DUPONT DE NEMOURS, INC. EffectiveAugust 31, 2017 , pursuant to the merger of equals transactions contemplated by the Agreement and Plan of Merger, dated as ofDecember 11, 2015 , as amended onMarch 31, 2017 ("DWDP Merger Agreement"),The Dow Chemical Company ("Historical Dow") andE. I. du Pont de Nemours and Company ("Historical EID") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Historical Dow and Historical EID became subsidiaries of DowDuPont (the "DWDP Merger"). Prior to the DWDP Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the DWDP Merger Agreement. Historical Dow was determined to be the accounting acquirer in the DWDP Merger. DowDuPont completed a series of internal reorganizations and realignment steps in order to separate into three, independent, publicly traded companies - one for each of its agriculture, materials science and specialty products businesses. DowDuPont formed two wholly owned subsidiaries: Dow Inc. ("Dow", formerly known asDow Holdings Inc. ), to serve as a holding company for its materials science business, and Corteva, Inc. ("Corteva"), to serve as a holding company for its agriculture business. Effective as of5:00 p.m. onApril 1, 2019 , DowDuPont completed the separation of its materials science business into a separate and independent public company by way of a distribution of Dow through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Dow's common stock, par value$0.01 per share (the "Dow Common Stock"), to holders of the Company's common stock, par value$0.01 per share (the "DowDuPont common stock"), as of the close of business onMarch 21, 2019 (the "Dow Distribution"). Effective as of12:01 a.m. onJune 1, 2019 ,DuPont de Nemours, Inc. (formerly known as DowDuPont Inc.), completed the separation of its agriculture business into a separate and independent public company by way of a distribution of Corteva through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Corteva's common stock, par value$0.01 per share (the "Corteva Common Stock"), to holders of the Company's common stock, par value$0.01 per share, as of the close of business onMay 24, 2019 (the "Corteva Distribution" and, together with the Dow Distribution, the "DWDP Distributions"). Following the Corteva Distribution, the Company holds the specialty products business. OnJune 1, 2019 , DowDuPont changed its registered name from "DowDuPont Inc. " to "DuPont de Nemours, Inc. " doing business as "DuPont" (the "Company"). Beginning onJune 3, 2019 , the Company's common stock is traded on the NYSE under the ticker symbol "DD." The results of operations ofDuPont for the 2019 interim periods presented reflect the historical financial results of Dow and Corteva as discontinued operations, as applicable. The cash flows and comprehensive income related to Dow and Corteva have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim Consolidated Statements of Comprehensive Income, respectively, for the applicable period. Unless otherwise indicated, the information in the notes to the interim Consolidated Financial Statements refer only toDuPont 's continuing operations and do not include discussion of balances or activity of Dow or Corteva. The statements of operations and pro forma statements of operations included in this report and as discussed below include costs previously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to discontinued operations in accordance with Financial Accounting Standards Codification 205, "Presentation of Financial Statements" ("ASC 205") and thus are reflected in the Company's results of continuing operations. A significant portion of these costs relate to Historical Dow and consist of leveraged services provided through service centers, as well as other corporate overhead costs related to information technology, finance, manufacturing, research & development, sales & marketing, supply chain, human resources, sourcing & logistics, legal and communications, public affairs & government affairs functions. These costs are no longer incurred by the Company following the DWDP Distributions. OnDecember 15, 2019 , the Company entered into definitive agreements to separate and combine the Nutrition & Biosciences business segment (the "N&B Business") with International Flavors & Fragrances Inc. ("IFF") in a tax-efficientReverse Morris Trust transaction, (the "Intended N&B Transaction"). The transaction is expected to close in the first quarter of 2021, subject to approval by IFF shareholders and other customary closing conditions, including regulatory approvals and receipt byDuPont of an opinion of tax counsel. The financial results of the N&B Business are included in continuing operations for the periods presented. 48
--------------------------------------------------------------------------------
Table of Contents
RECENT DEVELOPMENTS
COVID-19
The novel coronavirus ("COVID-19") pandemic has resulted in significant economic
disruption and continues to adversely impact the broader global economy,
including certain of the Company's customers and suppliers. Given the dynamic
nature of this situation, the Company cannot reasonably estimate the impacts of
COVID-19 on its financial condition, results of operations or cash flows into
the foreseeable future. The ultimate extent of the effects of the COVID-19
pandemic on the Company is highly uncertain and will depend on future
developments, and such effects could exist for an extended period of time even
after the pandemic subsides.
During the third quarter of 2020, the Company benefited from strong demand in
certain key end-markets, principally electronics, water filtration, health &
wellness and personal protection. In addition, third quarter 2020 results
reflect notable improvements in automotive markets, along with residential
construction, compared to second quarter of 2020. Although management currently
expects continued improvement from certain markets in the fourth quarter of
2020, the COVID-19 pandemic is expected to continue to adversely impact demand
in aerospace, commercial construction, oil & gas, and select industrial
end-markets. In response to this uncertainty, the Company has delayed certain
capital investments in select sectors.
Sale of TCS/HSC Disposal Group
In the third quarter of 2020, the Company completed the sale of its
trichlorosilane business ("TCS Business") along with its equity ownership
interest in DC HSC Holdings LLC and Hemlock Semiconductor L.L.C. (the "HSC
Group ," and together with the TCS Business, the "TCS/HSC Disposal Group " and the
sale of the TCS/HSC Disposal Group , the "TCS/HSC Disposal") to the HSC Group ,
both of which were part of the Non-Core segment. In connection with the TCS/HSC
Disposal, the Company received $550 million in cash at closing, subject to
certain claw-back provisions, and will receive an additional $175 million in
equal installments over the course of the next three years associated with the
settlement of an existing supply agreement dispute with the HSC Group . The
TCS/HSC Disposal resulted in a net pre-tax benefit of $393 million ($232 million
net of tax), including the settlement of the supply agreement dispute and after
allocation of goodwill to the TCS Business. The net pre-tax benefit is recorded
in "Sundry income (expense) - net" in the Company's interim Consolidated
Statements of Operations. Refer to Note 3 of the interim Consolidated Financial
Statements.
Non-Core Impairments
Multiple triggering events occurred in the third quarter of 2020 requiring the
Company to perform impairment analyses associated with its Non-Core segment. As
a result of the analyses performed, the Company recognized aggregate pre-tax,
non-cash goodwill impairment charges of $183 million recorded within "Goodwill
impairment charges" and aggregate pre-tax, non-cash asset impairment charges of
$370 million recorded within "Restructuring and asset related charges - net" in
the interim Consolidated Statements of Operations. Refer to Notes 3, 5, and 11
of the interim Consolidated Financial Statements.
Nutrition & Biosciences Notes Offering
On September 16, 2020 , Nutrition & Biosciences, Inc. (presently a wholly owned
subsidiary of DuPont ) ("N&B Inc. ") completed an offering of $6.25 billion of
senior unsecured notes (the "N&B Notes Offering"). The net proceeds of
approximately $6.2 billion from the N&B Notes Offering were deposited into an
escrow account. Prior to the intended merger of DuPont 's Nutrition & Biosciences
business with IFF, N&B Inc. will make a special cash payment of $7.3 billion ,
(the "Special Cash Payment"), subject to adjustment, to DuPont , which N&B Inc.
will fund with the net proceeds from the N&B Notes Offering together with
borrowings under N&B Inc.'s existing Term Loan facilities. Refer to Notes 6 and
12 of the interim Consolidated Financial Statements.
Dividends
On
OnOctober 14, 2020 , the Company announced that its Board of Directors declared a fourth quarter dividend of$0.30 per share payable onDecember 15, 2020 , to shareholders of record onNovember 30, 2020 . 49 -------------------------------------------------------------------------------- Table of Contents SELECTED FINANCIAL DATA Three Months Ended September 30, Nine Months Ended September 30, In millions, except per share amounts 2020 2019 2020 2019 Net sales$5,096 $5,426 $15,145 $16,308 Cost of sales$3,392 $3,531 $10,001 $10,648 Percent of net sales 66.6% 65.1% 66.0% 65.3% Research and development expenses$199 $225 $644 $724 Percent of net sales 3.9% 4.1% 4.3% 4.4% Selling, general and administrative expenses$524 $645 $1,698 $2,013 Percent of net sales 10.3% 11.9% 11.2% 12.3% Effective tax rate - continuing operations 460.0% 17.3% (3.3)% (21.4)% Net (loss) earnings available forDuPont common stockholders$(79) $372 $(3,173) $322 (Loss) earnings per common share - basic$(0.11) $0.50 $(4.31) $0.43 (Loss) earnings per common share - diluted$(0.11) $0.50 $(4.31) $0.43 RESULTS OF OPERATIONS Summary of Sales Results Three
Months Ended Nine Months Ended
September 30, September 30,
In millions 2020 2019 2020 2019
Net sales $ 5,096 $ 5,426 $ 15,145 $ 16,308
The following table summarizes sales variances by segment and geographic region
from the prior year:
Sales Variances by Segment and Geographic Region
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Percentage change from Local Price & Portfolio & Local Price & Portfolio &
prior year Product Mix Currency Volume Other Total Product Mix Currency Volume Other Total
Electronics & Imaging (1) % - % 9 % (1) % 7 % (1) % - % 8 % - % 7 %
Nutrition & Biosciences - - (4) - (4) 1 (1) (1) - (1)
Transportation &
Industrial (5) - (9) - (14) (5) - (15) - (20)
Safety & Construction 1 - (10) 3 (6) 2 (1) (8) 2 (5)
Non-Core 5 - (18) (10) (23) 3 (1) (17) (9) (24)
Total - % - % (6) % - % (6) % - % (1) % (6) % - % (7) %
U.S. & Canada (1) % - % (9) % (1) % (11) % (1) % - % (9) % - % (10) %
EMEA 1 (1) 2 (14) - (13) - (1) (12) - (13)
Asia Pacific (1) - 4 - 3 (1) (1) 2 - -
Latin America 5 (6) (8) (1) (10) 3 (5) (11) (1) (14)
Total - % - % (6) % - % (6) % - % (1) % (6) % - % (7) %
1.Europe,
50
--------------------------------------------------------------------------------
Table of Contents
The Company reported net sales for the three months ended September 30, 2020 of
$5.1 billion , down 6 percent from $5.4 billion for the three months ended
September 30, 2019 , due to a 6 percent decrease in volume. Local price and
product mix, currency, and portfolio remained flat. Volume declined across all
geographic regions with the exception of Asia Pacific where it increased 4
percent. Volume declined across all segments with the exception of Electronics &
Imaging (up 9 percent). The most notable volume decreases were in Non-Core (down
18 percent), Safety & Construction (down 10 percent) and Transportation &
Industrial (down 9 percent). Currency was flat compared with the same period
last year in all segments. Portfolio and other changes were flat overall while
Non-Core saw a decrease of 10 percent. Local price was flat compared with the
same period last year. Local price increased in Latin America (up 5 percent) and
in Non-Core (up 5 percent) and Safety & Construction (up 1 percent).
Net sales for the nine months ended September 30, 2020 were $15.1 billion , down
7 percent from $16.3 billion for the nine months ended September 30, 2019 , due
to a 6 percent decrease in volume and a 1 percent unfavorable currency impact.
Local price and product mix and portfolio actions remained flat. Volume declined
across all geographic regions with the exception of Asia Pacific where it
increased 2 percent. Volume declined across all segments with the exception of
Electronics & Imaging (up 8 percent). The most notable volume decreases were in
Non-Core (down 17 percent), Transportation & Industrial (down 15 percent) and
Safety-Construction (down 8 percent). Currency was down 1 percent compared with
the same period last year, driven primarily by Latin American currencies (down 5
percent) and EMEA and Asia Pacific currencies (down 1 percent each). Portfolio
and other changes were flat overall while Non-Core saw a negative impact on
sales from portfolio changes (down 9 percent). Local price and product mix was
flat compared with the same period last year. Local price increased in Latin
America (up 3 percent) and in all segments except Transportation & Industrial
(down 5 percent) and Electronics & Imaging (down 1 percent).
Cost of Sales
Cost of sales was $3.4 billion for the three months ended September 30, 2020 ,
down from $3.5 billion for the three months ended September 30, 2019 primarily
due to lower sales volume and cost synergies offset by approximately $60 million
of charges associated with temporarily idling several manufacturing plants to
align supply with demand, mainly in the Transportation & Industrial and Safety &
Construction segments.
Cost of sales as a percentage of net sales for the three months ended
September 30, 2020 was 67 percent compared with 65 percent for the three months
ended September 30, 2019 , driven mainly by the charges associated with temporary
idling several manufacturing plans referenced above.
For the nine months ended September 30, 2020 , cost of sales was $10.0 billion ,
down from $10.6 billion for the nine months ended September 30, 2019 . Cost of
sales decreased for the nine months ended September 30, 2020 primarily due to
lower sales volume, cost synergies, currency impacts, and lower costs previously
allocated to the materials science and agriculture businesses that did not meet
the definition of expenses related to discontinued operations in accordance with
ASC 205 and therefore remained as costs of continuing operations for periods
prior to the DWDP Distributions, offset by approximately $220 million of charges
associated with temporarily idling several manufacturing plants to align supply
with demand due to COVID-19, driven primarily by the Transportation & Industrial
segment.
Cost of sales as a percentage of net sales for the nine months ended
Research and Development Expenses ("R&D")
R&D expenses totaled $199 million in the third quarter of 2020, down from $225
million in the third quarter of 2019. R&D as a percentage of net sales was 4
percent for the three months ended September 30, 2020 and 2019.
For the first nine months of 2020, R&D expenses totaled $644 million , down from
$724 million in the first nine months of 2019. R&D as a percentage of net sales
was 4 percent for the nine months ended September 30, 2020 and 2019.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $524 million in the third quarter of 2020, down from $645
million in the third quarter of 2019 primarily due to productivity actions and
reduced spending. SG&A as a percentage of net sales was 10 percent and 12
percent for the three months ended September 30, 2020 and 2019, respectively.
For the first nine months of 2020, SG&A expenses totaled $1,698 million , down
from $2,013 million in the first nine months of 2019. SG&A as a percentage of
net sales was 11 percent and 12 percent for the nine months ended September 30,
2020 and 2019, respectively.
51
-------------------------------------------------------------------------------- Table of Contents The decrease for the nine months endedSeptember 30, 2020 compared with the same period of the prior year was primarily due to productivity actions, reduced spending and the absence of SG&A costs previously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to discontinued operations in accordance with ASC 205 and therefore remained as costs of continuing operations for periods prior to the DWDP Distributions. Amortization of Intangibles Amortization of intangibles was$530 million in the third quarter of 2020, up from$247 million in the third quarter of 2019. In the first nine months of 2020, amortization of intangibles was$1,591 million , up from$755 million in the same period last year. The increase was primarily due to the amortization of the Nutrition and Biosciences tradenames that were reclassified to definite-lived intangibles in the fourth quarter of 2019 in connection with the Intended N&B Transaction. Restructuring and Asset Related Charges - Net Restructuring and asset related charges - net were$384 million in the third quarter of 2020, up from$82 million in the third quarter of 2019. The activity in the third quarter of 2020 included asset impairment charges in the Non-Core segment of$318 million related to long-lived assets and$52 million related to indefinite-lived intangible assets, and a$14 million charge related to the 2020 Restructuring Program. The charges in the third quarter of 2019 included a$69 million charge related to the 2019 Restructuring Program and a$13 million charge related to the DowDuPont Cost Synergy Program. In the first nine months of 2020, restructuring and asset related charges - net were$807 million , up from$290 million in the same period last year. The activity for the nine months of 2020 included asset impairment charges in the Non-Core segment of$588 million related to long-lived assets and$52 million related to indefinite-lived intangible assets, a$21 million impairment charge related to indefinite-lived intangible assets in the Transportation & Industrial segment, a$140 million charge related to the 2020 Restructuring Program, a$2 million charge related to the 2019 Restructuring Program and a$4 million charge related to the DowDuPont Cost Synergy Program. The charges in the same period of 2019 included a charge of$122 million related to the 2019 Restructuring Program, a$105 million charge related to the DowDuPont Cost Synergy Program, and$63 million impairment charge related to an equity method investment.
See Note 5 to the interim Consolidated Financial Statements for additional information.
Goodwill Impairment ChargesGoodwill impairment charges were$183 million in the third quarter of 2020. There were no goodwill related impairments in the third quarter of 2019.Goodwill impairment charges were$3,214 million in the nine months endedSeptember 30, 2020 , up from$1,175 million in the same period last year. The third quarter of 2020 goodwill impairment charges relate to the Non-Core segment. In the first nine months of 2020, goodwill impairment charges relate to the Transportation & Industrial and Non-Core segments.Goodwill impairment charges for the first nine months of 2019 relate to the Nutrition & Biosciences and Non-Core segments. See Note 11 to the interim Consolidated Financial Statements for additional information. Integration and Separation Costs Integration and separation costs, which primarily reflect costs related to the Intended N&B Transaction beginning in the fourth quarter of 2019, the post-DWDP Merger integration, and activities related to the DWDP Distributions, were$127 million in the third quarter of 2020, down from$191 million in the third quarter of 2019. In the first nine months of 2020, integration and separation costs were$469 million , down from$1,149 million in the same period last year. The decline was primarily related to the timing of the DWDP Distributions. Equity in Earnings of Nonconsolidated AffiliatesThe Company's share of the earnings of nonconsolidated affiliates was$30 million in the third quarter of 2020, down from$43 million in the third quarter of 2019 primarily due to lowerHSC Group equity earnings coupled with the sale of the Company's equity interest in theHSC Group in the third quarter of 2020. In the first nine months of 2020, the Company's share of the earnings of nonconsolidated affiliates was$172 million , up from$132 million in the first nine months of 2019. The increase is primarily due to higherHSC Group equity earnings in the first half of 2020, mainly driven by customer settlements in the second quarter of 2020. Sundry Income (Expense) - Net Sundry income (expense) - net includes a variety of income and expense items such as foreign currency exchange gains or losses, interest income, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other post-employment benefit plan credits or costs, and certain litigation matters. Sundry income (expense) - net in the third quarter of 2020 was income of$430 million compared with income of$79 million in the third quarter of 2019. 52 -------------------------------------------------------------------------------- Table of Contents The third quarter of 2020 included a net pre-tax benefit of$393 million related to the TCS/HSC Disposal in the Non-Core segment, which includes the settlement of a supply agreement dispute. The third quarter of 2019 included benefits related to sales of assets of$64 million and income related to non-operating pension and other post-employment benefit credits of$21 million , partially offset by foreign currency exchange losses of$23 million . In the first nine months of 2020, sundry income (expense) - net was income of$627 million compared with income of$144 million in the first nine months of 2019. The first nine months of 2020 included a net pre-tax net benefit of$393 million associated with the TCS/HSC Disposal as discussed above, a gain of$197 million related to the sale of the Compound Semiconductor Solutions business unit in the Electronics & Imaging segment, and income related to non-operating pension and other post-employment benefit credits of$24 million , partially offset by foreign currency exchange losses of$41 million . The first nine months of 2019 included benefits related to sales of assets of$127 million , income related to non-operating pension and other post-employment benefit plans of$60 million and interest income of$50 million , partially offset by foreign currency exchange losses of$101 million and a$48 million charge reflecting a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement. Interest Expense Interest expense was$197 million in the third quarter of 2020, up from$177 million in the third quarter of 2019. The increase primarily relates to financing costs associated with the Intended N&B transaction. In the first nine months of 2020, interest expense was$573 million , up from$493 million in the same period last year. The increase primarily relates to financing costs associated with the Intended N&B Transaction and the May Debt Offering. Provision for Income Taxes on Continuing OperationsThe Company's effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attribute. The effective tax rate on continuing operations for the third quarter of 2020 was 460.0 percent, compared with an effective tax rate of 17.3 percent for the third quarter of 2019. The effective tax rate for the third quarter of 2020 was principally the result of a non-tax-deductible goodwill impairment charge and a non-tax-deductible goodwill allocation in connection with the TCS/HSC Disposal impacting the Non-Core segment in the third quarter. The effective tax rate for the third quarter of 2019 was favorably impacted by, among other items, tax benefits related to the adjustment of certain unrecognized benefits for positions taken on items from a prior year. For the first nine months of 2020, the effective tax rate on continuing operations was (3.3) percent, compared with (21.4) percent for the first nine months of 2019. The effective tax rate for the first nine months of 2020 was principally the result of a non-tax-deductible goodwill impairment charge impacting the Non-Core segment in the first and third quarter and a non-tax-deductible goodwill impairment charge impacting the Transportation and Industrial segment in the second quarter, coupled with an allocation of non-tax-deductible goodwill related to the TCS/HSC Disposal. The tax rate for the first nine months of 2019 was principally the result of non-tax-deductible goodwill impairment charges impacting the Nutrition & Biosciences and Non-Core segments. See Note 11 to the interim Consolidated Financial Statements for additional information on the goodwill impairment charges. Income from Discontinued Operations, Net of Tax In the third quarter of 2020 and for the first nine months of 2020, the Company did not have activity from discontinued operations. In the third quarter of 2019 and for the nine months of 2019, income from discontinued operation, net of tax was$5 million and$1,217 million , respectively. The decrease period over period is attributable to the timing of the DWDP Distributions. Refer to Note 3 to the interim Consolidated Financial Statements for additional information. Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests was$7 million in the third quarter of 2020, up from$5 million in the third quarter of 2019. For the first nine months of 2020, net income attributable to noncontrolling interests was$20 million , down from$90 million for the same period last year due to the timing of the DWDP Distributions. 53
--------------------------------------------------------------------------------
Table of Contents SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following supplemental unaudited pro forma financial information (the "unaudited pro forma financial statements") is derived fromDuPont 's Consolidated Financial Statements, adjusted to give effect to certain events directly attributable to the DWDP Distributions. In contemplation of the DWDP Distributions and to achieve the respective credit profiles of each of the current companies, in the fourth quarter of 2018, DowDuPont borrowed$12.7 billion under the 2018 Senior Notes and entered the Term Loan Facilities with an aggregate principal amount of$3.0 billion . Additionally,DuPont issued approximately$1.4 billion in commercial paper inMay 2019 in anticipation of the Corteva Distribution (the "Funding CP Issuance" together with the 2018 Senior Notes and the Term Loan Facilities, the "Financings"). The unaudited pro forma financial statements for the nine months endedSeptember 30, 2019 were prepared in accordance with Article 11 of Regulation S-X. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the DWDP Distributions and the Financings (collectively the "Transactions"), (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the results. The unaudited pro forma statements of operations for the nine months endedSeptember 30, 2019 give effect to the pro forma events as if they had been consummated onJanuary 1, 2018 . There were no pro forma adjustments for the three and nine months endedSeptember 30, 2020 and for the three months endedSeptember 30, 2019 . Restructuring or integration activities or other costs following the DWDP Distributions that may be incurred to achieve cost or growth synergies ofDuPont are not reflected. The unaudited pro forma income statement provides shareholders with summary financial information and historical data that is on a basis consistent with howDuPont reports current financial information. The unaudited pro forma financial statements are presented for informational purposes only, and do not purport to represent whatDuPont 's results of operations or financial position would have been had the Transactions occurred on the dates indicated, nor do they purport to project the results of operations or financial position for any future period or as of any future date.
© Edgar Online, source
