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MarketScreener Homepage  >  Equities  >  Nyse  >  Corteva, Inc.    CTVA

CORTEVA, INC.

(CTVA)
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CORTEVA : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statements About Forward-Looking Statements (form 10-Q)

11/05/2020 | 04:37pm EST
This report contains certain estimates and forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended, which are intended to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and may be identified
by their use of words like "plans," "expects," "will," "anticipates,"
"believes," "intends," "projects," "estimates," "outlook," or other words of
similar meaning. All statements that address expectations or projections about
the future, including statements about Corteva's strategy for growth, product
development, regulatory approval, market position, anticipated benefits of
recent acquisitions, timing of anticipated benefits from restructuring actions,
outcome of contingencies, such as litigation and environmental matters,
expenditures, and financial results, as well as expected benefits from, the
separation of Corteva from DuPont, are forward-looking statements.

Forward-looking statements and other estimates are based on certain assumptions
and expectations of future events which may not be accurate or realized.
Forward-looking statements and other estimates also involve risks and
uncertainties, many of which are beyond Corteva's control. While the list of
factors presented below is considered representative, no such list should be
considered to be a complete statement of all potential risks and uncertainties.
Unlisted factors may present significant additional obstacles to the realization
of forward-looking statements. Consequences of material differences in results
as compared with those anticipated in the forward-looking statements could
include, among other things, business disruption, operational problems,
financial loss, legal liability to third parties and similar risks, any of which
could have a material adverse effect on Corteva's business, results of
operations and financial condition. Some of the important factors that could
cause Corteva's actual results to differ materially from those projected in any
such forward-looking statements include: (i) failure to successfully develop and
commercialize Corteva's pipeline; (ii) effect of competition and consolidation
in Corteva's industry; (iii) failure to obtain or maintain the necessary
regulatory approvals for some Corteva's products; (iv) failure to enforce
Corteva's intellectual property rights or defend against intellectual property
claims asserted by others; (v) effect of competition from manufacturers of
generic products; (vi) impact of Corteva's dependence on third parties with
respect to certain of its raw materials or licenses and commercialization; (vii)
costs of complying with evolving regulatory requirements and the effect of
actual or alleged violations of environmental laws or permit requirements;
(viii) effect of the degree of public understanding and acceptance or perceived
public acceptance of Corteva's biotechnology and other agricultural products;
(ix) effect of changes in agricultural and related policies of governments and
international organizations; (x) effect of industrial espionage and other
disruptions to Corteva's supply chain, information technology or network
systems; (xi) competitor's establishment of an intermediary platform for
distribution of Corteva's products; (xii) effect of volatility in Corteva's
input costs; (xiii) failure to raise capital through the capital markets or
short-term borrowings on terms acceptable to Corteva; (xiv) failure of Corteva's
customers to pay their debts to Corteva, including customer financing programs;
(xv) failure to realize the anticipated benefits of the internal reorganizations
taken by DowDuPont in connection with the spin-off of Corteva, including failure
to benefit from significant cost synergies; (xvi) risks related to the
indemnification obligations of legacy EID liabilities in connection with the
separation of Corteva; (xvii) increases in pension and other post-employment
benefit plan funding obligations; (xviii) effect of compliance with laws and
requirements and adverse judgments on litigation; (xix) risks related to
Corteva's global operations; (xx) effect of climate change and unpredictable
seasonal and weather factors; (xxi) effect of counterfeit products; (xxii)
failure to effectively manage acquisitions, divestitures, alliances and other
portfolio actions; (xxiii) risks related to non-cash charges from impairment of
goodwill or intangible assets; (xxiv) risks related to COVID-19; (xxv) risks
related to oil and commodity markets; and (xxvi) other risks related to the
Separation from DowDuPont.

Additionally, there may be other risks and uncertainties that Corteva is unable
to currently identify or that Corteva does not currently expect to have a
material impact on its business. Where, in any forward-looking statement or
other estimate, an expectation or belief as to future results or events is
expressed, such expectation or belief is based on the current plans and
expectations of Corteva's management and expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the expectation or
belief will result or be achieved or accomplished. Corteva disclaims and does
not undertake any obligation to update or revise any forward-looking statement,
except as required by applicable law. A detailed discussion of some of the
significant risks and uncertainties which may cause results and events to differ
materially from such forward-looking statements is included in the section
titled "Risk Factors" (Part II, Item 1A of this quarterly report on Form 10-Q).
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Recent Developments

COVID-19 Pandemic
On March 11, 2020, the World Health Organization ("WHO") declared the novel
coronavirus disease ("COVID-19") a pandemic. Since the early days of the
coronavirus outbreak, Corteva has taken steps to help protect the health and
safety of its employees, customers, vendors, and stakeholders. Corteva has
engaged crisis management teams at the country, regional and global level, and
its Integrated Health Services Pandemic & Infectious Disease Planning Team has
been monitoring the situation and developing guidelines and protocols that have
been communicated to all of its employees globally.

Overwhelmingly, countries and U.S. states have considered agriculture an
"essential business"; therefore, Corteva is not subject to many of the
restrictions imposed by the government, particularly on non-essential
businesses, which, in certain cases, includes ordering businesses to close or
limit operations or people to stay at home. While the company's business has
experienced some localized operating disruptions, particularly around sourcing
and logistics, these disruptions have been temporary and have not materially
impacted the company's financial results. Additionally, the company has
implemented mitigating strategies to limit the impact of supply chain
disruptions, including leveraging the company's ability to use a multi-sourcing
strategy and source key raw materials from multiple suppliers and countries.
Furthermore, the company implemented remote work arrangements for non-essential
employees and restricted business travel effective mid-March, and to date, these
arrangements have not materially affected the company's ability to maintain its
business operations, including the operation of financial reporting systems,
internal control over financial reporting, and disclosure controls and
procedures.

The global health crisis caused by COVID-19 and the related government actions
and stay at home orders have negatively impacted economic activity and increased
political instability across the globe. The company has observed declining
demand and price reductions in the oil and gas sector as business and consumer
activity decelerates across the globe, which has impacted the price of corn.
When COVID-19 is demonstrably contained, the company anticipates a rebound in
economic activity, depending on the rate, pace, and effectiveness of the
containment efforts deployed by various national, state, and local governments.
Corteva will continue to actively monitor the situation and may take further
actions altering its business operations that it determines are in the best
interests of its stakeholders, or as required by federal, state, or local
authorities. It is not clear what the potential effects any such alterations or
modifications may have on the company's business, including the effects on its
customers, employees, and prospects, or on its financial results for the
remainder of fiscal 2020 and beyond. With the increasing uncertainty in global
markets, the company will continue to monitor various factors that could impact
mid-term forecasted cash flows of the business, including, but not limited to
currency fluctuations, expectations of future planted area (as influenced by
consumer demand, ethanol markets and government policies and regulations) and
relative commodity prices. For further discussion on the estimated impact of
COVID-19 on our long-term projections and recoverability of certain assets,
refer to management's discussion of Critical Accounting estimates on page 66.

Execute to Win Productivity Program
During the first quarter of 2020, Corteva approved restructuring actions
designed to improve productivity through optimizing certain operational and
organizational structures primarily related to the Execute to Win Productivity
Program. As a result of these actions, the company expects to record total
pre-tax restructuring charges of approximately $185 million, comprised of
approximately $125 million of asset related charges (of which $30 million
relates to asset retirement obligations), and $60 million of severance and
related benefit costs. The restructuring actions associated with this charge are
expected to be substantially complete in 2020.

During the nine months ended September 30, 2020, the company recorded pre-tax
charges of $134 million, recognized in restructuring and asset related charges -
net in the company's interim Consolidated Statement of Operations comprised of
$88 million of asset related charges and $46 million of severance and related
benefit costs.

Future cash payments related to this charge are anticipated to be approximately
$85 million, primarily related to the payment of severance and related benefits
and asset retirement obligations. The company expects $130 million of savings to
be achieved on a run rate basis by 2023.

Share Buyback Plan
On June 26, 2019, Corteva, Inc. announced that its Board of Directors authorized
a $1 billion share repurchase program to purchase Corteva, Inc.'s common stock,
par value $0.01 per share, without an expiration date. The company expects to
complete the share repurchase program by the end of 2021, six months ahead of
the initial timeline. The timing, price and volume of purchases will be based on
market conditions, relevant securities laws and other factors. During the three
months ended September 30, 2020, the company purchased and retired 1,160,000
shares in the open market for a total cost of $33 million. During the nine
months ended September 30, 2020, the company purchased and retired 3,025,000
shares for a total cost of $83 million.
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Overview

The following is a summary of results from continuing operations for the three months ended September 30, 2020:


•The company reported net sales of $1,863 million, down 3 percent versus the
same quarter last year, reflecting an 11 percent decline in currency and a 1
percent negative impact in portfolio, partially offset by a 7 percent increase
in volume and 2 percent increase in price.

•Cost of goods sold ("COGS") totaled $1,297 million in the third quarter of
2020, down from $1,349 million in the third quarter of 2019, primarily driven by
currency benefits and ongoing cost synergies and productivity efforts.

•Restructuring and asset related charges - net were $49 million in the third
quarter of 2020, an increase from $46 million in the third quarter 2019. The
three months ended September 30, 2020 included $10 million of non-cash
accelerated prepaid royalty amortization expense related to Roundup Ready 2
Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.

•There were no integration and separation costs in the third quarter of 2020, as compared to $152 million in the third quarter of 2019.

•Loss from continuing operations after income taxes was $(390) million, as compared to a loss of $(527) million in the same quarter last year.


•Operating EBITDA was a loss of $(179) million, improved from a loss of $(207)
million for the three months ended September 30, 2019. Volume gains and
favorable mix in crop protection, coupled with ongoing cost synergies and
productivity efforts, more than offset currency and the impact of timing shifts
in seed. Refer to page 61 for further discussion of the company's Non-GAAP
financial measures.

•The company realized cost synergies and productivity savings of approximately $40 million for the three months ended September 30, 2020.

The following is a summary of results from continuing operations for the nine months ended September 30, 2020:


•The company reported net sales of $11,010 million, up 1 percent versus the same
period last year, reflecting a 4 percent increase in volume and a 2 percent
increase in local price, partially offset by a 4 percent decline in currency and
a 1 percent negative impact from portfolio.

•COGS totaled $6,395 million in the nine months ended September 2020, down from
$6,607 million in the nine months ended 2019, primarily driven by the $272
million of amortization of inventory step-up included in the nine months ended
September 30, 2019, currency benefits and ongoing cost synergies and
productivity efforts.

•Restructuring and asset related charges - net were $298 million in the nine
months ended 2020, an increase from $167 million in the nine months ended 2019.
The nine months ended September 30, 2020 included $158 million of non-cash
accelerated prepaid royalty amortization expense related to Roundup Ready 2
Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits.

•There were no integration and separation costs in the nine months ended 2020, as compared to $694 million in the nine months ended 2019.


•The provision for income taxes for the nine months ended September 30, 2020
includes a tax benefit of $51 million to provision for income taxes on
continuing operations related to a return to accrual adjustment associated with
an elective change in accounting method for the 2019 tax year impact of the 2017
Tax Cuts and Jobs Act 's ("The Act") foreign tax provisions.

•Income from continuing operations after income taxes was $657 million, as compared to a loss of $(228) million in the same period last year.

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•Operating EBITDA was $1,851 million, up from $1,763 million for the nine months
ended September 30, 2019. Favorable mix and volume gains, coupled with ongoing
productivity actions, more than offset the unfavorable impact of currency. Refer
to page 61 for further discussion of the company's Non-GAAP financial measures.

•The company realized cost synergies and productivity savings of approximately $170 million for the nine months ended September 30, 2020.

In addition to the financial highlights above, the following events occurred during or subsequent to the nine months ended September 30, 2020:

•From June 1, 2019 through October 30, 2020, the company has completed approximately $200 million in share repurchases under its previously announced share repurchase program.

•The company expects to complete its previously announced share repurchase program by the end of 2021, six months ahead of the initial timeline.

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Selected Financial Data
                                                          Three Months Ended       Nine Months Ended
In millions, except per share amounts                       September 30,   

September 30,

                                                           2020        2019        2020        2019
Net sales                                              $   1,863    $  

1,911 $ 11,010$ 10,863


Cost of goods sold                                     $   1,297$  1,349$  6,395$  6,607
Percent of net sales                                          70  %       

71 % 58 % 61 %


Research and development expense                       $     284$    289$    837$    857
Percent of net sales                                          15  %       

15 % 8 % 8 %


Selling, general and administrative expenses           $     597$    646$  2,319$  2,318
Percent of net sales                                          32  %       

34 % 21 % 21 %


Effective tax rate on continuing operations                 23.1  %     

16.5 % 11.8 % (76.7) %

(Loss) income from continuing operations after income taxes

                                                  $    (390)   $   

(527) $ 657$ (228)

Income (loss) from continuing operations available to Corteva common stockholders

                            $    (392)   $   

(516) $ 639$ (238)

Basic (loss) earnings per share of common stock from continuing operations

                                  $   (0.52)   $  

(0.69) $ 0.85$ (0.32) Diluted (loss) earnings per share of common stock from continuing operations

                                  $   (0.52)$  (0.69)$   0.85$  (0.32)



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Results of Operations

Net Sales
Net sales were $1,863 million and $1,911 million for the three months ended
September 30, 2020 and 2019, respectively. Volumes increased 7 percent versus
the prior-year period. Gains were driven primarily by continued adoption of new
crop protection products, and were partially offset by the impact of seasonally
lower seed volumes due to a more normalized planting season in North America as
compared to the prior-year period. Local price increased 2 percent versus third
quarter 2019. Higher prices in Latin America were more than offset by the impact
of currency, which represented a headwind of 11 percent globally. Currency
mitigation and new products drove price gains in Latin America, EMEA, and Asia
Pacific.
                               Three Months Ended
                                  September 30,
                          2020                    2019
                    Net Sales               Net Sales
                  ($ Millions)      %     ($ Millions)      %
Worldwide        $       1,863    100  % $       1,911    100  %
North America1             487     26  %           623     33  %
EMEA2                      315     17  %           305     16  %
Latin America              805     43  %           762     40  %
Asia Pacific               256     14  %           221     11  %


                                        Q3 2020 vs. Q3 2019                              Percent Change Due To:
                                          Net Sales Change       Local Price &                                            Portfolio /
$ In millions                              $            %         Product Mix         Volume           Currency              Other
North America1                        $    (136)        (22) %             (4) %           (18) %               -  %                  -  %
EMEA2                                        10           3  %              4  %             3  %              (4) %                  -  %
Latin America                                43           6  %              5  %            25  %             (24) %                  -  %
Asia Pacific                                 35          16  %              1  %            19  %              (1) %                 (3) %
Total                                 $     (48)         (3) %              2  %             7  %             (11) %                 (1) %


1.Represents U.S. & Canada.
2.Europe, Middle East, and Africa ("EMEA").

Net sales were $11,010 million and $10,863 million for the nine months ended
September 30, 2020 and 2019, respectively. Volumes increased 4 percent versus
the prior-year period. Year-to-date volume gains reflect increased demand for
new products globally and volume growth attributable to the recovery of planted
area in North America. Local price increased 2 percent versus the prior-year
period, with price increases in most regions. Currency represented a headwind of
4 percent, driven primarily by the impact of the Brazilian Real.
                                Nine Months Ended September 30,
                                  2020                           2019
                           Net Sales                       Net Sales
                          ($ Millions)             %     ($ Millions)      %
Worldwide        $        11,010                 100  % $      10,863    100  %
North America1             5,818                  53  %         5,800     53  %
EMEA2                      2,425                  22  %         2,336     22  %
Latin America              1,754                  16  %         1,780     16  %
Asia Pacific               1,013                   9  %           947      9  %


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                                       Nine Months 2020 vs.
                                         Nine Months 2019                              Percent Change Due To:
                                         Net Sales Change      Local Price &                                            Portfolio /
$ In millions                             $           %         Product Mix         Volume           Currency              Other
North America1                        $    18           -  %              -  %             1  %              (1) %                  -  %
EMEA2                                      89           4  %              2  %             6  %              (4) %                  -  %
Latin America                             (26)         (1) %              6  %            11  %             (18) %                  -  %
Asia Pacific                               66           7  %              2  %            11  %              (4) %                 (2) %
Total                                 $   147           1  %              2  %             4  %              (4) %                 (1) %


1.Represents U.S. & Canada.
2.Europe, Middle East, and Africa ("EMEA").

Cost of Goods Sold
COGS was $1,297 million and $1,349 million for the three months ended September
30, 2020 and 2019, respectively. The decrease was primarily driven by currency
benefits, ongoing cost synergies and productivity efforts, and the lack of
amortization of inventory step-up for the three months ended September 30, 2020,
as compared to $15 million recognized for the three months ended September 30,
2019. These decreases were partially offset by increased volumes.

COGS as a percentage of net sales was 70 percent and 71 percent for the three months ended September 30, 2020 and 2019, respectively. The amortization of inventory step-up was 1 percent of net sales for the three months ended September 30, 2019.


COGS was $6,395 million and $6,607 million for the nine months ended September
30, 2020 and 2019, respectively. The decrease was primarily driven by the lack
of amortization of inventory step-up for the nine months ended September 30,
2020, as compared to $272 million recognized for the nine months ended September
30, 2019, currency benefits, and ongoing cost synergies and productivity
efforts. The decrease was partially offset by increased volumes, higher
royalties in seed, and higher input costs due to lower production yields in
seed.

COGS as a percentage of net sales was 58 percent and 61 percent for the nine
months ended September 30, 2020 and 2019, respectively. The amortization of
inventory step-up was 3 percent of net sales for the nine months ended September
30, 2019.

Research and Development Expense
R&D expense was $284 million (15 percent of net sales) and $289 million (15
percent of net sales) for the three months ended September 30, 2020 and 2019,
respectively. The decrease was primarily driven by currency benefits and ongoing
cost synergies and productivity efforts, partially offset by increased
investments to support new products in crop protection.

R&D expense was $837 million (8 percent of net sales) and $857 million (8
percent of net sales) for the nine months ended September 30, 2020 and 2019,
respectively. The decrease was primarily driven by currency benefits and ongoing
cost synergies and productivity efforts, partially offset by increased
investments to support new products in crop protection.

Selling, General and Administrative Expenses
SG&A expenses were $597 million (32 percent of net sales) and $646 million (34
percent of net sales) for the three months ended September 30, 2020 and 2019,
respectively. The decrease was primarily driven by currency benefits, ongoing
cost synergies and productivity efforts, lower commissions on seasonal volume
shifts in corn and soybean sales, and lower selling expenses.

SG&A expenses were $2,319 million (21 percent of net sales) and $2,318 million
(21 percent of net sales) for the nine months ended September 30, 2020 and 2019,
respectively. SG&A expenses were relatively flat as higher commissions and
selling expenses due to higher volumes, higher ERP costs and higher product
launch costs, were offset by currency benefits and ongoing cost synergies and
productivity efforts, and the settlement of a legal matter in the prior year.
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Amortization of Intangibles
Intangible asset amortization was $162 million and $100 million for the three
months ended September 30, 2020 and 2019, respectively, and $501 million and
$314 million for the nine months ended September 30, 2020 and 2019,
respectively. The increase was primarily driven by amortization of germplasm
assets, which changed from an indefinite lived intangible asset to definite
lived with a useful life of 25 years in the fourth quarter of 2019. See Note 12
- Other Intangible Assets, to the interim Consolidated Financial Statements for
additional information.

Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $49 million and $46 million
for the three months ended September 30, 2020 and 2019, respectively. The
charges in the third quarter of 2020 related to non-cash accelerated prepaid
royalty amortization expense related to Roundup Ready 2 Yield® and Roundup Ready
2 Xtend® herbicide tolerance traits and asset related charges under both the
Execute to Win Productivity Program and the DowDuPont Cost Synergy Program (the
"Synergy Program").

The charges in the third quarter of 2019 related to a pre-tax, non-cash intangible asset impairment charge, primarily related to DAS intangibles previously acquired from Cooperativa Central de Pesquisa Agrícola's ("Coodetec"), partially offset by a favorable adjustment to asset related charges associated with the Synergy Program.


Restructuring and asset related charges - net were $298 million and $167 million
for the nine months ended September 30, 2020 and 2019, respectively. The charges
during the nine months ended September 30, 2020 primarily related to non-cash
accelerated prepaid royalty amortization expense related to Roundup Ready 2
Yield® and Roundup Ready 2 Xtend® herbicide tolerance traits and asset related
charges and severance and related benefit costs under the Execute to Win
Productivity Program. The charges for the nine months ended September 30, 2019
primarily related to contract termination and asset related charges associated
with the Synergy Program and the above noted pre-tax, non-cash intangible asset
impairment charge.

See Note 5 - Restructuring and Asset Related Charges, Net, to the interim Consolidated Financial Statements for additional information.


Integration and Separation Costs
Integration and separation costs were $152 million for the three months ended
September 30, 2019, and $694 million for the nine months ended September 30,
2019. These costs primarily consisted of financial advisory, information
technology, legal, accounting, consulting, and other professional advisory fees
associated with the preparation and execution of activities related to the
Distributions and the integration of EID's Pioneer and Crop Protection
businesses with DAS.

Other Income - Net
Other income - net was $30 million and $59 million for the three months ended
September 30, 2020 and 2019, respectively. The change was primarily due to an
increase in non-operating pension and other employment benefit credits and tax
indemnification adjustments reflected in the three months ended September 30,
2019, which was partially offset by an increase in net exchange loss during the
three months ended September 30, 2020.

Other income - net was $120 million and $90 million for the nine months ended
September 30, 2020 and 2019, respectively. The change was primarily due to an
increase in non-operating pension and other employment benefit credits,
partially offset by higher net exchange losses, as well as higher losses on
asset sales, including a $53 million loss related to the expected sale of the La
Porte site in the nine months ended September 30, 2020 as compared to a $24
million loss related to DAS's sale of a joint venture related to synergy actions
in the nine months ended September 30, 2019.

The company routinely uses forward exchange contracts to offset its net
exposures, by currency denominated monetary assets and liabilities of its
operations. The objective of this program is to maintain an approximately
balanced position in foreign currencies in order to minimize, on an after-tax
basis, the effects of exchange rate changes. The net pre-tax exchange gains and
losses are recorded in other income - net and the related tax impact is recorded
in provision for (benefit from) income taxes on continuing operations in the
interim Consolidated Statement of Operations.

See Note 7 - Supplementary Information, to the interim Consolidated Financial Statements for additional information.

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Interest Expense
Interest expense was $11 million and $19 million for the three months ended
September 30, 2020 and 2019, respectively. The change was primarily driven by
lower average interest rates.

Interest expense was $35 million and $112 million for the nine months ended
September 30, 2020 and 2019, respectively. The change was primarily driven by
lower average debt balances as a result of the redemption/repayment transactions
in the second quarter of 2019 related to paying off or retiring portions of
EID's existing debt liabilities (refer to the company's Annual Report on
Form 10-K for the year ended December 31, 2019 for further information) and
lower average interest rates.

Benefit from Income Taxes on Continuing Operations
The company's benefit from income taxes on continuing operations was $(117)
million for the three months ended September 30, 2020 on pre-tax loss from
continuing operations of $(507) million, resulting in an effective tax rate of
23.1 percent.  The effective tax rate was favorably impacted by geographic mix
of earnings, the tax impact of certain net exchange gains recognized on the
re-measurement of the net monetary asset positions which were not taxable in
their local jurisdictions, as well as the tax impact of restructuring and asset
related charges.
The company's benefit from income taxes on continuing operations was $(104)
million for the three months ended September 30, 2019 on a pre-tax loss from
continuing operations of $(631) million, resulting in an effective tax rate of
16.5 percent. The effective tax rate was unfavorably impacted by integration and
separation costs, the Argentine peso devaluation, the tax impact of certain net
exchange losses recognized on the re-measurement of the net monetary asset
positions which were not deductible in their local jurisdictions, as well as
geographic mix of earnings. Those unfavorable impacts were partially offset by
tax benefits associated with the enactment of the Federal Act on Tax Reform and
AHV Financing ("Swiss Tax Reform"), as well as a tax benefit of $13 million
related to application of the Tax Cuts and Jobs Act ("The Act") foreign tax
provisions.

The company's provision for income taxes on continuing operations was $88
million for the nine months ended September 30, 2020 on pre-tax income from
continuing operations of $745 million, resulting in an effective tax rate of
11.8 percent.  The effective tax rate was favorably impacted by geographic mix
of earnings, as well as $26 million of net tax benefits associated with changes
in accruals for certain prior year tax positions in various jurisdictions,
including a tax benefit of $14 million related to a return to accrual adjustment
to reflect a change in estimate on the impact of a tax law enactment in a
foreign jurisdiction. In addition, during the nine months ended September 30,
2020, the company recognized a tax benefit of $51 million to provision for
income taxes on continuing operations related to a return to accrual adjustment
associated with an elective change in accounting method for the 2019 tax year
impact of The Act's foreign tax provisions. The effective tax rate was
unfavorably impacted by the tax impact of certain net exchange losses recognized
on the re-measurement of the net monetary asset positions which were not
tax-deductible in their local jurisdictions, as well as tax charges related to
the issuance of stock-based compensation.

The company's provision for income taxes on continuing operations was $99
million for the nine months ended September 30, 2019 on a pre-tax loss from
continuing operations of $(129) million, resulting in an effective tax rate of
(76.7) percent. During the nine months ended September 30, 2019, the company
recorded net tax charges of $146 million related to the U.S. state blended tax
rate changes associated with the Business Separations, as well as a tax charge
of $83 million related to application of The Act's foreign tax provisions. Other
net unfavorable effective tax rate impacts included those related to integration
and separation costs, non-tax-deductible amortization of the fair value step-up
in inventories as a result of the Merger, as well as the tax impact of certain
net exchange losses recognized on the re-measurement of the net monetary asset
positions which were not deductible in their local jurisdictions. Those
unfavorable impacts were partially offset by a first quarter tax benefit of $102
million related to an internal legal entity restructuring associated with the
Business Separations, a $21 million benefit associated with changes in accruals
for certain prior year tax positions and reductions in the company's
unrecognized tax benefits due to the closure of various tax statutes of
limitations, as well as geographic mix of earnings.

(Loss) Income from Discontinued Operations After Tax
Income (loss) from discontinued operations after tax was $22 million for the
three months ended September 30, 2019, and $1 million and $(695) million for the
nine months ended September 30, 2020 and 2019, respectively. The three and nine
months ended September 30, 2019 primarily reflects the operations of EID ECP and
the EID Specialty Product Entities.  Refer to Note 3 - Divestitures and Other
Transactions, to the interim Consolidated Financial Statements for additional
information.

EID Analysis of Operations
As discussed in Note 1 - Basis of Presentation, to the EID Consolidated
Financial Statements, EID is a subsidiary of Corteva, Inc. and continues to be a
reporting company, subject to the requirements of the Exchange Act. The below
relates to EID only and is presented to provide an Analysis of Operations, only
for the differences between EID and Corteva, Inc.
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Interest Expense
EID's interest expense was $30 million and $58 million for the three months
ended September 30, 2020 and 2019, respectively, and $117 million and $181
million for the nine months ended September 30, 2020 and 2019, respectively. The
change for the three month period was driven by the items noted on page 53,
under the header "Interest Expense", and the reduction in interest expense
incurred on the related party loan between EID and Corteva, Inc. The change for
the nine month period was driven by the items noted on page 53, under the header
"Interest Expense", partially offset by an increase in interest expense incurred
on the related party loan between EID and Corteva, Inc. See Note 2 - Related
Party Transactions, to the EID Consolidated Financial Statements for further
information.

Provision for Income Taxes on Continuing Operations
EID's benefit from income taxes on continuing operations was $(122) for three
months ended September 30, 2020 on pre-tax loss from continuing operations of
$(526), resulting in an effective tax rate of 23.2 percent. EID's benefit from
income taxes on continuing operations was $(113) million for the three months
ended September 30, 2019 on pre-tax loss from continuing operations of $(670)
million, resulting in an effective tax rate of 16.9 percent.

EID's provision for income taxes on continuing operations was $68 million for
the nine months ended September 30, 2020 on pre-tax income from continuing
operations of $663 million, resulting in an effective tax rate of 10.3 percent
percent. EID's provision for income taxes on continuing operations was $83
million for the nine months ended September 30, 2019 on pre-tax loss from
continuing operations of $(198) million, resulting in an effective tax rate of
(41.9) percent.

EID's changes in the effective tax rate for the three and nine months ended
September 30, 2020 as compared to 2019 were driven by the items noted on page
53, under the header "Benefit from Income Taxes on Continuing Operations" and a
tax benefit related to the interest expense incurred on the related party loan
between EID and Corteva, Inc. See Note 2 - Related Party Transactions, to the
EID Consolidated Financial Statements for further information.

Corporate Outlook


The company continues to monitor near-term operating conditions to ensure
business continuity in light of continued market volatility. The company expects
an approximate 1 to 2 percent increase in net sales for the full year 2020 as
compared to 2019, driven by expected price and volume gains mostly offset by
unfavorable currency impacts.

The company expects full year 2020 Operating EBITDA in the range of down (4)
percent to an increase of 1 percent versus 2019 and Operating Earnings Per Share
in the range of down (13) percent to an increase of 1 percent versus 2019,
driven by the above noted unfavorable currency impacts, partially offset by
higher volumes and ongoing cost synergies and productivity.

The above outlook does not contemplate any operational disruptions, significant
changes in customers' demand or ability to pay, or further acceleration of
currency impacts resulting from the COVID-19 pandemic. Corteva is not able to
reconcile its forward-looking non-GAAP financial measures to its most comparable
U.S. GAAP financial measures, as it is unable to predict with reasonable
certainty items outside of the company's control, such as Significant Items,
without unreasonable effort (refer to page 62 for Significant Items recorded for
the three and nine months ended September 30, 2020 and 2019). Beginning January
1, 2020, the company recognizes non-cash accelerated prepaid royalty
amortization expense as a restructuring and asset related charge. For further
discussion of accelerated prepaid royalty amortization refer to Note 5 -
Restructuring and Asset Related Charges, Net, to the interim Consolidated
Financial Statements.
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Supplemental Unaudited Pro Forma Financial Information
The following supplemental unaudited pro forma statement of operations (the
"unaudited pro forma statement of operations") for Corteva gives effect to the
Merger, the debt retirement transactions related to paying off or retiring
portions of EID's existing debt liabilities (refer to the company's Annual
Report on Form 10-K for the year ended December 31, 2019 for further
information), and the separation and distribution to DowDuPont stockholders of
all the outstanding shares of Corteva common stock as if they had been
consummated on January 1, 2016. Beginning in the second quarter 2019, results
represent the consolidated balances of the company, and prior to the second
quarter 2019, results consist of the combined results of operations for
Historical EID and DAS. The unaudited pro forma statement of operations below
was prepared in accordance with Article 11 of Regulation S-X, and events that
are not expected to have a continuing impact on the combined results (e.g.,
inventory step-up costs) are excluded. One-time transaction-related costs
incurred prior to, or concurrent with, the closing of the Merger, the debt
redemptions/repayments, and the Corteva Distribution are not included in the
unaudited pro forma combined statement of operations through March 31, 2019. The
unaudited pro forma combined statement of operations has not been adjusted for
restructuring or integration activities or other costs following the separation
and distribution transactions that may be incurred to achieve cost or growth
synergies of Corteva. As no assurance can be made that these costs will be
incurred or the growth synergies will be achieved, no adjustment has been made.

The unaudited pro forma statement of operations has been presented for
informational purposes only and is not necessarily indicative of what Corteva's
results of operations actually would have been had the above transactions been
completed on January 1, 2016. In addition, the unaudited pro forma statement of
operations does not purport to project the future operating results of the
company. The unaudited pro forma statement of operations was based on and should
be read in conjunction with the audited Consolidated Financial Statements and
Notes contained within the company's Annual Report on Form 10-K for the year
ended December 31, 2019.
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