Corteva(US:CTVA)2023-08-03 16:00Part I Financial Information Item 1. Consolidated Financial Statements Corteva, Inc.'s unaudited interim consolidated financial statements for Q2 and H1 2023 show slight sales growth but a net income decline Notes to the Interim Consolidated Financial Statements These notes detail accounting policies, acquisitions, and contingent liabilities, including significant PFAS settlement agreements - On March 1, 2023, Corteva completed the acquisitions of Stoller Group, Inc. for $1.224 billion and Symborg for $370 million to expand its Biologicals business59 Preliminary Purchase Price Allocation for Stoller and Symborg (In millions) | | Stoller | Symborg | | :--- | :--- | :--- | | Total assets acquired | $1,547 | $471 | | Goodwill | $384 | $129 | | Other intangible assets | $656 | $311 | | Total liabilities assumed | $323 | $101 | | Net assets acquired | $1,224 | $370 | - On June 1, 2023, Corteva, along with DuPont and Chemours, entered into a binding agreement to resolve PFAS-related drinking water claims from U.S. public water systems by contributing a total of $1.185 billion to a settlement fund6869 - The company repurchased and retired shares totaling $80 million under its 2022 Share Buyback Plan and completed its 2021 plan by repurchasing $250 million in shares during the first six months of 20239899 Consolidated Statements of Operations (Unaudited) | (In millions, except per share amounts) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $6,045 | $6,252 | $10,929 | $10,853 | | Cost of goods sold | $3,137 | $3,323 | $5,908 | $6,047 | | Income from continuing operations after income taxes | $880 | $1,002 | $1,487 | $1,579 | | Net income attributable to Corteva | $714 | $969 | $1,309 | $1,533 | | Diluted earnings per share of common stock | $1.00 | $1.33 | $1.83 | $2.11 | Consolidated Balance Sheets (Unaudited) | (In millions) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $17,207 | $16,795 | | Goodwill | $10,539 | $9,962 | | Total Assets | $44,189 | $42,618 | | Total current liabilities | $10,346 | $10,744 | | Long-term debt | $2,290 | $1,283 | | Total Liabilities | $17,728 | $17,077 | | Total Equity | $26,461 | $25,541 | Consolidated Statements of Cash Flows (Unaudited) | (In millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net income (loss) | $1,316 | $1,539 | | Cash provided by (used for) operating activities | ($2,499) | ($1,621) | | Cash provided by (used for) investing activities | ($1,544) | ($435) | | Cash provided by (used for) financing activities | $3,379 | $106 | | Increase (decrease) in cash, cash equivalents and restricted cash equivalents | ($655) | ($2,066) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2023 financial results, highlighting sales changes driven by price and volume, and updated full-year guidance Recent Developments Key recent developments include Stoller and Symborg acquisitions, 2022 Restructuring Actions, and ongoing share repurchase activities - Completed acquisitions of Stoller ($1.224 billion) and Symborg ($370 million) on March 1, 2023, to enhance the crop protection business with biological tools157 - The 2022 Restructuring Actions, including the Russia exit, have incurred $349 million in charges to date and are expected to generate $210-$220 million in run-rate savings by 2025158161 - The company repurchased $80 million of shares under the 2022 Share Buyback Plan and completed the 2021 plan with a final $250 million repurchase in H1 2023162163 Results of Operations This section details Q2 and H1 2023 net sales changes, driven by price and volume, and changes in operating expenses Net Sales Change Analysis (Q2 2023 vs. Q2 2022) | Region | Net Sales Change ($M) | % Change | Price & Mix % | Volume % | Currency % | Portfolio/Other % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $241 | 6% | 9% | (3)% | (1)% | 1% | | EMEA | ($144) | (17)% | 15% | (33)% | (4)% | 5% | | Latin America | ($225) | (27)% | 3% | (39)% | (1)% | 10% | | Asia Pacific | ($79) | (16)% | 6% | (17)% | (5)% | —% | | Total | ($207) | (3)% | 9% | (13)% | (1)% | 2% | Net Sales Change Analysis (H1 2023 vs. H1 2022) | Region | Net Sales Change ($M) | % Change | Price & Mix % | Volume % | Currency % | Portfolio/Other % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $438 | 7% | 9% | (1)% | (1)% | —% | | EMEA | $87 | 4% | 22% | (12)% | (10)% | 4% | | Latin America | ($323) | (22)% | 5% | (34)% | —% | 7% | | Asia Pacific | ($126) | (15)% | 7% | (15)% | (7)% | —% | | Total | $76 | 1% | 11% | (9)% | (3)% | 2% | - Interest expense increased significantly to $82 million in Q2 2023 from $16 million in Q2 2022, driven by higher interest rates, new senior notes, and increased short-term borrowings196 - Loss from discontinued operations grew to $163 million in Q2 2023 from $30 million in Q2 2022, primarily due to charges associated with the settlement of PFAS-related legal matters203 Segment Reviews This section reviews Seed and Crop Protection segments, highlighting Seed sales growth and Crop Protection sales decline Seed Segment Seed net sales grew 8% in Q2 and H1 2023 due to price increases, boosting operating EBITDA and margin Seed Segment Performance (In millions) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $4,264 | $3,947 | $6,959 | $6,471 | | Segment operating EBITDA | $1,458 | $1,240 | $2,110 | $1,809 | - Q2 sales increase was driven by a 12% price increase, partially offset by a 3% volume decline. The volume drop was due to reduced corn area in EMEA and fewer soybean acres in North America222223 - Segment operating EBITDA margin improved by approximately 280 basis points in Q2 and 240 basis points in H1 versus the prior-year periods224227 Crop Protection Segment Crop Protection net sales fell significantly in Q2 and H1 2023 due to volume declines, impacting segment operating EBITDA Crop Protection Segment Performance (In millions) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,781 | $2,305 | $3,970 | $4,382 | | Segment operating EBITDA | $320 | $509 | $923 | $1,000 | - Q2 sales were down 23%, driven by a 29% volume decline from strategic product exits and inventory destocking across all regions231232 - Segment operating EBITDA margin declined by approximately 410 basis points in Q2 but increased by over 40 basis points in H1 versus the prior-year periods233236 Liquidity and Capital Resources Total debt increased significantly due to new debt, cash used in operating activities rose, and substantial credit lines are maintained - Total debt increased from $1.3 billion at Dec 31, 2022 to $5.3 billion at June 30, 2023, partly due to a $1.2 billion debt offering in May 2023245247 - Cash used for operating activities was $2.5 billion in H1 2023, an increase from $1.6 billion in H1 2022, driven by changes in working capital, particularly lower accounts payable and higher usage of deferred revenue259 - Cash used for investing activities increased to $1.5 billion in H1 2023 from $435 million in H1 2022, mainly due to the acquisitions of Stoller and Symborg260 - The Board of Directors approved a 6.7% increase in the quarterly dividend to $0.16 per share in July 2023179261 Part II Other Information Item 1. Legal Proceedings This section details significant legal matters, including an FTC lawsuit, product liability claims, patent disputes, and legacy PFAS liabilities - The Federal Trade Commission (FTC) and multiple state attorneys general filed a lawsuit against Corteva alleging unfair methods of competition and anticompetitive conduct285 - The company faces personal injury and remediation lawsuits related to chlorpyrifos, the active ingredient in its discontinued insecticide, Lorsban®286 - Corteva is engaged in multiple legal disputes with Bayer concerning patent infringement (Enlist® corn) and royalty payments (Roundup Ready® Corn 2)287292293 - Legacy EIDP liabilities, particularly related to PFOA and PFAS, are managed through a cost-sharing Memorandum of Understanding (MOU) with Chemours and DuPont296 Item 1A. Risk Factors No material changes to the company's risk factors were reported from the most recent Annual Report on Form 10-K - There have been no material changes in the company's risk factors from those discussed in the most recently filed annual report on Form 10-K300 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during Q2 2023, totaling approximately 1.42 million shares for $80 million Issuer Purchases of Equity Securities (Q2 2023) | Month | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Value of Shares Remaining for Purchase ($M) | | :--- | :--- | :--- | :--- | | April 2023 | — | $— | $2,000 | | May 2023 | 561,720 | $55.91 | $1,969 | | June 2023 | 854,922 | $57.17 | $1,920 | | Total | 1,416,642 | $56.67 | $1,920 | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO of both Corteva, Inc. and EIDP, Inc. concluded that the company's disclosure controls and procedures were effective as of June 30, 2023277280 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls278281 Consolidated Financial Statements of EIDP, Inc. EIDP, Inc. Financial Statements Overview This section presents EIDP, Inc.'s separate unaudited consolidated financial statements, noting differences from Corteva's due to its unique capital structure - EIDP, Inc. is a reporting subsidiary of Corteva, Inc. Its financial statements differ from Corteva's primarily due to EIDP's outstanding preferred stock, a related-party loan from Corteva, and a different capital structure331 - EIDP has a related-party revolving loan from Corteva, Inc. with an outstanding balance of $268 million as of June 30, 2023. EIDP incurred $20 million in interest expense on this loan in the first six months of 2023335 - EIDP's effective tax rate for H1 2023 was 20.0%, slightly different from Corteva's 20.1%, influenced by the tax benefits associated with the interest expense on its related-party loan337338