EIDP, Inc. annual report, FY2021

EIDP, Inc. 2021 Form 10-K Summary

Business context and reporting period

EIDP, Inc. (EID), wholly owned by Corteva, Inc., filed a reduced-disclosure Form 10-K as part of a combined filing with Corteva for the fiscal year ended December 31, 2021. EID remains a reporting company, while its operating business is the agriculture platform managed through Corteva’s two reportable segments: Seed and Crop Protection. The filing is annual; “2021 Q4” refers to the fourth quarter within the fiscal year, but the principal financial information disclosed here is for the full year.

EID’s standalone results differ from Corteva’s primarily because EID retains preferred stock, has a related-party loan payable to Corteva, and records associated interest and tax effects. EID owns the operating assets, while Corteva owns 100% of EID’s common stock.

Key financial metrics

Metric	2021	2020	Change
Net sales	$15.655 billion	$14.217 billion	+10%
Income from continuing operations after tax	$1.784 billion	$680 million	+162%
Net income attributable to EID	$1.731 billion	$615 million	+182%
Cost of goods sold	$9.220 billion	$8.507 billion	+8%
Operating EBITDA, non-GAAP	$2.714 billion	$2.212 billion	+23%
Cash flow from operating activities	$2.689 billion	$1.986 billion	+35%
Capital expenditures	$573 million	$475 million	+21%
Interest expense	$80 million	$145 million	-45%
Effective tax rate	22.2%	(18.3)%	Higher rate in 2021

Net sales growth reflected a 5% volume increase, a 4% price increase and a 1% favorable currency impact. COGS was approximately 59% of sales in 2021 versus 60% in 2020. Operating EBITDA was approximately 17.3% of sales versus 15.6% in 2020, although this is a non-GAAP measure and excludes specified items and corporate costs.

Segment results were strong in both businesses. Seed sales increased 8% to $8.402 billion and segment operating EBITDA increased 25% to $1.512 billion. Crop Protection sales increased 12% to $7.253 billion and segment operating EBITDA increased 20% to $1.202 billion. New product sales, pricing and volume gains more than offset higher input, freight and logistics costs.

Liquidity, debt and balance sheet

Cash and cash equivalents plus marketable securities were $4.545 billion at December 31, 2021, versus $3.795 billion at year-end 2020.
Total external debt was approximately $1.117 billion, including $1.100 billion of long-term debt. EID also had a $2.162 billion related-party loan payable to Corteva, compared with $3.459 billion in 2020.
External long-term debt primarily consisted of $500 million of 1.70% senior notes due 2025 and $500 million of 2.30% senior notes due 2030.
The company had $6.0 billion of available committed revolving credit facilities at year-end 2021, with maturities in May 2023 and May 2024, and was in compliance with its debt covenant.
Total assets were $42.344 billion and total EID stockholders’ equity was $23.459 billion at December 31, 2021.
Operating cash flow exceeded capital expenditures by approximately $2.116 billion before financing and other cash uses.

Material changes versus the prior comparable period

Profitability improved substantially as pricing execution, volume growth, new product penetration, productivity actions and lower interest expense outweighed higher input, freight and logistics costs.
Other income increased to $1.348 billion from $212 million, primarily because of significantly higher non-operating pension and other post-employment benefit credits, lower exchange losses and a $60 million employee retention credit. This was a major contributor to the increase in reported earnings and is not necessarily recurring.
Restructuring and asset-related charges declined to $289 million from $335 million. The 2021 amount included $167 million of restructuring charges and $125 million of non-cash accelerated amortization of prepaid royalties associated with the transition away from Roundup Ready 2 Yield and Roundup Ready 2 Xtend traits.
Operating cash flow increased by $703 million, driven by higher earnings and improved working capital, including higher customer prepayments and accounts payable. Inventory increased to $5.180 billion from $4.882 billion.
EID’s standalone financing cash flow was an outflow of $1.228 billion, primarily reflecting repayment of related-party debt and other debt activity.
Cash returned to Corteva shareholders is a Corteva-level matter; the filing reports approximately $1.3 billion of 2021 dividends and share repurchases by Corteva, including $950 million of common stock repurchases and $397 million of dividends.

Guidance, outlook, risks and unusual items

The filing provides 2022 outlook for Corteva on a consolidated basis rather than separate EID guidance. Management expected 2022 sales of approximately $16.7 billion to $17.0 billion, Operating EBITDA of $2.8 billion to $3.0 billion and Operating EPS of $2.30 to $2.50. The outlook assumes continued agricultural demand, new product growth, pricing and cost savings, but excludes extreme weather, major operational disruptions, significant customer credit deterioration and further severe currency or inflation effects.

Input costs, freight, logistics constraints, inflation, foreign exchange and supply-chain disruptions remain material risks.
Agricultural sales are seasonal, with approximately 65% historically generated in the first half of the year; weather and planting conditions can materially affect demand, mix and receivables.
Regulatory approvals, restrictions on biotechnology and crop protection products, product acceptance, generic competition and intellectual-property disputes could affect revenue and margins.
EID and Corteva remain exposed to significant legacy environmental and litigation matters, including PFAS/PFOA, chlorpyrifos, environmental remediation and claims related to historical businesses.
Environmental remediation accruals were $452 million at year-end 2021, with potential exposure estimated at up to $592 million above accrued amounts under adverse developments.
Under the 2021 Chemours memorandum of understanding, Corteva and DuPont’s aggregate share of specified PFAS costs and escrow contributions is capped at $2 billion, subject to the agreement’s allocation provisions. The company funded its initial escrow contribution in 2021.
The company recorded a $53 million after-tax loss from discontinued operations in 2021, primarily related to PFAS remediation and settlement matters.
Management expects 2022 long-term employee benefit credits to decrease by approximately $1 billion because of lower expected pension returns, higher discount rates and the effect of prior OPEB plan amendments.
Goodwill was $10.107 billion at year-end, including approximately $5.4 billion associated with the Seed reporting unit. No goodwill impairment was recorded in 2021, but the valuation depends on assumptions regarding future cash flows, discount rates and terminal growth.

Important facts investors should verify

Reconcile EID’s standalone earnings and debt to Corteva’s consolidated results, particularly the $2.162 billion related-party loan and $50 million of related-party interest expense in 2021.
Assess the sustainability of the $1.348 billion of other income and the $1.256 billion of non-operating benefits excluded from Operating EBITDA.
Review the PFAS/PFOA MOU, escrow funding schedule, indemnification arrangements and potential environmental exposure beyond the $452 million remediation accrual.
Evaluate whether pricing and productivity gains can continue to offset inflation, raw-material costs, logistics expenses and currency headwinds.
Monitor the accelerated prepaid royalty amortization, including the estimated $102 million charge for 2022 and approximately $235 million over the following three years.
Review Seed goodwill valuation assumptions and the impact of agricultural commodity prices, planted acreage, regulatory developments and product adoption.
Confirm the timing and funding of 2022 capital expenditures, pension and OPEB contributions, debt maturities and seasonal customer financing needs.