes the current assumptions and estimates utilized are both reasonable and appropriate. Based on the goodwill impairment analysis performed both immediately prior to and immediately subsequent to the realignment, the company concluded the fair value of the former agriculture reporting unit and the newly created reporting units exceeded their carrying value, and no goodwill impairment charge was necessary.
In the fourth quarter of 2019, the company performed quantitative testing on all of its reporting units and determined that no goodwill impairments existed.exist.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
During the third quarter of 2018, and in millions, except per share)connection with strategic business reviews, the company assembled updated financial projections. The revised financial projections of the agriculture reporting unit assessed and quantified the impacts of developing market conditions, events and circumstances that have evolved throughout 2018, resulting in a reduction in the forecasts of sales and profitability as compared to prior forecasts. The reduction in financial projections was principally driven by lower growth in sales and margins in North America and Latin America and unfavorable currency impacts related to the Brazilian Real. The lower growth expectation was driven by reduced planted area, an expected unfavorable shift to soybeans from corn in Latin America, and delays in expected product registrations. In addition, decreases in commodity prices and higher than anticipated industry grain inventories were expected to impact farmers’ income and buying choices resulting in shifts to lower technologies and pricing pressure. The company considered the combination of these factors and the resulting reduction in its forecasted projections for the agriculture reporting unit and determined it was more likely than not that the fair value of the agriculture reporting unit was less than the carrying value, thus requiring the performance of an updated goodwill and intangible asset impairment analysis for the agriculture reporting unit as of September 30, 2018.
The company performed an interim impairment analysis for the agriculture reporting unit using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs. The company’s significant estimates in this analysis included, but were not limited to, future cash flow projections, Merger-related cost and growth synergies, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company believed the current assumptions and estimates utilized were both reasonable and appropriate. The key assumption driving the change in fair value was the lower financial projections discussed above. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. If the company’s ongoing estimates of future cash flows are not met, the company may have to record additional impairment charges in future periods. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategy. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Based on the analysis performed, the company determined that the carrying amount of the agriculture reporting unit exceeded its fair value resulting in a pre-tax, non-cash goodwill impairment charge of $4,503 million, reflected in goodwill impairment charge in the company’s Consolidated Statement of Operations for the year ended December 31, 2018. None of the charge was tax-deductible.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Other Intangible Assets
The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets by major class:class are as follows:
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2015 |
| | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net |
Intangible assets subject to amortization (Definite-lived) | | | | | | |
| Customer lists | $ | 1,574 |
| $ | (586 | ) | $ | 988 |
| $ | 1,621 |
| $ | (529 | ) | $ | 1,092 |
|
| Patents | 446 |
| (259 | ) | 187 |
| 454 |
| (220 | ) | 234 |
|
| Purchased and licensed technology | 964 |
| (579 | ) | 385 |
| 1,173 |
| (649 | ) | 524 |
|
Trademarks/tradenames1 | 53 |
| (15 | ) | 38 |
| 26 |
| (13 | ) | 13 |
|
Other2 | 171 |
| (82 | ) | 89 |
| 180 |
| (72 | ) | 108 |
|
| | 3,208 |
| (1,521 | ) | 1,687 |
| 3,454 |
| (1,483 | ) | 1,971 |
|
Intangible assets not subject to amortization (Indefinite-lived) | | | | | | |
| In-process research and development | 73 |
| — |
| 73 |
| 72 |
| — |
| 72 |
|
Microbial cell factories3 | 306 |
| — |
| 306 |
| 306 |
| — |
| 306 |
|
Pioneer germplasm4 | 1,053 |
| — |
| 1,053 |
| 1,048 |
| — |
| 1,048 |
|
Trademarks/tradenames1 | 545 |
| — |
| 545 |
| 747 |
| — |
| 747 |
|
| | 1,977 |
| — |
| 1,977 |
| 2,173 |
| — |
| 2,173 |
|
| Total | $ | 5,185 |
| $ | (1,521 | ) | $ | 3,664 |
| $ | 5,627 |
| $ | (1,483 | ) | $ | 4,144 |
|
|
| | | | | | | | | | | | | | | | | | |
| (In millions) | December 31, 2019 | December 31, 2018 |
| | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net |
| Intangible assets subject to amortization (Definite-lived): | |
| |
| |
| |
| |
| |
|
Germplasm1 | $ | 6,265 |
| $ | (63 | ) | $ | 6,202 |
| |
|
|
|
|
| Customer-related | 1,977 |
| (268 | ) | 1,709 |
| 1,985 |
| (154 | ) | 1,831 |
|
Developed technology2 | 1,463 |
| (370 | ) | 1,093 |
| 974 |
| (163 | ) | 811 |
|
| Trademarks/trade names | 166 |
| (86 | ) | 80 |
| 180 |
| (92 | ) | 88 |
|
| Favorable supply contracts | 475 |
| (207 | ) | 268 |
| 475 |
| (111 | ) | 364 |
|
Other3 | 404 |
| (213 | ) | 191 |
| 538 |
| (300 | ) | 238 |
|
| Total other intangible assets with finite lives | 10,750 |
| (1,207 | ) | 9,543 |
| 4,152 |
| (820 | ) | 3,332 |
|
| | | | | | | |
| Intangible assets not subject to amortization (Indefinite-lived): | |
| |
| |
| |
| |
| |
|
IPR&D2 | 10 |
| — |
| 10 |
| 576 |
| — |
| 576 |
|
Germplasm1 | | | | 6,265 |
| — |
| 6,265 |
|
| Trademarks / trade names | 1,871 |
| — |
| 1,871 |
| 1,871 |
| — |
| 1,871 |
|
| Other | — |
| — |
| — |
| 11 |
| — |
| 11 |
|
| Total other intangible assets | 1,881 |
| — |
| 1,881 |
| 8,723 |
| — |
| 8,723 |
|
| Total | $ | 12,631 |
| $ | (1,207 | ) | $ | 11,424 |
| $ | 12,875 |
| $ | (820 | ) | $ | 12,055 |
|
| |
1. | The decrease in indefinite-lived intangible trademarks / trade namesBeginning on October 1, 2019, the company changed its indefinite life assertion of the germplasm assets to definite lived with a useful life of 25 years. This change is the result of a $158 impairment charge recorded duringmore focused development effort of new seed products coupled with an intent to out license select germplasm on a non-exclusive basis. Prior to changing the year ended December 31, 2016 associated with certain acquired trade names. The remaining net book valueuseful life of the trade names are reflected in definite-lived trademarks / trade names at December 31, 2016. See Note 4germplasm assets, the company tested the assets for additional information.impairment under ASC 350 - Intangibles, Goodwill and Other, concluding the assets were not impaired. |
| |
2. | During the first quarter of 2019, the company announced the launch of its Qrome® corn hybrids following the receipt of regulatory approval from China. As a result, the company reclassified the amounts from indefinite-lived IPR&D to developed technology. |
| |
3. | Primarily consists of sales and growerfarmer networks, marketing and manufacturing alliances and noncompetition agreements. |
| |
3.
| Microbial cell factories, derived from natural microbes, are used to sustainably produce enzymes, peptides and chemicals using natural metabolic processes. The company recognized the microbial cell factories as an intangible asset upon the acquisition of Danisco. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life. |
| |
4.
| Pioneer germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. The company recognized germplasm as an intangible asset upon the acquisition of Pioneer. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life. |
During the third quarter of 2019, and in connection with strategic product and portfolio reviews, the company determined that the fair value of certain intangible assets classified as developed technology, other intangible assets and IPR&D within the seed segment that primarily relate to heritage DAS intangibles previously acquired from Cooperativa Central de Pesquisa Agrícola's ("Coodetec") was less than the carrying value due to the company’s focus on advancing more competitive products and eliminating redundancy and complexity across the breeding programs. For IPR&D and developed technology, the company concluded these projects were abandoned. For other intangible assets, the company performed an impairment assessment using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy. The significant assumptions used in the calculation included projected revenue, royalty rates and discount rates. These significant assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. As a result, the company recorded a pre-tax, non-cash intangible asset impairment charge of $54 million ($41 million after-tax), which is reflected in restructuring and asset related charges - net, in the company's Consolidated Statements of Operations for the year ended December 31, 2019.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
There were no indicators of impairment for the company’s other intangible assets that would suggest that the fair value is less than its carrying value at December 31, 2019, except for IPR&D. As a result of the company’s decision to accelerate the ramp up of the Enlist E3TM trait platform in the company’s soybean portfolio mix across all brands over the next five years with minimal use of the Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® traits thereafter for the remainder of the Roundup Ready 2 License Agreement, the company determined that certain IPR&D projects associated with Roundup Ready 2 Xtend® were not recoverable and were impaired. These IPR&D projects were either abandoned or tested for impairment using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy. The key assumptions used in the relief from royalty method calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. As a result, the company recorded a pre-tax, non-cash intangible asset charge of $90 million ($69 million after-tax), which is reflected in restructuring and asset related charges - net, in the company's Consolidated Statements of Operations for the year ended December 31, 2019.
During 2018, in reviewing the indefinite-lived intangible assets, the company also determined that the fair value of certain IPR&D assets had declined as a result of delays in timing of commercialization and increases to expected research and development costs. The company performed an analysis of the fair value using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy. The key assumptions used in the calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. As a result, the company recorded a pre-tax, non-cash intangible asset impairment charge of $85 million ($66 million after tax), which is reflected in restructuring and asset related charges - net, in the company's Consolidated Statement of Operations for the year ended December 31, 2018.
The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $319, $360$475 million, $391 million, $97 million, and $360$40 million for 2016, 2015the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014,the period January 1 through August 31, 2017, respectively. Amortization expense for the year ended December 31, 2019 related to the germplasm assets was $63 million (see discussion above for change in the indefinite life assertion).
The estimated aggregate pre-taxannual future amortization expense from continuing operationsrelated to the germplasm assets is approximately $250 million per year.
Total estimated amortization expense for 2017, 2018, 2019, 2020the next five fiscal years is as follows:
|
| | | |
| (In millions) | |
| 2020 | $ | 657 |
|
| 2021 | $ | 649 |
|
| 2022 | $ | 628 |
|
| 2023 | $ | 548 |
|
| 2024 | $ | 532 |
|
NOTE 16 - LEASES
The company has operating and 2021finance leases for real estate, transportation, certain machinery and equipment, and information technology assets. The company’s leases have remaining lease terms of 1 year to 52 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is $208, $211, $213, $187reasonably certain that the company will exercise that option. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and $138, respectively.tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Certain of the company's leases include residual value guarantees. These residual value guarantees are based on a percentage of the lessor's asset acquisition price and the amount of such guarantee declines over the course of the lease term. The portion of residual value guarantees that are probable of payment are included in millions, except per share)
the related lease liability. At December 31, 2019, the company has future maximum payments for residual value guarantees in operating leases of $278 million with final expirations through 2028. The company's lease agreements do not contain any material restrictive covenants. The components of lease cost were as follows: |
| | | |
| (In millions) | For the Year Ended December 31, 2019 |
| Operating lease cost | $ | 166 |
|
| Finance lease cost |
|
|
| Amortization of right-of-use assets | 10 |
|
| Interest on lease liabilities | 1 |
|
| Total finance lease cost | 11 |
|
| Short-term lease cost | 17 |
|
| Variable lease cost | 7 |
|
| Total lease cost | $ | 201 |
|
12. OTHER ACCRUED LIABILITIES
New leases entered into during the year ended December 31, 2019 were not material.
Supplemental cash flow information related to leases was as follows:
|
| | | |
| (In millions) | For the Year Ended December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash outflows from operating leases | $ | 174 |
|
| Operating cash outflows from finance leases | $ | 1 |
|
| Financing cash outflows from finance leases | $ | 9 |
|
Supplemental balance sheet information related to leases was as follows:
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Deferred revenue | $ | 2,223 |
| $ | 2,519 |
|
| Compensation and other employee-related costs | 813 |
| 699 |
|
| Employee benefits (Note 17) | 353 |
| 364 |
|
| Discounts and rebates | 299 |
| 284 |
|
| Derivative instruments (Note 19) | 173 |
| 91 |
|
| Accrual for restructuring programs (Note 4) | 131 |
| 758 |
|
| Miscellaneous | 670 |
| 865 |
|
| | $ | 4,662 |
| $ | 5,580 |
|
|
| | | |
| (In millions) | December 31, 2019 |
| Operating Leases | |
|
Operating lease right-of-use assets1 | $ | 555 |
|
Current operating lease liabilities2 | 140 |
|
Noncurrent operating lease liabilities3 | 426 |
|
| Total operating lease liabilities | $ | 566 |
|
| | |
| Finance Leases | |
|
| Property, plant, and equipment, gross | $ | 15 |
|
| Accumulated depreciation | (8 | ) |
| Property, plant, and equipment, net | 7 |
|
| Short-term borrowings and finance lease obligations | 4 |
|
| Long-Term Debt | 5 |
|
| Total finance lease liabilities | $ | 9 |
|
| |
1. | Included in other assets in the Consolidated Balance Sheet. |
| |
2. | Included in accrued and other current liabilities in the Consolidated Balance Sheet. |
| |
3. | Included in other noncurrent obligations in the Consolidated Balance Sheet. |
The company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
Deferred revenue principally includes advance customerCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | |
| Lease Term and Discount Rate | December 31, 2019 |
| Weighted-average remaining lease term (years) | |
| Operating leases | 10.80 |
|
| Financing leases | 5.10 |
|
| Weighted average discount rate |
|
|
| Operating leases | 3.96 | % |
| Financing leases | 3.26 | % |
Maturities of lease liabilities were as follows:
|
| | | | | | |
| Maturity of Lease Liabilities at December 31, 2019 | Operating Leases | Financing Leases |
| (In millions) |
| 2020 | $ | 154 |
| $ | 4 |
|
| 2021 | 120 |
| 2 |
|
| 2022 | 93 |
| 1 |
|
| 2023 | 67 |
| 1 |
|
| 2024 | 47 |
| 1 |
|
| 2025 and thereafter | 167 |
| 1 |
|
| Total lease payments | 648 |
| 10 |
|
| Less: Interest | 82 |
| 1 |
|
| Present value of lease liabilities | $ | 566 |
| $ | 9 |
|
Net rental expense for operating leases accounted for under ASC 840, "Leases," was $225 million, $86 million, and $100 million for the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively.
Future minimum lease payments within the Agriculture segment. Miscellaneous other accrued liabilities principally includes accruals for plant and operating expenses, interest costs, environmental remediation costs, commissions costs, and royalties.leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
| | | |
Future Minimum Lease Commitments at December 31, 2018 (In millions) | December 31, 20181 |
| 2019 | $ | 169 |
|
| 2020 | 99 |
|
| 2021 | 72 |
|
| 2022 | 56 |
|
| 2023 | 38 |
|
| 2024 and thereafter | 78 |
|
| Total | $ | 512 |
|
| |
1. | Includes adjustments for discontinued operations and common control business combination. |
13.NOTE 17 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND LONG-TERM BORROWINGSAVAILABLE CREDIT FACILITIES
The following table summarizestables summarize the company's short-term borrowings and capitalfinance lease obligations:obligations and long-term debt:
|
| | | | | | |
| Short-term borrowings and finance lease obligations | | |
| (In millions) | December 31, 2019 | December 31, 2018 |
| Commercial paper | $ | — |
| $ | 1,847 |
|
| Other loans - various currencies | 2 |
| 19 |
|
| Long-term debt payable within one year | 1 |
| 263 |
|
| Finance lease obligations payable within one year | 4 |
| 25 |
|
| Total short-term borrowings and finance lease obligations | $ | 7 |
| $ | 2,154 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Commercial paper | $ | 386 |
| $ | — |
|
| Other loans - various currencies | 39 |
| 49 |
|
| Long-term debt payable within one year | 4 |
| 1,115 |
|
| Capital lease obligations | — |
| 1 |
|
| | $ | 429 |
| $ | 1,165 |
|
The estimated fair value of the company's short-term borrowings including interest rate financial instruments, was determined using Level 2 inputs within the fair value hierarchy, as described in Note 1.2 - Summary of Significant Accounting Policies, and Note 23 - Fair Value Measurements. Based on quoted market prices for the same or similar issues, or on current rates offered to the company for debt of the same remaining maturities, the fair value of the company's short-term borrowings and finance lease obligations was $430 and $1,190 at December 31, 2016 and 2015, respectively.approximately carrying value.
Unused bank credit lines were approximately $7,900 and $4,900 at December 31, 2016 and 2015, respectively. These lines are available to support short-term liquidity needs and general corporate purposes including letters of credit and have a remaining life of up to two years. Outstanding letters of credit were $188 and $203 at December 31, 2016 and 2015, respectively. These letters of credit support commitments made in the ordinary course of business.
The weighted-average interest rate on short-term borrowings outstanding at December 31, 20162019 and 20152018 was 2.2 percent6.7% and 4.1 percent3.0%, respectively. The decreaseincrease in the weighted-average interest rate for 20162019 was primarily due to lower long-term debt maturities within one year.absence of commercial paper balances outstanding at the end of 2019.
|
| | | | | | | | | | |
| Long-Term Debt | | |
| | December 31, 2019 | December 31, 2018 |
| (In millions) | Amount | Weighted Average Rate | Amount | Weighted Average Rate |
Promissory notes and debentures1: | | | | |
| Final maturity 2019 | — |
| — | % | 263 |
| 2.23 | % |
| Final maturity 2020 | — |
| — | % | 2,496 |
| 2.14 | % |
| Final maturity 2021 | — |
| — | % | 475 |
| 2.08 | % |
| Final maturity 2023 | — |
| — | % | 386 |
| 2.48 | % |
| Final maturity 2024 and thereafter | — |
| — | % | 249 |
| 3.69 | % |
| Other facilities: | | | | |
Term loan due 20202 | — |
| — | % | 2,000 |
| 3.46 | % |
| Other loans: | | | | |
| Foreign currency loans, various rates and maturities | 2 |
|
|
| 3 |
|
|
|
| Medium-term notes, varying maturities through 2041 | 109 |
| 1.61 | % | 110 |
| 2.37 | % |
| Finance lease obligations | 5 |
| | 67 |
| |
| Less: Unamortized debt discount and issuance costs | — |
| | 2 |
| |
| Less: Long-term debt due within one year | 1 |
| | 263 |
| |
| Total | $ | 115 |
| | $ | 5,784 |
|
|
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
The following table summarizes the company's long-term borrowings and capital lease obligations:
|
| | | | | | |
| December 31, | 2016 | 2015 |
| U.S. dollar: | | |
Medium-term notes due 2038 – 20411 | $ | 111 |
| $ | 111 |
|
1.95% notes due 20162 | — |
| 348 |
|
2.75% notes due 20162 | — |
| 223 |
|
5.25% notes due 20162 | — |
| 541 |
|
6.00% notes due 20183 | 1,290 |
| 1,314 |
|
| 5.75% notes due 2019 | 500 |
| 499 |
|
| 4.625% notes due 2020 | 999 |
| 998 |
|
| 3.625% notes due 2021 | 999 |
| 999 |
|
| 4.25% notes due 2021 | 499 |
| 499 |
|
| 2.80% notes due 2023 | 1,250 |
| 1,250 |
|
| 6.50% debentures due 2028 | 299 |
| 299 |
|
| 5.60% notes due 2036 | 396 |
| 396 |
|
| 4.90% notes due 2041 | 494 |
| 494 |
|
| 4.15% notes due 2043 | 749 |
| 749 |
|
| Term loan due 2019 | 500 |
| — |
|
Other loans2,4 | 22 |
| 25 |
|
Other loans- various currencies2 | 29 |
| 32 |
|
| | 8,137 |
| 8,777 |
|
| Less short-term portion of long-term debt | 4 |
| 1,115 |
|
| | 8,133 |
| 7,662 |
|
| Less debt issuance costs | 35 |
| 32 |
|
| | 8,098 |
| 7,630 |
|
| Capital lease obligations | 9 |
| 12 |
|
| Total | $ | 8,107 |
| $ | 7,642 |
|
| |
1. | Average interest rates on medium-term notes were 0.6 percent and 0.1 percent at December 31, 2016 and 2015, respectively.See discussion of debt extinguishment that follows. |
| |
2. | Includes long-term debt due within one year. |
| |
3.
| During 2008,The Term Loan Facility was amended in 2018 to extend the interest rate swap agreement associated with these notesmaturity date to June 2020 and the facility was terminated. The gain will be amortized over the remaining life of the bond, resultingrepaid and terminated in an effective yield of 3.85 percent. |
| |
4.
| Average interest rates on other loans were 4.3 percent at December 31, 2016 and 2015.May 2019. |
In connection with the spin-off of Chemours, as discussed in Note 3, the company received a dividend from Chemours in May 2015 of $3,923 comprised of a cash distribution of $3,416 and a distribution in-kind of $507 of 7 percent senior unsecured notes due 2025 (Chemours Notes Received).
In 2015, DuPont exchanged the Chemours Notes Received for $488 of company debt due in 2016 as follows: $152 of 1.95 percent notes, $277 of 2.75 percent notes, and $59 of 5.25 percent notes. The company paid a premium of $20, recorded in interest expense in the company's Consolidated Income Statements in 2015, in connection with the early retirement of the $488 of 2016 notes. This debt for debt exchange was considered an extinguishment.
MaturitiesThere are no material principal payments of long-term borrowings are $1,323, $1,004, $1,003 and $1,503 fordebt over the years 2018, 2019, 2020 and 2021, respectively, and $3,300 thereafter.next five years.
The estimated fair value of the company's long-term borrowings, was determined using Level 2 inputs within the fair value hierarchy, as described in Note 1.2 - Summary of Significant Accounting Policies, and Note 23 - Fair Value Measurements. Based on quoted market prices for the same or similar issues, or on current rates offered to the company for debt of the same remaining maturities, the fair value of the company's long-term borrowings, not including long-term debt due within one year, was $8,460$114 million and $7,860$5,775 million at December 31, 20162019 and 2015,2018, respectively.
Available Committed Credit Facilities
The following table summarizes the company's credit facilities:
|
| | | | | | | | | |
| Committed and Available Credit Facilities at December 31, 2019 | | |
| (In millions) | Effective Date | Committed Credit | Credit Available | Maturity Date | Interest |
| Revolving Credit Facility | May 2019 | $ | 3,000 |
| $ | 3,000 |
| May 2024 | Floating Rate |
| Revolving Credit Facility | May 2019 | 3,000 |
| 3,000 |
| May 2022 | Floating Rate |
| Total Committed and Available Credit Facilities | | $ | 6,000 |
| $ | 6,000 |
| | |
E. I. du Pont de Nemours and Company
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Revolving Credit Facilities
In November 2018, EID entered into a $3.0 billion, 5 year revolving credit facility and a $3.0 billion, 3 year revolving credit facility (the “2018 Revolving Credit Facilities”). The 2018 Revolving Credit Facilities became effective May 2019 in millions, except per share)
connection with the termination of the EID $4.5 billion Term Loan Facility and the $3 billion Revolving Credit Facility dated May 2014 (discussed below). Corteva, Inc. became a party at the time of the Corteva Distribution. The 2018 Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings. Additionally, the 2018 Revolving Credit Facilities contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Corteva and its consolidated subsidiaries not exceed 0.60.
Debt Redemptions/Repayments
In July 2018, the company fully repaid $1,250 million of 6 percent coupon bonds at maturity.
On November 13, 2018, EID launched a tender offer (the “Tender Offer”) to purchase $6.2 billion aggregate principal amount of its outstanding debt securities (the “Tender Notes”). The Tender Offer expired on December 11, 2018 (the “Expiration Date”). At the Expiration Date, $4,409 million aggregate principal amount of the Tender Notes had been validly tendered and was accepted for payment. In exchange for such validly tendered Tender Notes, EID paid a total of $4,849 million, which included breakage fees and all applicable accrued and unpaid interest on such Tender Notes. DowDuPont contributed cash (generated from its notes offering) to EID to fund the settlement of the Tender Offer and payment of associated fees. EID recorded a loss from early extinguishment of debt of $81 million, primarily related to the difference between the redemption price and the par value of the notes, mostly offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt.
On March 22, 2019, EID issued notices of redemption in full of all of its outstanding notes (the “Make Whole Notes”) listed in the table below:
|
| | | |
| (in millions) | Amount |
| 4.625% Notes due 2020 | $ | 474 |
|
| 3.625% Notes due 2021 | 296 |
|
| 4.250% Notes due 2021 | 163 |
|
| 2.800% Notes due 2023 | 381 |
|
| 6.500% Debentures due 2028 | 57 |
|
| 5.600% Senior Notes due 2036 | 42 |
|
| 4.900% Notes due 2041 | 48 |
|
| 4.150% Notes due 2043 | 69 |
|
| Total | $ | 1,530 |
|
The Make Whole Notes were redeemed on April 22, 2019 at the make-whole redemption prices set forth in the respective Make Whole Notes. On and after the date of redemption, the Make Whole Notes were no longer deemed outstanding, interest on the Make Whole Notes ceased to accrue and all rights of the holders of the Make Whole Notes were terminated.
In March 2016, the companyEID entered into a credit agreement that provides for a three-year,3-year, senior unsecured term loan facility in the aggregate principal amount of $4,500 (the Term$4.5 billion (as amended, from time to time, the "Term Loan Facility). DuPont mayFacility") under which EID could make up to seven term loan borrowings within one year of the closing date and amounts repaid or prepaid arewere not available for subsequent borrowings. TheOn May 2, 2019, EID terminated its Term Loan Facility matures in March 2019 at which time alland repaid the aggregate outstanding borrowings, includingprincipal amount of $3 billion plus accrued butand unpaid interest become immediately duethrough and payable.including May 1, 2019.
UnderIn connection with the repayment of the Make Whole Notes and the Term Loan Facility, DuPont can borrow funds at LIBOR plusEID paid a spread from 0.75 percent to 1.25 percent (LIBOR Loan Rate) dependingtotal of $4.6 billion in the second quarter 2019, which included breakage fees and accrued and unpaid interest on DuPont's long term credit rating. As of December 31, 2016, the company had borrowed $500 at the LIBOR Loan RateMake Whole Notes and had unused commitments of $4,000 under the Term Loan Facility. The repayment of the Make Whole Notes and Term Loan Facility was funded with cash from operations and a contribution from DowDuPont.
DuPont hasCorteva, Inc.
Notes to the optionConsolidated Financial Statements (continued)
On May 7, 2019, DowDuPont publicly announced the record date in connection with the Corteva Distribution. In connection with such announcement, EID was required to redeem $1.25 billion aggregate principal amount of obtaining2.200% Notes due 2020 and $750 million aggregate principal amount of Floating Rate Notes due 2020 (collectively, the Special Mandatory Redemption, or “SMR Notes”) setting forth the date of redemption of the SMR Notes. On May 17, 2019 and EID redeemed and paid a same day loan undertotal of $2 billion, which included accrued and unpaid interest on the SMR Notes. EID funded the payment with a contribution from DowDuPont. Following the redemption, the SMR Notes are no longer outstanding and no longer bear interest, and all rights of the holders of the SMR Notes have terminated.
EID recorded a loss on the early extinguishment of debt of $13 million related to the difference between the redemption price and the par value of the Make Whole Notes, the Term Loan Facility, and the SMR Notes, partially offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt.
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were $403 million at an interest rate based onDecember 31, 2019. These lines are available to support short-term liquidity needs and general corporate purposes, including letters of credit. Outstanding letters of credit were $82 million at December 31, 2019. These letters of credit support commitments made in the higherordinary course of a) the LIBOR Loan Rate, b) the federal funds effective rate plus 0.5 percent plus a margin from 0.00 percent to 0.25 percent depending on DuPont's long term credit rating (Margin) or c) the prime rate plus Margin.business.
14. OTHER LIABILITIES
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Employee benefits: | |
| |
|
| Accrued pension benefit costs (Note 17) | $ | 8,100 |
| $ | 8,478 |
|
| Accrued other post employment benefit costs (Note 17) | 2,554 |
| 2,524 |
|
| Accrued environmental remediation costs | 337 |
| 367 |
|
| Miscellaneous | 1,342 |
| 1,222 |
|
| | $ | 12,333 |
| $ | 12,591 |
|
Miscellaneous includes litigation accruals, tax contingencies, accrued royalties, non-current portion of employee separation accruals and certain obligations related to divested businesses.
15.NOTE 18 - COMMITMENTS AND CONTINGENT LIABILITIES
Guarantees
Indemnifications
In connection with acquisitions and divestitures as of December 31, 2019, the company has indemnified respective parties against certain liabilities that may arise in connection with these transactions and business activities prior to the completion of the transaction.transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. In addition, the company indemnifies its duly elected or appointed directors and officers to the fullest extent permitted by Delaware law, against liabilities incurred as a result of their activities for the company, such as adverse judgments relating to litigation matters. If the indemnified party were to incur a liability or have a liability increase as a result of a successful claim, pursuant to the terms of the indemnification, the company would be required to reimburse the indemnified party. The maximum amount of potential future payments is generally unlimited. See pages F-35 and F-28 for additional information relating to the indemnification obligations under the Chemours Separation Agreement and the Corteva Separation Agreement.
Obligations for Equity Affiliates & OthersCustomers and Other Third Parties
The company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, customers and suppliers.other third parties. At December 31, 2016,2019 and December 31, 2018, the company had directly guaranteed $354$97 million and $299 million, respectively, of such obligations. This amount representsThese amounts represent the maximum potential amount of future (undiscounted) payments that the company could be required to make under the guarantees. The company would be required to perform on these guarantees in the event of default by the guaranteed party. Of the total maximum future payments at December 31, 2019, $96 million had terms less than a year. The maximum future payments also include $16 million and $3 million of guarantees related to the various factoring agreements that the company enters into with its customer to sell its trade receivables at December 31, 2019 and December 31, 2018, respectively. See Note 12 - Accounts and Notes Receivable - Net, for additional information.
The maximum future payments include agreements with lenders to establish programs that provide financing for select customers. The terms of the guarantees are equivalent to the terms of the customer loans that are primarily made to finance customer invoices. The total accounts receivable balance outstanding on these agreements was $27 million and $14 million at December 31, 2019 and December 31, 2018, respectively.
The company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
In certain cases, the company has recourse to assets held as collateral, as well as personal guarantees from customers and suppliers. Assuming liquidation, these assets are estimated to cover approximately 23 percent of the $167 of guaranteed obligations of customers and suppliers. Set forth below are the company's guaranteed obligations at December 31, 2016:
|
| | | | | | | | | |
| | Short-Term | Long-Term | Total |
Obligations for customers and suppliers1: | |
| |
| |
|
| Bank borrowings (terms up to 5 years) | $ | 149 |
| $ | 18 |
| $ | 167 |
|
Obligations for equity affiliates2: | |
| |
| |
|
| Bank borrowings (terms up to 1 year) | 161 |
| — |
| 161 |
|
Obligations for Chemours3: | | | |
| Chemours' purchase obligations (final expiration - 2018) | 15 |
| 11 |
| 26 |
|
| Total | $ | 325 |
| $ | 29 |
| $ | 354 |
|
| |
1.
| Existing guarantees for customers and suppliers, as part of contractual agreements. |
| |
2.
| Existing guarantees for equity affiliates' liquidity needs in normal operations. |
| |
3.
| Guarantee for Chemours' raw material purchase obligations under agreement with third party supplier. |
Operating Leases
The company uses various leased facilities and equipment in its operations. The terms for these leased assets vary depending on the lease agreement.
Future minimum lease payments (including residual value guarantee amounts) under non-cancelable operating leases are $263, $233, $207, $158 and $123 for the years 2017, 2018, 2019, 2020 and 2021, respectively, and $219 for subsequent years and are not reduced by non-cancelable minimum sublease rentals due in the future in the amount of $2. Net rental expense under operating leases was $245, $271 and $249 in 2016, 2015 and 2014, respectively.
Litigation
The company is subject to various legal proceedings, including, but not limited to, product liability, intellectual property, antitrust, commercial, property damage, personal injury, environmental and regulatory matters arising out of the normal course of its business including product liability, intellectual property, commercial, environmental and antitrust lawsuits.current businesses or legacy EID businesses unrelated to Corteva’s current businesses but allocated to Corteva as part of the Separation of Corteva from DuPont. It is not possible to predict the outcome of these various proceedings. Although considerable uncertainty exists, management does not anticipate that the ultimate disposition of these matters will have a material adverse effect on the company's results of operations, consolidated financial position or liquidity. However, the ultimate liabilities could be material to results of operations and the cash flows in the period recognized.
Indemnifications under Separation Agreements
The company has entered into various agreements where the company is indemnified for certain liabilities. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. See Note 5 - Divestitures and Other Transactions, for additional information related to indemnifications.
Chemours/Performance Chemicals
Refer to Note 5 - Divestitures and Other Transactions, for additional discussion of the Chemours Separation Agreement.
Concurrent with the MDL Settlement (as discussed below), EID and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future PFOA liabilities for five years, which began on July 6, 2017. During the five years, Chemours will annually pay the first $25 million of future PFOA liabilities and, if that amount is exceeded, EID will pay any excess amount up to the next $25 million, with Chemours annually bearing any excess liabilities above that amount. At the end of the five years, this limited sharing agreement will expire, and Chemours’ indemnification obligations under the Chemours Separation Agreement will continue unchanged. As part of this amendment, Chemours also agreed that it would not contest its liability for PFOA liabilities on the basis of certain ostensible defenses it had previously raised, including defenses relating to punitive damages, and would waive any such defenses with respect to PFOA liabilities. Chemours has, however, retained defenses as to whether any particular PFOA claim is within the scope of the indemnification provisions of the Chemours Separation Agreement. There have been no charges incurred by the company under this amendment through December 31, 2019.
On May 13, 2019, Chemours filed a complaint in the Delaware Court of Chancery against DuPont, Corteva, and EID alleging, among other things, that the litigation and environmental liabilities allocated to Chemours under the Chemours Separation Agreement were underestimated and asking that the Court either limit the amount of Chemours’ indemnification obligations or, alternatively, order the return of the $3.91 billion dividend Chemours paid to EID prior to its separation. On June 3, 2019, the defendants moved to dismiss the complaint on the ground that the Chemours Separation Agreement requires arbitration of all disputes relating to that agreement. On October 18, 2019, Chemours filed its brief objecting to the motion to dismiss on the grounds that the arbitration provisions of the Chemours Separation Agreement were unconscionable, and therefore are unenforceable. The Chancery Court heard oral arguments on this motion on December 18, 2019. The company believes the probability of liability with respect to Chemours' suit to be remote, and the defendants continue to vigorously defend the company's rights, including full indemnity rights as set forth in the Chemours Separation Agreement. For additional information regarding environmental indemnification, see discussion on page F-64.
Corteva Separation Agreement
On April 1, 2019, in connection with the Dow Distribution, Corteva, DuPont and Dow entered into the Corteva Separation Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and certain other agreements (collectively, the “Corteva Separation Agreements”). The Corteva Separation Agreements allocate among Corteva, DuPont and Dow certain liabilities and obligations among the parties and provides for indemnification obligation among the parties. Under the Corteva Separation Agreements, DuPont will indemnify Corteva against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the Corteva Distribution and (ii) Dow indemnifies Corteva against certain litigation and other liabilities that relate to the Historical Dow business, but were transferred over as part of the common control combination with DAS, and Corteva indemnifies DuPont and Dow for certain liabilities. The term of this indemnification is generally indefinite with exceptions, and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. See Note 1 - Background and Basis of Presentation, and Note 5 - Divestitures and Other Transactions, for additional information relating to the Separation.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
DuPont used
Under the Corteva Separation Agreement, certain legacy EID liabilities from discontinued and/or divested operations and businesses of EID (including Performance Chemicals) (a “stray liability”) were allocated to Corteva or DuPont. For those stray liabilities allocated to Corteva (which may include a specified amount of liability associated with that liability), Corteva is responsible for liabilities in an amount up to that specified amount plus an additional $200 million and, for those stray liabilities allocated to DuPont (which may include a specified amount of liability associated with that liability), DuPont is responsible for liabilities up to a specified amount plus an additional $200 million. Once each company has met the $200 million threshold, Corteva and DuPont will share future liabilities proportionally on the basis of 29% and 71%, respectively; provided, however, that for PFAS, DuPont will manage such liabilities with Corteva and DuPont sharing the costs on a 50% - 50% basis starting from $1 and up to $300 million (with such amount, up to $150 million, to be credited to each company’s $200 million threshold) and once the $300 million threshold is met, then the companies will share proportionally on the basis of 29% and 71% respectively, subject to a $1 million de minimis requirement.
Litigation related to legacy EID businesses unrelated to Corteva’s current businesses
While it is reasonably possible that the company could incur liabilities related to the litigation related to legacy EID businesses, unrelated to Corteva's current business, as described below, any such liabilities are not expected to be material.
PFAS, PFOA, (collectively,PFOS and Other Related Liabilities
For purposes of this report, the term PFOA means collectively perfluorooctanoic acidsacid and its salts, including the ammonium salt)salt and does not distinguish between the two forms, and PFAS, which means per- and polyfluoroalkyl substances, including PFOA, PFOS (perfluorooctanesulfonic acid), asGenX and other perfluorinated chemicals and compounds ("PFCs").
EID is a processing aidparty to manufacture some fluoropolymer resins at various sites aroundlegal proceedings relating to the world includinguse of PFOA by its Washington Works plant in West Virginia. At December 31, 2016, DuPont has an accrual balance of $117former Performance Chemicals segment. While it is reasonably possible that the company could incur liabilities related to the PFOA, mattersany such liabilities are not expected to be material. As discussed, below. Pursuant to the Separation Agreement discussed in Note 3, the companyEID is indemnified by Chemours forunder the PFOA matters discussed below. As a result, theChemours Separation Agreement, as amended. The company has recorded a liability of $20 million and an indemnification asset of $117 corresponding to the accrual balance as of$20 million at December 31, 2016.
Since 2006, DuPont has undertaken obligations under agreements with the U.S. Environmental Protection Agency (EPA), including a 2009 consent decree under the Safe Drinking Water Act (the order), and voluntary commitments2019, primarily related to the New Jersey Department of Environmental Protection (NJDEP). These obligations and voluntary commitments include surveying, sampling and testing drinking water in and around certain companyformer EID sites and offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the national health advisory level even if provisional, as established from time to time by the EPA. A provisional health advisory level was set in 2009 at 0.4 parts per billion (ppb) for PFOA in drinking water considering episodic exposure. In May 2016, EPA announced a health advisory level
Leach Settlement and MDL Settlement
EID has residual liabilities under its 2004 settlement of 0.07 ppb for PFOA in drinking water considering lifetime versus episodic exposure. In January 2017, EPA announced it had amended the order to include Chemours, and to make the new health advisory level the trigger for additional actions by the companies, thus expanding the obligations to the EPA beyond the previously established testing and water supply commitments around the Washington Works facility. The company's accrual balance of $17 at December 31, 2016 related to these obligations and voluntary commitments reflects the impacts of the new health advisory level and expanded obligations under the amended order.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Drinking Water Actions
In August 2001, a class action, captioned Leach v DuPont, was filed in West Virginia state court allegingclass action, Leach v. EID, which alleged that residents living near thePFOA from EID’s former Washington Works facility had suffered, or may suffer, deleteriouscontaminated area drinking water supplies and affected the health effects from exposure to PFOA in drinking water.
DuPont and attorneys for theof area residents. The settlement class reached a settlement in 2004 that bindshas about 80,000 residents.members. In 2005, DuPont paidaddition to relief that was provided to class members years ago, the plaintiffs’ attorneys’ feessettlement requires EID to continue providing PFOA water treatment to 6 area water districts and expenses of $23private well users and made a payment of $70, which class counsel designated to fund, through an escrow account, up to $235 million for a communitymedical monitoring program for eligible class members. As of December 31, 2019, approximately $2 million had been disbursed from the account since its establishment in 2012 and the remaining balance is approximately $1 million.
The Leach settlement permits class members to pursue personal injury claims for 6 health project. The company fundedconditions (and no others) that an expert panel appointed under the settlement reported in 2012 had a series of health studies which were completed in October 2012 by an independent science panel of experts (the C8 Science Panel). The studies were conducted in communities exposed to PFOA to evaluate available scientific evidence on whether any probable link exists, as“probable link” (as defined in the settlement agreement, between exposure to PFOA and human disease.
The C8 Science Panel found probable links, as defined in the settlement agreement, between exposure to PFOA andsettlement) with PFOA: pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol.
In May 2013, a After the panel of three independent medical doctors releasedreported its initial recommendations for screening and diagnostic testing of eligible class members. In September 2014, the medical panel recommended follow-up screening and diagnostic testing three years after initial testing, based on individual results. The medical panel has not communicated its anticipated schedule for completion of its protocol. The company is obligated to fund up to $235 for a medical monitoring program for eligible class members and, in addition, administrative costs associated with the program, including class counsel fees. In January 2012, the company established and put $1 into an escrow account to fund medical monitoring as required by the settlement agreement. Under the settlement agreement, the balance in the escrow amount must be at least $0.5; as a result, transfers of additional funds may be required periodically. The court appointed Director of Medical Monitoring has established the program to implement the medical panel's recommendations and the registration process, as well as eligibility screening, is ongoing. Diagnostic screening and testing has begun and associated payments to service providers are being disbursed from the escrow account; at December 31, 2016, less than $1 has been disbursed. While it is probable that the company will incur liabilities related to funding the medical monitoring program, such liabilities cannot be reasonably estimated due to uncertainties surrounding the level of participation by eligible class members and the scope of testing.
In addition, under the settlement agreement, the company must continue to provide water treatment designed to reduce the level of PFOA in water to six area water districts, including the Little Hocking Water Association (LHWA), and private well users.
Multi-District Litigation
Leach class members may pursuefindings, approximately 3,550 personal injury claims against DuPont only for the six human diseases for which the C8 Science Panel determined a probable link exists. At December 31, 2016 therelawsuits were about 3,550 lawsuits, of which about 30 allege wrongful death, pendingfiled in various federal and state courts in Ohio and West Virginia. These lawsuits areVirginia and consolidated in multi-district litigation (MDL) in the U.S. District Court for the Southern District of Ohio (the Court)(“MDL”). The approximate numberMDL was settled in early 2017 for $670.7 million in cash, with Chemours and EID (without indemnification from Chemours) each paying half.
Post-MDL Settlement PFOA Personal Injury Claims
The MDL settlement did not resolve claims of lawsuits pendingplaintiffs who did not have claims in the MDL remained constant year-over-year. However, the company has refined the number pending ator whose claims are based on diseases first diagnosed after February 11, 2017. At December 31, 2016,2019, approximately 55 lawsuits were pending alleging personal injury, mostly kidney or testicular cancer, from exposure to PFOA through air or water, with nearly all part of the MDL or were not filed on behalf of Leach class members. The first two trials began in connection with updates to the table below. DuPont, through Chemours, denies the allegationsJanuary 2020 and six additional cases are scheduled for trial in these lawsuits and is defending itself vigorously.
The table below approximates the number of lawsuits based on primary alleged disease.June 2020.
|
| | |
Alleged Injury | Number of Claims |
Kidney cancer | 210 |
|
Testicular cancer | 70 |
|
Ulcerative colitis | 300 |
|
Preeclampsia | 200 |
|
Thyroid disease | 1,430 |
|
High cholesterol | 1,340 |
|
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Other PFOA Matters
EID is a party to other PFOA lawsuits that do not involve claims for personal injury. Chemours, pursuant to the Chemours Separation Agreement, is generally defending and indemnifying, with reservation, EID but Chemours has refused the tender of Corteva, Inc.'s defense in millions, except per share)
the limited actions in which Corteva, Inc. has been named. Chemours has refused to indemnify Corteva, Inc. and EID against any fraudulent conveyance claims associated with these matters. Corteva believes that Chemours is obligated to indemnify Corteva, Inc. under the Chemours Separation Agreement.
New York. EID is a defendant in about 50 lawsuits, including a putative class action, brought by persons who live in and around Hoosick Falls, New York. These lawsuits assert claims for medical monitoring and property damage based on alleged PFOA releases from manufacturing facilities owned and operated by co-defendants in Hoosick Falls and allege that EID and 3M supplied some of the materials used at these facilities. EID is also one of more than ten defendants in a lawsuit brought by the Town of East Hampton, New York alleging PFOA and PFOS contamination of the town’s well water. Additionally, EID was served with complaints filed by six water districts in Nassau County, New York alleging that the drinking water they provide to customers is contaminated with PFAS and seeking reimbursement for clean-up costs.
New Jersey. At December 31, 2019, 2 lawsuits were pending, one brought by a local water utility and the second a putative class action, against EID alleging that PFOA from EID’s former Chambers Works facility contaminated drinking water sources. The putative class action has since been voluntarily dismissed without prejudice by the plaintiff.
In 2014, six caseslate March of 2019, the New Jersey State Attorney General filed 4 lawsuits against EID, Chemours, 3M and others alleging that operations at and discharges from former EID sites in New Jersey (Chambers Works, Pompton Lakes, Parlin and Repauno) damaged the MDL were selected for individual trial. In 2016, threeState’s natural resources. Two of these cases, two kidney cancerlawsuits (those involving the Chambers Works and one ulcerative colitis, were settled for amounts immaterial individually andParlin sites) allege contamination from PFAS. The Ridgewood Water District in the aggregate, and one case was voluntarily withdrawn by plaintiffs. The other two matters, (Barlett v DuPont, kidney cancer, and Freeman v DuPont, testicular cancer) were tried to jury verdicts in 2015 and 2016, respectively. The Bartlett jury awarded compensatory damages of $1.6 and no punitive damages. The company has appealed the Bartlett verdict to the U.S. Court of Appeals for the Sixth Circuit (the Sixth Circuit) which is expected to issue a ruling in the first half of 2017. In 2016, the Freeman jury awarded compensatory damages of $5.1 and $0.5 in punitive damages and attorneys’ fees. Pending a post-trial motion, the company will appeal to the Sixth Circuit.
In January 2016, the Court determined that 40 cases asserting cancer claims, to be identified by plaintiffs' attorneys, would be scheduled for trial through year-end 2017. In the first two matters selected for trial, (Vigneron v DuPont and Moody v DuPont) plaintiffs make testicular cancer claims. After a fourth quarter 2016 trial, the Vigneron jury awarded compensatory damages of $2 and punitive damages of $10.5. Pending post-trial motions, the company will appeal to the Sixth Circuit. The Moody trial began in January 2017 and the jury is expected to render a verdictNew Jersey filed suit in the first quarter 2017. The remaining 38 trials are scheduled to begin each week starting in May 2017.
In 2016, the Court ordered the parties to participate in confidential, nonbinding mediation regarding global resolution of the MDL. This process continues.
At December 31, 2016, the company has established an accrual of $1002019 against EID, 3M, Chemours, and Dyneon alleging losses related to the MDL, representinginvestigation, remediation and monitoring of polyfluorinated surfactants, including PFOA, in water supplies.
Alabama / Others. EID is one of more than thirty defendants in a lawsuit by the company’s estimateAlabama water utility alleging contamination from PFCs, including PFOA, used by co-defendant carpet manufacturers to make their products more stain and grease resistant. In addition, the states of Michigan, New Hampshire, South Dakota, and Vermont recently filed lawsuits against EID, Chemours, 3M and others, claiming, among other things, PFC (including PFOA) contamination of groundwater and drinking water. The complaints seek reimbursement for past and future costs to investigate and remediate the alleged contamination and compensation for the loss of value and use of the low endstate’s natural resources.
Ohio. EID is a defendant in 3 lawsuits: an action by the State of Ohio based on alleged damage to natural resources, a putative nationwide class action brought on behalf of anyone who has detectable levels of PFAS in their blood serum, and an action by the rangeCity of potential loss. While DuPont could incur liabilities in excess of the amount accrued, the upper end of the range of such loss cannot be reasonably estimated. The range of possible loss is unpredictable and involves significant uncertainty dueDayton claiming losses related to the uniquenessinvestigation, remediation and monitoring of individual plaintiff's claimsPFAS in water supplies.
Aqueous Firefighting Foams. Approximately 315 cases have been filed against 3M and the company's defenses as to potential liabilityother defendants, including EID and damages on an individual claims basis,Chemours, and the timingmore recently also including Corteva and outcome of the appellate process, among other factors. This type of litigation could take place over many years and interim results do not predict the final outcomes of cases.
Additional Actions
In the first quarter 2016, a confidential settlement was reached in the Ohio action brought by the LHWA claiming, “imminent and substantial endangerment to health andDuPont, alleging PFOS or the environment” under the Resource Conservation and Recovery Act (RCRA) in addition to general claims of PFOA contamination of drinking water. The cost of the settlement was paid by Chemours.
Under the Separation Agreement, all liabilities associated with the PFOA matters discussed above, including liabilities related to judgments, including punitive damages, or settlements associated with the MDL, are subject to indemnification by Chemours.
Environmental
The company is also subject to contingencies pursuant to environmental lawssoil and regulations that in the future may require the company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the company or other parties. The company accrues for environmental remediation activities consistent with the policy set forth in Note 1. Much of this liability resultsgroundwater from the Comprehensive Environmental Response, Compensationuse of aqueous firefighting foams. Most of those cases claim some form of property damage and Liability Act (CERCLA, often referredseek to as Superfund), RCRArecover the costs of responding to this contamination and similar statedamages for the loss of use and global laws. These laws require the company to undertake certain investigative, remediationenjoyment of property and restoration activities at sites where the company conducts or once conducted operations or at sites where company-generated waste was disposed. The accrual also includes estimated costs relateddiminution in value. Most of these cases have been transferred to a number of sites identified by the company for which it is probable that environmental remediation will be required, but which are not currently the subject of enforcement activities.
Remediation activities vary substantiallymultidistrict litigation proceeding in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, as well as the presence or absence of potentially responsible parties. At December 31, 2016, the Consolidated Balance Sheet included a liability of $457, relatingfederal district court in South Carolina. In addition to these matterscases, approximately 180 personal injury cases were filed on behalf of firefighters who allege personal injuries (primarily, thyroid disease and kidney, testicular and other cancers) as a result of aqueous firefighting foams. Most of these recent cases assert claims that the EID and Chemours separation constituted a fraudulent conveyance. While Chemours is defending EID, it has declined defense and indemnity to Corteva.
EID did not make firefighting foams, PFOS, or PFOS products. While EID made surfactants and intermediaries that some manufacturers used in management's opinion, is appropriate based on existing facts and circumstances. The average time frame, overmaking foams, which the accruedmay have contained PFOA as an unintended byproduct or presently unrecognized amounts may be paid, based on past history, is estimated to be 15-20 years. Considerable uncertainty existsan impurity, EID’s products were not formulated with respect toPFOA, nor was PFOA an ingredient of these costs and, under adverse changes in circumstances, the potential liability may range up to $900 above the amount accruedproducts. EID has never made or sold PFOA as of December 31, 2016. Pursuant to the Separation Agreement discussed in Note 3,a commercial product.
In addition, the company is indemnifiedaware of an inquiry by the Subcommittee on Environment of the House of Representatives to DuPont, Chemours forand 3M regarding exposure to PFAS and has requested certain environmental matters, included in the liability of $457, that have an estimated liability of $250 as of December 31, 2016 and a potential exposure that ranges up to approximately $500 above the amount accrued. As such, the company has recorded an indemnification asset of $250 corresponding to the company's accrual balanceinformation related to these matters at December 31, 2016.PFAS.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Fayetteville Works Facility, North Carolina
Prior to the separation of Chemours, EID introduced GenX as a polymerization processing aid and a replacement for PFOA at the Fayetteville Works facility in millions, except per share)
Bladen County, North Carolina. The facility is now owned and operated by Chemours, which continues to manufacture and use GenX. In 2017, the facility became and continues to be the subject of inquiries and government investigations relating to the alleged discharge of GenX and certain similar compounds into the air and Cape Fear River.
16. STOCKHOLDERS' EQUITY
Share Repurchase Program
2015 Share Buyback Plan
In August 2017, the firstU.S. Attorney’s Office for the Eastern District of North Carolina served EID with a grand jury subpoena for testimony and documents related to these discharges. EID was served with additional subpoenas relating to the same issue and in the second quarter 2015, DuPont announced its intention2018, received a subpoena expanding the scope to buy back sharesany PFCs discharged from the Fayetteville Works facility into the Cape Fear River. It is possible that these ongoing inquiries and investigations, including the grand jury subpoena, could result in penalties or sanctions, or that additional litigation will be instituted against Chemours, EID, or both. EID continues to cooperate with the U.S. Attorney’s Office. If criminal penalties are assessed against EID, it may not be permitted to seek indemnification from Chemours for these penalties
At December 31, 2019, several actions are pending in federal court against Chemours and EID relating to PFC discharges from the Fayetteville Works facility. One of these is a consolidated putative class action that asserts claims for medical monitoring and property damage on behalf of putative classes of property owners and residents in areas near or who draw drinking water from the Cape Fear River. Another action is a consolidated action brought by various North Carolina water authorities, including the Cape Fear Public Utility Authority and Brunswick County, that seek actual and punitive damages as well as injunctive relief. The other action is on behalf of about $4,000 using100 plaintiffs who own wells and property near the distribution proceeds receivedFayetteville Works facility. The plaintiffs seek damages for nuisance allegedly caused by releases of certain PFCs from Chemours. In connectionthe site. The plaintiffs’ claims for medical monitoring, punitive damages, public nuisance, trespass, unjust enrichment, failure to warn, and negligent manufacture have all been dismissed.
The company has an indemnification claim against Chemours with respect to current and future inquiries and claims, including lawsuits, related to the completionforegoing. At December 31, 2019, Chemours, with reservations, is defending and indemnifying EID in the pending civil actions.
Environmental
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the spin-offliability can be reasonably estimated based on current law and existing technologies. At December 31, 2019, the company had accrued obligations of Chemours,$336 million for probable environmental remediation and restoration costs, including $51 million for the Boardremediation of Directors authorizedSuperfund sites. These obligations are included in accrued and other current liabilities and other noncurrent obligations in the useConsolidated Balance Sheets. This is management’s best estimate of the distribution proceedscosts for remediation and restoration with respect to buy back shares ofenvironmental matters for which the company's common stock as follows: $2,000company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to be purchased and retired bythese particular matters could range up to $620 million above the amount accrued at December 31, 2015, which was completed during 2015, with2019. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the remainder to be purchasedcompany’s results of operations, financial condition and retired by December 31, 2016. There were no share repurchases under this plancash flows. Inherent uncertainties exist in the first and second quarters of 2016. The company had limited opportunity to repurchase shares in 2016,these estimates primarily due to the planned merger with Dow. However, during the second half of 2016,unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2018, the company purchasedhad accrued obligations of $398 million for probable environmental remediation and retired 13.2restoration costs, including $54 million shares infor the open market for a total costremediation of $916. As of December 31, 2016, in aggregate, the company has paid $2,916 and received and retired 48.2 million shares. As of January 1, 2017, the authorization under this buyback program has expired.Superfund sites.
2014 Share Buyback PlanFor a discussion of the allocation of environmental liabilities under the Chemours Separation Agreement and the Corteva Separation Agreement, see the previous discussion on page F-60.
In January 2014,
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The above noted $336 million accrued obligations includes the following:
|
| | | | | | | | | |
| | As of December 31, 2019 |
| (In millions) | Indemnification Asset | Accrual balance3 | Potential exposure above amount accrued3 |
| Environmental Remediation Stray Liabilities | | | |
Chemours related obligations - subject to indemnity1,2 | $ | 167 |
| $ | 167 |
| $ | 285 |
|
Other discontinued or divested businesses obligations1 | — |
| 91 |
| 221 |
|
| |
|
|
|
|
|
|
Environmental remediation liabilities primarily related to DuPont - subject to indemnity from DuPont2 | 35 |
| 35 |
| 60 |
|
| |
|
|
|
|
|
|
| Environmental remediation liabilities not subject to indemnity | — |
| 43 |
| 54 |
|
| Total | $ | 202 |
| $ | 336 |
| $ | 620 |
|
| |
1. | Represents liabilities that are subject the $200 million thresholds and sharing arrangements as discussed on page F-61, under Corteva Separation Agreement. |
| |
2. | The company has recorded an indemnification asset related to these accruals, including $30 million related to the Superfund sites. |
| |
3. | Accrual balance represents management’s best estimate of the costs of remediation and restoration, although it is reasonably possible that the potential exposure, as indicated, could range above the amounts accrued, as there are inherent uncertainties in these estimates. |
NOTE 19 - STOCKHOLDERS' EQUITY
Common Stock
As discussed in Note 1 - Background and Basis of Presentation, on June 1, 2019, Corteva, Inc.'s common stock was distributed to DowDuPont stockholders by way of a pro rata distribution. Each DowDuPont stockholder received 1 share of Corteva, Inc. common stock for every 3 shares of DowDuPont common stock held at the close of business on May 24, 2019, the record date of distribution. Corteva, Inc.'s common stock began trading the "regular way" under the ticker symbol "CTVA" on June 3, 2019, the first business day after June 1, 2019. The number of Corteva, Inc. common shares issued on June 1, 2019 was 748,815,000 (par value of $0.01 per share). Information related to the Corteva Distribution and its effect on the company's Board of Directors authorized a $5,000 share buyback plan that replacedfinancial statements are discussed throughout these Notes to the 2011 plan. During 2014, the company purchased and retired 30.1 million shares for $2,000 under two separate accelerated share repurchase (ASR) agreements as well as open market purchases. During 2015, the company repurchased and retired 4.6 million shares in the open market for a total cost of $353. There were no share repurchases under this plan during 2016. As of December 31, 2016, in aggregate, the company has purchased 34.7 million shares at a total cost of $2,353 under the plan. As a result, $2,647 buyback authority remains under this program. There is no required completion date for the remaining stock purchases under the 2014 plan.Consolidated Financial Statements.
Common stock held in treasury is recorded at cost. When retired, the excess of the cost of treasury stock over its par value is allocated between reinvested earnings and additional paid-in capital.
Set forth below is a reconciliation of common stock share activity foractivity:
|
| | |
| Shares of common stock | Issued |
| Balance June 1, 2019 | 748,815,000 |
|
| Issued | 586,000 |
|
| Repurchased and retired | (824,000 | ) |
| Balance December 31, 2019 | 748,577,000 |
|
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 timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors.
During the yearsyear ended December 31, 2016, 20152019, the company purchased and 2014:retired 824,000 shares in the open market for a total cost of $25 million.
|
| | | | |
| Shares of common stock | Issued | Held In Treasury |
| Balance January 1, 2014 | 1,014,027,000 |
| (87,041,000 | ) |
| Issued | 8,103,000 |
| — |
|
| Repurchased | — |
| (30,110,000 | ) |
| Retired | (30,110,000 | ) | 30,110,000 |
|
| Balance December 31, 2014 | 992,020,000 |
| (87,041,000 | ) |
| Issued | 5,932,000 |
| — |
|
| Repurchased | — |
| (39,564,000 | ) |
| Retired | (39,564,000 | ) | 39,564,000 |
|
| Balance December 31, 2015 | 958,388,000 |
| (87,041,000 | ) |
| Issued | 4,808,000 |
| — |
|
| Repurchased | — |
| (13,152,000 | ) |
| Retired | (13,152,000 | ) | 13,152,000 |
|
| Balance December 31, 2016 | 950,044,000 |
| (87,041,000 | ) |
Noncontrolling Interest
In September 2015, the company obtained a controlling interest in a joint venture included in the Performance Materials segment. Accordingly, the company consolidated the entity at December 31, 2015 and recorded the fair valueCorteva, Inc. owns 100% of the outstanding common shares of EID. However, EID has preferred stock outstanding to third parties which is accounted for as a noncontrolling interest infor Corteva. Each share of EID Preferred Stock - $4.50 Series and EID Preferred Stock - $3.50 Series issued and outstanding at the amounteffective date of $151 in the Consolidated Balance Sheet.Corteva Distribution remains issued and outstanding as to EID and was unaffected by the Corteva Distribution.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Below is a summary of the EID Preferred Stock at December 31, 2019 and December 31, 2018 which is classified as noncontrolling interests in millions, except per share)
the Corteva Consolidated Balance Sheets.
|
| |
| Shares in thousands | Number of Shares |
| Authorized | 23,000 |
| $4.50 Series, callable at $120 | 1,673 |
| $3.50 Series, callable at $102 | 700 |
Other Comprehensive Loss
(Loss) Income
The changes and after-tax balances of components comprising accumulated other comprehensive loss(loss) income are summarized below:
| | | (In millions) | | Cumulative Translation Adjustment1 | Derivative Instruments | Pension Benefit Plans | Other Benefit Plans | Unrealized Gain (Loss) on Investments | Total |
| 2017 | | | | |
Balance January 1, 2017 (Predecessor) | | $ | (2,843 | ) | $ | 7 |
| $ | (6,720 | ) | $ | (357 | ) | $ | 2 |
| $ | (9,911 | ) |
| Other comprehensive income (loss) before reclassifications | | 1,042 |
| 3 |
| (78 | ) | — |
| 1 |
| 968 |
|
| Amounts reclassified from accumulated other comprehensive income | | — |
| (13 | ) | 325 |
| 10 |
| (1 | ) | 321 |
|
| Net other comprehensive income (loss) | | 1,042 |
| (10 | ) | 247 |
| 10 |
| — |
| 1,289 |
|
Balance August 31, 2017 (Predecessor) | | $ | (1,801 | ) | $ | (3 | ) | $ | (6,473 | ) | $ | (347 | ) | $ | 2 |
| $ | (8,622 | ) |
| | Cumulative Translation Adjustment 1 | Net Gains (Losses) on Cash Flow Hedging Derivative Instruments | Pension Benefit Plans | Other Benefit Plans | Unrealized Gain (Loss) on Securities | Total | | | |
| 2014 | |
| |
| |
| |
| |
| |
| |
| Balance January 1, 2014 | $ | (43 | ) | $ | (48 | ) | $ | (5,695 | ) | $ | 494 |
| $ | 2 |
| $ | (5,290 | ) | |
Balance September 1, 2017 (Successor)2 | | $ | (727 | ) | $ | — |
| $ | (30 | ) | $ | — |
| $ | — |
| $ | (757 | ) |
| Other comprehensive (loss) income before reclassifications | (876 | ) | 33 |
| (2,601 | ) | (131 | ) | — |
| (3,575 | ) | (490 | ) | (2 | ) | 129 |
| (53 | ) | — |
| (416 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| 9 |
| 401 |
| (101 | ) | — |
| 309 |
| — |
| — |
| (4 | ) | — |
| — |
| (4 | ) |
| Net other comprehensive (loss) income | $ | (876 | ) | $ | 42 |
| $ | (2,200 | ) | $ | (232 | ) | $ | — |
| $ | (3,266 | ) | (490 | ) | (2 | ) | 125 |
| (53 | ) | — |
| (420 | ) |
| Balance December 31, 2014 | $ | (919 | ) | $ | (6 | ) | $ | (7,895 | ) | $ | 262 |
| $ | 2 |
| $ | (8,556 | ) | |
| 2015 | |
| |
| |
| |
| |
| |
| |
Balance December 31, 2017 (Successor) | | $ | (1,217 | ) | $ | (2 | ) | $ | 95 |
| $ | (53 | ) | $ | — |
| $ | (1,177 | ) |
| 2018 | | | | |
| Other comprehensive (loss) income before reclassifications | | (1,576 | ) | (19 | ) | (724 | ) | 132 |
| — |
| (2,187 | ) |
| Amounts reclassified from accumulated other comprehensive income | | — |
| (5 | ) | 9 |
| — |
| — |
| 4 |
|
| Net other comprehensive (loss) income | | (1,576 | ) | (24 | ) | (715 | ) | 132 |
| — |
| (2,183 | ) |
Balance December 31, 2018 (Successor) | | $ | (2,793 | ) | $ | (26 | ) | $ | (620 | ) | $ | 79 |
| $ | — |
| $ | (3,360 | ) |
| 2019 | | | |
| Other comprehensive (loss) income before reclassifications | (1,605 | ) | (25 | ) | 39 |
| 3 |
| (17 | ) | (1,605 | ) | (274 | ) | 16 |
| (723 | ) | (159 | ) | — |
| (1,140 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| 7 |
| 535 |
| (243 | ) | (2 | ) | 297 |
| — |
| 12 |
| 5 |
| (1 | ) | — |
| 16 |
|
| Net other comprehensive (loss) income | $ | (1,605 | ) | $ | (18 | ) | $ | 574 |
| $ | (240 | ) | $ | (19 | ) | $ | (1,308 | ) | (274 | ) | 28 |
| (718 | ) | (160 | ) | — |
| (1,124 | ) |
| Spin-off of Chemours | 191 |
| — |
| 278 |
| — |
| (1 | ) | 468 |
| |
| Balance December 31, 2015 | $ | (2,333 | ) | $ | (24 | ) | $ | (7,043 | ) | $ | 22 |
| $ | (18 | ) | $ | (9,396 | ) | |
| 2016 | |
| |
| |
| |
| |
| |
| |
| Other comprehensive (loss) income before reclassifications | (510 | ) | 20 |
| (271 | ) | (81 | ) | (8 | ) | (850 | ) | |
| Amounts reclassified from accumulated other comprehensive loss | — |
| 11 |
| 594 |
| (298 | ) | 28 |
| 335 |
| |
| Net other comprehensive (loss) income | $ | (510 | ) | $ | 31 |
| $ | 323 |
| $ | (379 | ) | $ | 20 |
| $ | (515 | ) | |
| Balance December 31, 2016 | $ | (2,843 | ) | $ | 7 |
| $ | (6,720 | ) | $ | (357 | ) | $ | 2 |
| $ | (9,911 | ) | |
| Impact of Internal Reorganizations | | 1,123 |
| — |
| 91 |
| — |
| — |
| 1,214 |
|
Balance December 31, 2019 (Successor) | | $ | (1,944 | ) | $ | 2 |
| $ | (1,247 | ) | $ | (81 | ) | $ | — |
| $ | (3,270 | ) |
| |
1. | The currencycumulative translation lossadjustment losses for the year ended December 31, 2016 is2019, the year ended December 31, 2018 and the period September 1 through December 31, 2017 are primarily driven by the strengthening of the U.S. dollar (USD)Dollar ("USD") against the Brazilian Real ("BRL") and the European Euro (EUR) partially offset("EUR"). The cumulative translation adjustment gain for the period January 1 through August 31, 2017 is primarily driven by the weakening of the USD against the Brazilian real (BRL). The currency translation lossEUR. |
| |
2. | In connection with the Merger, previously unrecognized prior service benefits and net losses related to EID's pension and other post employment benefit ("OPEB") plans were eliminated as a result of reflecting the balance sheet at fair value as of the date of the Merger. See Note 20 - Pension Plans and Other Post Employment Benefits, for further information regarding the years ended December 31, 2015pension and 2014 is driven by the strengthening USD against primarily the EUR and BRL. For the year ended December 31, 2015, the increase over prior year is also dueOPEB plans. Amounts reflected relate to changes in certain foreign entity's functional currencyDAS balances as described in Note 1.of September 1, 2017. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The tax benefit (expense) on the net activity related to each component of other comprehensive loss were(loss) income was as follows:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Derivative instruments | $ | (8 | ) | $ | 6 |
| $ | 1 |
| $ | 6 |
|
| Pension benefit plans - net | 231 |
| 199 |
| (36 | ) | (145 | ) |
| Other benefit plans - net | 52 |
| (40 | ) | 15 |
| (5 | ) |
| Benefit from (provision for) income taxes related to other comprehensive income (loss) items | $ | 275 |
| $ | 165 |
| $ | (20 | ) | $ | (144 | ) |
|
| | | | | | | | | |
| For the year ended December 31, | 2016 | 2015 | 2014 |
| Net gains (losses) on cash flow hedging derivative instruments | $ | (19 | ) | $ | 7 |
| $ | (26 | ) |
| Pension benefit plans, net | (163 | ) | (317 | ) | 1,274 |
|
| Other benefit plans, net | 194 |
| 135 |
| 155 |
|
| Benefit from (provision for) income taxes related to other comprehensive (loss) income items | $ | 12 |
| $ | (175 | ) | $ | 1,403 |
|
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
A summary of the reclassifications out of accumulated other comprehensive loss is provided as follows:
| | | (In millions) | | Successor | Predecessor | Income Classification |
| | 2016 | 2015 | 2014 | Consolidated Statements of Income Classification | 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 |
| | |
| Net gains (losses) on cash flow hedging derivative instruments, before tax: | $ | 18 |
| $ | 12 |
| $ | 15 |
| See (1) below | |
| Tax benefit | (7 | ) | (5 | ) | (6 | ) | See (2) below | |
| Derivative Instruments: | | $ | 13 |
| $ | (6 | ) | $ | — |
| $ | (21 | ) | (1) |
| Tax (benefit) expense | | (1 | ) | 1 |
| — |
| 8 |
| (2) |
| After-tax | $ | 11 |
| $ | 7 |
| $ | 9 |
| | $ | 12 |
| $ | (5 | ) | $ | — |
| $ | (13 | ) | |
| Amortization of pension benefit plans: | | |
|
|
|
| | | |
| Prior service (benefit) cost | (6 | ) | (9 | ) | 2 |
| See (3) below | |
| Actuarial losses | 822 |
| 768 |
| 601 |
| See (3) below | |
| Curtailment loss (gain) | 40 |
| (6 | ) | 4 |
| See (3) below | |
| Settlement loss | 62 |
| 76 |
| 7 |
| See (3) below | |
| Prior service benefit | | (1 | ) | — |
| — |
| (3 | ) | (3),(4) |
| Actuarial losses (gains) | | $ | 2 |
| $ | 6 |
| $ | (5 | ) | $ | 506 |
| (3),(4),(5) |
| Curtailment loss | | — |
| 7 |
| — |
| — |
| (3),(4),(5) |
| Settlement loss (gain) | | 4 |
| (2 | ) | — |
| — |
| (3),(4),(5) |
| Total before tax | | 5 |
| 11 |
| (5 | ) | 503 |
| |
| Tax (benefit) expense | | — |
| (2 | ) | 1 |
| (178 | ) | (2) |
| After-tax | | $ | 5 |
| $ | 9 |
| $ | (4 | ) | $ | 325 |
| |
| Amortization of other benefit plans: | |
|
|
|
| | | |
| Prior service benefit | | $ | — |
| $ | — |
| $ | — |
| $ | (46 | ) | (3),(4) |
| Actuarial (gains) losses | | (1 | ) | — |
| — |
| 61 |
| (3),(4) |
| Total before tax | $ | 918 |
| $ | 829 |
| $ | 614 |
| | (1 | ) | — |
| — |
| 15 |
| |
| Tax benefit | (324 | ) | (294 | ) | (213 | ) | See (2) below | — |
| — |
| — |
| (5 | ) | (2) |
| After-tax | $ | 594 |
| $ | 535 |
| $ | 401 |
| | $ | (1 | ) | $ | — |
| $ | — |
| $ | 10 |
| |
| Amortization of other benefit plans: | | | |
| Prior service benefit | (134 | ) | (182 | ) | (214 | ) | See (3) below | |
| Actuarial losses | 78 |
| 78 |
| 57 |
| See (3) below | |
| Curtailment gain | (392 | ) | (274 | ) | — |
| See (3) below | |
| Total before tax | $ | (448 | ) | $ | (378 | ) | $ | (157 | ) | | |
| Tax expense | 150 |
| 135 |
| 56 |
| See (2) below | |
| After-tax | $ | (298 | ) | $ | (243 | ) | $ | (101 | ) | | |
| Net realized gains (losses) on investments, before tax: | 28 |
| (2 | ) | — |
| See (4) below | |
| Net realized losses on investments, before tax: | | — |
| — |
| — |
| (1 | ) | (4) |
| Tax expense | — |
| — |
| — |
| See (2) below | — |
| — |
| — |
| — |
| (2) |
| After-tax | $ | 28 |
| $ | (2 | ) | $ | — |
| | $ | — |
| $ | — |
| $ | — |
| $ | (1 | ) | |
| Total reclassifications for the period, after-tax | $ | 335 |
| $ | 297 |
| $ | 309 |
| | $ | 16 |
| $ | 4 |
| $ | (4 | ) | $ | 321 |
| |
| |
1. | Net sales and costCost of goods soldsold. |
| |
2. | Provision forBenefit from income taxes from continuing operationsoperations. |
| |
3. | These accumulated other comprehensive loss(loss) income components are included in the computation of net periodic benefit (credit) cost of the company's pension and other benefit plans. See Note 1720 - Pension Plans and Other Post Employment Benefits, for additional information. |
| |
4. | Other income net(expense) - net. |
| |
5. | (Loss) income from discontinued operations after income taxes. |
The tax benefit (expense) recorded in Stockholders' Equity was $33, $(138) and $1,461 for the years 2016, 2015 and 2014, respectively. Included in these amounts were tax benefits of $21, $37 and $58 for the years 2016, 2015 and 2014, respectively, associated with stock compensation programs. The remainder consists of amounts recorded within other comprehensive loss as shown in the table above.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
17. LONG-TERM EMPLOYEENOTE 20 - PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS
The company offers various long-term benefits to its employees. Where permitted by applicable law, the company reserves the right to change, modify or discontinue the plans.
As a result of the Merger, the company re-measured its pension and OPEB plans. The remeasurement of the company’s pension and OPEB plans is included in the fair value measurement of EID’s assets and liabilities as a result of the application of purchase accounting in connection with the Merger. In addition, net losses and prior service benefits recognized in accumulated other comprehensive loss were eliminated. Historical Dow and EID did not merge their pension plans and OPEB plans as a result of the Merger.
In connection with the Corteva Distribution and Internal Reorganization, the company retained the benefit obligations relating to EID's principal U.S. pension plan, several other U.S. and non-U.S. pension plans and OPEB. Corteva entered into an employee matters agreement with DuPont which provides that employees of DuPont no longer participate in the benefits sponsored or maintained by the company as of the date of the Corteva Distribution and transferred certain of EID's pension and OPEB obligations and associated assets to DuPont. As a result of the transfer at Separation, about $5.8 billion unfunded obligations of the pension and OPEB plans remained with Corteva, of which $319 million was supported by funding under the Trust agreement.
Defined Benefit PensionsPension Plans
The company has both funded and unfunded noncontributory defined benefit pension plans covering a majority of the U.S. employees.employees and employees in a number of other countries. The principal U.S. pension plan is the largest pension plan held by Corteva. Most employees hired on or after January 1, 2007 are not eligible to participate in the U.S. defined benefit pension plans. The benefits under these plans are based primarily on years of service and employees' pay near retirement. In November 2016, the companyEID announced changes to the U.S. pension plans. The companythat it will freeze the pay and service amounts used to calculate pension benefits for active employees who participate in the U.S. pension plans at the earlieron November 30, 2018. Therefore, as of the effective date of the first of the Intended Business Separations or November 30, 2018, (the Effective Date). See Note 2 for further discussion of the Intended Business Separations. Therefore, as of the Effective Date, active employees participating in the U.S. will notpension plans no longer accrue additional benefits for future service and eligible compensation received. These changes resulted in a $527 decline in the projected benefit obligation, which is reflected in actuarial loss (gain) in the below table, and recognition of a $25 pre-tax curtailment gain during the fourth quarter of 2016. The decline in the projected benefit obligation is primarily due to the decrease in expected future compensation. Most employees hired on or after January 1, 2007 are not eligible to participate in the U.S. defined benefit pension plans.
The company's funding policy is consistent with the funding requirements of federal laws and regulations. Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are funded by depositing funds with trustees, covered by insurance contracts, or remain unfunded.
The workforce reductionscompany made a discretionary contribution of $1,100 million in 2016 relatedthe third quarter of 2018 to the 2016 global cost savings and restructuring plan triggered curtailments for certain of the company's pension plans, including theits principal U.S. pension plan. ForDuring the period January 1 through August 31, 2017, the company made total contributions of $2,900 million to its principal U.S. pension plan funded through a debt offering; short-term borrowings, including commercial paper issuance, and cash flows from operations.
The company made total contributions of $121 million, $214 million, $69 million and $124 million to its pension plans other than the principal U.S. pension plan for the company recorded curtailment losses of $63 during 2016 driven byyear ended December 31, 2019, the changes inyear ended December 31, 2018, the benefit obligation based onperiod September 1 through December 31, 2017, and the demographics of the terminated positions partially offset by accelerated recognition of a portion of the prior service benefit.period January 1 through August 31, 2017, respectively.
In the fourth quarter 2016, about $550 of lump-sum payments were made fromCorteva expects to contribute approximately $60 million to its pension plans other than the principal U.S. pension plan trust fundin 2020. The company is evaluating potential discretionary contributions in 2020 to the principal U.S. pension plan, that could reduce a group of separated, vested plan participants who were extended a limited-time opportunity and voluntarily elected to receive their pension benefits in a single lump-sum payment. Since the company recognizes pension settlements only when the lump-sum payments exceed the sumportion of the plan'sunderfunded benefit obligation. Any discretionary contributions depend on various factors including market conditions and tax deductible limits.
The weighted-average assumptions used to determine pension plan obligations for all pension plans are summarized in the table below:
|
| | | | |
| Weighted-Average Assumptions used to Determine Benefit Obligations | December 31, 2019 | December 31, 2018 |
| Discount rate | 3.20 | % | 3.94 | % |
| Rate of increase in future compensation levels | 2.60 | % | 2.90 | % |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The weighted-average assumptions used to determine net periodic benefit costs for all pension plans are summarized in the table below:
|
| | | | | | | | |
| Weighted-Average Assumptions used to Determine Net Periodic Benefit Cost | Successor | Predecessor |
| 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 |
| Discount rate | 4.19 | % | 3.38 | % | 3.42 | % | 3.80 | % |
| Rate of increase in future compensation levels | 2.84 | % | 4.04 | % | 3.80 | % | 3.80 | % |
| Expected long-term rate of return on plan assets | 6.24 | % | 6.19 | % | 6.24 | % | 7.66 | % |
The weighted-average assumptions used to determine net periodic benefit costs for U.S. plans are summarized in the table below:
|
| | | | | | | | |
| Weighted- Average Assumptions used to Determine Net Periodic Benefit Cost | Successor | Predecessor |
| 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 |
| Discount rate | 4.32 | % | 3.65 | % | 3.73 | % | 4.16 | % |
| Rate of increase in future compensation levels | — | % | 4.25 | % | 3.95 | % | 3.95 | % |
| Expected long-term rate of return on plan assets | 6.25 | % | 6.25 | % | 6.25 | % | 8.00 | % |
In the tables above, the rate of compensation increase represents the single annual effective salary increase that an average plan participant would receive during the participant's entire career at the company. After November 30, 2018 the rate of compensation increase excludes U.S. pension plans since the employees who participate in the U.S. pension plans no longer accrue additional benefits for future service and interest cost componentseligible compensation as of net periodic pension cost for the year, these lump-sum payments did not result in the recognition of a pension settlement charge.that date.
Other Post Employment Benefits
The parent company and certain subsidiaries provideprovides medical, dental and life insurance benefits to certain pensioners and survivors. The associated plans for retiree benefits are unfunded and the cost of the approved claims is paid from company funds. EssentiallySubstantially all of the cost and liabilities for these retiree benefit plans are attributable to the U.S. benefit plans. The non-Medicare eligible retiree medical plan is contributory with pensioners and survivors' contributions adjusted annually to achieve a 50/50 target for sharing of cost increases between the company and pensioners and survivors. In addition, limits are applied to the company'sCorteva's portion of the retiree medical cost coverage. For Medicare eligible pensioners and survivors, the companyCorteva provides a company-funded Health Reimbursement Arrangement (HRA)("HRA"). In November 2016, the company announced that eligible employees who will be under the age of 50 at the Effective Date, as defined above,of November 30, 2018 will not receive post-retirement medical, dental and life insurance benefits. As a result of these changes, the company recognized a pre-tax curtailment gain of $357 during the fourth quarter of 2016. Beginning January 1, 2015, eligible employees who retire on and after that date will receive the same life insurance benefit payment, regardless of age.employee's age or pay. The majority of U.S. employees hired on or after January 1, 2007 are not eligible to participate in the post-retirement medical, dental and life insurance plans.
As a result of the workforce reductions noted above, curtailments were triggered for the company’s other post employment benefit plans. The company recorded curtailment gains of $35 during the year ended December 31, 2016. The curtailment gains were driven by accelerated recognition of a portion of the prior service benefit partially offset by the change in the benefit obligation based on the demographics of the terminated positions.
The company also provides disability benefits to employees. Employee disability benefit plans are insured in many countries. However, primarily in the U.S., such plans are generally self-insured. Obligations and expenses for self-insured plans are reflected in the figures below.change in projected benefit obligations table on page F-70.
The company's OPEB plans are unfunded and the cost of the approved claims is paid from operating cash flows. Pre-tax cash requirements to cover actual net claims costs and related administrative expenses were $202 million, $216 million, $59 million, and $166 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. Changes in cash requirements reflect the net impact of higher per capita health care costs, demographic changes, plan amendments and changes in participant premiums, co-pays and deductibles. In 2020, the company expects to contribute approximately $240 million for its OPEB plans.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
The weighted-average assumptions used to determine benefit obligations for OPEB plans are summarized in millions, except per share)the table below:
|
| | | | |
| Weighted-Average Assumptions used to Determine Benefit Obligations | December 31, 2019 | December 31, 2018 |
| Discount rate | 3.07 | % | 4.23 | % |
Summarized information
The weighted-average assumptions used to determine net periodic benefit costs for the OPEB plans are summarized in the two tables below:
|
| | | | | | | | |
| Weighted-Average Assumptions used to Determine Net Periodic Benefit Cost | Successor | Predecessor |
| 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 |
| Discount rate | 3.93 | % | 3.56 | % | 3.62 | % | 4.03 | % |
|
| | | | |
| Assumed Health Care Cost Trend Rates | December 31, 2019 | December 31, 2018 |
| Health care cost trend rate assumed for next year | 7.20 | % | 7.50 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate health care trend rate) | 5.00 | % | 5.00 | % |
| Year that the rate reached the ultimate health care cost trend rate | 2028 |
| 2028 |
|
Assumptions
Within the U.S., the company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for the plan. The company's historical experience with the pension fund asset performance is also considered. For non-U.S. plans, assumptions reflect economic assumptions applicable to each country.
In the U.S., Corteva calculates service costs and interest costs by applying individual spot rates from a yield curve (based on high-quality corporate bond yields) to the separate expected cash flows components of service cost and interest cost. Service cost and interest cost for all other plans are determined on the basis of the single equivalent discount rates derived in determining those plan obligations.
The discount rates utilized to measure the pension and other post employment benefit plans is as follows:
|
| | | | | | | | | | | | | | | | |
| | Pension Benefits | Other Benefits |
| Obligations and Funded Status at December 31, | 2016 | 2015 | 2016 | 2015 |
| Change in benefit obligation | | | | | | | | |
| Benefit obligation at beginning of year | $ | 26,094 |
| | $ | 29,669 |
| | $ | 2,758 |
| | $ | 2,889 |
| |
| Service cost | 174 |
| | 232 |
| | 11 |
| | 15 |
| |
| Interest cost | 800 |
| | 1,084 |
| | 87 |
| | 112 |
| |
| Plan participants' contributions | 18 |
| | 19 |
| | 36 |
| | 45 |
| |
| Actuarial loss (gain) | 460 |
| | (1,404 | ) | | 153 |
| | (4 | ) | |
Benefits paid 1 | (2,374 | ) | | (1,761 | ) | | (254 | ) | | (282 | ) | |
| Amendments | — |
| | — |
| | (28 | ) | | — |
| |
| Effect of foreign exchange rates | (348 | ) | | (456 | ) | | 1 |
| | (6 | ) | |
| Acquisitions/divestitures/other activity | 7 |
| | (52 | ) | | 65 |
| | — |
| |
| Spin-off of Chemours | — |
| | (1,237 | ) | | — |
| | (11 | ) | |
| Benefit obligation at end of year | $ | 24,831 |
| | $ | 26,094 |
| | $ | 2,829 |
| | $ | 2,758 |
| |
| Change in plan assets | | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 17,497 |
| | $ | 20,446 |
| | $ | — |
| | $ | — |
| |
| Actual gain on plan assets | 1,219 |
| | 88 |
| | — |
| | — |
| |
| Employer contributions | 535 |
| | 308 |
| | 218 |
| | 237 |
| |
| Plan participants' contributions | 18 |
| | 19 |
| | 36 |
| | 45 |
| |
Benefits paid1 | (2,374 | ) | | (1,761 | ) | | (254 | ) | | (282 | ) | |
| Effect of foreign exchange rates | (239 | ) | | (330 | ) | | — |
| | — |
| |
| Acquisitions/divestitures/other activity | — |
| | (47 | ) | | — |
| | — |
| |
| Spin-off of Chemours | — |
| | (1,226 | ) | | — |
| | — |
| |
| Fair value of plan assets at end of year | $ | 16,656 |
| | $ | 17,497 |
| | $ | — |
| | $ | — |
| |
| Funded status | | | | | | | | |
| U.S. plan with plan assets | $ | (6,391 | ) | | $ | (6,662 | ) | | $ | — |
| | $ | — |
| |
| Non-U.S. plans with plan assets | (674 | ) | | (748 | ) | | — |
| | — |
| |
All other plans 2 | (1,110 | ) | | (1,187 | ) | | (2,829 | ) | | (2,758 | ) | |
| Total | $ | (8,175 | ) | | $ | (8,597 | ) | | $ | (2,829 | ) | | $ | (2,758 | ) | |
Amounts recognized in the Consolidated Balance Sheets consist of: | | | | | | | | |
| Other assets | $ | 3 |
| | $ | 11 |
| | $ | — |
| | $ | — |
| |
| Other accrued liabilities (Note 12) | (78 | ) | | (130 | ) | | (275 | ) | | (234 | ) | |
| Other liabilities (Note 14) | (8,100 | ) | | (8,478 | ) | | (2,554 | ) | | (2,524 | ) | |
| Net amount recognized | $ | (8,175 | ) | | $ | (8,597 | ) | | $ | (2,829 | ) | | $ | (2,758 | ) | |
| |
1.
| 2016 benefits paid includes about $550 of lump sum benefits associated with the limited-time opportunity provided to certain separated, vested participants in the principal U.S. pension plan. See further discussion above. |
| |
2.
| Includes pension plans maintained around the world where funding is not customary. |
E. I. du Pont de Nemours and Company
Notes toobligations are based on the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
The pre-tax amounts recognized in accumulated other comprehensive lossyield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows are summarized below:
|
| | | | | | | | | | | | |
| | Pension Benefits | Other Benefits |
| December 31, | 2016 | 2015 | 2016 | 2015 |
| Net loss | $ | (10,280 | ) | $ | (10,803 | ) | $ | (830 | ) | $ | (787 | ) |
| Prior service benefit | 17 |
| 54 |
| 281 |
| 811 |
|
| | $ | (10,263 | ) | $ | (10,749 | ) | $ | (549 | ) | $ | 24 |
|
The accumulated benefit obligation for all pension plans was $24,345 and $24,984individually discounted at December 31, 2016 and 2015, respectively.
|
| | | | | | |
| Information for pension plans with projected benefit obligation in excess of plan assets | 2016 | 2015 |
| Projected benefit obligation | $ | 24,779 |
| $ | 25,769 |
|
| Accumulated benefit obligation | 24,297 |
| 24,715 |
|
| Fair value of plan assets | 16,601 |
| 17,162 |
|
|
| | | | | | |
| Information for pension plans with accumulated benefit obligations in excess of plan assets | 2016 | 2015 |
| Projected benefit obligation | $ | 23,946 |
| $ | 25,515 |
|
| Accumulated benefit obligation | 23,591 |
| 24,508 |
|
| Fair value of plan assets | 15,838 |
| 16,930 |
|
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
|
| | | | | | | | | |
| | Pension Benefits |
Components of net periodic benefit cost (credit) and amounts recognized in other comprehensive loss | 2016 | 2015 | 2014 |
| Net periodic benefit cost | | | |
| Service cost | $ | 174 |
| $ | 232 |
| $ | 241 |
|
| Interest cost | 800 |
| 1,084 |
| 1,162 |
|
| Expected return on plan assets | (1,320 | ) | (1,554 | ) | (1,611 | ) |
| Amortization of loss | 822 |
| 768 |
| 601 |
|
| Amortization of prior service (benefit) cost | (6 | ) | (9 | ) | 2 |
|
| Curtailment loss (gain) | 40 |
| (6 | ) | 4 |
|
| Settlement loss | 62 |
| 76 |
| 7 |
|
| Net periodic benefit cost - Total | $ | 572 |
| $ | 591 |
| $ | 406 |
|
| Less: Discontinued operations | (5 | ) | (5 | ) | 40 |
|
| Net period benefit cost - Continuing operations | $ | 577 |
| $ | 596 |
| $ | 366 |
|
Changes in plan assets and benefit obligations recognized in other comprehensive loss | | | |
| Net loss | $ | 570 |
| $ | 57 |
| $ | 4,131 |
|
| Amortization of loss | (822 | ) | (768 | ) | (601 | ) |
| Prior service benefit | — |
| — |
| (44 | ) |
| Amortization of prior service benefit (cost) | 6 |
| 9 |
| (2 | ) |
| Curtailment (loss) gain | (40 | ) | 6 |
| (4 | ) |
| Settlement loss | (62 | ) | (76 | ) | (7 | ) |
| Effect of foreign exchange rates | (138 | ) | (119 | ) | — |
|
| Spin-off of Chemours | — |
| (382 | ) | — |
|
| Total (benefit) loss recognized in other comprehensive loss | $ | (486 | ) | $ | (1,273 | ) | $ | 3,473 |
|
| Noncontrolling interest | — |
| — |
| 1 |
|
| Total (benefit) loss recognized in other comprehensive loss, attributable to DuPont | $ | (486 | ) | $ | (1,273 | ) | $ | 3,474 |
|
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 86 |
| $ | (682 | ) | $ | 3,880 |
|
The estimated pre-tax net loss and prior service benefit forspot rates under the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2017 are $758 and $(4), respectively. These amounts do not include any potential settlement charges related to the company's Pension Restoration Plan which provides lump sum payments to certain eligible retirees.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
|
| | | | | | | | | |
| | Other Benefits |
Components of net periodic benefit cost (credit) and amounts recognized in other comprehensive loss | 2016 | 2015 | 2014 |
| Net periodic benefit cost | | | |
| Service cost | $ | 11 |
| $ | 15 |
| $ | 17 |
|
| Interest cost | 87 |
| 112 |
| 121 |
|
| Amortization of loss | 78 |
| 78 |
| 57 |
|
| Amortization of prior service benefit | (134 | ) | (182 | ) | (214 | ) |
| Curtailment gain | (392 | ) | (274 | ) | — |
|
| Net periodic benefit credit - Total | $ | (350 | ) | $ | (251 | ) | $ | (19 | ) |
| Less: Discontinued operations | — |
| (272 | ) | 3 |
|
| Net periodic benefit (credit) cost - Continuing operations | $ | (350 | ) | $ | 21 |
| $ | (22 | ) |
Changes in plan assets and benefit obligations recognized in other comprehensive loss | | | |
| Net loss (gain) | $ | 153 |
| $ | (4 | ) | $ | 280 |
|
| Amortization of loss | (78 | ) | (78 | ) | (57 | ) |
| Prior service benefit | (28 | ) | — |
| (50 | ) |
| Amortization of prior service benefit | 134 |
| 182 |
| 214 |
|
| Curtailment gain | 392 |
| 274 |
| — |
|
| Effect of foreign exchange rates | — |
| 1 |
| — |
|
| Total loss recognized in other comprehensive loss, attributable to DuPont | $ | 573 |
| $ | 375 |
| $ | 387 |
|
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 223 |
| $ | 124 |
| $ | 368 |
|
The estimated pre-tax net loss and prior service benefit for the other post employment benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2017 are $91 and $(69), respectively.
|
| | | | | | | | |
| | Pension Benefits | Other Benefits |
| Weighted-average assumptions used to determine benefit obligations at December 31, | 2016 | 2015 | 2016 | 2015 |
| Discount rate | 3.80 | % | 4.13 | % | 4.03 | % | 4.32 | % |
Rate of compensation increase1 | 3.80 | % | 3.94 | % | — | % | — | % |
| |
1.
| The rate of compensation increase represents the single annual effective salary increase that an average plan participant would receive during the participant's entire career at the company. |
|
| | | | | | | | | | | | |
| | Pension Benefits | Other Benefits |
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 |
| Discount rate | 3.77 | % | 3.93 | % | 4.55 | % | 3.87 | % | 4.13 | % | 4.60 | % |
| Expected return on plan assets | 7.74 | % | 8.10 | % | 8.35 | % | — | % | — | % | — | % |
| Rate of compensation increase | 3.96 | % | 4.01 | % | 4.22 | % | — | % | — | % | — | % |
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
For determining U.S. pension plans' net periodic benefit costs, the discount rate, expected return on plan assets and the rate of compensation increase were 4.04 percent, 8.00 percent and 4.15 percent for 2016.
For determining U.S. pension plans' net periodic benefit costs, the discount rate, expected return on plan assets and the rate of compensation increase were 4.29 percent, 8.50 percent and 4.20 percent for 2015.
For determining U.S. pension plans' net periodic benefit costs, the discount rate, expected return on plan assets and the rate of compensation increase were 4.90 percent, 8.75 percent and 4.50 percent for 2014.
In the U.S., the discount rate is developed by matching the expected cash flow of the benefit plans to aAon AA_Above Median yield curve constructed from a portfolio of high quality fixed-income instruments provided by(based on high-quality corporate bond yields) to arrive at the plan's actuaryplan’s obligations as of the measurement date. Effective in 2016, the company changed its method to estimate the service and interest cost components of net periodic benefit cost for the U.S. benefit plans. The company utilized a full yield curve approach in the estimation of service and interest rate components by applying specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. For non-U.S. benefit plans, historically the company utilizesutilized prevailing long-term high quality corporate bond indices to determine the discount rate, applicable to each country, at the measurement date.
The long-term rate of return on assets incompany adopts the U.S. was selected from within the reasonable range of rates determinedmost recently published mortality tables and mortality improvement scale released by historical real returns (net of inflation) for the asset classes covered by the investment policy, expected performance, and projections of inflation over the long-term period during which benefits are payable to plan participants. Consistent with prior years, the long-term rate of return on plan assets in the U.S. reflects the asset allocation of the plan and the effect of the company's active management of the plan's assets. For non-U.S. plans, assumptions reflect economic assumptions applicable to each country.
In October 2014, the Society of Actuaries released final reports of new mortality tables and a mortality improvement scale for measurement of retirement program obligations in the U.S. The Society of Actuaries published other mortality improvement scales in October 2015 and October 2016. The company adopted these tables in measuring the 2015its U.S. pension and 2016 long-term employeeother post employment benefit obligations, respectively.obligations. The effect of these adoptions is amortized into net periodic benefit cost for the years following the adoption.
|
| | | | |
| Assumed health care cost trend rates at December 31, | 2016 | 2015 |
| Health care cost trend rate assumed for next year | 7 | % | 7 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5 | % | 5 | % |
| Year that the rate reaches the ultimate trend rate | 2023 |
| 2023 |
|
Assumed health care cost trend rates have a modest effect on the amount reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects:
|
| | | | | | |
| | 1-Percentage Point Increase | 1-Percentage Point Decrease |
| Increase (decrease) on total of service and interest cost | $ | — |
| $ | — |
|
| Increase (decrease) on post-retirement benefit obligation | 11 |
| (11 | ) |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Plan Assets
All pension plan assets in the U.S. are invested through a single master trust fund. The strategic asset allocation for this trust fund is approved by management. The general principles guiding U.S. pension asset investment policies are those embodied in the Employee Retirement Income Security Act of 1974 (ERISA). These principles include dischargingSummarized information on the company's investment responsibilities for the exclusive benefit of plan participants and in accordance with the "prudent expert" standardpension and other ERISA rules and regulations. The company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset liability studies are utilized in this process. U.S. plan assets and a portion of non-U.S. plan assets are managed by investment professionals employed by the company. The remaining assets are managed by professional investment firms unrelated to the company. The company's pension investment professionals have discretion to manage the assets within established asset allocation ranges approved by management of the company. Additionally, pension trust funds are permitted to enter into certain contractual arrangements generally described as "derivatives". Derivatives are primarily used to reduce specific market risks, hedge currency and adjust portfolio duration and asset allocation in a cost-effective manner.
The weighted-average target allocation for plan assets of the company's U.S. and non-U.S. pensionpost employment benefit plans is summarized as follows:
|
| | | | |
| Target allocation for plan assets at December 31, | 2016 | 2015 |
| U.S. equity securities | 27 | % | 29 | % |
| Non-U.S. equity securities | 24 |
| 22 |
|
| Fixed income securities | 33 |
| 32 |
|
| Hedge funds | 2 |
| 2 |
|
| Private market securities | 8 |
| 9 |
|
| Real estate | 4 |
| 3 |
|
| Cash and cash equivalents | 2 |
| 3 |
|
| Total | 100 | % | 100 | % |
|
| | | | | | | | | | | | | |
| Change in Projected Benefit Obligations, Plan Assets and Funded Status |
| | Defined Benefit Pension Plans | | Other Post Employment Benefits |
| (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 |
| Change in benefit obligations: | | | | | |
| Benefit obligation at beginning of the period | $ | 23,532 |
| $ | 25,683 |
| | $ | 2,514 |
| $ | 2,810 |
|
| Service cost | 41 |
| 136 |
| | 4 |
| 9 |
|
| Interest cost | 769 |
| 755 |
| | 84 |
| 85 |
|
| Plan participants' contributions | 2 |
| 10 |
| | 37 |
| 38 |
|
| Actuarial (gain) loss | 2,469 |
| (1,078 | ) | | 211 |
| (172 | ) |
| Benefits paid | (1,635 | ) | (1,763 | ) | | (239 | ) | (254 | ) |
| Plan amendments | (76 | ) | 17 |
| | — |
| — |
|
| Net effects of acquisitions / divestitures / other | (1 | ) | (12 | ) | | — |
| — |
|
| Effect of foreign exchange rates | (60 | ) | (216 | ) | | — |
| (2 | ) |
| Impact of internal reorganizations | (4,037 | ) | — |
| | (20 | ) | — |
|
| Benefit obligations at end of the period | $ | 21,004 |
| $ | 23,532 |
| | $ | 2,591 |
| $ | 2,514 |
|
| | | | | | |
| Change in plan assets: | | | | | |
| Fair value of plan assets at beginning of the period | $ | 18,951 |
| $ | 20,329 |
| | $ | — |
| $ | — |
|
| Actual return on plan assets | 2,552 |
| (781 | ) | | — |
| — |
|
| Employer contributions | 121 |
| 1,314 |
| | 202 |
| 216 |
|
| Plan participants' contributions | 2 |
| 10 |
| | 37 |
| 38 |
|
| Benefits paid | (1,635 | ) | (1,763 | ) | | (239 | ) | (254 | ) |
| Net effects of acquisitions / divestitures / other | (6 | ) | (7 | ) | | — |
| — |
|
| Effect of foreign exchange rates | (38 | ) | (151 | ) | | — |
| — |
|
| Impact of internal reorganizations | (3,006 | ) | — |
| | — |
| — |
|
| Fair value of plan assets at end of the period | $ | 16,941 |
| $ | 18,951 |
| | $ | — |
| $ | — |
|
| Funded status | | | | | |
| U.S. plan with plan assets | $ | (3,535 | ) | $ | (2,890 | ) | | $ | — |
| $ | — |
|
| Non-U.S. plans with plan assets | (90 | ) | (32 | ) | | — |
| — |
|
All other plans 1, 2 | (438 | ) | (511 | ) | | (2,591 | ) | (2,490 | ) |
| Plans of discontinued operations | — |
| (1,148 | ) | | — |
| (24 | ) |
Funded status at end of the period3 | $ | (4,063 | ) | $ | (4,581 | ) | | $ | (2,591 | ) | $ | (2,514 | ) |
| |
| 1. | As of December 31, 2019, and December 31, 2018, $294 million and $349 million, respectively, of the benefit obligations are supported by funding under the Trust agreement, defined in the "Trust Assets" section below. |
| |
| 2. | Includes pension plans maintained around the world where funding is not customary. |
| |
| 3. | Excludes $(41) million as of December 31, 2018 of DAS pension and OPEB liabilities recognized within the Consolidated Balance Sheet that did not transfer to Corteva as part of the Internal Reorganizations. |
Global equity securities include varying market capitalization levels. U.S. equity investments are primarily large-cap companies. Global fixed income investments include corporate-issued, government-issued and asset-backed securities. Corporate debt investments include a range of credit risk and industry diversification. U.S. fixed income investments are weighted heavier than non-U.S fixed income securities. Other investments include cash and cash equivalents, hedge funds, real estate and private market securities such as interests in private equity and venture capital partnerships.
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
|
| | | | | | | | | | | | |
| | Defined Benefit Pension Plans | Other Post Employment Benefits |
| (In millions) | December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 |
| Amounts recognized in the Consolidated Balance Sheets: | | | | |
| Assets of discontinued operations - current | $ | — |
| $ | 10 |
| $ | — |
| $ | — |
|
| Other Assets | 10 |
| — |
| — |
| — |
|
| Accrued and other current liabilities | (50 | ) | (45 | ) | (237 | ) | (242 | ) |
| Liabilities of discontinued operations - noncurrent | — |
| (1,158 | ) | — |
| (24 | ) |
Pension and other post employment benefits - noncurrent 1 | (4,023 | ) | (3,388 | ) | (2,354 | ) | (2,248 | ) |
| Net amount recognized | $ | (4,063 | ) | $ | (4,581 | ) | $ | (2,591 | ) | $ | (2,514 | ) |
| | | | | |
| Pretax amounts recognized in accumulated other comprehensive loss (income): | | | | |
| Net loss (gain) | $ | 1,641 |
| $ | 767 |
| $ | 108 |
| $ | (104 | ) |
| Prior service (benefit) cost | (10 | ) | 17 |
| — |
| — |
|
| Pretax balance in accumulated other comprehensive loss (income) at end of year | $ | 1,631 |
| $ | 784 |
| $ | 108 |
| $ | (104 | ) |
The tables below presents the fair values of the company's pension assets by level within the fair value hierarchy, as described in Note 1,1. Excludes $(41) million as of December 31, 20162018 of DAS pension and 2015,OPEB liabilities recognized within the Consolidated Balance Sheet that did not transfer to Corteva as part of the Internal Reorganizations.
The significant loss related to the change in benefit obligations for the period ended December 31, 2019 is mainly due to a decrease in discount rates.
The accumulated benefit obligation for all pensions plans was $21.0 billion and $23.2 billion at December 31, 2019 and 2018, respectively.
|
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2016 |
| Asset Category | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 1,505 |
| $ | 1,480 |
| $ | 25 |
| $ | — |
|
U.S. equity securities1 | 4,071 |
| 4,033 |
| 20 |
| 18 |
|
| Non-U.S. equity securities | 3,278 |
| 3,126 |
| 151 |
| 1 |
|
| Debt – government-issued | 2,067 |
| 864 |
| 1,203 |
| — |
|
| Debt – corporate-issued | 2,475 |
| 273 |
| 2,163 |
| 39 |
|
| Debt – asset-backed | 721 |
| 39 |
| 682 |
| — |
|
| Hedge funds | 1 |
| — |
| 1 |
| — |
|
| Private market securities | 67 |
| — |
| 25 |
| 42 |
|
| Real estate | 275 |
| 175 |
| 2 |
| 98 |
|
| Derivatives – asset position | 53 |
| 7 |
| 46 |
| — |
|
| Derivatives – liability position | (47 | ) | — |
| (47 | ) | — |
|
| Other | 4 |
| — |
| 4 |
| — |
|
| Subtotal | $ | 14,470 |
| $ | 9,997 |
| $ | 4,275 |
| $ | 198 |
|
| Investments measured at net asset value | | | | |
| Hedge funds | 434 |
| | | |
| Private market securities | 1,416 |
| | | |
| Real estate funds | 444 |
| | | |
| Total investments measured at net asset value | $ | 2,294 |
| | | |
| Other items to reconcile to fair value of plan assets | | | | |
Pension trust receivables2 | 264 |
| |
| |
| |
|
Pension trust payables3 | (372 | ) | |
| |
| |
|
| Total | $ | 16,656 |
| |
| |
| |
|
|
| | | | | | |
| Pension Plans with Projected Benefit Obligations in Excess of Plan Assets | December 31, 2019 | December 31, 2018 |
| (In millions) |
Projected benefit obligations1 | $ | 20,788 |
| $ | 23,261 |
|
Fair value of plan assets2 | 16,716 |
| 18,669 |
|
1. Includes $3.8 billion of discontinued operations for the period ended December 31, 2018.
| |
1.
| The company's pension plans directly held $732 (4 percent of total plan assets) of DuPont common stock at December 31, 2016. |
| |
2.
| Primarily receivables for investment securities sold. |
| |
3.
| Primarily payables for investment securities purchased. |
2. Includes $2.6 billion of discontinued operations for the period ended December 31, 2018.
E. I. du Pont de Nemours and Company |
| | | | | | |
| Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets | December 31, 2019 | December 31, 2018 |
| (In millions) |
Accumulated benefit obligations1 | $ | 20,654 |
| $ | 22,291 |
|
Fair value of plan assets2 | 16,620 |
| 17,934 |
|
1. Includes $2.9 billion of discontinued operations for the period ended December 31, 2018.
2. Includes $2.0 billion of discontinued operations for the period ended December 31, 2018.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Defined Benefit Pension Plans | | Other Post Employment Benefits |
| (In millions) | Successor | Predecessor | | Successor | Predecessor |
| Components of net periodic benefit (credit) cost and amounts recognized in other comprehensive loss | 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, 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 |
| Net Periodic Benefit Cost: | | | | | | | | | |
| Service cost | $ | 41 |
| $ | 136 |
| $ | 50 |
| $ | 92 |
| | $ | 4 |
| $ | 9 |
| $ | 3 |
| $ | 6 |
|
| Interest cost | 769 |
| 755 |
| 247 |
| 524 |
| | 84 |
| 85 |
| 26 |
| 60 |
|
| Expected return on plan assets | (1,078 | ) | (1,216 | ) | (411 | ) | (824 | ) | | — |
| — |
| — |
| — |
|
| Amortization of unrecognized loss (gain) | 3 |
| 10 |
| 1 |
| 506 |
| | (1 | ) | — |
| — |
| 61 |
|
| Amortization of prior service benefit | (1 | ) | — |
| — |
| (3 | ) | | — |
| — |
| — |
| (46 | ) |
| Curtailment gain | (2 | ) | (11 | ) | — |
| — |
| | — |
| — |
| — |
| — |
|
| Settlement loss | 4 |
| 5 |
| — |
| — |
| | — |
| — |
| — |
| — |
|
| Net periodic benefit (credit) cost - Total | $ | (264 | ) | $ | (321 | ) | $ | (113 | ) | $ | 295 |
| | $ | 87 |
| $ | 94 |
| $ | 29 |
| $ | 81 |
|
Less: Discontinued operations1 | (14 | ) | (42 | ) | (13 | ) | 27 |
| | — |
| 1 |
| — |
| — |
|
| Net periodic benefit (credit) cost - Continuing operations | $ | (250 | ) | $ | (279 | ) | $ | (100 | ) | $ | 268 |
| | $ | 87 |
| $ | 93 |
| $ | 29 |
| $ | 81 |
|
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | | | | |
| Net loss (gain) | $ | 970 |
| $ | 908 |
| $ | (163 | ) | $ | (22 | ) | | $ | 211 |
| $ | (172 | ) | $ | 68 |
| $ | — |
|
| Amortization of unrecognized (loss) gain | (2 | ) | (10 | ) | (1 | ) | (506 | ) | | 1 |
| — |
| — |
| (61 | ) |
| Prior service (benefit) cost | (11 | ) | 17 |
| — |
| — |
| | — |
| — |
| — |
| — |
|
| Amortization of prior service benefit | 1 |
| — |
| — |
| 3 |
| | — |
| — |
| — |
| 46 |
|
| Settlement loss | (4 | ) | (2 | ) | — |
| — |
| | — |
| — |
| — |
| — |
|
| Effect of foreign exchange rates | (5 | ) | 1 |
| 3 |
| 133 |
| | — |
| — |
| — |
| — |
|
| Total loss (benefit) recognized in other comprehensive loss, attributable to Corteva | $ | 949 |
| $ | 914 |
| $ | (161 | ) | $ | (392 | ) | | $ | 212 |
| $ | (172 | ) | $ | 68 |
| $ | (15 | ) |
| Total recognized in net periodic benefit cost and other comprehensive loss (income) | $ | 685 |
| $ | 593 |
| $ | (274 | ) | $ | (97 | ) | | $ | 299 |
| $ | (78 | ) | $ | 97 |
| $ | 66 |
|
|
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2015 |
| Asset Category | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 1,962 |
| $ | 1,961 |
| $ | 1 |
| $ | — |
|
U.S. equity securities1 | 3,873 |
| 3,843 |
| 10 |
| 20 |
|
| Non-U.S. equity securities | 3,597 |
| 3,480 |
| 115 |
| 2 |
|
| Debt – government-issued | 2,028 |
| 852 |
| 1,176 |
| — |
|
| Debt – corporate-issued | 2,374 |
| 291 |
| 2,049 |
| 34 |
|
| Debt – asset-backed | 831 |
| 44 |
| 786 |
| 1 |
|
| Hedge funds | 1 |
| — |
| 1 |
| — |
|
| Private market securities | 54 |
| — |
| 17 |
| 37 |
|
| Real estate | 246 |
| 98 |
| 4 |
| 144 |
|
| Derivatives – asset position | 58 |
| 10 |
| 48 |
| — |
|
| Derivatives – liability position | (59 | ) | 1 |
| (60 | ) | — |
|
| Subtotal | $ | 14,965 |
| $ | 10,580 |
| $ | 4,147 |
| $ | 238 |
|
| Investments measured at net asset value | | | | |
| Debt - government issued | $ | 8 |
| | | |
| Debt - corporate issued | 6 |
| | | |
| Hedge funds | 429 |
| | | |
| Private market securities | 1,553 |
| | | |
| Real estate funds | 457 |
| | | |
| Total investments measured at net asset value | $ | 2,453 |
| | | |
| Other items to reconcile to fair value of plan assets | | | | |
Pension trust receivables2 | 783 |
| |
| |
| |
|
Pension trust payables3 | (704 | ) | |
| |
| |
|
| Total | $ | 17,497 |
| |
| |
| |
|
| |
1. | The company's pension plans directly held $664 (4 percentIncludes non-service related components of total plan assets)net periodic benefit credit of DuPont common stock at$(31) million, $(97) million, $(34) million, and $(18) million for the year ended December 31, 2015. |
| |
2.
| Primarily receivables for investment securities sold. |
| |
3.
| Primarily payables for investment securities purchased.2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. |
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
The company's pension plans hold Level 3 assets which are primarily ownership interests in investment partnerships and trusts that own private market securities and real estate. Fair value is generally based on the company's units of ownership and net asset value of the investment entity or the company's share of the investment entity's total equity. The table below presents a rollforward of activity for these assets for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Level 3 Assets |
| | Total | U.S. Equity Securities | Non-U.S. Equity
Securities | Debt- Corporate Issued | Debt- Asset- Backed | Private Market Securities | Real Estate |
| Beginning balance at December 31, 2014 | $ | 286 |
| $ | 29 |
| $ | 4 |
| $ | 15 |
| $ | 1 |
| $ | 37 |
| $ | 200 |
|
| Realized (loss) gain | (32 | ) | (14 | ) | — |
| (18 | ) | — |
| — |
| — |
|
| Change in unrealized (loss) gain | (11 | ) | 5 |
| (3 | ) | 15 |
| — |
| (5 | ) | (23 | ) |
| Purchases, sales and settlements, net | (18 | ) | — |
| — |
| 10 |
| — |
| 5 |
| (33 | ) |
| Transfers in (out) of Level 3 | 13 |
| — |
| 1 |
| 12 |
| — |
| — |
| — |
|
| Ending balance at December 31, 2015 | $ | 238 |
| $ | 20 |
| $ | 2 |
| $ | 34 |
| $ | 1 |
| $ | 37 |
| $ | 144 |
|
| Realized (loss) gain | (28 | ) | (3 | ) | — |
| (25 | ) | — |
| — |
| — |
|
| Change in unrealized (loss) gain | 19 |
| 1 |
| (1 | ) | 27 |
| — |
| 2 |
| (10 | ) |
| Purchases, sales and settlements, net | (37 | ) | — |
| — |
| (3 | ) | (1 | ) | 3 |
| (36 | ) |
| Transfers in (out) of Level 3 | 6 |
| — |
| — |
| 6 |
| — |
| — |
| — |
|
| Ending balance at December 31, 2016 | $ | 198 |
| $ | 18 |
| $ | 1 |
| $ | 39 |
| $ | — |
| $ | 42 |
| $ | 98 |
|
The following table presents additional information about the pension plan assets valued using net asset value as a practical expedient:
|
| | | | | | | | | | | | | | |
| | 2016 | 2015 | | |
| | Fair Value | Unfunded Commitments | Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period Range |
| Debt - government issued | $ | — |
| $ | — |
| $ | 8 |
| $ | — |
| Monthly | 3 days |
| Debt - corporate issued | — |
| — |
| 6 |
| — |
| Monthly | 3 days |
Hedge funds 1 | 434 |
| — |
| 429 |
| — |
| Monthly, Quarterly | Ranges from 3-45 days monthly, 3-90 days quarterly |
Private market securities 2 | 1,416 |
| 693 |
| 1,553 |
| 632 |
| Not applicable | Not applicable |
Real estate funds 2 | 444 |
| 244 |
| 457 |
| 361 |
| Not applicable | Not applicable |
| Total | $ | 2,294 |
| $ | 937 |
| $ | 2,453 |
| $ | 993 |
| |
| |
1.
| Less than 5 percent of hedge funds have gates in place at the investor level for year end redemptions. Hedge funds also contain either no lock up or a lock up period of less than 1 year. |
| |
2.
| The remaining life of private market securities and real estate funds is an average of 15 years per investment. |
Cash Flow
Contributions
No contributions to its principal U.S. pension plan were made in 2014 or 2015. The company contributed $230 to the principal U.S. pension plan in 2016 and is expected to contribute about the same amount to this plan in 2017. The company contributed $121, $184, and $218 to its pension plans other than the principal U.S. pension plan, its remaining plans with no plan assets and its other post employment benefit plans, respectively, in 2016. The company contributed $164, $144, and $237 to its pension plans other than the principal U.S. pension plan, its remaining plans with no plan assets and its other post employment benefit plans, respectively, in 2015. In 2017, the company expects to contribute $95 to its pension plans other than the principal U.S. pension plan, $85 to its remaining plans with no plan assets, and $275 to its other post employment benefit plans.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Estimated Future Benefit Payments
The followingestimated future benefit payments, which reflectreflecting expected future service, as appropriate, are presented in the following table:
|
| | | | | | |
| Estimated Future Benefit Payments at December 31, 2019 | Defined Benefit Pension Plans | Other Post Employment Benefits |
| (In millions) |
| 2020 | $ | 1,527 |
| $ | 237 |
|
| 2021 | 1,474 |
| 228 |
|
| 2022 | 1,437 |
| 218 |
|
| 2023 | 1,403 |
| 209 |
|
| 2024 | 1,370 |
| 201 |
|
| Years 2025-2029 | 6,314 |
| 808 |
|
| Total | $ | 13,525 |
| $ | 1,901 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Plan Assets
All pension plan assets in the U.S. are invested through a single master trust fund. The strategic asset allocation for this trust fund is approved by management. The general principles guiding U.S. pension asset investment policies are those embodied in the Employee Retirement Income Security Act of 1974 ("ERISA"). These principles include discharging Corteva's investment responsibilities for the exclusive benefit of plan participants and in accordance with the "prudent expert" standard and other ERISA rules and regulations. Corteva establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset liability studies are utilized in this process. U.S. plan assets are managed by investment professionals employed by Corteva. The remaining assets are managed by professional investment firms unrelated to the company. Corteva's pension investment professionals have discretion to manage the assets within established asset allocation ranges approved by management of the company. Additionally, pension trust funds are permitted to enter into certain contractual arrangements generally described as "derivatives." Derivatives are primarily used to reduce specific market risks, hedge currency and adjust portfolio duration and asset allocation in a cost-effective manner.
In connection with pension contributions of $2,900 million to its principal U.S. pension plan during the period of January 1, 2017 through August 31, 2017, an investment policy study was completed for the principal U.S. pension plan. The study resulted in new target asset allocations being approved for the principal U.S. pension plan with resulting changes to the expected return on plan assets. The long-term rate of return on assets decreased from 8.00 percent to 6.25 percent.
The weighted-average target allocation for plan assets of the company's pension plans is summarized as follows:
|
| | | | |
| Target Allocation for Plan Assets | December 31, 2019 | December 31, 2018 |
| Asset Category |
| U.S. equity securities | 20 | % | 19 | % |
| Non-U.S. equity securities | 16 |
| 16 |
|
| Fixed income securities | 50 |
| 50 |
|
| Hedge funds | 3 |
| 2 |
|
| Private market securities | 6 |
| 8 |
|
| Real estate | 3 |
| 3 |
|
| Cash and cash equivalents | 2 |
| 2 |
|
| Total | 100 | % | 100 | % |
U.S. equity investments are primarily large-cap companies. Global equity securities include varying market capitalization levels. Global fixed income investments include corporate-issued, government-issued and asset-backed securities. Corporate debt investments include a range of credit risk and industry diversification. U.S. fixed income investments are weighted heavier than non-U.S. fixed income securities. Other investments include cash and cash equivalents, hedge funds, real estate and private market securities such as interests in private equity and venture capital partnerships.
Fair value calculations may not be paid:indicative of net realizable value or reflective of future fair values. Furthermore, although the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers, fund managers, or investment contract issuers provide valuations of the investment on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation.
The tables below present the fair values of the company's pension assets by level within the fair value hierarchy, as described in Note 2 - Summary of Significant Accounting Policies:
|
| | | | | | |
| | Pension Benefits | Other Benefits |
| 2017 | $ | 1,622 |
| $ | 275 |
|
| 2018 | 1,601 |
| 233 |
|
| 2019 | 1,589 |
| 226 |
|
| 2020 | 1,575 |
| 217 |
|
| 2021 | 1,567 |
| 210 |
|
| Years 2022-2026 | 7,596 |
| 931 |
|
|
| | | | | | | | | | | | |
| Basis of Fair Value Measurements | Total | Level 1 | Level 2 | Level 3 |
| For the year ended December 31, 2019 |
| (In millions) |
| Cash and cash equivalents | $ | 1,343 |
| $ | 1,343 |
| $ | — |
| $ | — |
|
U.S. equity securities 1 | 3,665 |
| 3,652 |
| 4 |
| 9 |
|
| Non-U.S. equity securities | 2,053 |
| 2,043 |
| 6 |
| 4 |
|
| Debt – government-issued | 3,693 |
| — |
| 3,693 |
| — |
|
| Debt – corporate-issued | 2,956 |
| — |
| 2,952 |
| 4 |
|
| Debt – asset-backed | 663 |
| — |
| 663 |
| — |
|
| Private market securities | 2 |
| — |
| — |
| 2 |
|
| Real estate | 33 |
| — |
| — |
| 33 |
|
| Derivatives – asset position | 2 |
| — |
| 2 |
| — |
|
| Derivatives – liability position | (19 | ) | — |
| (19 | ) | — |
|
| Other | 19 |
| — |
| 19 |
| — |
|
| Subtotal | $ | 14,410 |
| $ | 7,038 |
| $ | 7,320 |
| $ | 52 |
|
| Investments measured at net asset value | | | | |
| Debt - government issued | 37 |
| | | |
| U.S. equity securities | 20 |
| | | |
| Non-U.S. equity securities | 39 |
| | | |
| Hedge funds | 431 |
| | | |
| Private market securities | 1,371 |
| | | |
| Real estate funds | 516 |
| | | |
| Total investments measured at net asset value | $ | 2,414 |
| | | |
| Other items to reconcile to fair value of plan assets | | | | |
Pension trust receivables 2 | 763 |
| |
| |
| |
|
Pension trust payables 3 | (646 | ) | |
| |
| |
|
| Total | $ | 16,941 |
| |
| |
| |
|
| |
| 1. | The Corteva pension plans directly held $126 million (approximately 1 percent of total plan assets) of Corteva, Inc. common stock at December 31, 2019. |
| |
| 2. | Primarily receivables for investments securities sold. |
| |
| 3. | Primarily payables for investment securities purchased. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | | | | | | | |
| Basis of Fair Value Measurements | | | | |
| For the year ended December 31, 2018 | | | | |
| (In millions) | Total | Level 14 | Level 24 | Level 34 |
| Cash and cash equivalents | $ | 1,824 |
| $ | 1,824 |
| $ | — |
| $ | — |
|
U.S. equity securities1 | 3,537 |
| 3,521 |
| 2 |
| 14 |
|
| Non-U.S. equity securities | 2,582 |
| 2,565 |
| 15 |
| 2 |
|
| Debt – government-issued | 3,659 |
| 211 |
| 3,448 |
| — |
|
| Debt – corporate-issued | 3,037 |
| 253 |
| 2,770 |
| 14 |
|
| Debt – asset-backed | 721 |
| 39 |
| 682 |
| — |
|
| Hedge funds | 162 |
| 162 |
| — |
| — |
|
| Private market securities | 1 |
| — |
| — |
| 1 |
|
| Real estate | 336 |
| 243 |
| — |
| 93 |
|
| Derivatives – asset position | 10 |
| 1 |
| 9 |
| — |
|
| Derivatives – liability position | (18 | ) | — |
| (18 | ) | — |
|
| Other | 233 |
| 9 |
| 18 |
| 206 |
|
| Subtotal | $ | 16,084 |
| $ | 8,828 |
| $ | 6,926 |
| $ | 330 |
|
Investments measured at net asset value4 | | | | |
| Debt - government issued | 208 |
| | | |
| Hedge funds | 678 |
| | | |
| Private market securities | 1,861 |
| | | |
| Real estate funds | 112 |
| | | |
| Other | 6 |
| | | |
| Total investments measured at net asset value | $ | 2,865 |
| | | |
| Other items to reconcile to fair value of plan assets | | | | |
Pension trust receivables2 | 210 |
| | | |
Pension trust payables3 | (208 | ) | |
| |
| |
|
| Total | $ | 18,951 |
| |
| |
| |
|
| |
| 1. | The Corteva pension plans directly held $684 million (approximately 4 percent of total plan assets) of DowDuPont common stock at December 31, 2018. |
| |
| 2. | Primarily receivables for investments securities sold. |
| |
| 3. | Primarily payables for investment securities purchased. |
| |
| 4. | Corteva's pension assets by fair value hierarchy at December 31, 2018 included approximately $1,657 million of Level 1 assets, $392 million of Level 2 assets, $259 million of Level 3 assets, and $606 million of investments measured at net asset value that were transferred to DuPont upon completion of the Separation. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement of Level 3 Pension Plan Assets | U.S. equity securities | Non-U.S. equity securities | Debt – corporate-issued | Debt- asset- backed | Hedge funds | Private market securities | Real estate | Other | Total |
| (In millions) |
| Balance at January 1, 2018 | $ | 17 |
| $ | 3 |
| $ | 27 |
| $ | 2 |
| $ | 2 |
| $ | 14 |
| $ | 96 |
| $ | — |
| $ | 161 |
|
| Actual return on assets: | | | | | | | | | |
| Relating to assets sold during the year ended December 31, 2018 | (1 | ) | (4 | ) | (80 | ) | — |
| — |
| — |
| 2 |
| — |
| (83 | ) |
| Relating to assets held at December 31, 2018 | (4 | ) | 3 |
| 87 |
| — |
| — |
| (3 | ) | — |
| (11 | ) | 72 |
|
| Purchases, sales and settlements, net | 3 |
| — |
| (15 | ) | — |
| — |
| — |
| (3 | ) | 217 |
| 202 |
|
| Transfers out of Level 3, net | (1 | ) | — |
| (5 | ) | (2 | ) | (2 | ) | (10 | ) | (2 | ) | — |
| (22 | ) |
| Balance at December 31, 2018 | $ | 14 |
| $ | 2 |
| $ | 14 |
| $ | — |
| $ | — |
| $ | 1 |
| $ | 93 |
| $ | 206 |
| $ | 330 |
|
| Actual return on assets: | | | | | | | | | |
| Relating to assets sold during the year ended December 31, 2019 | (2 | ) | 1 |
| 9 |
| — |
| — |
| — |
| (29 | ) | — |
| (21 | ) |
| Relating to assets held at December 31, 2019 | (5 | ) | — |
| (8 | ) | — |
| — |
| 4 |
| 25 |
| — |
| 16 |
|
| Purchases, sales and settlements, net | 2 |
| 2 |
| (12 | ) | — |
| — |
| (3 | ) | (3 | ) | — |
| (14 | ) |
| Transfers out of Level 3, net | — |
| (1 | ) | 1 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Assets transferred at Separation | — |
| — |
| — |
| — |
| — |
| — |
| (53 | ) | (206 | ) | (259 | ) |
| Balance at December 31, 2019 | $ | 9 |
| $ | 4 |
| $ | 4 |
| $ | — |
| $ | — |
| $ | 2 |
| $ | 33 |
| $ | — |
| $ | 52 |
|
Trust Assets
EID entered into a trust agreement in 2013 (as amended and restated in 2017) that established and requires EID to fund the Trust for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. As a result, in November 2017, EID contributed $571 million to the Trust. During the year ended December 31, 2018, $68 million was distributed to EID according to the Trust agreement and at December 31, 2018, the balance in the Trust was $500 million. At the Separation, Corteva transferred $39 million to DuPont. During the year ended December 31, 2019, $62 million was distributed to EID according to the Trust agreement and at December 31, 2019, the balance in the Trust was $409 million.
Defined Contribution PlanPlans
The companyCorteva provides defined contribution benefits to its employees. The most significant is the U.S. Retirement Savings Plan (the Plan)("the Plan"), which covers all U.S. full-service employees. This Plan includes a non-leveraged Employee Stock Ownership Plan (ESOP)("ESOP"). Employees are not required to participate in the ESOP and those who do are free to diversify out of the ESOP. The purpose of the Plan is to provide retirement savings benefits for employees and to provide employees an opportunity to become stockholders of the company. The Plan is a tax qualified contributory profit sharing plan, with cash or deferred arrangement and any eligible employee of the companyCorteva may participate. Currently, the companyCorteva contributes 100 percent of the first 6 percent of the employee's contribution election and also contributes 3 percent of each eligible employee's eligible compensation regardless of the employee's contribution.
The company'sCorteva's contributions to the Plan were $187, $219$142 million, $183 million, $53 million and $262$129 million for the yearsyear ended December 31, 2016, 20152019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014,the period January 1 through August 31, 2017, respectively. The company'sCorteva's matching contributions vest immediately upon contribution. The 3 percent nonmatching company contribution vests after employees complete three years of service. In addition, the companyCorteva made contributions to other defined contribution plans of $46 million, $82 million, $30 million and $33 $57 and $66million for the yearsyear ended December 31, 2016, 20152019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014,the period January 1 through August 31, 2017, respectively. Included in the company'sCorteva's contributions are amounts related to discontinued operations of $32$73 million, $148 million, $42 million, and $57$107 million for the yearsyear ended December 31, 20152019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014,the period January 1 through August 31, 2017, respectively. The company expects to contribute about the same amount as 2016 to its defined contribution plans in 2017.
18. COMPENSATION PLANSCorteva, Inc.
The total stock-based compensation cost included in continuing operations withinNotes to the Consolidated IncomeFinancial Statements was $119(continued)
NOTE 21 - STOCK-BASED COMPENSATION
Prior to the Corteva Distribution, Corteva employees held equity awards, including stock options, share appreciation rights (“SARs”), $128restricted stock units (“RSUs”) and $136 for 2016performance-based restricted stock units (“PSUs”), 2015which were denominated in DowDuPont common stock and, 2014, respectively. The income tax benefits related to stock-based compensation arrangements were $39, $42in some cases, in Dow Inc. common stock, and $45 for 2016, 2015which had originally been issued under the DuPont Equity and2014, respectively.
The company's Equity Incentive Plan ("EIP"), the Dow Chemical Company 2012 Stock Incentive Plan or the Dow Chemical Company 1988 Award and Option Plan. As of the Merger date on August 31, 2017, all outstanding Historical DuPont equity awards were converted into equity awards with respect to DowDuPont Common Stock. The previous Historical DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock and had a fair value of approximately $629 million at the Merger closing date, which included $485 million as amendedconsideration exchanged and restated effective March 14, 2016, (EIP),$144 million (included $23 million of incremental expense as a result of the conversion) that is being amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the converted awards were based on valuation assumptions developed by management and other information including, but not limited to, historical volatility and dividend yield of Historical DuPont and Historical Dow. Historical DuPont and Historical Dow did not merge their equity and incentive plans as a result of the Merger.
As discussed in Note 5 - Divestitures and Other Transactions, on April 1, 2019 the company entered into an employee matters agreement (the "EMA") with DuPont and Dow that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur. With some exceptions, the EMA provides for equity-basedthe equitable adjustment of existing equity incentive compensation awards denominated in the common stock of DowDuPont to reflect the occurrence of the Distributions.
In connection with the Separation on June 1, 2019, outstanding DowDuPont-denominated stock options, SARs, RSU and PSU awards were converted into Corteva-denominated awards under the “Employer Method,” or into both DuPont-denominated awards and Corteva-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the Separation transactions. The conversions of equity awards did not have a material impact to the company’s consolidated financial statements.
On June 1, 2019 (“Adoption Date”), in connection with the Separation, the Omnibus Incentive Plan (the "OIP") became effective. Under the OIP, the company may grant incentive awards, including stock options (both “incentive stock options” and nonqualified stock options), share appreciation rights, restricted shares, restricted stock units, other share-based awards and cash incentive awards, to certainits and its subsidiaries’ eligible employees, non-employee directors, independent contractors and consultants.consultants following the Separation until the tenth anniversary of the Adoption Date, subject to an aggregate limit and annual individual limits. Under the amended EIP,OIP, the maximum number of shares reserved for the grant or settlement of awards is 11020 million shares, provided that each share in excess of 30 million that is issued with respectexcluding shares underlying certain exempt awards, such as the awards converted to any award that is not an option or stock appreciation right will be counted againstCorteva-denominated awards pursuant to the 110 million share limit as four and one-half shares.Separation. At December 31, 2016,2019, approximately 3718 million shares were authorized for future grants under the EIP.OIP. The company generally satisfies stock option exercises and the vesting of time-vested restricted stock units (RSUs)RSUs and performance-based restricted stock units (PSUs)PSUs with newly issued shares of DuPontCorteva common stock.stock, although RSU awards granted under Historical Dow plans in certain countries are settled in cash.
The company's Compensation Committeecompensation committee determines the long-term incentive mix, including stock options, RSUs and PSUs and may authorize new grants annually. The company estimates expected forfeitures.
The total stock-based compensation cost included in (loss) income from continuing operations after income taxes within the Consolidated Statement of Operations was $84 million, $83 million, $24 million, and $34 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. The income tax benefits related to stock-based compensation arrangements were $17 million, $17 million, $8 million, and $12 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively.
Stock Options
The exercise price of shares subject to option is equal to the market price of the company's stock on the date of grant. All options vest serially over a three-year period.period of three years. Stock option awards granted under the previous plan (EIP) between 20092013 and 2015 expire seven years after the grant date and options granted inbetween 2016 and 2018 expire ten10 years after the grant date. The plan allows retirement-eligible employeesStock option awards granted under the Historical Dow plans subsequent to retain any granted awards upon retirement provided2010 expire 10 years after the employee has rendered at least six months of service following grant date.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
For purposesEIP
Under the EIP, the weighted-average grant-date fair value of determiningoptions granted for the year ended December 31, 2019, December 31, 2018, the period September 1 through December 31, 2017 and the period January 1 through August 31, 2017 was $7.29, $15.46, $28.56, and $16.65, respectively.
To measure the fair value of stock optionsthe awards on the date of grant, the company usesused the Black-Scholes option pricing model and the assumptions set forth infollowing assumptions:
|
| | | | | | | | |
| Weighted-Average Assumptions | Successor | Predecessor |
| | 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 |
| Dividend yield | 1.55 | % | 2.1 | % | 2.2 | % | 2.0 | % |
| Expected volatility | 19.80 | % | 23.30 | % | 23.59 | % | 23.21 | % |
| Risk-free interest rate | 2.4 | % | 2.8 | % | 2.1 | % | 2.3 | % |
| Expected life of stock options granted during period (years) | 6.1 |
| 6.2 |
| 7.2 |
| 7.2 |
|
In the table below. The weighted-average grant-date fair value of options granted in 2016, 2015 and 2014 was $13.40, $11.57 and $13.68, respectively.
|
| | | | | | |
| | 2016 | 2015 | 2014 |
| Dividend yield | 2.6 | % | 2.5 | % | 2.9 | % |
| Volatility | 28.27 | % | 22.52 | % | 31.33 | % |
| Risk-free interest rate | 1.8 | % | 1.4 | % | 1.7 | % |
| Expected life (years) | 7.2 |
| 5.3 |
| 5.3 |
|
TheSuccessor periods, the company determinesdetermined the dividend yield by dividing the currentannualized dividend on DowDuPont's Common Stock by the option exercise price. In the Predecessor period, the company determined the dividend yield by dividing the annual dividend on the company'sHistorical DuPont's stock by the option exercise price.
A historical daily measurement of volatility is determined based on the expected life of the option granted. In the Successor periods, for the year ended December 31, 2019, the measurement of volatility is based on weighted average of the individual peer volatilities of DuPont and Corteva based on the size of each business respectively. DuPont and Corteva peer volatility are based on a 50/50 blend of historical volatility and implied volatility. Both volatility measures are based on the average of five peer companies for DuPont and eight peer companies for Corteva. In the Successor periods, for the year ended December 31, 2018 and the period September 1 through December 31, 2017, the measurement of volatility used DowDuPont stock information after the Merger date, and a weighted average of Historical Dow and Historical DuPont stock information prior to Merger date. In the Predecessor period, the measurement of volatility used Historical DuPont stock information.
The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to the company's historical experience.
StockCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The following table summarizes stock option awards as of activity for the year ended December 31, 2016, and changes during2019 under the year then ended were as follows:
|
| | | | | | | | | |
| | Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) |
| Outstanding, December 31, 2015 | 18,160 |
| $ | 54.89 |
| | |
|
| Granted | 1,690 |
| 58.79 |
| | |
|
| Exercised | (3,638 | ) | 43.31 |
| | |
|
| Forfeited | (281 | ) | 67.17 |
| | |
|
| Canceled | (122 | ) | 39.71 |
| | |
|
| Outstanding, December 31, 2016 | 15,809 |
| $ | 58.11 |
| 3.92 | $ | 240,030 |
|
| Exercisable, December 31, 2016 | 9,519 |
| $ | 53.48 |
| 3.10 | $ | 189,624 |
|
|
| | | | | | | | | | |
| Stock Options | For the year ended December 31, 2019 |
| | Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) |
| Outstanding at January 1, 2019 | 17,079 |
| $ | 53.26 |
| | |
| Exercised | (886 | ) | 39.19 |
| | |
| Forfeited/Expired | (85 | ) | 46.87 |
| | |
| Outstanding at April 1, 2019 | 16,108 |
| $ | 54.07 |
| 4.76 |
| $ | 76,942 |
|
| Exercisable at April 1, 2019 | 13,314 |
| $ | 51.09 |
| 3.94 |
| $ | 74,749 |
|
| | | | | |
Conversion - Dow Distribution1 | 21,700 |
| $ | 35.41 |
| | |
Granted2 | 2,561 |
| 29.95 |
| | |
| Exercised | (134 | ) | 27.24 |
| | |
| Forfeited/Expired | (129 | ) | 35.07 |
| | |
| Impact of Internal Reorganization, net | (10,112 | ) | 36.07 |
| | |
| Outstanding at May 31, 2019 | 13,886 |
| $ | 34.00 |
| 3.90 |
| $ | 20,779 |
|
| Exercisable at May 31, 2019 | 12,481 |
| $ | 32.85 |
| 3.39 |
| $ | 18,979 |
|
| | | | | |
Conversion - Corteva Distribution3 | (13,886 | ) | $ | 34.00 |
| | |
| Outstanding at December 31, 2019 | — |
| $ | — |
| — |
| $ | — |
|
| Exercisable at December 31, 2019 | — |
| $ | — |
| — |
| $ | — |
|
| |
| 1. | As a result of the Dow Distribution, all outstanding DowDuPont equity awards under the EIP were converted into DowDuPont-denominated awards under the “Employer Method,”or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. |
| |
| 2. | As a result of the Dow Distribution, outstanding DowDuPont equity awards under the Heritage Dow Plans were moved to the EIP and were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. These outstanding equity awards are included in the number of “Granted” awards in the table above. |
| |
| 3. | As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP. |
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the company's closing stock price on the last trading day of 2016the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at yearperiod end. This amount changes based on the fair market value of the company's stock. TotalThe total intrinsic value of options exercised for 2016, 2015the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and 2014 were $86, $160the period January 1 through August 31, 2017 was $16 million, $50 million, $19 million, and $219,$108 million, respectively. In 2016,For the year ended December 31, 2019, the company realized a tax benefit of $28benefits from options exercised.exercised of $3 million.
OIP
During the year ended December 31, 2019 there were no new non-qualified options granted to Corteva’ s employees. Corteva’ s expense related to stock options was entirely related to Historical DuPont and Historical Dow outstanding options that were converted to Corteva’ s options on June 1, 2019.
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
The following table summarizes stock option activity for year ended December 31, 2019 under the OIP:
|
| | | | | | | | | |
| Stock Options | For the year ended December 31, 2019 |
| | Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) |
| Outstanding at January 1, 2019 | — |
| $ | — |
| | |
Converted on June 1, 20191 | 10,468 |
| 32.11 |
|
|
|
|
| Exercised | (355 | ) | 20.95 |
|
|
|
|
| Forfeited/Expired | (68 | ) | 38.45 |
|
|
|
|
| Outstanding at December 31, 2019 | 10,045 |
| $ | 32.47 |
| 4.73 | $ | 20,186 |
|
| Exercisable at December 31, 2019 | 8,036 |
| $ | 30.54 |
| 3.95 | $ | 19,172 |
|
| |
| 1. | As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP. |
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the December 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at period end. The total intrinsic value of options exercised and the realized tax benefits from options exercised for the year ended December 31, 2019 were $3 million, and $1 million, respectively.
As of December 31, 2016, $192019, $4 million of total unrecognized pre-tax compensation costexpense related to nonvested stock options is expected to be recognized over a weighted-average period of 1.52 years.about 1 year.
Restricted Stock Units and Performance Share Units
RSUs and PSUs
The company issues RSUs thatgranted under the EIP serially vest over 3 years. RSUs granted under the Historical Dow plans vest after a three-yeardesignated period, and, upongenerally 1 year to 3 years. RSUs granted under the OIP serially vest over 3 years. Upon vesting, these RSUs convert one-for-one1-for-one to DuPont common stock.Corteva Common Stock. A retirement-eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. Additional RSUs are also granted periodically to key senior management employees. These RSUs generally vest over periods ranging from two3 years to five5 years. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
The company also grants PSUs to senior leadership. In 2016, there were 365,177As a result of the Merger, the EIP provisions required PSUs granted. to be converted into RSUs based on the number of PSUs that would vest by assuming that target levels of performance are achieved. Service requirements for vesting in the RSUs replicate those inherent in the exchanged PSUs.
EIP
Vesting for PSUs granted in 2016 isfor the period January 1, 2017 through August 31, 2017 was based upon total shareholder return (TSR)("TSR") relative to peer companies. Vesting forThe weighted-average grant-date fair value of PSUs granted for the period January 1 through August 31, 2017, subject to the TSR metric, was $91.56, and estimated using a Monte Carlo simulation.
In accordance with the Merger Agreement, PSUs converted to RSUs based on an assessment of the underlying market conditions in 2015 is equallythe PSUs at the greater of target or actual performance levels as of the closing date. As the actual performance levels were not in excess of target as of the closing date, all PSUs converted to RSUs based upon change in operating net income relative toon target and TSR relativethere was no incremental benefit from the Merger Agreement when compared to peer companies. Operating net income is net income attributableHistorical DuPont’s EIP.
In November 2017, DowDuPont granted PSUs to DuPont excluding income from discontinued operations after taxes, significant after tax benefits (charges), and non-operating pension and OPEB costs. Vesting for PSUs grantedsenior leadership that vest partially based on the realization of cost savings in 2014 is equally based upon corporate revenue growth relativeconnection with the DowDuPont Cost Synergy Program, as well as DowDuPont’s ability to peer companies and TSR relative to peer companies.complete the Business Separations. Performance and payouts are determined independently for each metric. The actual award, delivered as DuPont common stock,in DowDuPont Common Stock, can range from zero0 percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs granted in 2016, subject to the TSR metric, was $56.15, and estimated using a Monte Carlo simulation. The weighted-average grant-date fair valueNovember 2017 of the PSUs, subject to the revenue metric,$71.16 was based upon the market price of the underlying common stock as of the grant date.
Non-vestedCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
Nonvested awards of RSUs and PSUs as of December 31, 2016 and 2015are shown below. The weighted-average grant-date fair value of RSUs and PSUs granted during 2016, 2015 and 2014 was $59.50, $71.66 and $64.64, respectively.
| | | RSUs & PSUs | | For the year ended December 31, 2019 |
| | Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) | Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) |
| Nonvested, December 31, 2015 | 3,936 |
| $ | 59.54 |
| |
| Nonvested at January 1, 2019 | | 3,147 |
| $ | 68.18 |
|
| Granted | 1,701 |
| 59.50 |
| 2,578 |
| 52.66 |
|
| Vested | (1,460 | ) | 56.89 |
| (1,113 | ) | 67.85 |
|
| Forfeited | (286 | ) | 62.06 |
| (12 | ) | 67.08 |
|
| Nonvested, December 31, 2016 | 3,891 |
| $ | 63.11 |
| |
| Nonvested at April 1, 2019 | | 4,600 |
| $ | 59.57 |
|
| | | | |
Conversion - Dow Distribution1 | | 6,120 |
| $ | 39.46 |
|
Granted2 | | 1,288 |
| 42.34 |
|
| Vested | | (76 | ) | 42.26 |
|
| Forfeited | | (47 | ) | 40.35 |
|
| Impact of Internal Reorganization, net | | (4,185 | ) | 39.76 |
|
| Nonvested at May 31, 2019 | | 3,100 |
| $ | 40.18 |
|
Conversion - Corteva Distribution3 | | (3,100 | ) | $ | 40.18 |
|
| Nonvested at December 31, 2019 | | — |
| $ | — |
|
| |
| 1. | As a result of the Dow Distribution, all outstanding DowDuPont equity awards under the EIP were converted into DowDuPont-denominated awards under the “Employer Method,”or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. |
| |
| 2. | As a result of the Dow Distribution, outstanding DowDuPont equity awards under the Heritage Dow Plans were moved to the EIP and were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. These outstanding equity awards are included in the number of “Granted” awards in the table above. |
| |
| 3. | As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP. |
As of December 31, 2016, there was $75 of unrecognized stock-based compensation expense related to nonvested awards. That cost is expected to be recognized over a weighted-average period of 1.80 years. The total fair value of stock units vested during 2016, 2015 and 2014 was $83, $64 and $75, respectively.
Other Cash-based Awards
Cash awards under the EIP plan may beduring the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was $79 million, $128 million, $9 million, and $84 million, respectively. The weighted-average grant-date fair value of stock units granted under the EIP for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was $52.19, $70.37, $70.02, and $76.41, respectively.
OIP
In August 2019, Corteva granted PSUs to employees who have contributed most tosenior leadership that vest partially based on the company's success, with consideration being given to the ability to succeed to more important managerial responsibility. Such awards resulted in compensation expense of $53, $31 and $34 for 2016, 2015 and 2014, respectively included in income from continuing operations within the Consolidated Financial Statements. The amountsrealization of the Company’s improvement of its Return on Invested Capital (“ROIC”) and Operating EBITDA during the Performance Period. Performance and payouts are determined independently for each metric. The actual award, delivered in Corteva Common Stock, can range from 0 percent to 200 percent of the original grant. The weighted-average grant date fair value of the PSUs granted in August 2019 of $29.02 was based upon the market price of the underlying common stock as of the grant date.
Nonvested awards of RSUs and PSUs are dependent on company earnings and are subject to maximum limits as defined under the governing plans.shown below.
In addition, the company has other variable compensation plans under which cash awards may be granted. These plans include the company's regional and local variable compensation plans and Pioneer's Annual Reward Program. Such awards resulted in compensation expense of $248, $150 and $137 for 2016, 2015 and 2014, respectively, included in income from continuing operations within the Consolidated Financial Statements. |
| | | | | |
| RSUs & PSUs | For the year ended December 31, 2019 |
| | Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) |
| Nonvested at January 1, 2019 | — |
| $ | — |
|
Converted on June 1, 20191 | 3,757 |
| 35.56 |
|
| Granted | 2,228 |
| 28.88 |
|
| Vested | (497 | ) | 39.07 |
|
| Forfeited | (50 | ) | 36.50 |
|
| Nonvested at December 31, 2019 | 5,438 |
| $ | 32.49 |
|
| |
| 1. | As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
The total fair value of stock units vested under the OIP during for the year ended December 31, 2019 was $19 million. The weighted-average grant-date fair value of stock units granted under the OIP for the year ended December 31, 2019 was $28.88.
As of December 31, 2019, $57 million of total unrecognized pre-tax compensation expense related to RSUs and PSUs is expected to be recognized over a weighted average period of 1 year.
NOTE 22 - FINANCIAL INSTRUMENTS
At December 31, 2019, the company had $1,293 million ($1,221 million at December 31, 2018) of held-to-maturity securities (primarily time deposits and money market funds) classified as cash equivalents, as these securities had maturities of three months or less at the time of purchase; and $5 million ($5 million at December 31, 2018) of held-to-maturity securities (primarily time deposits) classified as marketable securities as these securities had maturities of more than three months to less than one year at the time of purchase. The company’s investments in millions, except per share)
held-to-maturity securities are held at amortized cost, which approximates fair value. These securities are included in cash and cash equivalents, marketable securities, and other current assets in the Consolidated Balance Sheets.
19. FINANCIAL INSTRUMENTSDerivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency interest rate and commodity price risks. The company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. The company has not designated any nonderivativesnon-derivatives as hedging instruments.
The company's financial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The company's derivative assets and liabilities are reported on a gross basis in the Consolidated Balance Sheets. The company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.
The notional amounts of the company's derivative instruments were as follows:
|
| | | | | | |
Notional Amounts (In millions) | December 31, 2019 | December 31, 2018 |
| Derivatives designated as hedging instruments: | | |
| Commodity contracts | $ | 570 |
| $ | 525 |
|
| Derivatives not designated as hedging instruments: | | |
| Foreign currency contracts | $ | 582 |
| $ | 2,057 |
|
| Commodity contracts | $ | — |
| $ | 9 |
|
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Derivatives designated as hedging instruments: | | |
| Foreign currency contracts | $ | — |
| $ | 10 |
|
| Commodity contracts | 422 |
| 356 |
|
| Derivatives not designated as hedging instruments: | |
|
| Foreign currency contracts | 9,896 |
| 8,065 |
|
| Commodity contracts | 7 |
| 70 |
|
Foreign Currency Risk
The company's objective in managing exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign currency rate changes. Accordingly, the company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency-denominated assets, liabilities, commitments and cash flows.
The company routinely uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominatedcurrency denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net ofafter related tax effects, are minimized. The company also usesmay use foreign currency exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of the related foreign currency-denominated revenues. The objective of the hedge program is to reduce earnings and cash flow volatility related to changes in foreign currency exchange rates.
Interest Rate RiskCorteva, Inc.
The company uses interest rate swapsNotes to manage the interest rate mix of the total debt portfolio and related overall cost of borrowing. Interest rate swaps involve the exchange of fixed for floating rate interest payments to effectively convert fixed rate debt into floating rate debt based on USD LIBOR. Interest rate swaps allow the company to achieve a target range of floating rate debt. The company had no interest rate swaps outstanding at December 31, 2016 and 2015.Consolidated Financial Statements (continued)
Commodity Price Risk
Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as corn soybeans and soybean meal.soybeans. The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with agricultural commodity exposures.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Derivatives Designated as Cash Flow Hedges
Foreign Currency Contracts
The company uses foreign currency exchange instruments such as forwards and options to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of the related foreign currency-denominated revenues. In addition, the company occasionally uses forward exchange contracts to offset a portion of the company’s exposure to certain foreign currency-denominated transactions such as capital expenditures.
Commodity Contracts
The company enters into over-the-counter and exchange-traded derivative commodity instruments, including options, futures and swaps, to hedge the commodity price risk associated with agriculture commodity exposures.
While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two-year period.2 years. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is not probable of occurring.
The following table summarizes the after-tax effect of cash flow hedges on accumulated other comprehensive loss for the years endedloss:
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Beginning balance | $ | (26 | ) | $ | (2 | ) | $ | — |
| $ | 7 |
|
| Additions and revaluations of derivatives designated as cash flow hedges | 16 |
| (19 | ) | (2 | ) | 3 |
|
| Clearance of hedge results to earnings | 12 |
| (5 | ) | — |
| (13 | ) |
| Ending balance | $ | 2 |
| $ | (26 | ) | $ | (2 | ) | $ | (3 | ) |
At December 31, 2016 and 2015:
|
| | | | | | |
| December 31, | 2016 | 2015 |
| Beginning balance | $ | (24 | ) | $ | (6 | ) |
| Additions and revaluations of derivatives designated as cash flow hedges | 20 |
| (25 | ) |
| Clearance of hedge results to earnings, after-tax | 11 |
| 7 |
|
| Ending balance | $ | 7 |
| $ | (24 | ) |
At December 31, 2016,2019, an after-tax net loss of $10$1 million is expected to be reclassified from accumulated other comprehensive loss into earnings over the next twelve months.
Derivatives not Designated in Hedging Relationships
Foreign Currency Contracts
The company routinely uses forward exchange contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the use of hedge accounting; however, the required revaluation of the forward contracts and the associated foreign currency-denominated monetary assets and liabilities intends to achieve a minimal earnings impact, after taxes. The company also uses foreign currency exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on the contracts offset changes in the USD value of the related foreign currency-denominated revenues.
Commodity Contracts
The company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as corn soybeans and soybean meal.soybeans.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Fair ValuesValue of Derivative Instruments
Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Consolidated Balance Sheets. The table below presents the fair valuespresentation of the company's derivative assets and liabilities within the fair value hierarchy,is as described in Note 1, as of December 31, 2016 and 2015.follows:
| | | | | Fair Value at December 31 Using Level 2 Inputs | | December 31, 2019 |
| | Balance Sheet Location | 2016 | 2015 | |
| (In millions) | | Balance Sheet Location | Gross | Counterparty and Cash Collateral Netting1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | |
| | |
Foreign currency contracts1 | Accounts and notes receivable, net | $ | 182 |
| $ | 74 |
| |
| | | | |
Total asset derivatives2 | | $ | 182 |
| $ | 74 |
| |
Cash collateral1 | Other accrued liabilities | $ | 52 |
| $ | 7 |
| |
| Foreign currency contracts | | Other current assets | $ | 25 |
| $ | (18 | ) | $ | 7 |
|
| Total asset derivatives | | | $ | 25 |
| $ | (18 | ) | $ | 7 |
|
| | | | | | | |
| Liability derivatives: | | | | | |
| | |
| Derivatives not designated as hedging instruments: | | | | | |
| | |
|
| Foreign currency contracts | Other accrued liabilities | 121 |
| 80 |
| Accrued and other current liabilities | $ | 43 |
| $ | (16 | ) | $ | 27 |
|
| Commodity contracts | Other accrued liabilities | — |
| 4 |
| |
| | | 121 |
| 84 |
| |
Total liability derivatives2 | | $ | 121 |
| $ | 84 |
| |
| Total liability derivatives | | | $ | 43 |
| $ | (16 | ) | $ | 27 |
|
| |
1. | CashCounterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the company and its counterparties and the payable or receivable for cash collateral held as of December 31, 2016 and 2015 is related to foreign currency derivatives not related to hedging instruments.or placed with the same counterparty. |
|
| | | | | | | | | | |
| | | December 31, 2018 |
| (In millions) | Balance Sheet Location | Gross | Counterparty and Cash Collateral Netting1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | |
| Derivatives not designated as hedging instruments: | | |
| | |
| Foreign currency contracts | Other current assets | $ | 72 |
| $ | (35 | ) | $ | 37 |
|
| Total asset derivatives | | $ | 72 |
| $ | (35 | ) | $ | 37 |
|
| | | | | |
| Liability derivatives: | | |
| | |
| Derivatives not designated as hedging instruments: | | |
| | |
|
| Foreign currency contracts | Accrued and other current liabilities | $ | 21 |
| $ | (15 | ) | $ | 6 |
|
| Total liability derivatives | | $ | 21 |
| $ | (15 | ) | $ | 6 |
|
| |
2.1.
| The company's derivative assetsCounterparty and liabilities subject to enforceablecash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements totaled $114between the company and $35 at December 31, 2016its counterparties and 2015.the payable or receivable for cash collateral held or placed with the same counterparty. |
Effect of Derivative Instruments
|
| | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in OCL1 (Effective Portion) | Amount of Gain (Loss) Recognized in Income2 | |
| | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | Income Statement Classification |
| Derivatives designated as hedging instruments: | | | | | | | |
| Fair value hedges: | | | | | | | |
| Interest rate swaps | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (1 | ) | $ | (28 | ) | Interest expense3 |
| Cash flow hedges: |
|
| |
| |
| | |
| |
| |
| Foreign currency contracts | — |
| (2 | ) | 27 |
| — |
| 10 |
| 11 |
| Net sales |
| Foreign currency contracts | — |
| — |
| — |
| — |
| — |
| 4 |
| Income from discontinued operations after income taxes |
| Commodity contracts | 32 |
| (35 | ) | 26 |
| (18 | ) | (22 | ) | (30 | ) | Cost of goods sold |
| | 32 |
| (37 | ) | 53 |
| (18 | ) | (13 | ) | (43 | ) | |
| Derivatives not designated as hedging instruments: | | |
| |
| | |
| |
| |
| Foreign currency contracts | — |
| — |
| — |
| (304 | ) | 434 |
| 607 |
| Other income, net4 |
| Foreign currency contracts | — |
| — |
| — |
| (12 | ) | (3 | ) | — |
| Net sales |
| Commodity contracts | — |
| — |
| — |
| (11 | ) | (2 | ) | (21 | ) | Cost of goods sold |
| | — |
| — |
| — |
| (327 | ) | 429 |
| 586 |
| |
| Total derivatives | $ | 32 |
| $ | (37 | ) | $ | 53 |
| $ | (345 | ) | $ | 416 |
| $ | 543 |
| |
|
| | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in OCI1 - Pre-Tax |
| | Successor | Predecessor |
| (In millions) | 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 |
| Cash flow hedges: | | | | |
| Commodity contracts | $ | 23 |
| $ | (24 | ) | $ | 3 |
| $ | 5 |
|
| Total derivatives designated as hedging instruments | $ | 23 |
| $ | (24 | ) | $ | 3 |
| $ | 5 |
|
| |
1. | OCI is defined as other comprehensive loss.income (loss). |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | | | | | | | |
| | Amount of (Loss) Gain Recognized in Income - Pre-Tax1 |
| | Successor | Predecessor |
| (In millions) | 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 |
| Derivatives designated as hedging instruments: | | | | |
| Cash flow hedges: | | | | |
Commodity contracts2 | $ | (13 | ) | $ | 6 |
| $ | — |
| $ | 21 |
|
| Total derivatives designated as hedging instruments | (13 | ) | 6 |
| — |
| 21 |
|
| Derivatives not designated as hedging instruments: | | | | |
Foreign currency contracts3 | (58 | ) | 94 |
| 91 |
| (431 | ) |
Commodity contracts2 | 9 |
| 5 |
| — |
| 2 |
|
| Total derivatives not designated as hedging instruments | (49 | ) | 99 |
| 91 |
| (429 | ) |
| Total derivatives | $ | (62 | ) | $ | 105 |
| $ | 91 |
| $ | (408 | ) |
| |
2.1.
| For cash flow hedges, this represents the effective portion of the gain (loss) reclassified from accumulated OCLOCI into income during the period. For the years ended December 31, 2016, 2015 and 2014, there was no material ineffectiveness with regard to the company's cash flow hedges. |
| |
3.2.
| Gain (loss) recognizedRecorded in incomecost of derivative is offset to $0 by gain (loss) recognized in income of the hedged item.goods sold. |
| |
4.3.
| Gain (loss) recognized in other income (expense) - net was partially offset by the related gain (loss) on the foreign currency-denominated monetary assets and liabilities of the company's operations, seeoperations. See Note 59 - Supplementary Information, for additional information. |
NOTE 23 - FAIR VALUE MEASUREMENTS
The following tables summarize the basis used to measure certain assets and Companyliabilities at fair value on a recurring basis:
|
| | | |
| December 31, 2019 | Significant Other Observable Inputs (Level 2) |
| (In millions) |
| Assets at fair value: | |
Cash equivalents and restricted cash equivalents1 | $ | 1,293 |
|
| Marketable securities | 5 |
|
Derivatives relating to:2 | |
| Foreign currency | 25 |
|
| Total assets at fair value | $ | 1,323 |
|
| Liabilities at fair value: | |
Long-term debt3 | $ | 119 |
|
Derivatives relating to:2 | |
| Foreign currency | 43 |
|
| Total liabilities at fair value | $ | 162 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Cash, Cash Equivalents and Marketable Securities
The company's cash, cash equivalents and marketable securities as of December 31, 2016 and 2015 are comprised of the following:
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | December 31, 2015 |
| | Cash and Cash Equivalents | Marketable Securities | Total Estimated Fair Value | Cash and Cash Equivalents | Marketable Securities | Total Estimated Fair Value |
| Cash | $ | 1,892 |
| $ | — |
| $ | 1,892 |
| $ | 1,938 |
| $ | — |
| $ | 1,938 |
|
| | | | | | | |
| Level 1: | | | | | | |
| Money market funds | $ | — |
| $ | — |
| $ | — |
| $ | 550 |
| $ | — |
| $ | 550 |
|
U.S. Treasury securities1 | — |
| — |
| — |
| — |
| 788 |
| 788 |
|
| | | | | | | |
| Level 2: | | | | | | |
Certificate of deposit / time deposits2 | $ | 2,713 |
| $ | 1,362 |
| $ | 4,075 |
| $ | 2,812 |
| $ | 118 |
| $ | 2,930 |
|
| | | | | | | |
| Total cash, cash equivalents and marketable securities | $ | 4,605 |
| $ | 1,362 |
| | $ | 5,300 |
| $ | 906 |
| |
|
| | | |
| December 31, 2018 | Significant Other Observable Inputs (Level 2) |
| (In millions) |
| Assets at fair value: | |
Cash equivalents and restricted cash equivalents1 | $ | 1,221 |
|
| Marketable securities | 5 |
|
Derivatives relating to:2 | |
| Foreign currency | 72 |
|
| Total assets at fair value | $ | 1,298 |
|
| Liabilities at fair value: | |
Long-term debt3 | $ | 6,100 |
|
Derivatives relating to:2 |
|
|
| Foreign currency | 21 |
|
| Total liabilities at fair value | $ | 6,121 |
|
| |
1. | Available-for-sale securities are reported at estimated fair value with unrealized gainsTime deposits included in cash and losses reported as component of accumulatedcash equivalents and money market funds included in other comprehensive loss. Proceeds from the sale of available-for-sale securities were $788 and $75current assets in the years ended December 31, 2016, and 2015, respectively.Consolidated Balance Sheets are held at amortized cost, which approximates fair value. |
| |
| 2. | 2.See Note 22 - Financial Instruments, for the classification of derivatives in the Consolidated Balance Sheets.
|
Held-to-maturity investments are reported at amortized cost. | |
| 3. | See Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, for information on fair value measurements of long-term debt. |
The estimatedFor assets and liabilities classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. For time deposits classified as held-to-maturity investments and reported at amortized cost, fair value is based on an observable interest rate for similar securities. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the company'svarious financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash equivalents, which approximates carrying value asflow model or other standard pricing models. See Note 22 - Financial Instruments, for further information on the types of instruments used by the company for risk management.
There were no transfers between Levels 1 and 2 during the years ended December 31, 20162019 and 2015, was determined using2018.
For assets classified as Level 1 and Level 2 inputs within3 measurements, the fair value hierarchy. Level 1 measurements wereis based on observed net asset values and Level 2 measurements were based on current interest rates for similar investments with comparable credit risk and time to maturity.
significant unobservable inputs including assumptions where there is little, if any, market activity. The estimated fair value of the held-to-maturity securities, which approximates carrying value ascompany’s interests held in trade receivable conduits is determined by calculating the expected amount of December 31, 2016 and 2015, was determinedcash to be received using Level 2 inputs within the fair value hierarchy, as described below. Level 2 measurements were based on current interest rates for similar investments with comparablekey input of anticipated credit risk and time to maturity. The carrying value approximates fair value due tolosses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the investments.
The estimatedunderlying receivables, discount rate and prepayments are not factors in determining the fair value of the available-for-sale securities as of December 31, 2015 was determined using Level 1 inputs within the fair value hierarchy. Level 1 measurements were based on quoted market prices in active markets for identical assets and liabilities. The available-for-sale securities as of December 31, 2015 were held by certain foreign subsidiaries in which the USD is not the functional currency. The fluctuations in foreign exchange were recorded in accumulated other comprehensive loss within the Consolidated Statements of Equity. These fluctuations were subsequently reclassified from accumulated other comprehensive loss to earnings in the period in which the marketable securities were sold and the gains and losses on these securities offset a portion of the foreign exchange fluctuations in earnings for the company.interests.
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the basis used to measure certain assets at fair value on a nonrecurring basis:
|
| | | | | | |
| Basis of Fair Value Measurements on a Nonrecurring Basis | Significant Other Unobservable Inputs (Level 3) | Total Losses |
| (In millions) |
| 2019 | | |
| Assets at fair value: | | |
| Developed technology | $ | — |
| $ | (1 | ) |
| Other intangible assets | $ | — |
| $ | (6 | ) |
| IPR&D | $ | — |
| $ | (137 | ) |
| 2018 | | |
| Assets at fair value: | | |
| Investment in nonconsolidated affiliates | $ | 51 |
| $ | (41 | ) |
| IPR&D | $ | 450 |
| $ | (85 | ) |
During the third and fourth quarter of 2019, the company recorded impairment charges to developed technology, other intangible assets, and IPR&D. During the third quarter of 2018, the company recorded a goodwill impairment charge related to its agriculture reporting unit and impairment charges to other intangible assets and investment in millions, except per share)
nonconsolidated affiliates. See Notes 7 - Restructuring and Asset Related Charges - Net, and Note 15 - Goodwill and Other Intangible Assets, for further discussion of these fair value measurements.
NOTE 24 - GEOGRAPHIC INFORMATION
Sales are attributed to geographic areas based on customer location; long-lived assets are attributed to geographic areas based on asset location.
|
| | | | | | | | | |
| | Net Sales1 |
| | 2016 | 2015 | 2014 |
| United States | $ | 9,683 |
| $ | 10,021 |
| $ | 10,556 |
|
| Canada | $ | 730 |
| $ | 734 |
| $ | 826 |
|
EMEA2 | | | |
| France | 535 |
| 575 |
| 678 |
|
| Germany | 909 |
| 959 |
| 1,180 |
|
| Italy | 527 |
| 546 |
| 655 |
|
| Other | 3,768 |
| 3,963 |
| 4,806 |
|
| Total EMEA | $ | 5,739 |
| $ | 6,043 |
| $ | 7,319 |
|
| Asia Pacific | |
| |
| |
|
| China | 2,200 |
| 2,067 |
| 2,325 |
|
| India | 704 |
| 615 |
| 603 |
|
| Japan | 840 |
| 843 |
| 961 |
|
| Other | 2,057 |
| 2,092 |
| 2,267 |
|
| Total Asia Pacific | $ | 5,801 |
| $ | 5,617 |
| $ | 6,156 |
|
| Latin America | |
| |
| |
|
| Brazil | 1,392 |
| 1,401 |
| 2,051 |
|
| Mexico | 583 |
| 622 |
| 682 |
|
| Other | 666 |
| 692 |
| 816 |
|
| Total Latin America | $ | 2,641 |
| $ | 2,715 |
| $ | 3,549 |
|
| Total | $ | 24,594 |
| $ | 25,130 |
| $ | 28,406 |
|
|
| | | | | | | | | | | | |
| | Net Sales |
| | Successor | Predecessor |
| (In millions) | 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 |
| United States | $ | 6,255 |
| $ | 6,725 |
| $ | 1,091 |
| $ | 4,189 |
|
| Canada | 674 |
| 687 |
| 133 |
| 390 |
|
| EMEA | 2,740 |
| 2,765 |
| 535 |
| 1,287 |
|
| Asia Pacific | 1,288 |
| 1,293 |
| 428 |
| 380 |
|
Latin America1 | 2,889 |
| 2,817 |
| 1,603 |
| 648 |
|
| Total | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
|
| |
1. | Net sales based onfor Brazil for the location ofyear ended December 31, 2019, the customer, are generally presentedyear ended December 31, 2018 and the period September 1 through December 31, 2017 were $1,794 million, $1,732 million and $1,111 million, respectively. Net sales for locations with greaterBrazil were less than two10 percent of totalconsolidated net sales. |
| |
2.sales for the period January 1 through August 31, 2017.
| Europe, Middle East, and Africa (EMEA). |
E. I. du Pont de Nemours and Company |
| | | | | | | | | |
| | Net Property |
| (In millions) | 2019 | 2018 | 2017 |
| United States | $ | 3,069 |
| $ | 3,161 |
| $ | 3,132 |
|
| Canada | 125 |
| 88 |
| 90 |
|
| EMEA | 566 |
| 546 |
| 570 |
|
| Asia Pacific | 178 |
| 181 |
| 215 |
|
| Latin America | 608 |
| 568 |
| 641 |
|
| Total | $ | 4,546 |
| $ | 4,544 |
| $ | 4,648 |
|
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
NOTE 25 - SEGMENT INFORMATION
In connection with the Internal Reorganizations and the Corteva Distribution, the company realigned its reporting structure and changed the manner in millions, except per share)
which the chief operating decision maker (“CODM”) allocates resources and assesses performance. As a result, new operating segments were created, seed and crop protection. The segment reporting changes were retrospectively applied to all periods presented, with the exception of the Successor and Predecessor periods of 2017 (see below for further discussion).
Segment operating EBITDA is the primary measure of segment profitability used by Corteva’s CODM. For all periods presented below, segment operating EBITDA is calculated on a pro forma basis, as this is the manner in which the CODM assesses performance and allocates resources. 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 other post-employment benefit (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.
Pro forma adjustments used in the calculation of pro forma segment operating EBITDA were determined in accordance with Article 11 of Regulation S-X. 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 - Short-Term Borrowings, 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.
Corporate Profile
The company conducts its global operations through the following reportable segments:
Seed
The company’s seed segment is a global leader in developing and supplying advanced germplasm and traits that produce optimum yield for farms around the world. The segment is a leader in many of the company’s key seed markets, including North America corn and soybeans, Europe corn and sunflower, as well as Brazil, India, South Africa and Argentina corn. The segment offers trait technologies that improve resistance to weather, disease, insects and 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.
Crop Protection
The crop protection segment serves the global agricultural input industry with products that protect against weeds, insects and other pests, and disease, and that improve overall crop health both above and below ground via nitrogen management and seed-applied technologies. The segment is a leader in global herbicides, insecticides, below-ground nitrogen stabilizers and pasture and range management herbicides.
|
| | | | | | | | | |
| | Net Property1 |
| | 2016 | 2015 | 2014 |
| United States | $ | 6,203 |
| $ | 6,706 |
| $ | 6,570 |
|
| Canada | $ | 127 |
| $ | 131 |
| $ | 138 |
|
EMEA2 | | | |
| Denmark | 211 |
| 217 |
| 242 |
|
| France | 218 |
| 217 |
| 239 |
|
| Spain | 188 |
| 200 |
| 251 |
|
| Luxembourg | 210 |
| 222 |
| 248 |
|
| Other | 740 |
| 747 |
| 883 |
|
| Total EMEA | $ | 1,567 |
| $ | 1,603 |
| $ | 1,863 |
|
| Asia Pacific | | | |
| China | 339 |
| 362 |
| 306 |
|
| Other | 536 |
| 565 |
| 539 |
|
| Total Asia Pacific | $ | 875 |
| $ | 927 |
| $ | 845 |
|
| Latin America | | | |
| Brazil | 314 |
| 263 |
| 411 |
|
| Other | 145 |
| 154 |
| 181 |
|
| Total Latin America | $ | 459 |
| $ | 417 |
| $ | 592 |
|
| Total | $ | 9,231 |
| $ | 9,784 |
| $ | 10,008 |
|
| |
1.
| Net property is presented for locations with greater than two percent of the total and includes property, plant and equipment less accumulated depreciation. |
| |
2.
| Europe, Middle East, and Africa (EMEA). |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
|
| | | | | | | | | |
(In millions) | Seed | Crop Protection | Total |
| As of and for the Year Ended December 31, 2019 (Successor) | |
| |
| |
|
| Net sales | $ | 7,590 |
| $ | 6,256 |
| $ | 13,846 |
|
| Pro forma segment operating EBITDA | $ | 1,040 |
| $ | 1,066 |
| $ | 2,106 |
|
| Depreciation and amortization | $ | 628 |
| $ | 372 |
| $ | 1,000 |
|
Segment assets1 | $ | 25,387 |
| $ | 13,492 |
| $ | 38,879 |
|
| Investments in nonconsolidated affiliates | $ | 27 |
| $ | 39 |
| $ | 66 |
|
| Purchases of property, plant and equipment | $ | 373 |
| $ | 293 |
| $ | 666 |
|
| As of and for the Year Ended December 31, 2018 (Successor) | |
| |
| |
|
| Net sales | $ | 7,842 |
| $ | 6,445 |
| $ | 14,287 |
|
| Pro forma segment operating EBITDA | $ | 1,139 |
| $ | 1,074 |
| $ | 2,213 |
|
| Depreciation and amortization | $ | 534 |
| $ | 375 |
| $ | 909 |
|
| Segment assets | $ | 29,286 |
| $ | 9,346 |
| $ | 38,632 |
|
| Investments in nonconsolidated affiliates | $ | 102 |
| $ | 36 |
| $ | 138 |
|
| Purchases of property, plant and equipment | $ | 263 |
| $ | 250 |
| $ | 513 |
|
| |
| 1. | On June 1, 2019, as a result of changes in reportable segments, $3,382 million of goodwill was reallocated from the seed reportable segment to the crop protection reportable segment. This change was not reflected in segment assets prior to June 1, 2019. |
21. SEGMENT INFORMATION
The company consistsAs previously noted, the Predecessor period reflects the results of 7 businesses which are aggregated into 6 reportable segments based on similar economic characteristics, the nature of the productsoperations and production processes, end-use markets, channels of distribution and regulatory environment. The company's reportable segments are Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Materials and Protection Solutions. The company includes certain businesses not included in the reportable segments, such as pre-commercial programs, nonaligned businesses and pharmaceuticals in Other. Pre-commercial programs include approximately $420 for the investment in a cellulosic biofuel facility in Nevada, Iowa which includes all material, engineering, and technical design costs involved in construction of the facility. The facility is expected to commence initial production activities in mid-2017.
Major products by segment include: Agriculture (corn hybrids and soybean varieties, herbicides, fungicides and insecticides); Electronics & Communications (printing and packaging materials, photopolymers and electronic materials); Industrial Biosciences (enzymes, bio-based materials and process technologies); Nutrition & Health (probiotics, cultures, emulsifiers, texturants, natural sweeteners and soy-based food ingredients); Performance Materials (engineering polymers, packaging and industrial polymers, films and elastomers); and Protection Solutions (nonwovens, aramids and solid surfaces). The company operates globally in substantially all of its product lines.
In general, the accounting policies of the segments are the same as those described in Note 1. Exceptions are noted as follows and are shown in the reconciliations below. Segment net assets includes net working capital, net property, plant and equipment, and other noncurrent operating assets and liabilities of Historical DuPont and excludes the segment. Depreciation and amortization includes depreciation on research and development facilities and amortization of other intangible assets, excluding write-down of assets.
Segment operating earnings is defined as income (loss) from continuing operations before income taxes excluding significant pre-tax benefits (charges), non-operating pension and other post employment benefit (OPEB) costs, exchange gains (losses), corporate expenses and interest. Non-operating pension and OPEB costs includes all of the components of net periodic benefit cost from continuing operations with the exception of the service cost component. DuPont Sustainable Solutions, previously withinDAS business. As a result, the company's former Safety & Protection segment (now Protection Solutions) was comprisedresults for the Predecessor and Successor periods of two business units: clean technologies2017 do not reflect the manner in which the company's CODM assesses performance and consulting solutions. Effective January 1, 2016,allocates resources, therefore the clean technologies business unit is reported within the Industrial Biosciencescompany determined that presenting segment and the consulting solutions business unit is reported within Other. Reclassifications of prior year data have been made to conform to current year classifications.
E. I. du Pont de Nemours and Company
Notesresults for each standalone period in 2017 would not be meaningful to the Consolidated Financial Statements (continued)reader. Therefore, segment metrics are not presented for the Successor and Predecessor periods of 2017.
(Dollars in millions, except per share)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Agriculture | Electronics & Communications | Industrial Biosciences | Nutrition & Health | Performance Materials | Protection Solutions | Other | Total |
| 2016 | | | | | | | | |
| Net sales | $ | 9,516 |
| $ | 1,960 |
| $ | 1,500 |
| $ | 3,268 |
| $ | 5,249 |
| $ | 2,954 |
| $ | 147 |
| $ | 24,594 |
|
| Operating earnings | 1,758 |
| 358 |
| 270 |
| 504 |
| 1,297 |
| 668 |
| (215 | ) | 4,640 |
|
Depreciation and amortization | 417 |
| 87 |
| 100 |
| 223 |
| 130 |
| 146 |
| 10 |
| 1,113 |
|
Equity in earnings (losses) of affiliates, net | 7 |
| 31 |
| 12 |
| — |
| 27 |
| 33 |
| (11 | ) | 99 |
|
| Segment net assets | 6,342 |
| 1,186 |
| 2,855 |
| 5,182 |
| 2,711 |
| 2,220 |
| 321 |
| 20,817 |
|
| Affiliate net assets | 222 |
| 146 |
| 39 |
| 4 |
| 146 |
| 81 |
| 11 |
| 649 |
|
Purchases of property, plant and equipment | 345 |
| 51 |
| 64 |
| 111 |
| 160 |
| 120 |
| 28 |
| 879 |
|
| 2015 | |
| |
|
|
|
|
| |
| |
| |
| |
| Net sales | $ | 9,798 |
| $ | 2,070 |
| $ | 1,478 |
| $ | 3,256 |
| $ | 5,305 |
| $ | 3,039 |
| $ | 184 |
| $ | 25,130 |
|
| Operating earnings | 1,646 |
| 359 |
| 243 |
| 373 |
| 1,216 |
| 641 |
| (235 | ) | 4,243 |
|
Depreciation and amortization | 453 |
| 100 |
| 101 |
| 236 |
| 125 |
| 156 |
| 6 |
| 1,177 |
|
Equity in earnings (losses) of affiliates, net | 31 |
| 24 |
| 7 |
| — |
| (8 | ) | 23 |
| (30 | ) | 47 |
|
| Segment net assets | 6,751 |
| 1,323 |
| 3,154 |
| 5,457 |
| 2,918 |
| 2,295 |
| 258 |
| 22,156 |
|
| Affiliate net assets | 234 |
| 139 |
| 41 |
| 9 |
| 171 |
| 71 |
| 23 |
| 688 |
|
Purchases of property, plant and equipment | 334 |
| 45 |
| 84 |
| 120 |
| 159 |
| 96 |
| 132 |
| 970 |
|
| 2014 | | |
|
| | | | |
| Net sales | $ | 11,296 |
| $ | 2,381 |
| $ | 1,624 |
| $ | 3,529 |
| $ | 6,059 |
| $ | 3,304 |
| $ | 213 |
| $ | 28,406 |
|
| Operating earnings | 2,352 |
| 336 |
| 269 |
| 369 |
| 1,267 |
| 672 |
| (233 | ) | 5,032 |
|
Depreciation and amortization | 436 |
| 97 |
| 102 |
| 264 |
| 139 |
| 168 |
| 8 |
| 1,214 |
|
Equity in earnings (losses) of affiliates, net | 31 |
| 20 |
| 8 |
| — |
| (77 | ) | 28 |
| (47 | ) | (37 | ) |
| Segment net assets | 6,696 |
| 1,359 |
| 3,241 |
| 5,942 |
| 3,125 |
| 2,339 |
| 316 |
| 23,018 |
|
| Affiliate net assets | 240 |
| 137 |
| 45 |
| 7 |
| 238 |
| 78 |
| 16 |
| 761 |
|
Purchases of property, plant and equipment | 407 |
| 52 |
| 94 |
| 112 |
| 134 |
| 98 |
| 203 |
| 1,100 |
|
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Reconciliation to Consolidated Financial Statements
|
| | | | | | | | | |
| Segment operating earnings to income from continuing operations before income taxes | 2016 | 2015 | 2014 |
| Total segment operating earnings | $ | 4,640 |
| $ | 4,243 |
| $ | 5,032 |
|
| Significant pre-tax (charges) benefits not included in segment operating earnings | (168 | ) | (38 | ) | 434 |
|
| Non-operating pension and OPEB costs | (40 | ) | (374 | ) | (128 | ) |
| Net exchange (losses) gains | (106 | ) | 30 |
| 196 |
|
| Corporate expenses | (691 | ) | (928 | ) | (844 | ) |
| Interest expense | (370 | ) | (342 | ) | (377 | ) |
| Income from continuing operations before income taxes | $ | 3,265 |
| $ | 2,591 |
| $ | 4,313 |
|
|
| | | | | | | | | |
| Segment net assets to total assets at December 31, | 2016 | 2015 | 2014 |
| Total segment net assets | $ | 20,817 |
| $ | 22,156 |
| $ | 23,018 |
|
Corporate assets1 | 11,306 |
| 11,163 |
| 12,889 |
|
| Liabilities included in segment net assets | 7,841 |
| 7,847 |
| 8,356 |
|
Assets related to discontinued operations2 | — |
| — |
| 6,227 |
|
| Total assets | $ | 39,964 |
| $ | 41,166 |
| $ | 50,490 |
|
|
| | | | | | |
Income (loss) from continuing operations after income taxes to pro forma segment operating EBITDA1 (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 |
| Loss from continuing operations after income taxes | $ | (270 | ) | $ | (6,775 | ) |
| Benefit from income taxes on continuing operations | (46 | ) | (31 | ) |
| Loss from continuing operations before income taxes | (316 | ) | (6,806 | ) |
| Depreciation and amortization | 1,000 |
| 909 |
|
| Interest income | (59 | ) | (86 | ) |
| Interest expense | 136 |
| 337 |
|
Exchange losses - net 2 | 66 |
| 77 |
|
| Non-operating benefits - net | (129 | ) | (211 | ) |
| Goodwill impairment charge | — |
| 4,503 |
|
| Significant items | 991 |
| 1,346 |
|
| Pro forma adjustments | 298 |
| 2,003 |
|
| Corporate expenses | 119 |
| 141 |
|
| Pro forma segment operating EBITDA | $ | 2,106 |
| $ | 2,213 |
|
| |
1. | Pension assets are includedSegment operating EBITDA for all periods is presented on a pro forma basis, prepared in corporate assets.accordance with Article 11 of Regulation S-X. |
| |
2. | See Note 1 for additional information on the presentation of Performance Chemicals which met the criteria for discontinued operations. |
|
| | | | | | | | | |
| Other items | Segment Totals | Adjustments1 | Consolidated Totals |
| 2016 | |
| |
| |
|
| Depreciation and amortization | $ | 1,113 |
| $ | 145 |
| $ | 1,258 |
|
| Equity in earnings of affiliates, net | 99 |
| — |
| 99 |
|
| Affiliate net assets | 649 |
| — |
| 649 |
|
| Purchases of property, plant and equipment | 879 |
| 140 |
| 1,019 |
|
| 2015 | |
| |
| |
|
| Depreciation and amortization | $ | 1,177 |
| $ | 289 |
| $ | 1,466 |
|
| Equity in earnings of affiliates, net | 47 |
| 2 |
| 49 |
|
| Affiliate net assets | 688 |
| — |
| 688 |
|
| Purchases of property, plant and equipment | 970 |
| 659 |
| 1,629 |
|
| 2014 | |
| |
| |
|
| Depreciation and amortization | $ | 1,214 |
| $ | 403 |
| $ | 1,617 |
|
| Equity in (losses) earnings of affiliates, net | (37 | ) | 1 |
| (36 | ) |
| Affiliate net assets | 761 |
| 1 |
| 762 |
|
| Purchases of property, plant and equipment | 1,100 |
| 920 |
| 2,020 |
|
| |
1.
| Adjustments include amounts related to Corporate in all periods presented, and to the Performance Chemicals business in 2015 and 2014, as it met the criteria for discontinued operations during 2015. See Note 1 for additional information on the presentation of discontinued operations and See Note 3 for depreciation, amortization and purchases of property, plant and equipment related to Performance ChemicalsExcludes a $(33) million foreign exchange loss for the yearsyear ended December 31, 20152019 associated with the devaluation of the Argentine peso and 2014.a $(50) million foreign exchange loss for the year ended December 31, 2018 related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform, as they are included within significant items. See Note 9 - Supplementary Information, for additional information. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Additional Segment Details
2016 included the following significant pre-tax benefits (charges) which are excluded from segment operating earnings:
|
| | | |
Agriculture1,2,3,4 | $ | (37 | ) |
Electronics & Communications2,4 | 4 |
|
Industrial Biosciences2,4,5 | (152 | ) |
Nutrition & Health2,4 | 9 |
|
Performance Materials2,4 | 5 |
|
Protection Solutions2,4 | 14 |
|
Other2 | (11 | ) |
| | $ | (168 | ) |
|
| | | | | | |
Segment assets to total assets (in millions) | December 31, 2019 | December 31, 2018 |
| Total segment assets | $ | 38,879 |
| $ | 38,632 |
|
| Corporate assets | 3,518 |
| 4,417 |
|
Assets related to discontinued operations1 | — |
| 65,634 |
|
| Total assets | $ | 42,397 |
| $ | 108,683 |
|
| |
1. | Included $30 of net insurance recoveries recorded in other operating chargesSee Note 5 - Divestitures and Other Transactions, for recovery of costs for customer claims related to the use of the Imprelis® herbicide. Included a benefit of $23 in other operating charges for reduction in the accrual for customer claims related to the use of the Imprelis® herbicide.additional information on discontinued operations.
|
| |
2.
| The company recorded a $(3) net restructuring charge in employee separation / asset related charges, net for the year ended December 31, 2016, associated with the 2016 global cost savings and restructuring program. See Note 4 for additional information. |
| |
3.
| Includes a $(68) restructuring charge recorded in employee separation / asset related charges, net for the year ended December 31, 2016, related to the decision not to re-start the insecticide manufacturing facility at the La Porte site located in La Porte, Texas. See Note 4 for additional information. |
| |
4.
| The company recorded a $8 restructuring benefit recorded in employee separation/asset related charges, net, for adjustments to the previously recognized severance costs related to the 2014 restructuring program. See Note 4 for additional information. |
| |
5.
| The company recorded a $(158) charge in employee separation / asset related charges, net, for the year ended December 31, 2016, related to the write-down of indefinite lived intangible assets. See Note 4 for additional information. |
2015 included the following significant pre-tax benefits (charges) which are excluded from segment operating earnings:
|
| | | |
Agriculture1,2,5 | $ | 148 |
|
Electronics & Communications1,5 | (78 | ) |
Industrial Biosciences1,5 | (61 | ) |
Nutrition & Health1,5 | (50 | ) |
Performance Materials1,5 | (62 | ) |
Protection Solutions1,3,5 | 105 |
|
Other1,4,5 | (40 | ) |
| | $ | (38 | ) |
|
| | | | | | | | | |
Other Items (in millions) | Segment Totals | Adjustments 1 | Consolidated Totals |
| As of and For the Year Ended December 31, 2019 | | | |
| Depreciation and amortization | $ | 1,000 |
| $ | 599 |
| $ | 1,599 |
|
| Investments in nonconsolidated affiliates | $ | 66 |
| $ | — |
| $ | 66 |
|
| Purchase of property, plant, and equipment | $ | 666 |
| $ | 497 |
| $ | 1,163 |
|
| As of and For the Year Ended December 31, 2018 | | | |
| Depreciation and amortization | $ | 909 |
| $ | 1,881 |
| $ | 2,790 |
|
| Investments in nonconsolidated affiliates | $ | 138 |
| $ | — |
| $ | 138 |
|
| Purchase of property, plant, and equipment | $ | 513 |
| $ | 988 |
| $ | 1,501 |
|
| |
1. | Included a $10 net restructuring benefit recorded in employee separation/asset related charges, net, associated with the 2014 restructuring program. These adjustments were primarily due to the identification of additional projects in certain segments, offset by lower than estimated individual severance costs and workforce reductions achieved through non-severance programs. See Note 45 - Divestitures and Other Transactions, for additional information. |
| |
2.
| Included $182 of net insurance recoveries recorded in other operating charges for recovery of costs for customer claims related to the use of the Imprelis® herbicide. Included a benefit of $130 in other operating charges for reduction in the accrual for customer claims related to the use of the Imprelis® herbicide.
|
| |
3.
| Included a gain of $145, net of legal expenses, recorded in other income, net related to the company's settlement of a legal claim. |
| |
4.
| Included a $(37) pre-tax impairment charge recorded in employee separation / asset related charges, net for a cost basis investment. See Note 4 for additional information. |
| |
5.
| Included a $(468) restructuring charge consisting of $(463) recorded in employee separation/asset related charges, net and $(5) recorded in other income, net associated with the 2016 global cost savings and restructuring program. See Note 4 for additional information. |
Significant Pre-tax (Charges) Benefits Not Included in Pro Forma Segment Operating EBITDA
The years ended December 31, 2019 and 2018, respectively, included the following significant pro forma pre-tax (charges) benefits which are excluded from pro forma segment operating EBITDA:
E. I. du Pont de Nemours and Company |
| | | | | | | | | | | | |
| (In millions) | Seed | Crop Protection | Corporate | Total |
| For the Year Ended December 31, 2019 | | | | |
Restructuring and Asset Related Charges - Net 1 | $ | (213 | ) | $ | (23 | ) | $ | 14 |
| $ | (222 | ) |
Integration and Separation Costs 2 | — |
| — |
| (632 | ) | (632 | ) |
Loss on Divestiture 3 | (24 | ) | — |
| — |
| (24 | ) |
Amortization of Inventory Step Up 4 | (67 | ) | — |
| — |
| (67 | ) |
Loss on Early Extinguishment of Debt 5 | — |
| — |
| (13 | ) | (13 | ) |
Argentina Currency Devaluation 6 | — |
| — |
| (33 | ) | (33 | ) |
| Total | $ | (304 | ) | $ | (23 | ) | $ | (664 | ) | $ | (991 | ) |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
2014 included the following significant pre-tax benefits (charges) which are excluded from segment operating earnings:
|
| | | |
Agriculture1,2,3 | $ | 316 |
|
Electronics & Communications1 | (84 | ) |
Industrial Biosciences1 | (20 | ) |
Nutrition & Health1 | (15 | ) |
Performance Materials1,4 | 292 |
|
Protection Solutions1 | (45 | ) |
Other1 | (10 | ) |
| | $ | 434 |
|
|
| | | | | | | | | | | | |
| (In millions) | Seed | Crop Protection | Corporate | Total |
| For the Year Ended December 31, 2018 | | | | |
Restructuring and Asset Related Charges - Net 1 | $ | (368 | ) | $ | (58 | ) | $ | (268 | ) | $ | (694 | ) |
Integration Costs 2 | — |
| — |
| (571 | ) | (571 | ) |
Gain on Sale 7 | 24 |
| — |
| — |
| 24 |
|
Loss on Deconsolidation of Subsidiary 8 | (53 | ) | — |
| — |
| (53 | ) |
Loss on Divestiture 9 | (2 | ) | — |
| — |
| (2 | ) |
Income Tax Items 10 | — |
| — |
| (50 | ) | (50 | ) |
| Total | $ | (399 | ) | $ | (58 | ) | $ | (889 | ) | $ | (1,346 | ) |
| |
1. | Included a $(407)Includes Board approved restructuring charge associated with the 2014 restructuring program consisting of $(342) recorded in employee separation /plans and asset related charges, net and $(65) recorded inwhich includes other income, net.asset impairments. See Note 47 - Restructuring and Asset Related Charges - Net, for additional information. |
| |
2.
| Included income of $210 for insurance recoveries, recorded in other operating charges associated with the company's process to fairly resolve claims related to the use of Imprelis® herbicide.
|
| |
3.
2. | Included a gainIntegration and separation costs related to post-Merger integration and Business Separation activities. Beginning in the second quarter of $240 recorded in other income, net associated with the sale of the copper fungicide2019, this includes both integration and land management businesses, both within the Agriculture segment.separation costs. |
| |
4.
3. | IncludedIncludes a gain of $391loss recorded in other income (expense) - net related to Historical Dow’s sale of a joint venture related to synergy actions. |
| |
| 4. | Includes charges related to the amortization on the inventory that was stepped up to fair value in connection with the Merger, recognized in cost of goods sold. |
| |
| 5. | Includes a loss related to the difference between the redemption price and the par value of the Make Whole Notes and Term Loan Facility, partially offset by the write-off of unamortized step-up related to the fair value step-up of EID’s debt. |
| |
| 6. | Includes a charge included in other income (expense) - net associated with remeasuring the salecompany’s Argentine Peso net monetary assets, resulting from an unexpected August primary election result in Argentina. Throughout the three months ended September 30, 2019, the Argentine Peso dropped approximately a third of Glass Laminating Solutions / Vinyls. See Note 3 for additional information.its value against the US dollar and in September of 2019, the country’s central bank announced new restrictions on foreign currency transactions. |
| |
| 7. | Includes a gain recorded in other income (expense) - net related to an asset sale. |
| |
| 8. | Includes a loss recorded in other income (expense) - net related to the deconsolidation of a subsidiary. |
| |
| 9. | Includesa loss recorded in other income (expense) - net related to an asset sale. |
| |
| 10. | Includes a foreign exchange loss recorded in other income (expense) - net related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
22.NOTE 26 - QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| Unaudited | For the quarter ended |
| | March 31, | June 30, | September 30, | December 31, |
| 2016 | |
| | |
| | |
| | |
| |
| Net sales | $ | 7,405 |
| | $ | 7,061 |
| | $ | 4,917 |
| | $ | 5,211 |
| |
| Cost of goods sold | 4,242 |
| | 3,990 |
| | 3,090 |
| | 3,147 |
| |
Employee separation / asset related charges, net2 | 77 |
| | (90 | ) | | 172 |
| | 393 |
| |
Income (loss) from continuing operations before income taxes | 1,635 |
| 3,4,5 | 1,333 |
| 3,4 | (56 | ) | 3 | 353 |
| 3 |
| Net income | 1,232 |
| | 1,024 |
| | 6 |
| | 263 |
| |
Basic earnings per share of common stock from continuing operations1 | 1.40 |
| | 1.17 |
| | 0.01 |
| | 0.29 |
| |
Diluted earnings per share of common stock from continuing operations1 | 1.39 |
| | 1.16 |
| | 0.01 |
| | 0.29 |
| |
| 2015 | |
| | |
| | |
| | |
| |
| Net sales | $ | 7,837 |
| | $ | 7,121 |
| | $ | 4,873 |
| | $ | 5,299 |
| |
| Cost of goods sold | 4,516 |
| | 4,103 |
| | 3,084 |
| | 3,409 |
| |
Employee separation / asset related charges, net2 | 38 |
| | 2 |
| | — |
| | 770 |
| |
Income (loss) from continuing operations before income taxes | 1,551 |
| 6,7,8 | 1,234 |
| 6,9 | 227 |
| 6,7 | (421 | ) | 7,9,10 |
| Net income | 1,035 |
| | 945 |
| | 235 |
| | (256 | ) | |
Basic earnings per share of common stock from continuing operations1 | 1.12 |
| | 1.07 |
| | 0.14 |
| | (0.26 | ) | |
Diluted earnings per share of common stock from continuing operations1 | 1.11 |
| | 1.06 |
| | 0.14 |
| | (0.26 | ) | |
|
| | | | | | | | | | | | | | | | |
| | For the quarter ended |
| In millions, except per share amounts | March 31, | June 30, | September 30, | December 31, |
| 2019 | | | | | | | | |
| Net sales | $ | 3,396 |
| | $ | 5,556 |
| | $ | 1,911 |
| | $ | 2,983 |
| |
Cost of goods sold1 | 2,211 |
| | 3,047 |
| | 1,349 |
| | 1,968 |
| |
Restructuring and asset related charges - net2 | 61 |
| | 60 |
| | 46 |
| | 55 |
| |
Integration and separation costs2 | 212 |
| | 330 |
| | 152 |
| | 50 |
| |
| (Loss) income from continuing operations after income taxes | (184 | ) | 4 | 483 |
| 5 | (527 | ) | 6,7 | (42 | ) | 8 |
Net income (loss) attributable to Corteva2 | 164 |
| | (608 | ) | | (494 | ) | | (21 | ) | |
(Loss) earnings per common share, continuing operations - basic3 | (0.26 | ) | | 0.63 |
| | (0.69 | ) | | (0.06 | ) | |
(Loss) earnings per common share, continuing operations - diluted3 | (0.26 | ) | | 0.63 |
| | (0.69 | ) | | (0.06 | ) | |
| 2018 | | | | | | | | |
| Net sales | $ | 3,794 |
| | $ | 5,731 |
| | $ | 1,947 |
| | $ | 2,815 |
| |
Cost of goods sold1 | 2,752 |
| | 3,687 |
| | 1,485 |
| | 2,024 |
| |
Restructuring and asset related charges - net2 | 130 |
| | 101 |
| | 235 |
| | 228 |
| |
Integration and separation costs2 | 195 |
| | 249 |
| | 253 |
| | 295 |
| |
Goodwill impairment charge2 | — |
| | — |
| | 4,503 |
| | — |
| |
(Loss) income from continuing operations after income taxes9 | (438 | ) | 10 | 375 |
| 11 | (5,642 | ) | 12 | (1,070 | ) | 4,5 |
Net (loss) income attributable to Corteva2 | (107 | ) | | 694 |
| | (5,121 | ) | | (531 | ) | |
(Loss) earnings per common share, continuing operations - basic3 | (0.60 | ) | | 0.49 |
| | (7.54 | ) | | (1.43 | ) | |
(Loss) earnings per common share, continuing operations - diluted3 | (0.60 | ) | | 0.49 |
| | (7.54 | ) | | (1.43 | ) | |
| |
| 1. | Includes charges of $(639) million, $(676) million, $(109) million, and $(130) million for the first quarter 2018, second quarter 2018, third quarter 2018, and fourth quarter 2018, respectively, and $(205) million, $(52) million, and $(15) million for the first quarter 2019, second quarter 2019, and third quarter 2019, respectively, related to the amortization of inventory step-up as a result of the Merger. |
| |
| 2. | 1.See Note 2 - Summary of Significant Accounting Polices, Note 7 - Restructuring and Asset Related Charges - Net, Note 5 - Divestitures and Other Transactions, and Note 15 - Goodwill and Other Intangible Assets, for additional information related to integration and separation costs, restructuring and asset related charges - net, discontinued operations, and goodwill impairment charge, respectively.
|
| |
| 3. | Earnings per share for the year may not equal the sum of quarterly earnings per share due to rounding and the changes in average share calculations. |
| |
2.
4. | See Note 4 for additional information.First quarter 2019 includes a $(24) million loss recorded in other income (expense) - net related to Historical Dow’s sale of a joint venture related to synergy actions. Fourth quarter 2018 includes a $(53) million loss recorded in other income (expense) - net related to the deconsolidation of a subsidiary. |
| |
3.
| First, second, third and fourth quarter 2016 included charges of $(24), $(76), $(122), and $(164), respectively, recorded in selling, general and administrative expenses related to transaction costs associated with the planned merger with the Dow Chemical Company announced on December 11, 2015. See Note 2 for additional information. |
| |
4.
5. | First quarter 2016 includedIncludes a benefitloss on early extinguishment of $23, in other operating charges, for reductions in the accrual for customer claims related to the usedebt of the Imprelis® herbicide. The company recorded insurance recoveries of $30$(13) million in the second quarter 2016,of 2019 and $(81) million in other operating charges, for recovery of costs for customer claimsthe fourth quarter 2018 related to the useretirement of some of the Agriculture's segment Imprelis® herbicide.company's debt. See Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, for additional information.
|
| |
5.
6. | FirstThird quarter 20162019 includes a $(33) million charge included a gain of $369 recorded in other income (expense) - net associated with remeasuring the sale of the DuPont (Shenzhen) Manufacturing Limited entity, which held certain buildings and other assets. See Note 3 for additional information.company’s Argentine Peso net monetary assets, resulting from an unexpected August primary election result in Argentina. |
| |
6.
7. | First and thirdThird quarter 2015 included charges2019 includes a tax benefit of $(12) and $(9), respectively, recorded in other operating charges associated with transaction costs$38 million related to the separation of the Performance Chemicals segment. Second quarter 2015 included charges of $(5) recorded in other operating charges and $(20) recorded in interest expense.Swiss Tax Reform. See Note 310 - Income Taxes, for additional information. |
| |
7.
| First and third quarter 2015 included net insurance recoveries of $35 and $147, respectively, recorded in other operating charges in the Agriculture segment, for recovery of costs for customer claims related to the use of the Imprelis® herbicide. Fourth quarter 2015 included a benefit of $130 in other operating charges for reduction in accrual for customer claims related to the use of the Agriculture segment’s Imprelis® herbicide.
|
| |
8. | FirstFourth quarter 2015 included2019 includes a $(40) pre-tax charge within other income, net associated withtax benefit of $34 million related to the re-measurementimpact of the Ukraine hyrvniarelease of a tax valuation allowance recorded against the net monetary assets.deferred tax asset position of a Switzerland legal entity. See Note 10 - Income Taxes, for additional information. |
| |
9. | SecondIncludes tax (charges) benefits of $(64) million, $(7) million, $16 million, and $(274) million in the first quarter 2018, second quarter 2018, third quarter 2018, and fourth quarter 2015 included gains of $112 and $33,2018, respectively, net of legal expenses, recorded in other income, net related to the company's settlement of a legal claim. This matter relates to the Protection Solutions segment.The Act. See Note 10 - Income Taxes, for additional information. |
| |
10. | FourthFirst quarter 2015 included charges2018 includes a $(50) million foreign exchange loss related to adjustments to foreign currency exchange contracts as a result of $(10)U.S. tax reform. |
| |
| 11. | Second quarter 2018 includes a $24 million gain recorded in selling, general and administrative expensesother income (expense) - net related to transaction costsan asset sale. |
| |
| 12. | Includes a tax charge of $(75) million in the third quarter 2018 related to the establishment of a full valuation allowance against the net deferred tax asset position of a legal entity in Brazil, a tax charge of $(25) million related to an internal legal entity restructuring associated with the planned merger withBusiness Separations, and a tax benefit of $114 million related to the Dow Chemical Company announcedcompany's discretionary pension contribution in 2018 which was deducted on December 11, 2015.a 2017 tax return. See Note 210 - Income Taxes, for additional information. |
E. I. du Pont de Nemours and CompanyCorteva, Inc.
Notes to the Consolidated Financial Statements (continued)
(Dollars
As discussed in millions, exceptNote 1, Background and Basis of Presentation, the company has recasted its financial statements for the divestiture of EID ECP, the divestiture of the EID Specialty Products Entities, and for the DAS common control business combination. Below is a reconciliation from the amounts previously reported in the company's quarterly reports on Form 10-Q or annual report on Form 10-K to the recasted amounts reported above for the applicable periods. Prior to the Separation, the company did not report earnings per share)share information for the Successor periods as all of the company's issued and outstanding common stock was held by DowDuPont; as such, there is no reconciliation for those amounts below.
|
| | | | | | | | | | | | |
| For the Quarter Ended March 31, 2019 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | Corteva |
| Net sales | $ | 6,288 |
| $ | (4,341 | ) | $ | 1,449 |
| $ | 3,396 |
|
| Cost of goods sold | $ | 4,235 |
| $ | (2,963 | ) | $ | 939 |
| $ | 2,211 |
|
| Restructuring and asset related charges - net | $ | 55 |
| $ | (43 | ) | $ | 49 |
| $ | 61 |
|
| Integration and separation costs | $ | 405 |
| $ | (193 | ) | $ | — |
| $ | 212 |
|
| Income (loss) from continuing operations after income taxes | $ | 89 |
| $ | (369 | ) | $ | 96 |
| $ | (184 | ) |
| Net income attributable to Corteva | $ | 85 |
| $ | (11 | ) | $ | 90 |
| $ | 164 |
|
|
| | | | | | | | | | | | |
| For the Quarter Ended December 31, 2018 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | Corteva |
| Net sales | $ | 5,741 |
| $ | (4,350 | ) | $ | 1,424 |
| $ | 2,815 |
|
| Cost of goods sold | $ | 3,980 |
| $ | (3,026 | ) | $ | 1,070 |
| $ | 2,024 |
|
| Restructuring and asset related charges - net | $ | 115 |
| $ | (9 | ) | $ | 122 |
| $ | 228 |
|
| Integration and separation costs | $ | 449 |
| $ | (154 | ) | $ | — |
| $ | 295 |
|
| Loss from continuing operations after income taxes | $ | (351 | ) | $ | (573 | ) | $ | (146 | ) | $ | (1,070 | ) |
| Net loss attributable to Corteva | $ | (354 | ) | $ | (28 | ) | $ | (149 | ) | $ | (531 | ) |
|
| | | | | | | | | | | | |
| For the Quarter Ended March 31, 2018 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | Corteva |
| Net sales | $ | 6,699 |
| $ | (4,388 | ) | $ | 1,483 |
| $ | 3,794 |
|
| Cost of goods sold | $ | 4,847 |
| $ | (3,003 | ) | $ | 908 |
| $ | 2,752 |
|
| Restructuring and asset related charges - net | $ | 97 |
| $ | (38 | ) | $ | 71 |
| $ | 130 |
|
| Integration and separation costs | $ | 255 |
| $ | (60 | ) | $ | — |
| $ | 195 |
|
| Loss from continuing operations after income taxes | $ | (216 | ) | $ | (355 | ) | $ | 133 |
| $ | (438 | ) |
| Net loss attributable to Corteva | $ | (228 | ) | $ | (1 | ) | $ | 122 |
| $ | (107 | ) |
| |
| 1. | Reflects discontinued operations of EID's ECP and Specialty Products businesses and adjustments primarily related to the elimination of intercompany transactions between Historical EID and Dow AgroSciences for periods subsequent to the Merger, as if they were combined affiliates. |
Corteva, Inc.
Notes to the Consolidated Financial Statements (continued)
NOTE 27 - SUBSEQUENT EVENTS
On January 31, 2017,
In February 2020, the company entered into a new committed receivable repurchase facility of up to $1,300$1.3 billion (the 2017 repurchase facility) that"2020 Repurchase Facility") which expires on November 30, 2017.in December 2020. Under the 2017 repurchase facility, the company2020 Repurchase Facility, Corteva may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agree to repurchase at a future date. The 2017 repurchase facility2020 Repurchase Facility is considered a secured borrowing with the customer notes receivables inclusive of those that are sold and repurchased, equal to 105 percent of the outstanding amounts borrowed utilized as collateral. Borrowings under the repurchase facility2020 Repurchase Facility will have an interest rate of LIBOR + 0.75 percent.
Management's Reports on Responsibility for Financial Statements and
Internal Control over Financial Reporting
Management's Report on Responsibility for Financial Statements
Management is responsible for the Consolidated Financial Statements and the other financial information contained in this Annual Report on Form 10-K. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and are considered by management to present fairly EID's financial position, results of operations and cash flows. The financial statements include some amounts that are based on management's best estimates and judgments. The financial statements have been audited by EID's independent registered public accounting firm, PricewaterhouseCoopers LLP. The purpose of their audit is to express an opinion as to whether the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, EID's financial position, results of operations and cash flows in conformity with GAAP. Their reports are presented on the following pages.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. EID's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. EID's internal control over financial reporting includes those policies and procedures that:
| |
| i. | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of EID; |
| |
| ii. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of EID are being made only in accordance with authorization of management and directors of EID; and |
| |
| iii. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of EID's assets that could have a material effect on the financial statements. |
Internal control over financial reporting has certain inherent limitations which may not prevent or detect misstatements. In addition, changes in conditions and business practices may cause variation in the effectiveness of internal controls.
Management assessed the effectiveness of EID's internal control over financial reporting as of December 31, 2019, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management concluded that EID maintained effective internal control over financial reporting as of December 31, 2019.
EID completed the common control combination of the Dow Agrosciences (“DAS") business from DowDuPont on May 2, 2019. As a result, management has excluded the DAS business from its assessment of internal control over financial reporting as of December 31, 2019. The total assets of the DAS business that were excluded from the assessment represented approximately 20 percent of EID's total assets as of December 31, 2019. Total net sales from continuing operations of the DAS business that was excluded from the assessment represented approximately 40 percent of EID’s total net sales from continuing operations for the year ended December 31, 2019.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of EID's internal control over financial reporting as of December 31, 2019, as stated in their report, which is presented on the following pages.
|
| | |
Information for Investors |
| | |
Corporate HeadquartersJames C. Collins, Jr.
E. I. du Pont de NemoursChief Executive Officer and Company
Chestnut Run Plaza
974 Centre Road
P.O. Box 2915
Wilmington, DE 19805
Telephone: 302 774-1000
E-mail: http://www.dupont.com (click on Contact)
Stock Exchange Listings
DuPont common stock (Symbol DD) is listed on the New York Stock Exchange, Inc. (NYSE). Quarterly high and low market prices are shown in Item 5 of the Form 10-K.
DuPont preferred stock is listed on the New York Stock Exchange, Inc. (Symbol DDPrA for $3.50 series and Symbol DDPrB for $4.50 series).
Dividends
Holders of the company's common stock are entitled to receive dividends when they are declared by the Board of Directors. While it is not a guarantee of future conduct, the company has continuously paid a quarterly dividend since the fourth quarter 1904. Dividends on common stock and preferred stock are usually declared in January, April, July and October. When dividends on common stock are declared, they are usually paid mid-March, June, September and December. Preferred dividends are paid on or about the 25th of January, April, July and October.
Shareholder Services
Inquiries from shareholders about stock accounts, transfers, certificates, dividends (including direct deposit and reinvestment), name or address changes and electronic delivery of proxy materials may be directed to DuPont's stock transfer agent:
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, TX, 77842-3170
or call: in the United States and Canada
888 983-8766 (toll-free)
other locations-781 575-2724
for the hearing impaired-
TDD: 800 952-9245 (toll-free)
or visit Computershare's home page at
http://www.computershare.com/investorDirector
| | Independent Registered Public Accounting FirmGregory R. Friedman
PricewaterhouseCoopers LLPExecutive Vice President,
Two Commerce Square, Suite 1800
2001 Market Street
Philadelphia, PA 19103
Investor Relations
Institutional investorsChief Financial Officer and other representatives of financial institutions should contact:
E. I. du Pont de Nemours and Company
DuPont Investor Relations
974 Centre Road, CRP730/5360-3
Wilmington, DE 19805
or call 302 774-4994
Bondholder Relations
E. I. du Pont de Nemours and Company
DuPont Finance
974 Centre Road, CRP730/4170-5
Wilmington, DE 19805
or call 302 999-4488
or 302 999-4487
DuPont on the Internet
Financial results, news and other information about DuPont can be accessed from the company's website athttp://www.dupont.com. This site includes important information on products and services, financial reports, news releases, environmental information and career opportunities. The company's periodic and current reports filed with the SEC are available on its website, free of charge, as soon as reasonably practicable after being filed.
Product Information/Referral
From the United States and Canada:
800 441-7515 (toll-free)
From other locations: 302 774-1000
On the Internet: http://www.dupont.com (click on Contact)
Printed Reports Available to Shareholders
The following company reports may be obtained, without charge:
1. 2016 Annual Report to the Securities and Exchange Commission,
filed on Form 10-K;
2. Proxy Statement for 2017 Annual Meeting of Stockholders; and
3. Quarterly reports to the Securities and Exchange Commission,
filed on Form 10-Q
Requests should be addressed to:
DuPont Corporate Customer Care
CRP - 735 (second floor)
974 Centre Road, P.O. Box 2915
Wilmington, DE 19805
or call: From the United States and Canada: 800-441-7515 (toll free)
From other locations: 302-774-1000
On the Internet: http://www.dupont.com (click on Contact)
|
| | |
Services for Shareholders |
Online Account Access
Registered shareholders may access their accounts and obtain online answers to stock transfer questions by signing up for Internet access by visiting http://www.computershare.com/investor. Shareholders have the option to request direct deposit of stock dividends, and electronic delivery of account statements and 1099-DIV tax forms.
Dividend Reinvestment Plan
An automatic dividend reinvestment plan is available to all registered shareholders. Common or preferred dividends can be automatically reinvested in DuPont common stock. Participants also may add cash for the purchase of additional shares. A detailed account statement is mailed after each investment. Your account can also be viewed over the Internet if you have Online Account Access (see above). To enroll in the plan, please contact Computershare (listed above).
| | Online Delivery of Proxy Materials
Shareholders may request their proxy materials electronically by visitinghttp://enroll.icsdelivery.com/dd.
Direct Deposit of Dividends
Registered shareholders who would like their dividends directly deposited in a U.S. bank account should contact Computershare (listed above).Director
|
February 14, 2020
Report of Independent Registered Public Accounting Firm
To theStockholders and Board of Directors of E. I. du Pont de Nemours and Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of E.I. du Pont de Nemours and Company and its subsidiaries (Successor) (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive (loss) income, equity and cash flows for each of the two years in the period ended December 31, 2019, and for the period from September 1, 2017 through December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the two years in the period ended December 31, 2019 and for the period from September 1, 2017 through December 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, based on our audits and the report of other auditors with respect to the consolidated financial statements as of and for the year ended December 31, 2018 and for the period from September 1, 2017 through December 31, 2017, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, and for the period from September 1, 2017 through December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
We did not audit the combined financial statements of the Dow Agricultural Sciences Business, a business under common control of the Company, which statements reflect total assets of $7,773 million as of December 31, 2018, and total net sales of $5,646 million and $2,214 million for the year ended December 31, 2018 and for the period from September 1, 2017 to December 31, 2017, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Dow Agricultural Sciences Business as of December 31, 2018, for the year ended December 31, 2018 and for the period from September 1, 2017 through December 31, 2017, is based solely on the report of other auditors.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded the Dow Agrosciences business from its assessment of internal control over financial reporting as of December 31, 2019 because it was an entity transferred to the Company through a merger of entities under common control during 2019. We have also excluded the Dow Agrosciences business from our audit of internal control over financial reporting. The Dow Agrosciences business is a business under common control whose total assets and total net sales excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 20 percent and 40 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 14, 2020
We have served as the Company’s auditor since 1946.
Report of Independent Registered Public Accounting Firm
To Management of the Dow Agricultural Sciences Business
Opinion on the Financial Statements
We have audited the combined balance sheets of the Dow Agricultural Sciences Business (the “Business”) as of December 31, 2018 and 2017, the related combined statements of income and comprehensive income, cash flows, and equity, for the year ended December 31, 2018 and the four month period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements") (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Business as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended December 31, 2018 and the four month period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Business’ management. Our responsibility is to express an opinion on the Business’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Business in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Business is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Business’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Midland, Michigan
July 12, 2019
Report of Independent Registered Public Accounting Firm
TotheStockholders and Board of Directors of E. I. du Pont de Nemours and Company
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive (loss) income, equity and cash flows of E.I. du Pont de Nemours and Company and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2017 through August 31, 2017, including the related notes and schedule of valuation and qualifying accounts for the period from January 1, 2017 through August 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2017 through August 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 15, 2018,except for the change in the manner in which the Company accounts for net periodic pension and postretirement benefit costs discussed in Note 9 to the Corteva, Inc. consolidated financial statements, as to which the date is February 11, 2019, and except for the effects of discontinued operations discussed in Note 5 to the Corteva, Inc. consolidated financial statements, as to which the date is February 14, 2020
We have served as the Company’s auditor since 1946.
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions, except per share amounts) | 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 |
| Net sales | $ | 13,846 |
| $ | 14,287 |
| $ | 3,790 |
| $ | 6,894 |
|
| Cost of goods sold | 8,575 |
| 9,948 |
| 2,915 |
| 3,409 |
|
| Other operating charges |
|
|
|
|
|
| 195 |
|
| Research and development expense | 1,147 |
| 1,355 |
| 484 |
| 591 |
|
| Selling, general and administrative expenses | 3,065 |
| 3,041 |
| 920 |
| 1,969 |
|
| Amortization of intangibles | 475 |
| 391 |
| 97 |
|
|
|
| Restructuring and asset related charges - net | 222 |
| 694 |
| 270 |
| 12 |
|
| Integration and separation costs | 744 |
| 992 |
| 255 |
|
|
|
| Goodwill Impairment | — |
| 4,503 |
| — |
| — |
|
| Other income (expense) - net | 215 |
| 249 |
| 805 |
| (501 | ) |
| Loss on early extinguishment of debt | 13 |
| 81 |
| — |
| — |
|
| Interest expense | 242 |
| 337 |
| 115 |
| 254 |
|
| Loss from continuing operations before income taxes | (422 | ) | (6,806 | ) | (461 | ) | (37 | ) |
| Benefit from income taxes on continuing operations | (71 | ) | (31 | ) | (2,221 | ) | (395 | ) |
| (Loss) income from continuing operations after income taxes | (351 | ) | (6,775 | ) | 1,760 |
| 358 |
|
| (Loss) income from discontinued operations after income taxes | (671 | ) | 1,748 |
| (568 | ) | 1,403 |
|
| Net (loss) income | (1,022 | ) | (5,027 | ) | 1,192 |
| 1,761 |
|
| Net income attributable to noncontrolling interests | 8 |
| 28 |
| 7 |
| 20 |
|
| Net (loss) income attributable to E. I. du Pont de Nemours and Company | $ | (1,030 | ) | $ | (5,055 | ) | $ | 1,185 |
| $ | 1,741 |
|
See Notes to the Consolidated Financial Statements beginning on page F-106.
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Net (loss) income | $ | (1,022 | ) | $ | (5,027 | ) | $ | 1,192 |
| $ | 1,761 |
|
| Other comprehensive (loss) income - net of tax: |
|
|
|
|
|
|
|
|
| Cumulative translation adjustments | (274 | ) | (1,576 | ) | (490 | ) | 1,042 |
|
| Adjustments to pension benefit plans | (718 | ) | (715 | ) | 125 |
| 247 |
|
| Adjustments to other benefit plans | (160 | ) | 132 |
| (53 | ) | 10 |
|
| Derivative instruments | 28 |
| (24 | ) | (2 | ) | (10 | ) |
| Total other comprehensive (loss) income | (1,124 | ) | (2,183 | ) | (420 | ) | 1,289 |
|
| Comprehensive (loss) income | (2,146 | ) | (7,210 | ) | 772 |
| 3,050 |
|
| Comprehensive income attributable to noncontrolling interests - net of tax | 8 |
| 28 |
| 7 |
| 20 |
|
| Comprehensive (loss) income attributable to E. I. du Pont de Nemours and Company | $ | (2,154 | ) | $ | (7,238 | ) | $ | 765 |
| $ | 3,030 |
|
See Notes to the Consolidated Financial Statements beginning on page F-106.
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
|
| | | | | | |
| (In millions, except share and per share amounts) | December 31, 2019 | December 31, 2018 |
| Assets | |
| |
|
| Current assets | |
| |
|
| Cash and cash equivalents | $ | 1,764 |
| $ | 2,270 |
|
| Marketable securities | 5 |
| 5 |
|
| Accounts and notes receivable - net | 5,528 |
| 5,260 |
|
| Inventories | 5,032 |
| 5,310 |
|
| Other current assets | 1,190 |
| 1,038 |
|
| Assets of discontinued operations - current | — |
| 9,089 |
|
| Total current assets | 13,519 |
| 22,972 |
|
| Investment in nonconsolidated affiliates | 66 |
| 138 |
|
| Property, plant and equipment | 7,872 |
| 7,340 |
|
| Less: Accumulated depreciation | 3,326 |
| 2,796 |
|
| Net property, plant and equipment | 4,546 |
| 4,544 |
|
| Goodwill | 10,229 |
| 10,193 |
|
| Other intangible assets | 11,424 |
| 12,055 |
|
| Deferred income taxes | 287 |
| 304 |
|
| Other assets | 2,326 |
| 1,932 |
|
| Assets of discontinued operations - non-current | — |
| 56,545 |
|
| Total Assets | $ | 42,397 |
| $ | 108,683 |
|
| Liabilities and Equity | |
| |
|
| Current liabilities | |
| |
|
| Short-term borrowings and finance lease obligations | $ | 7 |
| $ | 2,154 |
|
| Accounts payable | 3,702 |
| 3,798 |
|
| Income taxes payable | 95 |
| 186 |
|
| Accrued and other current liabilities | 4,440 |
| 4,005 |
|
| Liabilities of discontinued operations - current | — |
| 3,167 |
|
| Total current liabilities | 8,244 |
| 13,310 |
|
| Long-Term Debt | 115 |
| 5,784 |
|
| Long-Term Debt - Related Party | 4,021 |
| — |
|
| Other Noncurrent Liabilities |
|
|
|
|
| Deferred income tax liabilities | 920 |
| 1,480 |
|
| Pension and other post employment benefits - noncurrent | 6,377 |
| 5,677 |
|
| Other noncurrent obligations | 2,192 |
| 1,795 |
|
| Liabilities of discontinued operations - non-current | — |
| 5,484 |
|
| Total noncurrent liabilities | 13,625 |
| 20,220 |
|
| Commitments and contingent liabilities |
|
|
|
|
| Stockholders’ equity | |
| |
|
Preferred stock, without par value – cumulative; 23,000,000 shares authorized; issued at December 31, 2019, December 31, 2018: |
|
|
|
|
| $4.50 Series – 1,673,000 shares (callable at $120) | 169 |
| — |
|
| $3.50 Series – 700,000 shares (callable at $102) | 70 |
| — |
|
Common stock, $0.30 par value; 1,800,000,000 shares authorized; issued at December 31, 2019 - 200, December 31, 2018 - 100 | — |
| — |
|
| Additional paid-in capital | 23,958 |
| — |
|
| Divisional equity | — |
| 78,259 |
|
| Accumulated deficit | (406 | ) | — |
|
| Accumulated other comprehensive loss | (3,270 | ) | (3,360 | ) |
| Total E. I. du Pont de Nemours and Company stockholders’ equity | 20,521 |
| 74,899 |
|
| Noncontrolling interests | 7 |
| 254 |
|
| Total equity | 20,528 |
| 75,153 |
|
| Total Liabilities and Equity | $ | 42,397 |
| $ | 108,683 |
|
See Notes to the Consolidated Financial Statements beginning on page F-106.
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Operating activities | | | | |
| Net (loss) income | $ | (1,022 | ) | $ | (5,027 | ) | $ | 1,192 |
| $ | 1,761 |
|
| Adjustments to reconcile net (loss) income to cash used for operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization | 1,599 |
| 2,790 |
| 886 |
| 749 |
|
| (Benefit from) provision for deferred income tax | (477 | ) | 31 |
| (2,770 | ) |
|
|
| Net periodic pension (benefit) cost | (264 | ) | (321 | ) | (113 | ) | 295 |
|
| Pension contributions | (121 | ) | (1,314 | ) | (68 | ) | (3,024 | ) |
| Net gain on sales of property, businesses, consolidated companies, and investments | (142 | ) | (11 | ) | (691 | ) | (204 | ) |
| Goodwill impairment charge | 1,102 |
| 4,503 |
| — |
| — |
|
| Loss on early extinguishment of debt | 13 |
| 81 |
| — |
| — |
|
| Restructuring and asset related charges - net | 339 |
| 803 |
| 378 |
|
|
|
| Asset related charges |
|
|
|
|
|
| 279 |
|
| Amortization of inventory step-up | 272 |
| 1,628 |
| 1,573 |
|
|
|
| Other net loss | 246 |
| 262 |
| 106 |
| 481 |
|
| Changes in assets and liabilities, net of effects of acquired and divested companies: |
|
|
|
|
|
|
|
|
| Accounts and notes receivable | (361 | ) | (1,522 | ) | 1,576 |
| (2,269 | ) |
| Inventories | 74 |
| (498 | ) | (903 | ) |
|
|
| Inventories and other operating assets |
|
|
|
|
|
| (202 | ) |
| Accounts payable | 149 |
| 642 |
| 1,106 |
|
|
|
| Accounts payable and other operating liabilities |
|
|
|
|
|
| (1,555 | ) |
| Other assets and liabilities | (411 | ) | (1,564 | ) | 1,402 |
|
|
|
| Accrued interest and income taxes |
|
|
|
|
|
| (260 | ) |
| Cash provided by (used for) operating activities | 996 |
| 483 |
| 3,674 |
| (3,949 | ) |
| Investing activities | |
| | |
| |
| Capital expenditures | (1,163 | ) | (1,501 | ) | (499 | ) | (687 | ) |
| Proceeds from sales of property, businesses, and consolidated companies - net of cash divested | 249 |
| 69 |
| 2,351 |
| 300 |
|
| Acquisitions of businesses - net of cash acquired | (10 | ) | — |
| 3 |
| (246 | ) |
| Investments in and loans to nonconsolidated affiliates | (10 | ) | (8 | ) | (5 | ) | (22 | ) |
| Proceeds from sale of ownership interest in nonconsolidated affiliates | 21 |
| 9 |
| — |
| — |
|
| Purchases of investments | (138 | ) | (1,257 | ) | (1,043 | ) | (5,457 | ) |
| Proceeds from sales and maturities of investments | 160 |
| 2,186 |
| 2,938 |
| 3,977 |
|
| Foreign currency exchange contract settlements |
|
|
|
|
|
| (206 | ) |
| Other investing activities - net | (13 | ) | (3 | ) | (67 | ) | (41 | ) |
| Cash (used for) provided by investing activities | (904 | ) | (505 | ) | 3,678 |
| (2,382 | ) |
| Financing activities | |
| | |
| |
| Change in short-term (less than 90 days) borrowings | (1,868 | ) | 400 |
| (2,541 | ) | 3,610 |
|
| Proceeds from related party long term debt | 4,240 |
| — |
| — |
| — |
|
| Payments on related party long term debt | (219 | ) | — |
| — |
| — |
|
| Proceeds from issuance of long-term debt | 1,001 |
| 756 |
| 499 |
| 2,734 |
|
| Payments on long-term debt | (6,804 | ) | (5,956 | ) | (43 | ) | (229 | ) |
| Proceeds from exercise of stock options | 47 |
| 85 |
| 30 |
| 235 |
|
| Dividends paid to stockholders | (10 | ) | (10 | ) | (332 | ) | (666 | ) |
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
|
| | | | | | | | | | | | |
| | Successor | Predecessor |
| (In millions) | 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 |
| Distributions to Dow and DowDuPont | (317 | ) | (2,806 | ) | (1,200 | ) |
|
|
| Contributions from Dow and DowDuPont | 3,255 |
| 5,363 |
| — |
|
|
|
| Cash transferred to DowDuPont at Internal Reorganization | (2,053 | ) | — |
| — |
|
|
|
| Debt extinguishment costs | (79 | ) | (378 | ) | — |
| — |
|
| Other financing activities | (48 | ) | (78 | ) | (20 | ) | (52 | ) |
| Cash (used for) provided by financing activities | (2,855 | ) | (2,624 | ) | (3,607 | ) | 5,632 |
|
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (88 | ) | (244 | ) | (22 | ) | 187 |
|
| Change in cash classified as held for sale | — |
| — |
| 88 |
| (31 | ) |
| (Decrease) increase in cash, cash equivalents and restricted cash | (2,851 | ) | (2,890 | ) | 3,811 |
| (543 | ) |
| Cash, cash equivalents and restricted cash at beginning of period | 5,024 |
| 7,914 |
| 4,103 |
| 4,548 |
|
| Cash, cash equivalents and restricted cash at end of period | $ | 2,173 |
| $ | 5,024 |
| $ | 7,914 |
| $ | 4,005 |
|
| Supplemental cash flow information | | | | |
| Cash paid (received) during the period for | | | | |
| Interest, net of amounts capitalized | $ | 263 |
| $ | 923 |
| $ | 83 |
| $ | 331 |
|
| Income taxes | 234 |
| 961 |
| (215 | ) | 272 |
|
See Notes to the Consolidated Financial Statements beginning on page F-106.
E. I. du Pont de Nemours and Company
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Preferred Stock | Common Stock | Additional Paid-in Capital | Divisional Equity | Retained Earnings (Accum Deficit) | Accumulated Other Comp Loss | Treasury Stock | Non-controlling Interests | Total Equity |
| Predecessor |
| Balance at January 1, 2017 | $ | 237 |
| $ | 285 |
| $ | 11,190 |
| | $ | 14,924 |
| $ | (9,911 | ) | $ | (6,727 | ) | $ | 198 |
| $ | 10,196 |
|
| Net income |
|
|
|
|
|
| | 1,741 |
|
|
|
|
| 20 |
| 1,761 |
|
| Other comprehensive income |
|
|
|
|
|
| |
|
| 1,289 |
|
|
|
|
| 1,289 |
|
| Common dividends ($1.14 per share) |
|
|
|
|
|
| | (991 | ) |
|
|
|
| (4 | ) | (995 | ) |
| Preferred dividends ($4.50 Series - $3.375 per share, $3.50 Series - $2.625 per share) |
|
|
|
|
|
| | (7 | ) |
|
|
|
|
|
| (7 | ) |
| Share-based compensation |
|
| 2 |
| 273 |
| |
|
|
|
|
|
|
|
| 275 |
|
| Common stock retired |
|
| (26 | ) | (1,044 | ) | | (5,657 | ) |
|
| 6,727 |
|
|
| — |
|
| Other |
|
|
|
|
|
| |
|
|
|
|
|
| (2 | ) | (2 | ) |
| Balance at August 31, 2017 | $ | 237 |
| $ | 261 |
| $ | 10,419 |
|
|
| $ | 10,010 |
| $ | (8,622 | ) | $ | — |
| $ | 212 |
| $ | 12,517 |
|
| | | | | | | | | | |
| Successor |
| Balance at September 1, 2017 (remeasured upon Merger) | $ | — |
| $ | — |
| $ | — |
| $ | 80,526 |
| $ | — |
| $ | (757 | ) | $ | — |
| $ | 204 |
| $ | 79,973 |
|
| Net income |
|
|
|
|
|
| 1,185 |
|
|
|
|
|
|
| 7 |
| 1,192 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
|
|
| (420 | ) |
|
|
|
| (420 | ) |
| Preferred dividends ($4.50 Series - $1.125 per share, $3.50 Series - $0.875 per share) |
|
|
|
|
|
| (3 | ) |
|
|
|
|
|
|
|
| (3 | ) |
| Distributions to Dow and DowDuPont |
|
|
|
|
|
| (1,200 | ) |
|
|
|
|
|
|
|
| (1,200 | ) |
| Issuance of DowDuPont stock |
|
|
|
|
|
| 30 |
|
|
|
|
|
|
|
|
| 30 |
|
| Share-based compensation |
|
|
|
|
|
| 36 |
|
|
|
|
|
|
|
|
| 36 |
|
| Other |
|
|
|
|
|
| (17 | ) |
|
|
|
|
|
| 2 |
| (15 | ) |
| Balance at December 31, 2017 | $ | — |
| $ | — |
| $ | — |
| $ | 80,557 |
| $ | — |
| $ | (1,177 | ) | $ | — |
| $ | 213 |
| $ | 79,593 |
|
| Net (loss) income |
|
|
|
|
|
| (5,055 | ) |
|
|
|
|
|
| 28 |
| (5,027 | ) |
| Other comprehensive loss |
|
|
|
|
|
|
|
|
|
| (2,183 | ) |
|
|
|
| (2,183 | ) |
| Preferred dividends ($4.50 Series - $4.50 per share, $3.50 Series - $3.50 per share) |
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
|
|
| (10 | ) |
| Distributions to Dow and DowDuPont |
|
|
|
|
|
| (2,806 | ) |
|
|
|
|
|
|
|
| (2,806 | ) |
| Issuance of DowDuPont stock |
|
|
|
|
|
| 85 |
|
|
|
|
|
|
|
|
| 85 |
|
| Share-based compensation |
|
|
|
|
|
| 129 |
|
|
|
|
|
|
|
|
| 129 |
|
| Contributions from Dow and DowDuPont | | | | 5,363 |
| | | | | 5,363 |
|
| Other |
|
|
|
|
|
| (4 | ) |
|
|
|
|
|
| 13 |
| 9 |
|
| Balance at December 31, 2018 | $ | — |
| $ | — |
| $ | — |
| $ | 78,259 |
| $ | — |
| $ | (3,360 | ) | $ | — |
| $ | 254 |
| $ | 75,153 |
|
| Net (loss) income |
|
|
|
|
|
| (640 | ) | (390 | ) |
|
|
|
| 8 |
| (1,022 | ) |
| Other comprehensive loss |
|
|
|
|
|
|
|
|
|
| (1,124 | ) |
|
|
|
| (1,124 | ) |
| Preferred dividends ($4.50 Series - $4.50 per share, $3.50 Series - $3.50 per share) |
|
|
|
| (2 | ) | (2 | ) | (6 | ) |
|
|
|
|
|
| (10 | ) |
| Distributions to Dow and DowDuPont |
|
|
|
|
|
| (317 | ) |
|
|
|
|
|
|
|
| (317 | ) |
| Contributions from DowDuPont |
|
|
|
|
|
| 3,255 |
|
|
|
|
|
|
|
|
| 3,255 |
|
| Issuance of DowDuPont stock |
|
|
|
|
|
| 39 |
|
|
|
|
|
|
|
|
| 39 |
|
| Issuance of Corteva stock |
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| 8 |
|
| Share-based compensation |
|
|
|
| 41 |
| 62 |
|
|
|
|
|
|
|
|
| 103 |
|
| Impact of Internal Reorganizations |
|
|
|
|
|
| (56,479 | ) |
|
| 1,214 |
|
|
| (231 | ) | (55,496 | ) |
| Reclassification of Divisional Equity to Additional Paid-in Capital | 239 |
|
|
| 23,936 |
| (24,175 | ) |
|
|
|
|
|
|
|
| — |
|
| Other |
|
|
|
| (25 | ) | (2 | ) | (10 | ) |
|
|
|
| (24 | ) | (61 | ) |
| Balance at December 31, 2019 | $ | 239 |
| $ | — |
| $ | 23,958 |
| $ | — |
| $ | (406 | ) | $ | (3,270 | ) | $ | — |
| $ | 7 |
| $ | 20,528 |
|
See Notes to the Consolidated Financial Statements beginning on page F-106.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements
Table of Contents
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
NOTE 1- BASIS OF PRESENTATION
As a result of the Business Realignment and the Internal Reorganization, Corteva, Inc. owns 100% of the outstanding common stock of EID. EID is a subsidiary of Corteva, Inc. and continues to be a reporting company, subject to the requirements of the Exchange Act. The primary differences between Corteva, Inc. and EID are outlined below:
| |
| • | Preferred Stock - EID has preferred stock outstanding to third parties which is accounted for as a noncontrolling interest at the Corteva level. Each share of EID Preferred Stock - $4.50 Series and EID Preferred Stock - $3.50 Series issued and outstanding at the effective date of the Corteva Distribution remains issued and outstanding as to EID and was unaffected by the Corteva Distribution. |
| |
| • | Related Party Loan - EID engaged in a series of debt redemptions during the second quarter of 2019 that were partially funded through an intercompany loan from Corteva, Inc. This was eliminated in consolidation at the Corteva level but remains on EID's financial statements at the standalone level (including the associated interest expense). |
| |
| • | Capital Structure - At December 31, 2019, Corteva, Inc.'s capital structure consists of 748,577,000 issued shares of common stock, par value $0.01 per share. |
The accompanying footnotes relate to EID only, and not to Corteva, Inc., and are presented to show differences between EID and Corteva, Inc. For the footnotes listed below, refer to the footnotes from the Corteva 10-K:
| |
| • | Note 1 - Background and Basis of Presentation - refer to page F-16 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 2 - Summary of Significant Accounting Policies - refer to page F-18 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 3 - Recent Accounting Guidance - refer to page F-24 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 4 - Common Control Business Combination - refer to page F-26 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 5 - Divestitures and Other Transactions - refer to page F-28 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 6 - Revenue - refer to page F-35 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 7 - Restructuring and Asset Related Charges - Net - refer to page F-38 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 8 - Related Parties - Differences exist between Corteva, Inc. and EID; refer to EID Note 2 - Related Party Transactions, below |
| |
| • | Note 9 - Supplementary Information - refer to page F-41 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 10 - Income Taxes - Differences exist between Corteva, Inc. and EID; refer to EID Note 3 - Income Taxes, below |
| |
| • | Note 11 - Earnings Per Share - N/A for EID |
| |
| • | Note 12 - Accounts and Notes Receivable - Net - refer to page F-49 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 13 - Inventories - refer to page F-50 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 14 - Property, Plant and Equipment - refer to page F-50 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 15 - Goodwill and Other Intangible Assets - refer to page F-51 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 16 - Leases - refer to page F-54 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 17 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities - refer to page F-56 of the Corteva, Inc. Consolidated Financial Statements. In addition, EID has a related party loan payable to Corteva, Inc.; refer to EID Note 2 - Related Party Transactions, below |
| |
| • | Note 18 - Commitments and Contingent Liabilities - refer to page F-59 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 19 - Stockholders' Equity - refer to page F-64 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 20 - Pension Plans and Other Post Employment Benefits - refer to page F-67 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 21 - Stock-Based Compensation - refer to page F-77 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 22 - Financial Instruments - refer to page F-82 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 23 - Fair Value Measurements - refer to page F-85 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 24 - Geographic Information - refer to page F-87 of the Corteva, Inc. Consolidated Financial Statements |
| |
| • | Note 25 - Segment Information - Differences exist between Corteva, Inc. and EID; refer to EID Note 4 - Segment Information, below |
| |
| • | Note 26 - Quarterly Information - Differences exist between Corteva, Inc. and EID; refer to EID Note 5 - Quarterly Information, below |
| |
| • | Note 27 - Subsequent Events - Refers to page F-94 of the Corteva, Inc. Consolidated Financial Statements |
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
NOTE 2 - RELATED PARTY TRANSACTIONS
Refer to page F-40 of the Corteva, Inc. Consolidated Financial Statements for discussion of related party transactions with Historical Dow and DowDuPont.
Transactions with Corteva
In the second quarter of 2019, EID entered into a related party revolving loan from Corteva, Inc., with a maturity date in 2024. As of December 31, 2019, the outstanding related party loan balance was $4,021 million (which approximates fair value) with an interest rate of 3.27%, and is reflected as long-term debt - related party on EID's Consolidated Balance Sheet. Additionally, EID has incurred tax deductible interest expense of $106 million for the year ended December 31, 2019 associated with the related party loan to Corteva, Inc.
As of December 31, 2019, EID had payables to Corteva, Inc., the parent company, of $119 million and $154 million included in accrued and other current liabilities and other noncurrent obligations, respectively, in the Consolidated Balance Sheet related to Corteva's indemnification liabilities to Dow and DuPont per the Separation Agreements (refer to page F-28 of the Corteva, Inc. Consolidated Financial Statements for further details of the Separation Agreements).
NOTE 3 - INCOME TAXES
Refer to page F-43 of the Corteva, Inc. Consolidated Financial Statements for discussion of tax items that do not differ between Corteva, Inc. and EID.
|
| | | | | | | | | | | | |
| Geographic Allocation of (Loss) Income and Provision for (Benefit from) Income Taxes | Successor | Predecessor |
| (In millions) | 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 |
| (Loss) Income from continuing operations before income taxes | | | | |
| Domestic | $ | (1,458 | ) | $ | (5,040 | ) | $ | (961 | ) | $ | (519 | ) |
| Foreign | 1,036 |
| (1,766 | ) | 500 |
| 482 |
|
| Loss from continuing operations before income taxes | $ | (422 | ) | $ | (6,806 | ) | $ | (461 | ) | $ | (37 | ) |
| Current tax expense (benefit) | | | | |
| Federal | $ | (11 | ) | $ | (112 | ) | $ | 8 |
| $ | (581 | ) |
| State and local | 1 |
| (32 | ) | 11 |
| (117 | ) |
| Foreign | 317 |
| 446 |
| 287 |
| 81 |
|
| Total current tax expense (benefit) | $ | 307 |
| $ | 302 |
| $ | 306 |
| $ | (617 | ) |
| Deferred tax (benefit) expense | | | | |
| Federal | $ | (417 | ) | $ | (124 | ) | $ | (2,373 | ) | $ | 188 |
|
| State and local | 156 |
| (39 | ) | 3 |
| 79 |
|
| Foreign | (117 | ) | (170 | ) | (157 | ) | (45 | ) |
| Total deferred tax (benefit) expense | $ | (378 | ) | $ | (333 | ) | $ | (2,527 | ) | $ | 222 |
|
| Benefit from income taxes on continuing operations | (71 | ) | (31 | ) | (2,221 | ) | (395 | ) |
| Net (loss) income from continuing operations | $ | (351 | ) | $ | (6,775 | ) | $ | 1,760 |
| $ | 358 |
|
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
|
| | | | | | | | |
| Reconciliation to U.S. Statutory Rate | Successor | Predecessor |
| | 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 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 35.0 | % | 35.0 | % |
| Equity earning effect | 0.1 |
| 0.1 |
| 1.9 |
| (2.7 | ) |
Effective tax rates on international operations - net 1 | (13.8 | ) | 0.4 |
| 24.3 |
| 244.9 |
|
Acquisitions, divestitures and ownership restructuring activities 2, 3, 4 | (8.0 | ) | (2.3 | ) | 63.0 |
| (64.7 | ) |
| U.S. research and development credit | 5.2 |
| 0.1 |
| 1.4 |
| 24.4 |
|
Exchange gains/losses 5 | (1.3 | ) | (1.3 | ) | (8.8 | ) | 650.1 |
|
SAB 118 Impact of Enactment of U.S. Tax Reform6 | — |
| (3.0 | ) | 371.2 |
| — |
|
Impact of Swiss Tax Reform7 | 8.9 |
| — |
| — |
| — |
|
| Excess tax benefits (tax deficiency) from stock compensation | (0.5 | ) | 0.1 |
| 1.0 |
| 38.3 |
|
Tax settlements and expiration of statute of limitations8 | 2.9 |
| (0.1 | ) | — |
| 146.4 |
|
Goodwill impairment 9 | — |
| (15.2 | ) | — |
| — |
|
| Other - net | 2.3 |
| 0.7 |
| (7.2 | ) | (4.1 | ) |
| Effective tax rate | 16.8 | % | 0.5 | % | 481.8 | % | 1,067.6 | % |
| |
| 1. | Includes the effects of local and U.S. taxes related to earnings of non-U.S. subsidiaries, changes in the amount of unrecognized tax benefits associated with these earnings, losses at non-U.S. subsidiaries without local tax benefits due to valuation allowances, and other permanent differences between tax and U.S. GAAP results. |
| |
| 2. | See Notes 4 - Common Control Business Combination, and Note 5 - Divestitures and Other Transactions, of the Corteva, Inc. Consolidated Financial Statements for additional information. |
| |
| 3. | Includes a net tax charge of $50 million related to repatriation activities to facilitate the Business Separations for the year ended December 31, 2018. |
| |
| 4. | Includes a net tax charge of $25 million and a net tax benefit of $261 million for the year ended December 31, 2018 and the period September 1 through December 31, 2017, respectively, related to an internal legal entity restructuring associated with the Business Separations. |
| |
| 5. | Principally reflects the impact of foreign exchange gains and losses on net monetary assets for which no corresponding tax impact is realized. Further information about the company's foreign currency hedging program is included in Note 9 - Supplementary Information, and Note 22 - Financial Instruments, of the Corteva, Inc. Consolidated Financial Statements under the heading Foreign Currency Risk. |
| |
| 6. | Reflects a net tax benefit of $2,067 million and a net tax charge of $164 million associated with the company's completion of the accounting for the tax effects of The Act for the period September 1 through December 31, 2017 and the year ended December 31, 2018, respectively. |
| |
| 7. | Reflects tax benefits of $38 million associated with the enactment of the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Reform"). |
| |
| 8. | The period January 1 through August 31, 2017 includes a tax benefit of $46 million related to changes in accruals for certain prior year tax positions and the tax effect of the associated accrued interest reversals. |
| |
| 9. | Reflects the impact of the non-tax-deductible, non-cash 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 for the year ended December 31, 2018. |
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
NOTE 4 - SEGMENT INFORMATION
There are no differences in reporting structure or segments between Corteva, Inc. and EID. In addition, there are no differences between Corteva, Inc. and EID segment net sales, segment operating EBITDA or pro forma segment operating EBITDA, segment assets, or significant items by segment; refer to page F-88 of the Corteva, Inc. Consolidated Financial Statements for background information on the segments as well as further details regarding segment metrics. The tables below reconcile segment pro forma operating EBITDA to income from continuing operations after income taxes as differences exist between Corteva, Inc. and EID.
Reconciliation to Consolidated Financial Statements
|
| | | | | | |
Loss from continuing operations after income taxes to pro forma segment operating EBITDA1 (In millions) | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 |
| Loss from continuing operations after income taxes | $ | (351 | ) | $ | (6,775 | ) |
| Benefit from income taxes on continuing operations | (71 | ) | (31 | ) |
| Loss from continuing operations before income taxes | (422 | ) | (6,806 | ) |
| Depreciation and amortization | 1,000 |
| 909 |
|
| Interest income | (59 | ) | (86 | ) |
| Interest expense | 242 |
| 337 |
|
Exchange losses - net 2 | 66 |
| 77 |
|
| Non-operating benefits - net | (129 | ) | (211 | ) |
| Goodwill impairment charge | — |
| 4,503 |
|
| Significant items | 991 |
| 1,346 |
|
| Pro forma adjustments | 298 |
| 2,003 |
|
| Corporate expenses | 119 |
| 141 |
|
| Pro forma segment operating EBITDA | $ | 2,106 |
| $ | 2,213 |
|
| |
| 1. | Segment operating EBITDA for all periods is presented on a pro forma basis, prepared in accordance with Article 11 of Regulation S-X. |
| |
| 2. | Excludes a $(33) million foreign exchange loss for the year ended December 31, 2019 associated with the devaluation of the Argentine peso and a $(50) million foreign exchange loss for the year ended December 31, 2018 related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform, as they are included within significant items. See Note 9 - Supplementary Information, of the Corteva, Inc. Consolidated Financial Statements for additional information. |
As a result of the common control combination with DAS and the push-down accounting reflecting the fair value of EID's assets and liabilities at The Merger Effectiveness Time, the company has concluded it is impracticable to separately report segment results for the Successor 2017 and Predecessor 2017 periods.
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
NOTE 5 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The only difference between Corteva, Inc. and EID for Q1 2019 and prior quarters is the treatment of the preferred shares, which are treated as noncontrolling interests at the Corteva, Inc. level. For quarters subsequent to Q1 2019, in addition to the treatment of the preferred shares, there are differences in interest expense, (loss) income from continuing operations after income taxes, net and net (loss) income attributable to EID, as a result of the interest expense (and associated tax benefit) on the related party loan between Corteva, Inc. and EID. Refer to page F-92 of the Corteva, Inc. Consolidated Financial Statements for discussion of quarterly information that does not differ between Corteva, Inc. and EID. The tables below represent the quarterly information for EID for which there are differences from Corteva, Inc. Refer to page F-92 of the Corteva, Inc. Consolidated Financial Statements for discussion of significant items by quarter.
|
| | | | | | | | | | | | | | | | |
| | For the quarter ended |
| In millions (unaudited) | March 31, | June 30, | September 30, | December 31, |
| 2019 | | | | | | | | |
| (Loss) income from continuing operations after income taxes | $ | (184 | ) | | $ | 460 |
| | $ | (557 | ) | | $ | (70 | ) | |
| Net income (loss) attributable to EID | $ | 166 |
| | $ | (626 | ) | | $ | (524 | ) | | $ | (46 | ) | |
| 2018 | | | | | | | | |
| Net (loss) income attributable to EID | $ | (105 | ) | | $ | 697 |
| | $ | (5,119 | ) | | $ | (528 | ) | |
As discussed in Note 1, Background and Basis of Presentation, of the Corteva, Inc. Consolidated Financial Statements, the company has recasted its financial statements for the divestiture of EID ECP, the divestiture of the EID Specialty Products Entities, and for the DAS common control business combination. Below is a reconciliation from the amounts previously reported in the company's quarterly reports on Form 10-Q or annual report on Form 10-K to the recasted amounts reported above for the applicable periods for those items for which differences exist between Corteva, Inc. and EID. Refer to page F-93 of the Corteva, Inc. Consolidated Financial Statements for reconciliations for those line items that do not differ between Corteva, Inc. and EID.
|
| | | | | | | | | | | | |
| For the Quarter Ended March 31, 2019 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | EID |
| Income (loss) from continuing operations after income taxes | $ | 89 |
| $ | (369 | ) | $ | 96 |
| $ | (184 | ) |
| Net income attributable to EID | $ | 85 |
| $ | (9 | ) | $ | 90 |
| $ | 166 |
|
|
| | | | | | | | | | | | |
| For the Quarter Ended December 31, 2018 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | EID |
| Net loss attributable to EID | $ | (354 | ) | $ | (25 | ) | $ | (149 | ) | $ | (528 | ) |
|
| | | | | | | | | | | | |
| For the Quarter Ended March 31, 2018 |
| (In millions) | Historical EID | Discontinued Operations and Other Adjustments1 | DAS | EID |
| Net loss attributable to EID | $ | (228 | ) | $ | 1 |
| $ | 122 |
| $ | (105 | ) |
| |
| 1. | Reflects discontinued operations of EID's ECP and Specialty Products businesses and adjustments primarily related to the elimination of intercompany transactions between Historical EID and Dow AgroSciences for periods subsequent to the Merger, as if they were combined affiliates. |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
