EIDP, Inc. 2022 Form 10-K Summary
Business context and reporting period
EIDP, Inc. filed a reduced-disclosure Form 10-K jointly with its parent, Corteva, Inc., for the fiscal year ended December 31, 2022. EIDP is wholly owned by Corteva and operates within Corteva’s global agriculture business, which provides seed and crop protection products in approximately 140 countries through the Seed and Crop Protection segments. The filing is an annual report, not a standalone fourth-quarter filing.
EIDP’s financial statements substantially match Corteva’s consolidated results, except primarily for EIDP’s preferred stock, an intercompany loan payable to Corteva, and related interest and tax effects.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $17.455 billion | $15.655 billion | +11% |
| Income from continuing operations before taxes | $1.381 billion | $2.296 billion | Down $915 million |
| Income from continuing operations after taxes | $1.182 billion | $1.784 billion | Down $602 million |
| Net income attributable to EIDP | $1.123 billion | $1.731 billion | Down $608 million |
| Operating EBITDA, non-GAAP | $3.340 billion | $2.714 billion | +23% |
| Cash from operating activities | $839 million | $2.689 billion | Down $1.850 billion |
| Capital expenditures | $605 million | $573 million | +6% |
| Cash, cash equivalents and marketable securities | $3.314 billion | $4.545 billion | Down $1.231 billion |
| Total external debt | $1.307 billion | $1.117 billion | +17% |
| EIDP related-party debt to Corteva | $789 million | $2.162 billion | Down $1.373 billion |
Net sales growth reflected a 10% price increase and 5% volume increase, partly offset by a 3% unfavorable currency effect and a 1% unfavorable portfolio effect. Cost of goods sold increased to $10.436 billion, or 60% of sales, from $9.220 billion, or 59% of sales. Research and development expense was $1.216 billion, or 7% of sales, while selling, general and administrative expense was $3.173 billion, or 18% of sales.
Segment operating EBITDA was $1.656 billion for Seed and $1.684 billion for Crop Protection. Segment margins improved in both businesses, with Seed EBITDA up 10% and Crop Protection EBITDA up 40%, primarily from pricing, volume, new products and productivity actions.
Cash flow weakened substantially as inventory increased by $1.715 billion and receivables increased by $997 million, reflecting safety-stock rebuilding, higher input costs, revenue growth and seasonal working-capital requirements. Investing cash outflow was $632 million and financing cash outflow was $1.147 billion.
Material changes versus the prior comparable period
- Revenue increased 11%, led by pricing and volume gains across both segments. Crop Protection sales rose 17% to $8.476 billion; Seed sales rose 7% to $8.979 billion.
- GAAP earnings declined because 2021 included unusually large non-operating pension and other post-employment benefit credits. Other income declined from $1.348 billion in 2021 to a $60 million expense in 2022.
- Interest expense increased to $124 million from $80 million for EIDP, driven by higher rates on seasonal borrowings and foreign-currency debt. EIDP also paid $48 million of interest on its related-party loan to Corteva.
- The effective tax rate improved to 14.4% from 22.2%, aided by deferred-tax benefits, a U.S. worthless-stock deduction and a Brazilian valuation-allowance release.
- Restructuring and asset-related charges increased to $363 million from $289 million. The 2022 amount included $272 million of restructuring charges and $109 million of accelerated, non-cash amortization of prepaid royalties related to the transition from Roundup Ready traits toward Enlist E3.
- The company exited Russia in 2022. Russia had represented approximately 2% of annual net sales. The Russia exit generated $48 million of restructuring charges, with possible additional charges of up to $20 million, primarily related to government receivables.
- Cash and marketable securities declined while inventories, receivables and accounts payable increased. Total assets were $42.618 billion and total equity was $24.749 billion at December 31, 2022.
- The company completed its Spinosyns fermentation-capacity expansion in 2022, with production beginning and expected capacity growth of approximately 30% over the following several years.
Guidance, outlook, risks and unusual items
Management described agricultural demand as robust for 2023, supported by elevated grain and oilseed demand, above-historical-average commodity prices and healthy farmer balance sheets. Corteva’s 2023 outlook calls for net sales of $18.1 billion to $18.4 billion, operating EBITDA of $3.4 billion to $3.6 billion and operating earnings per share of $2.70 to $2.90. These are Corteva non-GAAP measures and are not presented as EIDP-specific guidance.
The outlook excludes extreme weather, operational disruptions, significant changes in customer demand or creditworthiness, further currency or inflation effects, and the impact of the announced Stoller and Symborg biologicals acquisitions. The acquisitions, with an aggregate purchase price of approximately $1.6 billion, were expected to close in the first half of 2023 subject to customary conditions.
- 2022 restructuring actions are expected to be substantially complete in 2023, with estimated run-rate savings of $210 million to $220 million by 2025.
- Non-operating pension and OPEB costs are expected to increase by approximately $300 million in 2023, primarily because of higher discount rates and lower pension-plan asset returns.
- Expected 2023 cash requirements include approximately $50 million for pension plans other than the principal U.S. plan and $135 million for OPEB plans. No contribution to the principal U.S. pension plan was anticipated.
- Environmental remediation accruals were $512 million at year-end, with potential exposure estimated at up to approximately $600 million above accrued amounts under adverse circumstances.
- The company faces substantial legacy environmental and PFAS exposure, including matters subject to the Chemours, DuPont and Corteva cost-sharing arrangements. Corteva’s estimated share of potential PFAS liabilities under the MOU is approximately $600 million.
- Material litigation includes the FTC and state attorneys general antitrust lawsuit, Lorsban-related personal injury and remediation claims, Bayer patent and licensing disputes, and legacy EIDP PFAS and environmental matters.
- At December 31, 2022, committed credit facilities totaled $5.5 billion and were fully available. The company complied with its covenant limiting total indebtedness to 60% of total capitalization. In January 2023, the 364-day facility was increased from $500 million to $1 billion and extended to January 2024.
- Management and the auditors concluded that EIDP maintained effective internal control over financial reporting. The audit opinion was unqualified; the critical audit matter involved goodwill impairment testing for the Seed reporting unit.
Most important facts for an investor to verify
- Reconcile EIDP’s standalone results with Corteva’s consolidated results, particularly the $789 million related-party loan, $124 million of EIDP interest expense and the preferred-stock structure.
- Assess the quality of 2022 earnings by separating pricing and volume gains from non-GAAP adjustments, restructuring charges, pension credits, tax benefits and currency effects.
- Review the sharp decline in operating cash flow and the sustainability of higher inventory and receivable balances as seasonal working capital reverses.
- Monitor the 2023 guidance assumptions, including weather, inflation, foreign exchange, customer credit quality and the exclusion of the biologicals acquisitions.
- Evaluate the potential cash impact of PFAS, environmental remediation, antitrust, Lorsban and other litigation beyond recorded accruals and indemnification assets.
- Verify the transition away from Roundup Ready traits, including approximately $75 million of expected 2023 accelerated prepaid-royalty amortization and further exposure to changes in portfolio assumptions.
- Confirm debt maturities, interest-rate exposure, access to revolving facilities and the implications of EIDP’s intercompany debt obligations to Corteva.