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Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-09 · 61 added, 34 removed, 207 unchanged (31% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

Potentially Responsible Parties ("PRPs") at multi-party sites and the number of and financial viability of other PRPs.

Therefore, considerable uncertainty exists with respect to environmental remediation and costs, and, under adverse changes in circumstances, it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately $655 million above the accrued obligations amount.

Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the company’s results of operations, financial condition and cash flows.

It is the opinion of the company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the company’s results of operations, financial condition or cash flows.

For further discussion, see "Environmental Matters" section on page 58 and Note 16 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.

Legal Contingencies

The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement and antitrust claims, and claims for third-party property damage or personal injury stemming from alleged environmental torts.

The company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter.

Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates.

In making determinations of likely outcomes of litigation matters, management considers many factors.

These factors include, but are not limited to, the nature of specific claims including unasserted claims, the company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms, and the matter's current status.

Considerable judgment is required in determining whether to establish a litigation accrual when an adverse judgment is rendered against the company in a court proceeding.

In such situations, the company will not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is probable that the pending judgment will be successfully overturned on appeal.

A detailed discussion of significant litigation matters is contained in Note 16 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements.

Indemnification Assets

The company has entered into various agreements where the company is indemnified for certain liabilities by DuPont, Dow and Chemours.

The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments.

In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable.

In assessing the probability of recovery, the company considers the contractual rights under the separation agreements and any potential credit risk.

Future events, such as potential disputes related to recovery as well as the solvency of DuPont, Dow and/or Chemours, could cause the indemnification assets to have a lower value than anticipated and recorded.

The company evaluates the recovery of the indemnification assets recorded when events or changes in circumstances indicate the carrying values may not be fully recoverable.

See Note 16 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, for additional information related to indemnifications.

The breadth of the company's operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes the company will ultimately pay.

The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business.

The resolution of these uncertainties may result in adjustments to the company's tax assets and tax liabilities.

It is reasonably possible that changes to the company’s global unrecognized tax benefits could be significant;

however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.

Deferred income taxes result from differences between the financial and tax basis of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.

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The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.

For example, changes in facts and circumstances that alter the probability that the company will realize deferred tax assets could result in recording a valuation allowance, thereby reducing the deferred tax asset and generating a deferred tax expense in the relevant period.

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example, changes in facts and circumstances that alter the probability that the company will realize deferred tax assets could result in recording a valuation allowance, thereby reducing the deferred tax asset and generating a deferred tax expense in the relevant period.

In some situations, these changes could be material.

See Note 7 - Income Taxes, to the Consolidated Financial Statements for additional information.

At December 31, 2023, the company had a net deferred tax liability balance of $315 million, inclusive of a valuation allowance of $510 million.

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As a result, changes in tax laws, assumptions with respect to future taxable income, and tax planning strategies could result in adjustments to deferred tax assets.

See Note 7 - Income Taxes, to the Consolidated Financial Statements for additional details related to the deferred tax liability balance.

See Note 8 - Income Taxes, to the Consolidated Financial Statements, for additional information.

Valuation of Assets and Impairment Considerations

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Qualitative factors assessed at the company level include GDP growth rates, long-term commodity prices, equity and credit market activity, discount rates, and overall financial performance.

Qualitative factors assessed at the reporting unit level include changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

material prices, and financial performance of the reporting unit.

If the company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

If additional quantitative testing is required, the reporting unit’s fair value is compared with its carrying amount, and an impairment charge, if any, is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the amount of goodwill associated with the reporting unit.

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Changes in factors and assumptions included in the strategic plans, including potential changes to the product portfolio in favor of internally developed biotechnology, could impact the rate of recognition of the relevant prepaid royalty.

At December 31, 2022, the balance of prepaid royalties reflected in other current assets and other assets was $224 million and $101 million, respectively.

The majority of the balance of prepaid royalties relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

Company's Genuity ® Roundup Ready 2 Yield ® glyphosate tolerance trait and Roundup Ready 2 Xtend ® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”).

At December 31, 2023, the balance of prepaid royalties reflected in other current assets and other assets was approximately $105 million and $25 million, respectively.

The majority of the balance of prepaid royalties in other current assets relates to the company’s wholly owned subsidiary, Pioneer Hi-Bred International, Inc.’s (“Pioneer”) non-exclusive license in the United States and Canada for the Monsanto Company's Genuity ® Roundup Ready 2 Yield ® glyphosate tolerance trait and Roundup Ready 2 Xtend ® glyphosate and dicamba tolerance trait for soybeans (“Roundup Ready 2 License Agreement”).

The prepaid royalty asset relates to a series of up-front, fixed and variable royalty payments to utilize the traits in Pioneer’s soybean product mix.

The company’s historical expectation was that the technology licensed under the Roundup Ready 2 License Agreement would be used as the primary herbicide tolerance trait platform in the Pioneer ® brand soybean through the term of the agreement.

DAS and MS Technologies, L.L.C.

The company’s historical expectation was that the technology licensed under the Roundup Ready 2 License Agreement

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

would be used as the primary herbicide tolerance trait platform in the Pioneer ® brand soybean through the term of the agreement.

DAS, the agriculture business of Historical Dow, and MS Technologies, L.L.C.

jointly developed and own the Enlist E3 TM herbicide tolerance trait for soybeans, which provides tolerance to 2, 4-D choline in Enlist Duo ® and Enlist One ® herbicides, as well as glyphosate and glufosinate herbicides.

In connection with the validation of breeding plans and large-scale product development timelines, during the fourth quarter of 2019, the company committed to accelerate the ramp up of the Enlist E3 TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer ® brands, over the subsequent five years.

During the ramp-up period, the company has begun to significantly reduce the volume of products with the Roundup Ready 2 Yield ® and Roundup Ready 2 Xtend ® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”).

As of December 31, 2022, Enlist E3 TM trait platform has grown to approximately 50 percent of our soybean portfolio.

In connection with the validation of breeding plans and large-scale product development timelines, during 2019 the company committed to accelerate the ramp up of the Enlist E3 TM trait platform in the company’s soybean portfolio mix across all brands, including Pioneer ® brands.

During the five-year ramp-up period, the company has begun to significantly reduce the volume of products with the Roundup Ready 2 Yield ® and Roundup Ready 2 Xtend ® herbicide tolerance traits beginning in 2021, with expected minimal use of the trait platform thereafter for the remainder of the Roundup Ready 2 License Agreement (the “Transition Plan”).

As of December 31, 2023, Enlist E3 TM trait platform has grown to 58 percent of our soybean portfolio.

Royalty expense has therefore significantly increased through higher amortization of the prepaid royalty.

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The accelerated prepaid royalty amortization expense represents the difference between the rate of amortization based on the revised number of units expected to contain the Roundup Ready 2 Yield ® and Roundup Ready 2 Xtend ® trait technology and the per unit cash rate per the Roundup Ready 2 License Agreement.

For the year ended December 31, 2022, the company recognized $109 million in restructuring and asset related charges - net in the Consolidated Statement of Operations from non-cash accelerated prepaid royalty amortization expense.

The expected non-cash accelerated prepaid royalty amortization expense estimated for 2023 is approximately $75 million, aggregating to approximately $130 million over the subsequent two years.

For the year ended December 31, 2023, the company recognized charges of $72 million in restructuring and asset related charges - net in the Consolidated Statement of Operations from non-cash accelerated prepaid royalty amortization expense.

The expected non-cash accelerated prepaid royalty amortization expense estimated for 2024 is approximately $60 million.

Further changes in factors and assumptions associated with usage of the trait platform licensed under the Roundup Ready 2 License Agreement, including the Transition Plan, could further impact the rate of recognition of the prepaid royalty and Consolidated Statement of Operations presentation of the accelerated prepaid royalty amortization expense.

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Additionally, if on December 31, 2028, the balance of the MOU Escrow Account (including interest) is less than $700 million, Chemours will make 50% of the deposits and DuPont and Corteva, together, will make 50% of the deposits necessary to restore the balance of the escrow account to $700 million pursuant to the terms of the Letter Agreement.

The company made its annual installment deposits due to the MOU Escrow Account through December 31, 2022.

The company made its annual installment deposits due to the MOU Escrow Account through December 31, 2022 and waived the contributions due in 2023 and 2024 pursuant to the supplemental agreement to the MOU executed by Chemours, DuPont and Corteva provided certain conditions are met.

Refer to Note 16 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, for further details on the MOU and funding of the MOU Escrow Account.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

Contractual Obligations

Our principal commitments consist of long-term debt, operating and finance lease obligations and environmental remediation obligations.

Refer to further Note 14 - Long-Term Debt and Available Credit Facilities, Note 13 – Leases, and Note 15 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, respectively, for further discussion.

Refer to Note 15 - Short-Term Borrowings, Long-Term Debt and Available Credit Facilities, Note 14 – Leases, and Note 16 - Commitments and Contingent Liabilities, to the Consolidated Financial Statements, respectively, for further discussion.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

Information related to the company's other significant contractual obligations are summarized in the following table:

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As a result of these changes, the company recorded a $939 million decrease in OPEB benefit obligations as of December 31, 2020 with a corresponding prior service benefit within other comprehensive income (loss) for the year ended December 31, 2020.

During 2021, a substantial amount of the prior service benefit within other

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

comprehensive income (loss) in 2020 was recognized in other income (expense) - net in the Consolidated Statement of Operations.

A substantial amount of the prior service benefit within other comprehensive income (loss) in 2020 was recognized in other income (expense) - net in the Consolidated Statement of Operations during 2021 with the remainder recognized during 2022.

Pension benefits are paid primarily from trust funds established to comply with applicable laws and regulations.

The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable assurance that there will be adequate funds for the payment of benefits.

The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable assurance that there

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will be adequate funds for the payment of benefits.

The company did not make contributions to the principal U.S.

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The above (credit) charges for pension and OPEB are determined as of the beginning of each period.

Long-term employee benefit plan credits were $(9) million and $(1,167) million for the years ended December 31, 2022 and 2021, respectively.

The change is due to the 2020 OPEB Plan amendments.

See "Pension Plans and Other Post Employment Benefits" under the Critical Accounting Estimates section beginning on page 51 of this report for additional information on determining annual expense.

For 2023, long-term employee benefit costs are expected to increase by about $300 million.

Long-term employee benefit plan (credits) costs were $284 million and $(9) million for the years ended December 31, 2023 and 2022, respectively.

The change is mainly due to an increase in discount rates and a decrease in asset returns due to lower pension plan assets.

See "Pension Plans and Other Post-Employment Benefits" under the Critical Accounting Estimates section beginning on page 51 of this report for additional information on determining annual expense.

For 2024, long-term employee benefit costs are expected to increase by approximately $30 million.

The change is mainly due to a decrease in asset values.

Environmental Matters

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In addition, the company implements voluntary programs to reduce air emissions, minimize the generation of hazardous waste, decrease the volume of water use and discharges, increase the efficiency of energy use and reduce the generation of persistent, bioaccumulative and toxic materials.

Management has noted a global upward trend in the amount and

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

complexity of proposed chemicals regulation.

Management has noted a global upward trend in the amount and complexity of proposed chemicals regulation.

The costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, are significant and will continue to be significant for the foreseeable future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

Pre-tax environmental expenses charged to income (loss) from continuing operations before income taxes are summarized below:

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Refer to Note 16 – Commitments and Contingent Liabilities for further details on the company’s accrued obligations at December 31, 2023.

As of December 31, 2023, the company has been notified of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") or similar state laws at about 505 sites around the U.S., including

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued

As of December 31, 2022, the company has been notified of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") or similar state laws at about 500 sites around the U.S., including approximately 120 sites for which the company does not believe it has liability based on current information.

approximately 110 sites for which the company does not believe it has liability based on current information.

Active remediation is under way at approximately 60 of the about 505 sites.

In addition, the company has resolved its liability at about 210 sites, either by completing remedial actions with other PRPs or by participating in "de minimis buyouts" with other PRPs whose waste, like the company's, represented only a small fraction of the total waste present at a site.

There were no new notices in 2022 or 2021.

There were two new notices in 2023 and none in 2022.

Environmental Capital Expenditures

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The company is seeking ways to reduce its impact and providing tools and incentives for customers to do the same.

Corteva champions climate positive agriculture, utilizing carbon storage and other means to remove more carbon from the atmosphere than it emits without sacrificing farmer productivity or ongoing profitability.

Corteva champions climate positive agriculture, utilizing carbon storage and other means to remove carbon from the atmosphere without sacrificing farmer productivity or ongoing profitability.

While Corteva is working to reduce its role in the emission of greenhouse gasses, it also invests in enabling innovation that can create a more resilient agriculture value chain.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis