Corteva, Inc. — 2021 Form 10-K Summary
Business context and reporting period
This is Corteva’s annual report for the fiscal year ended December 31, 2021, filed February 10, 2022. Corteva is a global agriculture company operating through seed and crop protection segments. The filing is a combined report with separate financial statements for Corteva and its wholly owned subsidiary EID; the figures below are Corteva consolidated unless noted. Sales are seasonal, typically weighted toward the first half of the year.
Key financial metrics
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Net sales | $15.655 billion | $14.217 billion | Up 10%; volume +5%, price +4%, currency +1% |
| Income from continuing operations after tax | $1.822 billion | $756 million | Up from prior year |
| Net income attributable to Corteva | $1.759 billion | $681 million | Includes discontinued-operations losses of $53 million in 2021 |
| Diluted EPS | $2.37 | $0.91 | Continuing-operations diluted EPS was $2.44 |
| Operating EBITDA (non-GAAP) | $2.576 billion | $2.087 billion | Up 23%; management cites price execution and volume gains |
| Cash from operating activities | $2.727 billion | $2.064 billion | Improved earnings and working capital, including customer prepayments and accounts payable |
| Capital expenditures | $573 million | $475 million | Management expects about $645 million in 2022 |
| Cash, cash equivalents and marketable securities | $4.545 billion | $3.795 billion | At year-end |
| Total debt | $1.117 billion | $1.105 billion | At year-end; $1.100 billion long-term debt and $17 million short-term borrowings and finance lease obligations |
Cost of goods sold was 59% of sales, compared with 60% in 2020. Gross margin was therefore approximately 41% of sales. Net income growth also reflects unusually large non-operating pension and other post-employment benefit credits: $1.318 billion in 2021 versus $368 million in 2020. The effective tax rate was 22.3%, compared with a tax benefit and negative 12.0% rate in 2020. Operating cash flow less capital expenditures was approximately $2.154 billion in 2021.
Seed sales were $8.402 billion, up 8%, and segment operating EBITDA was $1.512 billion, up 25%. Crop protection sales were $7.253 billion, up 12%, and segment operating EBITDA was $1.202 billion, up 20%. Segment EBITDA is a non-GAAP measure; the filing reports consolidated Operating EBITDA of $2.576 billion using its defined adjustments.
Material changes versus the prior comparable period
- Sales growth was broad-based, led by Latin America; the region’s sales increased 26%. Higher prices reflected the company’s price-for-value strategy and pricing for rising input and logistics costs.
- Higher raw-material, freight and logistics costs pressured cost of goods sold, though cost and productivity actions partly offset them.
- Other income rose to $1.348 billion from $212 million, principally due to higher pension/OPEB credits and the Employee Retention Credit, partly offset by an officer indemnification payment and a contract termination charge.
- Restructuring and asset-related charges were $289 million, including $167 million for 2021 restructuring actions and $125 million of non-cash accelerated amortization of prepaid royalties associated with Roundup Ready 2 Yield and Roundup Ready 2 Xtend traits.
- Shareholder returns totaled approximately $1.3 billion through dividends and buybacks. The 2021 dividend was $0.54 per share. Corteva repurchased $950 million of shares during the year under its buyback programs.
Outlook, risks and contingencies
For 2022, management forecast net sales of $16.7–$17.0 billion, Operating EBITDA of $2.8–$3.0 billion and operating EPS of $2.30–$2.50. It cited strong agricultural demand, new products, pricing and cost savings, offset by expected input-cost increases and currency headwinds. The outlook excludes extreme weather, operational disruptions, material demand or customer-payment changes, and further acceleration of currency and inflation impacts. Management expected non-operating benefits to be about $1 billion lower in 2022, primarily due to pension/OPEB assumption changes and the 2020 OPEB amendments.
Material risks include regulatory approval delays or restrictions for seed traits and crop protection products; competition and generic products; volatile input, transport and logistics costs; weather and climate impacts; foreign-exchange exposure; supply-chain and cybersecurity disruptions; customer credit risk; and reliance on third-party licenses and suppliers. Management also identifies evolving environmental rules, ESG execution and COVID-19-related disruption as risks.
Environmental and legacy litigation exposures are significant and uncertain. Environmental remediation accruals were $452 million at year-end, with reasonably possible exposure up to $592 million above the accrual. The company disclosed multiple PFAS/PFOA matters and stated that potential losses beyond recorded amounts are not estimable in certain cases. Under the 2021 Chemours/DuPont/Corteva MOU, specified legacy PFAS costs are shared subject to thresholds and caps; Corteva and DuPont’s combined share is capped at $2 billion under the arrangement. These amounts are not a forecast of Corteva’s ultimate liability. A New Jersey filing in January 2022 sought a remediation funding source exceeding $900 million for the former Chambers Works site; Chemours accepted defense and indemnity while reserving certain rights.
Other unusual items include the 2020 OPEB plan amendments, which reduced benefit obligations by $939 million in 2020 and generated substantial credits recognized in 2021; and $125 million of accelerated royalty amortization in 2021. Management reported no goodwill impairment in 2021, although the seed reporting unit goodwill assessment was identified as a critical audit matter. The financial statements received an unmodified audit opinion, and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How much 2021 earnings and the 2022 outlook depend on pension/OPEB credits, and how the expected reduction in those benefits affects comparability.
- Whether pricing and productivity gains can continue to offset inflation, freight, logistics and other input costs.
- The assumptions underlying 2022 sales, EBITDA and operating EPS guidance, including foreign-exchange, planted-area and demand assumptions.
- Progress and accounting for the Enlist E3 transition, including future accelerated prepaid royalty amortization and the remaining royalty asset.
- Developments, cost-sharing recoveries and potential cash requirements for PFAS/PFOA, environmental remediation and other legacy liabilities, including the MOU escrow commitments.
- Seasonal working-capital needs, customer receivable quality, available credit facilities and the capacity to sustain dividends and repurchases.
- Goodwill valuation headroom, particularly for the seed reporting unit, given the auditor’s critical audit matter and management’s use of forecast-based valuation assumptions.