XML 115 R30.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Share-based Payment Arrangement [Text Block] STOCK-BASED COMPENSATION

Prior to the Corteva Distribution, Corteva employees held equity awards, including stock options, share appreciation rights (“SARs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”), which were denominated in DowDuPont common stock and, in some cases, in Dow Inc. common stock, and which had originally been issued under the DuPont Equity and Incentive Plan ("EIP"), the Dow Chemical Company 2012 Stock Incentive Plan or the Dow Chemical Company 1988 Award and Option Plan. As of the Merger date on August 31, 2017, all outstanding Historical DuPont equity awards were converted into equity awards with respect to DowDuPont Common Stock. The previous Historical DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock and had a fair value of approximately $629 million at the Merger closing date, which included $485 million as consideration exchanged and $144 million (included $23 million of incremental expense as a result of the conversion) that is being amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the converted awards were based on valuation assumptions developed by management and other information including, but not limited to, historical volatility and dividend yield of Historical DuPont and Historical Dow. Historical DuPont and Historical Dow did not merge their equity and incentive plans as a result of the Merger.

As discussed in Note 5 - Divestitures and Other Transactions, on April 1, 2019 the company entered into an employee matters agreement (the "EMA") with DuPont and Dow that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur. With some exceptions, the EMA provides for the equitable adjustment of existing equity incentive compensation awards denominated in the common stock of DowDuPont to reflect the occurrence of the Distributions.

In connection with the Separation on June 1, 2019, outstanding DowDuPont-denominated stock options, SARs, RSU and PSU awards were converted into Corteva-denominated awards under the “Employer Method,” or into both DuPont-denominated awards and Corteva-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the Separation transactions. The conversions of equity awards did not have a material impact to the company’s consolidated financial statements.

On June 1, 2019 (“Adoption Date”), in connection with the Separation, the Omnibus Incentive Plan (the "OIP") became effective. Under the OIP, the company may grant incentive awards, including stock options (both “incentive stock options” and nonqualified stock options), share appreciation rights, restricted shares, restricted stock units, other share-based awards and cash awards, to its and its subsidiaries’ eligible employees, non-employee directors, independent contractors and consultants following the Separation until the tenth anniversary of the Adoption Date, subject to an aggregate limit and annual individual limits. Under the OIP, the maximum number of shares reserved for the grant or settlement of awards is 20 million shares, excluding shares underlying certain exempt awards, such as the awards converted to Corteva-denominated awards pursuant to the Separation. At December 31, 2019, approximately 18 million shares were authorized for future grants under the OIP. The company generally satisfies stock option exercises and the vesting of RSUs and PSUs with newly issued shares of Corteva common stock, although RSU awards granted under Historical Dow plans in certain countries are settled in cash.

The compensation committee determines the long-term incentive mix, including stock options, RSUs and PSUs and may authorize new grants annually. The company estimates expected forfeitures.

The total stock-based compensation cost included in (loss) income from continuing operations after income taxes within the Consolidated Statement of Operations was $84 million, $83 million, $24 million, and $34 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively. The income tax benefits related to stock-based compensation arrangements were $17 million, $17 million, $8 million, and $12 million for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017, respectively.

Stock Options

The exercise price of shares subject to option is equal to the market price of the company's stock on the date of grant. All options vest serially over a period of three years. Stock option awards granted under the previous plan (EIP) between 2013 and 2015 expire seven years after the grant date and options granted between 2016 and 2018 expire 10 years after the grant date. Stock option awards granted under the Historical Dow plans subsequent to 2010 expire 10 years after the grant date.

EIP
Under the EIP, the weighted-average grant-date fair value of options granted for the year ended December 31, 2019, December 31, 2018, the period September 1 through December 31, 2017 and the period January 1 through August 31, 2017 was $7.29, $15.46, $28.56, and $16.65, respectively.

To measure the fair value of the awards on the date of grant, the company used the Black-Scholes option pricing model and the following assumptions:
Weighted-Average Assumptions
Successor
Predecessor
 
For the Year Ended December 31, 2019
For the Year Ended December 31, 2018
For the Period September 1 through December 31, 2017
For the Period January 1 through August 31, 2017
Dividend yield
1.55
%
2.1
%
2.2
%
2.0
%
Expected volatility
19.80
%
23.30
%
23.59
%
23.21
%
Risk-free interest rate
2.4
%
2.8
%
2.1
%
2.3
%
Expected life of stock options granted during period (years)
6.1

6.2

7.2

7.2



In the Successor periods, the company determined the dividend yield by dividing the annualized dividend on DowDuPont's Common Stock by the option exercise price. In the Predecessor period, the company determined the dividend yield by dividing the annual dividend on Historical DuPont's stock by the option exercise price.

A historical daily measurement of volatility is determined based on the expected life of the option granted. In the Successor periods, for the year ended December 31, 2019, the measurement of volatility is based on weighted average of the individual peer volatilities of DuPont and Corteva based on the size of each business respectively. DuPont and Corteva peer volatility are based on a 50/50 blend of historical volatility and implied volatility. Both volatility measures are based on the average of five peer companies for DuPont and eight peer companies for Corteva. In the Successor periods, for the year ended December 31, 2018 and the period September 1 through December 31, 2017, the measurement of volatility used DowDuPont stock information after the Merger date, and a weighted average of Historical Dow and Historical DuPont stock information prior to Merger date. In the Predecessor period, the measurement of volatility used Historical DuPont stock information.

The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to the company's historical experience.

The following table summarizes stock option activity for the year ended December 31, 2019 under the EIP:
Stock Options
For the year ended December 31, 2019
 
Number of Shares
(in thousands)
Weighted Average Exercise Price (per share)
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value
(in thousands)
Outstanding at January 1, 2019
17,079

$
53.26

 
 
Exercised
(886
)
39.19

 
 
Forfeited/Expired
(85
)
46.87

 
 
Outstanding at April 1, 2019
16,108

$
54.07

4.76

$
76,942

Exercisable at April 1, 2019
13,314

$
51.09

3.94

$
74,749

 
 
 
 
 
Conversion - Dow Distribution1
21,700

$
35.41

 
 
Granted2
2,561

29.95

 
 
Exercised
(134
)
27.24

 
 
Forfeited/Expired
(129
)
35.07

 
 
Impact of Internal Reorganization, net
(10,112
)
36.07

 
 
Outstanding at May 31, 2019
13,886

$
34.00

3.90

$
20,779

Exercisable at May 31, 2019
12,481

$
32.85

3.39

$
18,979

 
 
 
 
 
Conversion - Corteva Distribution3
(13,886
)
$
34.00

 
 
Outstanding at December 31, 2019
—

$
—

—

$
—

Exercisable at December 31, 2019
—

$
—

—

$
—

1.
As a result of the Dow Distribution, all outstanding DowDuPont equity awards under the EIP were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution.
2.
As a result of the Dow Distribution, outstanding DowDuPont equity awards under the Heritage Dow Plans were moved to the EIP and were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. These outstanding equity awards are included in the number of “Granted” awards in the table above.
3.
As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP.

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at period end. The total intrinsic value of options exercised for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was $16 million, $50 million, $19 million, and $108 million, respectively. For the year ended December 31, 2019, the company realized tax benefits from options exercised of $3 million.

OIP
During the year ended December 31, 2019 there were no new non-qualified options granted to Corteva’ s employees. Corteva’ s expense related to stock options was entirely related to Historical DuPont and Historical Dow outstanding options that were converted to Corteva’ s options on June 1, 2019.

The following table summarizes stock option activity for year ended December 31, 2019 under the OIP:
Stock Options
For the year ended December 31, 2019
 
Number of Shares
(in thousands)
Weighted Average Exercise Price (per share)
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value
(in thousands)
Outstanding at January 1, 2019
—

$
—

 
 
Converted on June 1, 20191
10,468

32.11




Exercised
(355
)
20.95




Forfeited/Expired
(68
)
38.45




Outstanding at December 31, 2019
10,045

$
32.47

4.73
$
20,186

Exercisable at December 31, 2019
8,036

$
30.54

3.95
$
19,172

1.
As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP.

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the December 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at period end. The total intrinsic value of options exercised and the realized tax benefits from options exercised for the year ended December 31, 2019 were $3 million, and $1 million, respectively.

As of December 31, 2019, $4 million of total unrecognized pre-tax compensation expense related to nonvested stock options is expected to be recognized over a weighted-average period of about 1 year.

Restricted Stock Units and Performance Share Units

RSUs granted under the EIP serially vest over 3 years. RSUs granted under the Historical Dow plans vest after a designated period, generally 1 year to 3 years. RSUs granted under the OIP serially vest over 3 years. Upon vesting, these RSUs convert one-for-one to Corteva Common Stock. A retirement-eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. Additional RSUs are also granted periodically to key senior management employees. These RSUs generally vest over periods ranging from 3 years to 5 years. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.

The company grants PSUs to senior leadership. As a result of the Merger, the EIP provisions required PSUs to be converted into RSUs based on the number of PSUs that would vest by assuming that target levels of performance are achieved. Service requirements for vesting in the RSUs replicate those inherent in the exchanged PSUs.

EIP
Vesting for PSUs granted for the period January 1, 2017 through August 31, 2017 was based upon total shareholder return ("TSR") relative to peer companies. The weighted-average grant-date fair value of PSUs granted for the period January 1 through August 31, 2017, subject to the TSR metric, was $91.56, and estimated using a Monte Carlo simulation.

In accordance with the Merger Agreement, PSUs converted to RSUs based on an assessment of the underlying market conditions in the PSUs at the greater of target or actual performance levels as of the closing date. As the actual performance levels were not in excess of target as of the closing date, all PSUs converted to RSUs based on target and there was no incremental benefit from the Merger Agreement when compared to Historical DuPont’s EIP.

In November 2017, DowDuPont granted PSUs to senior leadership that vest partially based on the realization of cost savings in connection with the DowDuPont Cost Synergy Program, as well as DowDuPont’s ability to complete the Business Separations. Performance and payouts are determined independently for each metric. The actual award, delivered in DowDuPont Common Stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs granted in November 2017 of $71.16 was based upon the market price of the underlying common stock as of the grant date.

Nonvested awards of RSUs and PSUs are shown below.

RSUs & PSUs
For the year ended December 31, 2019
 
Number of Shares
(in thousands)
Weighted Average Grant Date Fair Value
(per share)
Nonvested at January 1, 2019
3,147

$
68.18

Granted
2,578

52.66

Vested
(1,113
)
67.85

Forfeited
(12
)
67.08

Nonvested at April 1, 2019
4,600

$
59.57

 
 
 
Conversion - Dow Distribution1
6,120

$
39.46

Granted2
1,288

42.34

Vested
(76
)
42.26

Forfeited
(47
)
40.35

Impact of Internal Reorganization, net
(4,185
)
39.76

Nonvested at May 31, 2019
3,100

$
40.18

Conversion - Corteva Distribution3
(3,100
)
$
40.18

Nonvested at December 31, 2019
—

$
—

1.
As a result of the Dow Distribution, all outstanding DowDuPont equity awards under the EIP were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution.
2.
As a result of the Dow Distribution, outstanding DowDuPont equity awards under the Heritage Dow Plans were moved to the EIP and were converted into DowDuPont-denominated awards under the “Employer Method,” or into Dow-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Dow Distribution. These outstanding equity awards are included in the number of “Granted” awards in the table above.
3.
As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP.

The total fair value of stock units vested under the EIP during the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was $79 million, $128 million, $9 million, and $84 million, respectively. The weighted-average grant-date fair value of stock units granted under the EIP for the year ended December 31, 2019, the year ended December 31, 2018, the period September 1 through December 31, 2017, and the period January 1 through August 31, 2017 was $52.19, $70.37, $70.02, and $76.41, respectively.

OIP
In August 2019, Corteva granted PSUs to senior leadership that vest partially based on the realization of the Company’s improvement of its Return on Invested Capital (“ROIC”) and Operating EBITDA during the Performance Period. Performance and payouts are determined independently for each metric. The actual award, delivered in Corteva Common Stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant date fair value of the PSUs granted in August 2019 of $29.02 was based upon the market price of the underlying common stock as of the grant date.

Nonvested awards of RSUs and PSUs are shown below.
RSUs & PSUs
For the year ended December 31, 2019
 
Number of Shares
(in thousands)
Weighted Average Grant Date Fair Value
(per share)
Nonvested at January 1, 2019
—

$
—

Converted on June 1, 20191
3,757

35.56

Granted
2,228

28.88

Vested
(497
)
39.07

Forfeited
(50
)
36.50

Nonvested at December 31, 2019
5,438

$
32.49

1.
As a result of the Corteva Distribution, all outstanding DowDuPont equity awards under the EIP were converted into Corteva-denominated awards under the “Employer Method,” or into DuPont-denominated awards under the “Shareholder Method,” using a formula designed to preserve the intrinsic value of the awards immediately prior to and subsequent to the Corteva Distribution and moved to the OIP.

The total fair value of stock units vested under the OIP during for the year ended December 31, 2019 was $19 million. The weighted-average grant-date fair value of stock units granted under the OIP for the year ended December 31, 2019 was $28.88.

As of December 31, 2019, $57 million of total unrecognized pre-tax compensation expense related to RSUs and PSUs is expected to be recognized over a weighted average period of 1 year.