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MarketScreener Homepage  >  Equities  >  Nyse  >  DuPont de Nemours, Inc.    DD

DUPONT DE NEMOURS, INC.

(DD)
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DUPONT DE NEMOURS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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10/31/2019 | 09:18am EST
Effective August 31, 2017, pursuant to the merger of equals transactions
contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015,
as amended on March 31, 2017 ("Merger Agreement"), The Dow Chemical Company
("Historical Dow") and E. 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
"Merger"). Prior to the Merger, DowDuPont did not conduct any business
activities other than those required for its formation and matters contemplated
by the Merger Agreement. Historical Dow was determined to be the accounting
acquirer in the Merger.

As discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018, DowDuPont previously announced its intent 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 as Dow 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 of 5:00 p.m. on April 1, 2019, DowDuPont completed the previously
announced 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 on March 21, 2019 (the "Dow Distribution").

Effective as of 12:01 a.m. on June 1, 2019, DuPont de Nemours, Inc. (formerly
known as DowDuPont Inc.), completed the previously announced 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 on May 24, 2019
(the "Corteva Distribution" and, together with the Dow Distribution, the
"Distributions").

Following the Corteva Distribution, the Company holds the specialty products
business. On June 1, 2019, DowDuPont changed its registered name from "DowDuPont
Inc." to "DuPont de Nemours, Inc." doing business as "DuPont" (the "Company").
Beginning on June 3, 2019, the Company's common stock is traded on the NYSE
under the ticker symbol "DD".

The interim Consolidated Financial Statements included in this report present
the consolidated financial position of DuPont as of September 30, 2019 and
December 31, 2018 and the results of operations of DuPont for the three and nine
months ended September 30, 2019 and 2018 giving effect to the Distributions,
with the historical financial results of Dow and Corteva reflected as
discontinued operations. The cash flows related to Dow and Corteva have not been
segregated and are included, as applicable, in the interim Consolidated
Statements of Cash Flows for all periods presented. Unless otherwise indicated,
the information included in Management's Discussion and Analysis refer only to
DuPont'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 Distributions.






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RECENT DEVELOPMENTS
Divestitures
In the third quarter of 2019, the Company completed the sale and separation of
its Sustainable Solutions business unit, a part of the Non-Core segment, to
Gyrus Capital. The sale resulted in a pre-tax gain of $28 million ($22
million net of tax) which was recorded in "Sundry income (expense) - net" in the
Company's Consolidated Statements of Operations.

In September 2019, DuPont announced an agreement to sell its compound
semiconductor solutions business, a part of the Electronics & Imaging segment,
to SK Siltron for approximately $450 million. The transaction is expected to
close by the end of 2019, pending satisfaction of customary closing conditions,
including receipt of regulatory approval.

Dividends

On September 13, 2019, the Company paid the third quarter dividend of $0.30 per share to shareholders of record on July 31, 2019.

On October 10, 2019, the Company announced that its Board declared a fourth quarter dividend of $0.30 per share payable on December 13, 2019, to shareholders of record on November 29, 2019.

SELECTED FINANCIAL DATA

                                                                Three Months Ended                         Nine Months Ended
In millions, except per share amounts                September 30, 2019   September 30, 2018    September 30, 2019   September 30, 2018
Net sales                                           $           5,426    $           5,683     $        16,308      $           17,137

Gross Margin                                        $           1,895    $           1,913     $         5,660      $            5,477
Gross Margin Percentage                                          34.9 %               33.7 %              34.7  %                 32.0 %

Research and development expenses                   $             225    $             264     $           724      $              808
Percent of net sales                                              4.1 %                4.6 %               4.4  %                  4.7 %

Selling, general and administrative expenses        $             645    $             731     $         2,013      $            2,301
Percent of net sales                                             11.9 %               12.9 %              12.3  %                 13.4 %

Effective tax rate - continuing operations                       17.3 %               22.0 %             (21.4 )%                 69.3 %

Net income available for DuPont common stockholders $             372    $             501     $           322      $            3,363

Earnings per common share - basic                   $            0.50    $            0.65     $          0.43      $             4.35
Earnings per common share - diluted                 $            0.50    $            0.65     $          0.43      $             4.32




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RESULTS OF OPERATIONS
Summary of Sales Results                                      Three Months Ended                            Nine Months Ended
In millions                                        September 30, 2019    September 30, 2018     September 30, 2019     September 30, 2018
Net sales                                        $         5,426        $             5,683   $             16,308   $             17,137



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, 2019                             Nine Months Ended September 30, 2019

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 )%        -  %        -  %        -  %        (1 )%             -  %       (1 )%       (3 )%        -  %        (4 )%
Nutrition &
Biosciences                  1          (2 )         1          (1 )         (1 )              1          (2 )         -          (1 )         (2 )
Transportation &
Industrial                   1          (1 )       (11 )         -          (11 )              4          (3 )       (10 )         -           (9 )
Safety &
Construction                 3          (1 )        (1 )        (4 )         (3 )              4          (2 )         1          (4 )         (1 )
Non-Core                     2          (1 )       (10 )        (3 )        (12 )             (1 )        (1 )       (10 )        (1 )        (13 )
Total                        1  %       (2 )%       (3 )%       (1 )%        (5 )%             2  %       (2 )%       (4 )%       (1 )%        (5 )%
U.S. & Canada                2  %        -  %       (2 )%        -  %         -  %             1  %        -  %       (2 )%        -  %        (1 )%
EMEA 1                       1          (3 )        (4 )        (4 )        (10 )              3          (5 )        (4 )        (4 )        (10 )
Asia Pacific                 1          (1 )        (5 )         -           (5 )              2          (2 )        (5 )         -           (5 )
Latin America                -          (2 )        (4 )        (1 )         (7 )              3          (3 )        (3 )        (1 )         (4 )
Total                        1  %       (2 )%       (3 )%       (1 )%        (5 )%             2  %       (2 )%       (4 )%       (1 )%        (5 )%

1. Europe, Middle East and Africa.




The Company reported net sales for the three months ended September 30, 2019 of
$5.4 billion, down 5 percent from $5.7 billion for the three months ended
September 30, 2018, due to a 3 percent decrease in volume, a 2 percent
unfavorable currency impact and a 1 percent decline in portfolio actions
slightly offset by a 1 percent increase in local price. Volume declined across
all geographic regions and across all segments with the exception of Nutrition &
Biosciences (up 1 percent) and Electronics & Imaging (flat). The most notable
volume decreases were in Transportation & Industrial (down 11 percent) and
Non-Core (down 10 percent). Currency was down 2 percent compared with the same
period last year, driven primarily by EMEA currencies (down 3 percent).
Portfolio and other changes contributed 1 percent of the sales decrease which
impacted Safety & Construction (down 4 percent) and Non-Core (down 3 percent)
mainly within EMEA. Local price was up 1 percent compared with the same period
last year. Local price increased in all geographic regions except Latin America
(flat) and in all segments except Electronics & Imaging (down 1 percent).

Net sales for the nine months ended September 30, 2019 were $16.3 billion, down
5 percent from $17.1 billion for the nine months ended September 30, 2018, due
to a 4 percent decrease in volume, a 2 percent unfavorable currency impact and a
1 percent decline in portfolio actions slightly offset by a 2 percent increase
in local price. Volume declined across all geographic regions and in most
segments with the exception of Safety & Construction (up 1 percent) and
Nutrition & Biosciences (flat). The most notable volume decreases were in
Non-Core and Transportation & Industrial (both down 10 percent). Currency was
down 2 percent compared with the same period last year, driven primarily by EMEA
currencies (down 5 percent). Portfolio and other changes decreased 1 percent
which impacted Safety & Construction (down 4 percent; within EMEA). Local price
was up 2 percent compared with the same period last year. Local price increased
in all geographic regions and in most segments except Electronics & Imaging
(flat) and Non-core (down 1 percent).

Cost of Sales
Cost of sales was $3.5 billion for the three months ended September 30, 2019,
down from $3.8 billion for the three months ended September 30, 2018. Cost of
sales decreased for the three months ended September 30, 2019 primarily due to
lower sales volume, cost synergies, currency impacts, and the absence of 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 Distributions.

Cost of Sales as a percentage of net sales for the three months ended September 30, 2019 was 65 percent compared with 66 percent for the three months ended September 30, 2018.


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For the nine months ended September 30, 2019, cost of sales was $10.6 billion,
down from $11.7 billion for the nine months ended September 30, 2018. Cost of
sales decreased for the nine months ended September 30, 2019 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 Distributions. Cost of sales for the nine months ended September
30, 2018 was also negatively impacted by a $73 million charge related to
amortization of the fair value step-up in Historical EID's inventories as a
result of the Merger and the acquisition of FMC Corporation's Health and
Nutrition business in November 2017; there were no charges related to this fair
value step-up for the nine months ended September 30, 2019.

Cost of sales as a percentage of net sales for the nine months ended September 30, 2019 was 65 percent compared with 68 percent for the nine months ended September 30, 2018.


Research and Development Expenses ("R&D")
R&D expenses totaled $225 million in the third quarter of 2019, down from $264
million in the third quarter of 2018. R&D as a percentage of net sales was 4
percent and 5 percent for the three months ended September 30, 2019 and 2018,
respectively.

For the first nine months of 2019, R&D expenses totaled $724 million, down from
$808 million in the first nine months of 2018. R&D as a percentage of net sales
was 4 percent and 5 percent for the nine months ended September 30, 2019 and
2018, respectively.

The decrease for the three months and nine months ended September 30, 2019 as
compared with the same periods of the prior year was primarily due to the
absence of R&D 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 Distributions.

Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $645 million in the third quarter of 2019, down from $731
million in the third quarter of 2018. SG&A as a percentage of net sales was 12
percent and 13 percent for the three months ended September 30, 2019 and 2018,
respectively.

For the first nine months of 2019, SG&A expenses totaled $2,013 million, down
from $2,301 million in the first nine months of 2018. SG&A as a percentage of
net sales was 12 percent and 13 percent for the nine months ended September 30,
2019 and 2018, respectively.

The decrease for the three and nine months ended September 30, 2019 as compared
with the same periods of the prior year was primarily due to 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 Distributions. In addition to the absence of
similar SG&A costs related to the discontinued operations for the nine months
ended September 30, 2019, SG&A decreased due to cost synergies.

Amortization of Intangibles
Amortization of intangibles was $247 million in the third quarter of 2019, down
from $256 million in the third quarter of 2018. In the first nine months of
2019, amortization of intangibles was $755 million, down from $787 million in
the same period last year. See Note 13 to the interim Consolidated Financial
Statements for additional information on intangible assets.

Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $82 million and $11 million
for the three months ended September 30, 2019 and 2018, respectively. The
activity 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 (the "Synergy Program"). The charges in the third quarter
of 2018 related to the Synergy Program.

Restructuring and asset related charges - net were $290 million and $110 million
for the nine months ended September 30, 2019 and 2018, respectively. The
activity for the nine months ended September 30, 2019 included a charge $122
million related to the 2019 Restructuring Program, a $105 million charge related
to the Synergy Program and a $63 million impairment charge related to an equity
method investment. The charges in the same period of 2018 related to the Synergy
Program.

See Note 5 to the interim Consolidated Financial Statements for additional information.



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Goodwill Impairment Charges
Goodwill impairments charges were $1,175 million during the nine months ended
September 30, 2019. The goodwill impairment charges relate to the Nutrition &
Biosciences and Non-Core segments. There were no goodwill related impairments in
the third quarter of 2019 or in the three and nine months ended 2018. See Note
13 to the interim Consolidated Financial Statements for additional information.

Integration and Separation Costs
Integration and separation costs, which primarily reflect costs related to the
post-Merger integration and activities related to the Distributions, were $191
million in the third quarter of 2019, down from $519 million in the third
quarter of 2018. In the first nine months of 2019, integration and separation
costs were $1,149 million, down from $1,312 million in the same period last
year.

Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $43
million in the third quarter of 2019, down from $45 million in the third quarter
of 2018. In the first nine months of 2019, the Company's share of the earnings
of nonconsolidated affiliates was $132 million, down from $156 million in the
first nine months of 2018. The decrease in the 2019 periods is primarily due to
lower equity earnings from the HSC Group.

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 2019 was income of $79 million compared with an expense of $9 million
in the third quarter of 2018. 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. The third quarter of
2018 included foreign currency exchange losses of $26 million and a loss on
divestiture and changes in joint venture ownership of $6 million partially
offset by income related to non-operating pension and other post employment
benefit credits of $24 million.

In the first nine months of 2019, sundry income (expense) - net was income of
$144 million compared with an expense of $25 million in the first nine months of
2018. 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. The first nine months of 2018
included foreign currency exchange losses of $148 million, including a $50
million foreign currency exchange loss related to adjustments to foreign
currency exchange contracts as a result of U.S. tax reform. The loss was
partially offset by income related to non-operating pension and other post
employment benefit plans of $79 million and miscellaneous income of $43 million.
See Notes 6 and 19 to the interim Consolidated Financial Statements for
additional information.

Interest Expense
Interest expense was $177 million and $493 million for the three and nine months
ended September 30, 2019, respectively. There was no interest expense related to
continuing operations for the three and nine months ended September 30, 2018 as
the Company did not have outstanding borrowings until the 2018 Senior Notes
issuance in the fourth quarter of 2018.

Provision for Income Taxes on Continuing Operations
The 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 2019 was
17.3 percent, compared with an effective tax rate of 22.0 percent for the third
quarter of 2018. 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 2019, the effective tax rate on continuing
operations was (21.4) percent, compared with 69.3 percent for the first nine
months of 2018. The negative tax rate for the first nine months of 2019, was
principally the result of the non-tax-deductible goodwill impairment charges
impacting the Nutrition & Biosciences and Non-Core segments. See Note 13 to the
interim Consolidated Financial Statements for more information regarding the
goodwill impairment charges.

Income from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax was $5 million and $408 million
for the three months ended September 30, 2019 and 2018, respectively, and $1,217
million and $3,391 million for the nine months ended September 30, 2019 and
2018, respectively. The decreases are attributable to the timing of the
Distributions. Refer to Note 3 to the interim Consolidated Financial Statements
for additional information.

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Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests, including the portion
attributable to discontinued operations, was $5 million in the third quarter of
2019, down from $38 million in the third quarter of 2018. For the first nine
months of 2019, net income attributable to noncontrolling interests, including
the portion attributable to discontinued operations, was $90 million, compared
with $117 million for the same period last year.

Net income attributable to noncontrolling interests of continuing operations for
the three and nine months ended September 30, 2019 was $5 million and $18
million, respectively, as compared to $15 million and $26 million for the same
periods in the prior year.


SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following supplemental unaudited pro forma financial information (the
"unaudited pro forma financial statements") is derived from DuPont's
Consolidated Financial Statements, adjusted to give effect to certain events
directly attributable to the Distributions. In contemplation of the
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 in May 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 ended September 30, 2019 and for
three and nine months ended September 30, 2018 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 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 ended
September 30, 2019 and for three and nine months ended September 30, 2018 give
effect to the pro forma events as if they had been consummated on January 1,
2018. There were no pro forma adjustments for the three months ended
September 30, 2019.

Restructuring or integration activities or other costs following the
Distributions that may be incurred to achieve cost or growth synergies of DuPont
are not reflected. The unaudited pro forma income statements provides
shareholders with summary financial information and historical data that is on a
basis consistent with how DuPont reports current financial information.

The unaudited pro forma financial statements are presented for informational
purposes only, and do not purport to represent what DuPont'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.

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© Edgar Online, source Glimpses

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