CORTEVA, INC. This report contains certain estimates and forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and may be identified by their use of words like "plans," "expects," "will," "anticipates," "believes," "intends," "projects," "estimates," "outlook," or other words of similar meaning. All statements that address expectations or projections about the future, including statements aboutCorteva's strategy for growth, product development, regulatory approval, market position, liquidity, anticipated benefits of recent acquisitions, timing of anticipated benefits from restructuring actions, outcome of contingencies, such as litigation and environmental matters, expenditures, and financial results, as well as its expectations related to its separation ofCorteva from DowDuPont and the agreements related thereto, are forward-looking statements. Forward-looking statements and other estimates are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements and other estimates also involve risks and uncertainties, many of which are beyondCorteva's control. While the list of factors presented below is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect onCorteva's business, results of operations and financial condition. Some of the important factors that could causeCorteva's actual results to differ materially from those projected in any such forward-looking statements include: (i) failure to obtain or maintain the necessary regulatory approvals for some ofCorteva's products; (ii) failure to successfully develop and commercializeCorteva's pipeline; (iii) effect of the degree of public understanding and acceptance or perceived public acceptance ofCorteva's biotechnology and other agricultural products; (iv) effect of changes in agricultural and related policies of governments and international organizations; (v) effect of competition and consolidation inCorteva's industry; (vi) effect of competition from manufacturers of generic products; (vii) costs of complying with evolving regulatory requirements and the effect of actual or alleged violations of environmental laws or permit requirements; (viii) effect of climate change and unpredictable seasonal and weather factors; (ix) risks related to oil and commodity markets; (x) competitor's establishment of an intermediary platform for distribution ofCorteva's products; (xi) impact ofCorteva's dependence on third parties with respect to certain of its raw materials or licenses and commercialization; (xii) effect of industrial espionage and other disruptions toCorteva's supply chain, information technology or network systems; (xiii) effect of volatility inCorteva's input costs; (xiv) failure to realize the anticipated benefits of the internal reorganizations taken by DowDuPont in connection with the spin-off ofCorteva and other cost savings initiatives; (xv) failure to raise capital through the capital markets or short-term borrowings on terms acceptable toCorteva ; (xvi) failure ofCorteva's customers to pay their debts toCorteva , including customer financing programs; (xvii) increases in pension and other post-employment benefit plan funding obligations; (xviii) risks related to the indemnification obligations of legacy EID liabilities in connection with the separation ofCorteva ; (xix) effect of compliance with laws and requirements and adverse judgments on litigation; (xx) risks related toCorteva's global operations; (xxi) failure to effectively manage acquisitions, divestitures, alliances and other portfolio actions; (xxii) risks related to COVID-19; (xxiii) risks related to activist stockholders; (xxiv)Corteva's intellectual property rights or defend against intellectual property claims asserted by others; (xxv) effect of counterfeit products; (xxvi)Corteva's dependence on intellectual property cross-license agreements; and (xxvii) other risks related to the separation from DowDuPont. Additionally, there may be other risks and uncertainties thatCorteva is unable to currently identify or thatCorteva 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 ofCorteva's management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished.Corteva disclaims and does not undertake any obligation to update or revise any forward-looking statement, except as required by applicable law. A detailed discussion of some of the significant risks and uncertainties which may cause results and events to differ materially from such forward-looking statements or other estimates is included in the "Risk Factors" section ofCorteva's Annual Report on Form 10-K, as modified by subsequent Quarterly Reports on Forms 10-Q and Current Reports on Form 8-K. 38
-------------------------------------------------------------------------------- Table of Contents Recent Developments COVID-19 Pandemic OnMarch 11, 2020 , theWorld Health Organization ("WHO") declared the novel coronavirus disease ("COVID-19") a pandemic. The global health crisis caused by COVID-19 and the related government actions and stay at home orders have negatively impacted economic activity and increased political instability across the globe. Since the crisis beganCorteva has engaged its global Integrated Health Services Pandemic & Infectious Disease Team to take actions and implement guidelines and protocols in response to the COVID-19 pandemic described in its 2020 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, COVID-19 Pandemic. When COVID-19 is demonstrably contained, the company anticipates a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments, vaccination rates, and the ability of COVD-19 variants to overcome containment efforts, available vaccines, and medical treatments.Corteva will continue to actively monitor the situation and may take further actions altering its business operations that it determines are in the best interests of its stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on the company's business, including the effects on its customers, employees, and prospects, or on its financial results for 2021 and beyond. With the ongoing volatility in global markets, the company will continue to monitor various factors that could impact earnings and cash flows of the business, including, but not limited to the inflation of, or unavailability of raw material inputs and transportation and logistics services, currency fluctuations, expectations of future planted area (as influenced by consumer demand, ethanol markets and government policies and regulations), trade and purchasing of commodities globally and relative commodity prices. 2021 Restructuring Actions OnFebruary 1, 2021 ,Corteva approved restructuring actions designed to right-size and optimize footprint and organizational structure according to the business needs in each region with the focus on driving continued cost improvement and productivity. As a result of these actions, the company expects to record total pre-tax restructuring charges of approximately$130 million to$170 million , comprised of approximately$40 million to$50 million of severance and related benefit costs,$40 million to$60 million of asset related charges,$10 million to$15 million of asset retirement obligations and$40 million to$45 million of costs related to contract terminations (contract terminations includes early lease terminations). Future cash payments related to this charge are anticipated to be approximately$80 million to$100 million , primarily related to the payment of severance and related benefits, asset retirement obligations, and costs related to contract terminations. The restructuring actions associated with this charge are expected to be substantially complete in 2021. During the three months endedMarch 31, 2021 , the company recorded pre-tax charges of$89 million , recognized in restructuring and asset related charges - net in the company's interim Consolidated Statement of Operations, primarily related to the payment of severance and related benefits and contract termination charges. The 2021 Restructuring Actions are expected to contribute to the company's ongoing cost and productivity improvement efforts through achieving an estimated$70 million of savings on a run rate basis by 2023. See Note 5 - Restructuring and Asset Related Charges - Net, to the interim Consolidated Financial Statements for additional information. Share Buyback Plan OnJune 26, 2019 ,Corteva, Inc. announced that its Board of Directors authorized a$1 billion share repurchase program to purchaseCorteva, Inc.'s common stock, par value$0.01 per share, without an expiration date. The company expects to complete the share repurchase program in 2021. The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors. During the three months endedMarch 31, 2021 , the company purchased and retired 7,646,000 shares in the open market for a total cost of$350 million . During the three months endedMarch 31, 2020 , the company purchased and retired 1,865,000 shares in the open market for a total cost of$50 million . 39 -------------------------------------------------------------------------------- Table of Contents Overview
The following is a summary of results from continuing operations for the three
months ended
•The company reported net sales of$4,178 million , up 6 percent versus the same quarter last year, reflecting a 3 percent increase in volume and a 3 percent increase in price. Volume and price gains were driven by continued penetration of new products, coupled with favorable overall market fundamentals. •Cost of goods sold ("COGS") totaled$2,420 million in the first quarter of 2021, up from$2,269 million in the first quarter of 2020, primarily driven by increased volumes and higher input costs, partially offset by ongoing cost and productivity actions. •Restructuring and asset related charges - net were$100 million in the first quarter of 2021, an increase from$70 million in the first quarter of 2020. The charges in the first quarter of 2021 primarily relate to severance and related benefit costs, asset related charges, and contract termination charges associated with 2021 Restructuring Actions.
•Income from continuing operations after income taxes was
•Operating EBITDA was$904 million for the three months endedMarch 31, 2021 , up from$794 million for the three months endedMarch 31, 2020 , primarily driven by strong price execution and volume gains, which collectively more than offset cost headwinds. The company experienced market-driven cost headwinds in the quarter, including cost increases in freight and logistics, as well as raw materials. These headwinds were partially offset by the company's ongoing execution on its productivity programs. Refer to page 48 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 three months ended
•The company returned approximately
40
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Table of Contents
Selected Financial Data
Three Months Ended
In millions, except per share amounts March 31,
2021 2020
Net sales $ 4,178 $ 3,956
Cost of goods sold $ 2,420 $ 2,269
Percent of net sales 58 % 57 %
Research and development expense $ 281 $ 280
Percent of net sales 7 % 7 %
Selling, general and administrative expenses $ 733 $ 757
Percent of net sales 18 % 19 %
Effective tax rate on continuing operations 22.5 % 31.1 %
Income from continuing operations after income taxes $
613 $ 281
Income from continuing operations available to
$ 610 $ 271
Basic earnings per share of common stock from continuing operations
$ 0.82 $ 0.36
Diluted earnings per share of common stock from continuing
operations $ 0.81 $ 0.36
41-------------------------------------------------------------------------------- Table of Contents Results of Operations Net Sales Net sales were$4,178 million and$3,956 million for the three months endedMarch 31, 2021 and 2020, respectively. Volume and local price both increased 3 percent versus the prior-year period, primarily driven by the ongoing penetration of new products coupled with favorable overall market fundamentals. Gains were reported in most regions, led by double-digit growth inLatin America . Three Months Ended March 31, 2021 2020 Net Sales Net Sales ($ Millions) % ($ Millions) % Worldwide$ 4,178 100 %$ 3,956 100 % North America1 1,743 42 % 1,765 45 % EMEA2 1,602 38 % 1,467 37 % Latin America 518 12 % 434 11 % Asia Pacific 315 8 % 290 7 % Q1 2021 vs. Q1 2020 Percent Change Due To: Net Sales Change Local Price & Portfolio / $ In millions $ % Product Mix Volume Currency Other North America1$ (22) (1) % 1 % (3) % 1 % - % EMEA2 135 9 % 3 % 3 % 3 % - % Latin America 84 19 % 14 % 24 % (19) % - % Asia Pacific 25 9 % 3 % 6 % 4 % (4) % Total$ 222 6 % 3 % 3 % - % - % 1.RepresentsU.S. &Canada . 2.Europe,Middle East , andAfrica ("EMEA"). Cost of Goods Sold COGS was$2,420 million (58 percent of net sales) and$2,269 million (57 percent of net sales) for the three months endedMarch 31, 2021 and 2020, respectively. The increase was primarily driven by higher input costs in both crop protection and seed. Also, the company experienced higher seed freight costs due to lower service capacity combined with an increase in volumes, all partially offset by ongoing cost and productivity actions. Research and Development Expense R&D expense was$281 million (7 percent of net sales) and$280 million (7 percent of net sales) for the three months endedMarch 31, 2021 and 2020, respectively. R&D expense was essentially flat, as compared to prior year, as increases in spending to support new product launches were offset by ongoing cost and productivity actions. Selling, General and Administrative Expenses SG&A expenses were$733 million (18 percent of net sales) and$757 million (19 percent of net sales) for the three months endedMarch 31, 2021 and 2020, respectively. The decrease was primarily driven by lower bad debt expense due to a reduction in the reserve percentage used based on improvements in the loss history, lower travel expense due to COVID-19 related restrictions put into place late in the first quarter of 2020, and favorable currency, partially offset by higher commission expense due to an increase in sales. Amortization of Intangibles Intangible asset amortization was$183 million and$163 million for the three months endedMarch 31, 2021 and 2020, respectively. The increase was primarily driven by amortization of the trade name asset that was changed from indefinite lived intangible asset to definite lived in the fourth quarter of 2020. See Note 11 - Other Intangible Assets, to the interim Consolidated Financial Statements for additional information. 42
-------------------------------------------------------------------------------- Table of Contents Restructuring and Asset Related Charges - Net Restructuring and asset related charges - net were$100 million and$70 million for the three months endedMarch 31, 2021 and 2020, respectively. The charges in the first quarter of 2021 primarily relate to severance and related benefit costs, contract termination charges, and asset related charges associated with 2021 Restructuring Actions. The charges in the first quarter of 2020 primarily relate to severance and related benefit costs and asset related charges under the Execute to Win Productivity Program. In addition, during the three months endedMarch 31, 2021 and 2020, the company recognized$7 million and$10 million , respectively, in restructuring and asset related charges, net in the interim Consolidated Statement of Operations, from non-cash accelerated prepaid royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.
See Note 5 - Restructuring and Asset Related Charges, Net, to the interim Consolidated Financial Statements for additional information.
Other Income - Net Other income - net was$337 million and$1 million for the three months endedMarch 31, 2021 and 2020, respectively. The increase was primarily due to an increase in non-operating pension and other post employment benefit credit, driven by theDecember 2020 OPEB plan amendments as discussed in the 2020 Annual Report. In addition, Other income - net for the quarter endedMarch 31, 2020 includes a$(53) million loss on the sale of the La Porte site. See Note 6 - Supplementary Information, to the interim Consolidated Financial Statements for additional information. Pre-tax net exchange losses were$35 million and$61 million for the three months endedMarch 31, 2021 and 2020, respectively. The company routinely uses forward exchange contracts to offset its net exposures, by currency denominated monetary assets and liabilities of its operations. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes. The net pre-tax exchange gains and losses are recorded in other income - net and the related tax impact is recorded in provision for (benefit from) income taxes on continuing operations in the interim Consolidated Statement of Operations. Interest Expense Interest expense was$7 million and$10 million for the three months endedMarch 31, 2021 and 2020, respectively. The change was primarily driven by lower average commercial paper balances and lower interest rates, partially offset by higher average long-term borrowings. Provision for Income Taxes on Continuing Operations The company's provision for income taxes on continuing operations was$178 million for the three months endedMarch 31, 2021 on pre-tax income from continuing operations of$791 million , resulting in an effective tax rate of 22.5 percent. The effective tax rate was unfavorably impacted by the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not tax-deductible in their local jurisdictions, as well as geographic mix of earnings. Those unfavorable impacts were partially offset by$(7) million of net tax benefits associated with changes in accruals for certain prior year tax positions in various jurisdictions, as well as tax benefits related to the issuance of stock-based compensation. The company's provision for income taxes on continuing operations was$127 million for the three months endedMarch 31, 2020 on pre-tax income from continuing operations of$408 million , resulting in an effective tax rate of 31.1 percent. The effective tax rate was unfavorably impacted by the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not tax-deductible in their local jurisdictions, as well as tax charges related to the issuance of stock-based compensation. EID Analysis of Operations As discussed in Note 1 - Basis of Presentation, to the EID Consolidated Financial Statements, EID is a subsidiary ofCorteva, 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 betweenEID andCorteva, Inc. 43 -------------------------------------------------------------------------------- Table of Contents Interest Expense EID's interest expense was$22 million and$42 million for the three months endedMarch 31, 2021 and 2020, respectively. The change was primarily driven by the items noted on page 43, under the header "Interest Expense," and by lower interest expense incurred on the related party loan betweenEID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID Consolidated Financial Statements for further information. Provision for Income Taxes on Continuing Operations EID's provision for income taxes on continuing operations was$174 million for three months endedMarch 31, 2021 on pre-tax income from continuing operations of$776 million , resulting in an effective tax rate of 22.4 percent. EID's provision for income taxes on continuing operations was$119 million for the three months endedMarch 31, 2020 on pre-tax income from continuing operations of$376 million , resulting in an effective tax rate of 31.6 percent. EID's effective tax rates for the three months endedMarch 31, 2021 and 2020 were driven by the items noted on page 43, under the header "Provision for Income Taxes on Continuing Operations" and a tax benefit related to the interest expense incurred on the related party loan betweenEID and Corteva, Inc. See Note 2 - Related Party Transactions, to the EID Consolidated Financial Statements for further information. Corporate Outlook The company is increasing its net sales outlook for 2021, and expects an approximate 3 - 4 percent increase in net sales. Additionally, the company is reaffirming its previous 2021 Corporate Outlook on Operating EBITDA and Operating Earnings Per Share, refer to the 2020 Annual Report, and expects an increase of approximately 15 - 20 percent and 23 - 30 percent, respectively.Corteva is not able to reconcile its forward-looking non-GAAP financial measures to its most comparableU.S. GAAP financial measures, as it is unable to predict with reasonable certainty items outside of the company's control, such as Significant Items, without unreasonable effort (refer to page 49 for Significant Items recorded in the three months endedMarch 31, 2021 and 2020). During 2021, the company expects to record$130 million to$170 million for the 2021 Restructuring Actions and approximately$130 million for non-cash accelerated prepaid royalty amortization expense as restructuring and asset related charges. See Note 5 - Restructuring and Asset Related Charges - Net, to the interim Consolidated Financial Statements for additional information on the company's 2021 Restructuring Actions and accelerated prepaid royalty amortization. Recent Accounting Pronouncements See Note 2 - Recent Accounting Guidance, to the interim Consolidated Financial Statements for a description of recent accounting pronouncements. 44 -------------------------------------------------------------------------------- Table of Contents Segment Reviews The company operates in two reportable segments: Seed and Crop Protection.
Seed
The company's seed segment is a global leader in developing and supplying advanced germplasm and traits that produce optimum yield for farms around the world. The segment is a leader in many of the company's key seed markets, includingNorth America corn and soybeans,Europe corn and sunflower, as well asBrazil ,India ,South Africa andArgentina corn. The segment offers trait technologies that improve resistance to weather, disease, insects and herbicides used to control weeds, and trait technologies that enhance food and nutritional characteristics. In addition, the segment provides digital solutions that assist farmer decision-making with a view to optimize product selection and, ultimately, help maximize yield and profitability. Crop Protection The crop protection segment serves the global agricultural input industry with products that protect against weeds, insects and other pests, and disease, and that improve overall crop health both above and below ground via nitrogen management and seed-applied technologies. The segment offers crop protection solutions that provide farmers the tools they need to improve productivity and profitability, and help keep fields free of weeds, insects and diseases. The segment is a leader in global herbicides, insecticides, nitrogen stabilizers and pasture and range management herbicides. Summarized below are comments on individual segment net sales and segment operating EBITDA for the three months endedMarch 31, 2021 compared with the same period in 2020. 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, foreign exchange gains (losses), and net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting, excluding the impact of significant items. Non-operating costs-net consists of non-operating pension and other post-employment benefit (OPEB) credits, tax indemnification adjustments and environmental remediation and legal costs associated with legacy EID businesses and sites. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the application of the terms of the Tax Matters Agreement, betweenCorteva and Dow and/or DuPont that are recorded by the company as pre-tax income or expense. BeginningJanuary 1, 2021 , the company excludes net unrealized gains or losses from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. See Note 18 - Segment Information, to the interim Consolidated Financial Statements for details related to significant pre-tax benefits (charges) excluded from segment operating EBITDA. All references to prices are based on local price unless otherwise specified. A reconciliation of segment operating EBITDA to income from continuing operations after income taxes for the three months endedMarch 31, 2021 and 2020 is included in Note 18 - Segment Information, to the interim Consolidated Financial Statements. Three Months Ended Seed March 31, In millions 2021 2020 Net sales$ 2,492 $ 2,455 Segment operating EBITDA$ 617 $ 581 Seed Q1 2021 vs. Q1 2020 Percent Change Due To: Net Sales Change Local Price & Portfolio / $ In millions $ % Product Mix Volume Currency Other North America$ (80) (6) % (1) % (6) % 1 % - % EMEA 66 7 % 3 % 2 % 2 % - % Latin America 58 27 % 9 % 39 % (21) % - % Asia Pacific (7) (10) % 5 % (12) % (3) % - % Total$ 37 2 % 2 % 1 % (1) % - % 45
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Table of Contents
Seed Q1 2021 vs. Q1 2020 Percent Change Due To:
Net Sales Change Local Price & Portfolio /
$ In millions $ % Product Mix Volume Currency Other
Corn $ 24 1 % 2 % - % (1) % - %
Soybeans (4) (2) % (4) % - % 2 % - %
Other oilseeds 48 19 % 4 % 18 % (3) % - %
Other (31) (19) % (5) % (12) % (2) % - %
Total $ 37 2 % 2 % 1 % (1) % - %
Seed
Seed net sales were $2,492 million in the first quarter of 2021, up 2 percent
from $2,455 million in the first quarter of 2020. Gains were driven by a 2
percent increase in local price and a 1 percent increase in volume, partially
offset by a 1 percent impact from currency.
Pricing gains were driven by strong adoption of new Seed technology, including
price execution in EMEA and Latin America , with corn price up 2% globally.
Volume growth was driven by record corn and sunflower volume in EMEA due to a
shift in customer demand on local supply concerns and an early start to the
spring, coupled with strong Safrinha sales in Brazil and early demand in other
parts of Latin America . Gains were partially offset by impact of seasonal timing
of deliveries in North America . Unfavorable currency impacts, led by the
Brazilian Real, were partially offset by favorable impacts from the Euro.
Segment operating EBITDA was $617 million in the first quarter of 2021, up 6
percent from $581 million in the first quarter of 2020. Price execution, lower
SG&A driven by an improvement in bad debt, a gain on the remeasurement of an
equity investment and ongoing cost and productivity actions more than offset
higher input costs from unfavorable yields on European corn, higher freight
costs and the unfavorable impact of currency. Segment operating EBITDA margin
improved by more than 100 basis points versus the prior-year period.
Three Months Ended
Crop Protection March 31,
In millions 2021 2020
Net sales $ 1,686 $ 1,501
Segment Operating EBITDA $ 321 $ 238
Crop Protection Q1 2021 vs. Q1 2020 Percent Change Due To:
Net Sales Change Local Price & Portfolio /
$ In millions $ % Product Mix Volume Currency Other
North America $ 58 12 % 6 % 5 % 1 % - %
EMEA 69 12 % 3 % 4 % 5 % - %
Latin America 26 12 % 18 % 10 % (16) % - %
Asia Pacific 32 14 % 2 % 12 % 5 % (5) %
Total $ 185 12 % 6 % 6 % 1 % (1) %
Crop Protection Q1 2021 vs. Q1 2020 Percent Change Due To:
Net Sales Change Local Price & Portfolio /
$ In millions $ % Product Mix Volume Currency Other
Herbicides $ 163 20 % 5 % 12 % 3 % - %
Insecticides 7 2 % 8 % (4) % (2) % - %
Fungicides 32 14 % 5 % 14 % (1) % (4) %
Other (17) (24) % (1) % (19) % (4) % - %
Total $ 185 12 % 6 % 6 % 1 % (1) %
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Crop Protection Crop protection net sales were$1,686 million in the first quarter of 2021, up 12 percent from$1,501 million in the first quarter of 2020. Gains were driven by 6 percent increases in volume and price, respectively, and a 1 percent favorable impact from currency, partially offset by a 1 percent impact from portfolio. Volume gains were driven by strong demand for new products globally, including ArylexTM, EnlistTM, and RinskorTM herbicides and IsoclastTM and PyraxaltTM insecticides. These volume gains were partially offset by an approximate$70 million impact from the company's decision to phase out select low-margin, generic products. Local price rose due to increases inLatin America , coupled with favorable product mix globally and strategic price increases inNorth America . Favorable currency impacts primarily from the Euro more than offset unfavorable impacts from the Brazilian Real. The portfolio impact was driven by prior-year divestitures inAsia Pacific . Segment operating EBITDA was$321 million in the first quarter of 2021, up 35 percent from$238 million in the first quarter of 2020. Price and volume gains and ongoing cost and productivity actions more than offset higher input costs, including raw materials costs. Segment operating EBITDA margin improved by more than 300 basis points versus prior-year. While the company has experienced some supply chain challenges and higher costs during the quarter endedMarch 31, 2021 , as a result of freight and logistic service capacities remaining contracted and not yet having returned to pre-pandemic levels and weather-related events in theGulf Coast , its supply chain strategies have to-date largely enabled availability of product and deliveries to customers. 47 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures The company presents certain financial measures that do not conform toU.S. GAAP and are considered non-GAAP measures. These measures include Operating EBITDA and operating earnings per share. Management uses these measures internally for planning and forecasting, including allocating resources and evaluating incentive compensation. Management believes that these non-GAAP measures best reflect the ongoing performance of the company during the periods presented and provide more relevant and meaningful information to investors as they provide insight with respect to ongoing operating results of the company and a more useful comparison of year over year results. These non-GAAP measures supplement the company'sU.S. GAAP disclosures and should not be viewed as an alternative toU.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 toU.S. GAAP are provided below. Operating EBITDA is defined as earnings (i.e., income from continuing operations before income taxes) before interest, depreciation, amortization, non-operating (benefits) costs - net, foreign exchange gains (losses), and net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting, excluding the impact of significant items. Non-operating (benefits) costs - net consists of non-operating pension and OPEB credits, tax indemnification adjustments and environmental remediation and legal costs associated with legacy businesses and sites of Historical DuPont. Tax indemnification adjustments relate to changes in indemnification balances, as a result of the application of the terms of the Tax Matters Agreement, betweenCorteva and Dow and/or DuPont that are recorded by the company as pre-tax income or expense. Operating earnings per share is defined as "Earnings per common share from continuing operations - diluted" excluding the after-tax impact of significant items, the after-tax impact of non-operating (benefits) costs - net, the after-tax impact of amortization expense associated with intangible assets existing as of the Separation from DowDuPont, and the after-tax impact of net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. Although amortization of the company's intangible assets is excluded from these non-GAAP measures, management believes it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in amortization of additional intangible assets. Net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting represents the non-cash net gain (loss) from changes in fair value of certain undesignated foreign currency derivative contracts. Upon settlement, which is within the same calendar year of execution of the contract, the realized gain (loss) from the changes in fair value of the non-qualified foreign currency derivative contracts will be reported in the relevant non-GAAP financial measures, allowing quarterly results to reflect the economic effects of the foreign currency derivative contracts without the resulting unrealized mark to fair value volatility. Reconciliation of Income from Continuing Operations after Income Taxes to Operating EBITDA Three Months Ended March 31, (In millions) 2021 2020 Income from continuing operations after income taxes (GAAP)$ 613 $ 281 Provision for income taxes on continuing operations 178 127 Income from continuing operations before income taxes (GAAP) 791 408 Depreciation and amortization 304 283 Interest income (21) (18) Interest expense 7 10 Exchange losses - net 35 61 Non-operating benefits - net (311) (73) Mark-to-market gains on certain foreign currency contracts not designated as hedges1 (1) Significant items charge 100 123 Operating EBITDA (Non-GAAP)$ 904 $ 794 1.EffectiveJanuary 1, 2021 , on a prospective basis, the company excludes net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. There was no activity in the three months endedMarch 31, 2020 . 48 --------------------------------------------------------------------------------
Table of Contents
Significant Items
Three Months Ended
March 31,
(In millions) 2021 2020
Restructuring and asset related charges - net
- (53)
Total pretax significant items charge (100) (123)
Total tax benefit impact of significant items1 23 23
Tax only significant item benefit2 - (19)
Total significant items charge, after tax
1.Unless specifically addressed above, the income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment. 2.The three months endedMarch 31, 2020 includes an after tax charge related to the impact of a state tax valuation allowance in theU.S. based on a change in judgment about the realizability of a deferred tax asset.
Reconciliation of Income from Continuing Operations Attributable to
Three Months Ended
March 31,
(In millions) 2021 2020
Income from continuing operations attributable to
610 $ 271
Less: Non-operating benefits - net, after tax 237 57
Less: Amortization of intangibles (existing as of Separation), after tax (143) (114)
Less: Mark-to-market gains on certain foreign currency contracts not designated as hedges, after tax1
1
Less: Significant items charge, after tax (77) (119) Operating Earnings (Non-GAAP)$ 592 $ 447 Three Months Ended March 31, 2021 2020
Earnings per share of common stock from continuing operations - diluted (GAAP)
$ 0.81 $ 0.36 Less: Non-operating benefits - net, after tax 0.31 0.08
Less: Amortization of intangibles (existing as of Separation), after tax
(0.19) (0.15)
Less: Mark-to-market gains on certain foreign currency contracts not designated as hedges, after tax1
-
Less: Significant items charge, after tax (0.10) (0.16) Operating Earnings Per Share (Non-GAAP)$ 0.79 $ 0.59 Diluted Shares Outstanding (in millions) 749.6 752.5 1.EffectiveJanuary 1, 2021 , on a prospective basis, the company excludes net unrealized gain or loss from mark-to-market activity for certain foreign currency derivative instruments that do not qualify for hedge accounting. There was no activity in the three months endedMarch 31, 2020 . 49 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Information related to the company's liquidity and capital resources can be found in the company's 2020 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity & Capital Resources. The discussion below provides the updates to this information for the three months endedMarch 31, 2021 . (In millions) March 31, 2021 December 31, 2020 March 31, 2020 Cash, cash equivalents and marketable securities $ 2,518 $ 3,795 $ 1,973 Total debt $ 2,352 $ 1,105 $ 2,610 The company's cash, cash equivalents and marketable securities atMarch 31, 2021 ,December 31, 2020 , andMarch 31, 2020 were$2,518 million ,$3,795 million and$1,973 million , respectively. Total debt atMarch 31, 2021 ,December 31, 2020 , andMarch 31, 2020 was$2,352 million ,$1,105 million , and$2,610 million , respectively. The increase in debt balances fromDecember 31, 2020 was primarily due to funding the company's seasonal working capital needs. See further information in Note 12 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the interim Consolidated Financial Statements. The company believes its ability to generate cash from operations and access to capital markets and commercial paper markets will be adequate to meet anticipated cash requirements to fund its operations, including seasonal working capital, capital spending and pension obligations.Corteva's strong financial position, liquidity and credit ratings will provide access as needed to capital markets and commercial paper markets to fund seasonal working capital needs. The company's liquidity needs can be met through a variety of sources, including cash provided by operating activities, commercial paper, syndicated credit lines, bilateral credit lines, long-term debt markets, bank financing and committed receivable repurchase facilities.Corteva considers the borrowing costs and lending terms when selecting the source to fund its operations and working capital needs. During the three months endedMarch 31, 2021 , the company has experienced increased costs for steel and other materials used in various capital expenditures and capacity expansion projects, and expects this trend to continue. This has been due, in part to, rising demand from the economic recovery from the lifting of COVID-19 pandemic restrictions and government stimulus in some regions, while the supply for certain materials have not returned to pre-pandemic levels. The company had access to approximately$6.4 billion atMarch 31, 2021 andDecember 31, 2020 , respectively and$5.8 billion atMarch 31, 2020 , in committed and uncommitted unused credit lines. In addition to the unused credit facilities, the company has a$1 billion 2021 Repurchase Facility (as defined below). These facilities provide support to meet the company's short-term liquidity needs and for general corporate purposes which may include funding of discretionary and nondiscretionary contributions to certain benefit plans, severance payments, repayment and refinancing of debt, working capital, capital expenditures, repurchases and redemptions of securities, and fundingCorteva's costs and expenses. InMarch 2020 , the company drew down$500 million under the three year revolving credit facility to finance its short term liquidity needs as a result of the volatility and increased borrowing costs of commercial paper resulting from the unstable market conditions caused by the COVID-19 pandemic, and repaid that borrowing in full inJune 2020 . The Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings. The Revolving Credit Facilities also contain a financial covenant requiring that the ratio of total indebtedness to total capitalization forCorteva and its consolidated subsidiaries not exceed 0.60. AtMarch 31, 2021 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 theU.S. and the consolidated subsidiaries owning such plants, properties and facilities subject to certain limitations. The outstanding long-term debt also contains customary default provisions. The company has meaningful seasonal working capital needs based in part on providing financing to its customers. Working capital is funded through multiple methods including cash, commercial paper, the 2021 Repurchase Facility, the Revolving Credit Facilities, and factoring. InFebruary 2021 , in line with seasonal working capital requirements, the company entered into a committed receivable repurchase agreement of up to$1.0 billion (the "2021 Repurchase Facility") which expires inDecember 2021 . Under the 2021 Repurchase Facility,Corteva may sell a portfolio of available and eligible outstanding customer notes receivables to participating institutions and simultaneously agree to repurchase at a future date. See further discussion of this facility in Note 12 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, to the interim Consolidated Financial Statements. 50 -------------------------------------------------------------------------------- Table of Contents The company has factoring agreements with third-party financial institutions to sell its trade receivables under both recourse and non-recourse agreements in exchange for cash proceeds in an effort to reduce its receivables risk. For arrangements that include an element of recourse, the company provides a guarantee of the trade receivables in the event of customer default. Refer to Note 9 - Accounts and Notes Receivable, Net, to the interim Consolidated Financial Statements for more information. The company also organizes agreements with third-party financial institutionswho directly provide financing for select customers of the company's seed and crop protection products in each region. Terms of the third-party loans are less than a year and programs are renewed on an annual basis. In some cases, the company guarantees a portion of the extension of such credit to such customers. Refer to Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements for more information on the company's guarantees. The company's cash, cash equivalents and marketable securities atMarch 31, 2021 ,December 31, 2020 , andMarch 31, 2020 are$2.5 billion ,$3.8 billion , and$2.0 billion respectively, of which$2.4 billion atMarch 31, 2021 ,$3.1 billion atDecember 31, 2020 , and$1.5 billion atMarch 31, 2020 was held by subsidiaries in foreign countries, includingUnited States territories. The 2017 Tax Cuts and Jobs Act ("The Act") required companies to pay a one-time transition tax on the untaxed earnings of foreign subsidiaries. Upon actual repatriation, such earnings could be subject to withholding taxes, foreign and/orU.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 held by foreign subsidiaries is generally used to finance the subsidiaries' operational activities and future foreign investments. AtMarch 31, 2021 , management believed that sufficient liquidity is available in theU.S. with global operating cash flows, borrowing capacity from existing committed credit facilities, and access to capital markets and commercial paper markets. Summary of Cash Flows Cash used for operating activities was$1,950 million for the three months endedMarch 31, 2021 compared to$1,930 million for the three months endedMarch 31, 2020 . The change in cash used for operating activities was driven by an increase in working capital requirements. Cash provided by (used for) investing activities was$36 million for the three months endedMarch 31, 2021 compared to$(130) million for the three months endedMarch 31, 2020 . The change was primarily due to higher net proceeds from investments in available-for-sale securities, partly offset by higher capital expenditures. Cash provided by financing activities was$0.8 billion for the three months endedMarch 31, 2021 compared to$2.3 billion for the three months endedMarch 31, 2020 . The change was primarily due to lower borrowings partially offset by higher repurchases ofCorteva common stock.
In
OnJune 26, 2019 , the company's Board of Directors authorized a$1 billion share repurchase program to purchaseCorteva, Inc.'s common stock, par value$0.01 per share, without an expiration date. The company repurchased$650 million under its share buyback plan since the Corteva Distribution and expects to repurchase the remaining$350 million in 2021. The timing, price and volume of purchases will be based on market conditions, relevant securities laws and other factors. During the three months endedMarch 31, 2021 , the company purchased and retired 7,646,000 shares in the open market for a total cost of$350 million . During the three months endedMarch 31, 2020 , the company purchased and retired 1,865,000 shares for a total cost of$50 million . See Note 14 - Stockholders' Equity, to the interim Consolidated Financial Statements for additional information related to the share buyback plan. EID Liquidity Discussion As discussed in Note 1 - Basis of Presentation, to the EID Consolidated Financial Statements, EID is a subsidiary ofCorteva, Inc. and continues to be a reporting company, subject to the requirements of the Exchange Act. The below relates to EID only and is presented to provide a Liquidity discussion for the differences betweenEID and Corteva, Inc. Cash used for operating activities EID's cash used for operating activities was$1.9 billion for the three months endedMarch 31, 2021 and 2020, respectively. The change was primarily driven by the items above under the header, "Summary of Cash Flow". 51 -------------------------------------------------------------------------------- Table of Contents Cash provided by financing activities EID's cash provided by financing activities was$0.8 billion for the three months endedMarch 31, 2021 compared to$2.3 billion for the three months endedMarch 31, 2020 . The change was primarily driven by lower borrowings and higher payments on related party debt.
See Note 2 - Related Party Transactions, to the EID Consolidated Financial
Statements for further information on the related party loan between
Guarantees and Off-Balance Sheet Arrangements For detailed information related to Guarantees, Indemnifications, and Obligations for Equity Affiliates and Others, see the company's 2020 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements and Note 13 - Commitments and Contingent Liabilities, to the interim Consolidated Financial Statements. Contractual Obligations Information related to the company's contractual obligations atDecember 31, 2020 can be found on page 73 of the company's 2020 Annual Report. There have been no material changes to the company's contractual obligations outside the ordinary course of business from those reported in the company's 2020 Annual Report.
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