EIDP, Inc. 2020 Form 10-K Summary
Business context and reporting period
EIDP, Inc. (EID) filed a reduced-disclosure Form 10-K jointly with its parent, Corteva, Inc., for the fiscal year ended December 31, 2020. EID is wholly owned by Corteva and operates through Corteva’s two agricultural segments: Seed and Crop Protection, serving approximately 140 countries. EID’s results are substantially consistent with Corteva’s consolidated results, except primarily for EID preferred stock, a related-party loan payable to Corteva, and related interest and tax effects.
The filing reflects the post-June 2019 separation of Corteva from DowDuPont. Historical comparisons are affected by internal reorganizations, discontinued operations, and the common-control combination of Dow AgroSciences. Prior-period pro forma information is unaudited and may not represent results as an independent company.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $14,217 million | $13,846 million | +3% |
| Income from continuing operations before taxes | $575 million | $(422) million | Improved |
| Income from continuing operations after taxes | $680 million | $(351) million | Improved |
| Net income attributable to EID | $615 million | $(1,030) million | Improved |
| Cash provided by operating activities | $1,986 million | $996 million | +99% |
| Capital expenditures | $475 million | $1,163 million | Lower |
| Interest expense | $145 million | $242 million | Lower |
Net sales benefited from a 5% volume increase and 3% local-price growth, partly offset by a 5% currency headwind. Cost of goods sold was $8,507 million, or approximately 60% of sales, compared with 62% in 2019. Research and development expense was $1,142 million, or 8% of sales, and selling, general and administrative expense was $3,043 million, or 21% of sales.
Segment sales were $7,756 million for Seed and $6,461 million for Crop Protection. Segment operating EBITDA was $1,208 million for Seed and $1,004 million for Crop Protection. Consolidated operating EBITDA, a non-GAAP measure, was $2,087 million, compared with $1,987 million on a pro forma basis in 2019. EID does not have a separate operating EBITDA figure in the filing because segment results are reported consistently with Corteva.
The effective tax rate was negative 18.3%, reflecting a $105 million tax benefit. Significant benefits included $182 million from Swiss tax reform and $51 million from a return-to-accrual adjustment related to foreign tax provisions. Discontinued operations produced a $55 million after-tax loss, including charges related to legacy PFAS matters.
Liquidity, debt and capital allocation
At December 31, 2020, EID had $3,526 million of cash and cash equivalents and $269 million of marketable securities. External debt consisted of $1,102 million of long-term debt and $3 million of short-term borrowings and finance lease obligations. EID also owed Corteva $3,459 million under a related-party loan, bearing interest at 1.62% and maturing in 2024. The related-party loan is eliminated in Corteva’s consolidated financial statements but remains material to EID on a standalone basis.
EID and Corteva had access to $6.0 billion of committed revolving credit facilities, plus approximately $418 million of unused uncommitted bank credit lines. The companies complied with the revolving-facility covenant requiring total indebtedness to total capitalization not to exceed 0.60. EID’s credit ratings were A-/A-2 with stable outlook from Standard & Poor’s, A3/P-2 with stable outlook from Moody’s, and A/F1 with stable outlook from Fitch.
In May 2020, EID issued $500 million of 1.70% senior notes due 2025 and $500 million of 2.30% senior notes due 2030. EID paid $388 million of common dividends through Corteva during 2020 and Corteva repurchased $275 million of its common stock. Cash flow remained seasonal because approximately 65% of company sales are typically generated in the first half of the year.
Material changes versus the prior comparable period
- Sales increased 3%, driven by new products, higher volume, and local pricing, despite adverse foreign exchange, particularly the Brazilian real.
- Seed operating EBITDA increased 16% to $1,208 million, while Crop Protection operating EBITDA declined 6% to $1,004 million because currency, input-cost inflation, and growth investments offset volume and pricing gains.
- Operating cash flow nearly doubled to $1,986 million, supported by higher earnings and improved working capital.
- Interest expense declined because of the substantial 2019 debt repayments and lower average debt balances, but EID’s standalone interest expense remains higher than Corteva’s because of the related-party loan.
- Integration and separation costs fell to zero from $744 million in 2019. Restructuring and asset-related charges increased to $335 million, including $159 million of non-cash accelerated amortization of prepaid royalties.
- The company accelerated its transition from Roundup Ready 2 Yield and Roundup Ready 2 Xtend soybean traits to the internally developed Enlist E3 platform. It expects approximately $184 million of additional non-cash accelerated prepaid royalty amortization in 2021 and approximately $360 million over the following four years.
- Quarterly EID net sales were $3,956 million, $5,191 million, $1,863 million and $3,207 million, respectively. Fourth-quarter income from continuing operations after taxes was $85 million and net income attributable to EID was $30 million.
Outlook, unusual items and risks
Management expected approximately 2% sales growth in 2021, Operating EBITDA growth of approximately 15% to 20%, and Operating EPS growth of approximately 23% to 30%, driven by new products, cost savings and productivity actions. The outlook assumed no material operational disruption, significant deterioration in customer credit, or further COVID-19-related currency effects. Expected offsets included higher input costs and unfavorable European yields.
In February 2021, the company approved additional restructuring actions expected to generate $130 million to $170 million of pre-tax charges and $90 million to $110 million of future cash payments, substantially completed in 2021. Management expected long-term employee-benefit credits to increase by approximately $930 million in 2021, primarily due to OPEB plan amendments and lower discount rates.
The January 2021 memorandum of understanding with Chemours and DuPont established a PFAS cost-sharing and escrow framework. Corteva and DuPont together may bear up to $2 billion of qualified PFAS expenses and escrow contributions, subject to the allocation provisions described in the filing. EID and its affiliates also face continuing PFOA, PFAS, environmental, product-liability, antitrust and regulatory proceedings. Environmental remediation accruals were $329 million, with reasonably possible exposure of up to $620 million above accrued amounts.
Other significant risks include regulatory approval and public acceptance of biotechnology and crop-protection products, generic competition, weather and climate conditions, commodity and currency volatility, customer credit risk, supply-chain and cybersecurity disruptions, pension funding requirements, tax indemnification obligations, and the ability to realize separation and restructuring benefits. The company also disclosed FTC and Canadian Competition Bureau inquiries and criminal charges relating to the 2014 La Porte plant release.
Important facts for investors to verify
- Reconcile EID’s standalone debt, including the $3.459 billion related-party loan, with Corteva’s consolidated debt and liquidity.
- Assess whether the 2021 sales, EBITDA and EPS outlook was achieved and quantify the effects of currency, input costs, weather and COVID-19.
- Monitor the transition to Enlist E3 and the remaining prepaid royalty balance and accelerated amortization charges.
- Review the PFAS memorandum of understanding, escrow contributions, cost-sharing limits and any developments in related litigation.
- Evaluate the $329 million environmental accrual against the disclosed potential exposure of up to $620 million above accrued amounts.
- Consider the sensitivity of $10.3 billion of goodwill and $10.7 billion of intangible assets to changes in projected cash flows, discount rates, commodity prices and regulatory conditions.
- Confirm the impact of the February 2021 restructuring program and the expected pension and OPEB cash requirements.
- Distinguish reported GAAP results from pro forma and non-GAAP measures when comparing 2020 with 2019.