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 ("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 "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. 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 "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 three months endedMarch 31, 2019 present the historical financial results of Dow and Corteva as discontinued operations. 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 Distributions. 38
--------------------------------------------------------------------------------
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 first quarter of 2020, the Company benefited from COVID-19 related
demand in certain markets, principally personal protection, food & beverage,
health & wellness and electronics. Although management currently expects strong
demand from these certain markets to continue into the second quarter of 2020,
the COVID-19 pandemic is expected to continue to significantly adversely impact
demand in automotive, oil & gas, and select industrial end-markets. In response
to this uncertainty, the Company is delaying certain capital investments in
select sectors, and idling production at several manufacturing sites,
predominantly production plants in the Transportation & Industrial segment.
In addition, in response to COVID-19 related market disruption and
uncertainties, the Company has proactively taken steps to enhance its liquidity
position. In April 2020 , the Company entered into a $1.0 billion 364-day
revolving credit facility (the "$1B Revolving Credit Facility") that replaces
its $750 million 364-day revolving credit facility (the "Old 364-Day Revolving
Credit Facility"), and completed a public underwritten offering of $2 billion of
2.169 percent fixed rate notes due May 1, 2023 (the "May Debt Offering"). Refer
to Liquidity and Capital Resources for more information.
Nutrition & Biosciences Financing
On December 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-efficient Reverse
Morris Trust transaction, (the "Proposed N&B Transaction"). In the first quarter
of 2020, DuPont and Nutrition & Biosciences, Inc. (presently a wholly owned
subsidiary of DuPont ) ("N&B Inc. ") entered into a senior unsecured term loan
agreement in the amount of $1.25 billion split evenly between three- and
five-year facilities. As a result of entry into the term loan agreement, the
commitments under the Bridge Commitment Letter were reduced to $6.25 billion .
The remaining $6.25 billion is expected to be funded through the N&B Notes
Offering and/or the Bridge Loans. The proceeds from drawdowns on the term loan
facilities and the N&B Notes Offering, if any, and/or Bridge Loans would be used
to make a one-time $7.3 billion cash payment, subject to adjustment, to DuPont
(the "Special Cash Payment") and to pay the related transaction fees and
expenses. The commitments under the Bridge Letter and the availability of
funding under the term loan are subject to customary closing conditions
including among others, the satisfaction of substantially all the conditions to
the consummation of the proposed transaction with IFF.
2020 Restructuring Program
During the first quarter of 2020, the Company approved restructuring actions
designed to capture near-term cost reductions following the expected closure of
the Proposed N&B Transaction (the "2020 Restructuring Program"). For the three
months ended March 31, 2020 , the Company recorded a pre-tax charge related to
the 2020 Restructuring Program of $111 million , recognized in "Restructuring and
asset related charges - net" in the Company's interim Consolidated Statements of
Operations. At March 31, 2020 , total liabilities related to the program were $96
million . Future cash payments related to the 2020 Restructuring Program are
anticipated to be up to $130 million primarily related to the payment of
severance and related benefits and contract termination charges.
Divestitures
In the first quarter of 2020, the Company completed the sale of its Compound Semiconductor Solutions business unit, a part of the Electronics & Imaging segment, toSK Siltron . Proceeds received in the first quarter of 2020 from the sale of the business were approximately$420 million . The sale resulted in a pre-tax gain of$197 million ($102 million net of tax) which was 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 During the three months endedMarch 31, 2020 , the Company was required to perform interim impairment tests of its goodwill and long-lived assets as expectations of proceeds related to certain potential divestitures within the Non-Core segment gave rise to fair value indicators and, thus, served as triggering events. As a result of the analysis performed, the Company recorded pre-tax, non-cash impairment charges related to goodwill of$533 million . The charges were recognized in "Goodwill impairment charge" in the interim Consolidated Statements of Operations. Refer to Note 11 of the interim Consolidated Financial Statements. The Company also recorded pre-tax, non-cash impairment charges of$270 million related to long-lived assets. The charges were 39
--------------------------------------------------------------------------------
Table of Contents
recognized in "Restructuring and asset related charges - net" in the interim Consolidated Statements of Operations. Refer to Note 5 of the interim Consolidated Financial Statements.
Dividends
On
On
SELECTED FINANCIAL DATA
Three Months Ended
In millions, except per share amounts March 31, 2020 March 31, 2019 Net sales $ 5,221 $ 5,414 Cost of sales $ 3,318 $ 3,621 Percent of net sales 63.6 % 66.9 % Research and development expenses $ 236 $
267
Percent of net sales 4.5 %
4.9 %
Selling, general and administrative expenses $ 633 $
726
Percent of net sales 12.1 %
13.4 %
Effective tax rate - continuing operations (7.8 )%
55.2 %
Net (loss) income available forDuPont common stockholders $ (616 ) $
521
Earnings per common share - basic $ (0.83 ) $
0.69
Earnings per common share - diluted $ (0.83 ) $ 0.69
40
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS Summary of Sales Results Three Months Ended In millions March 31, 2020 March 31, 2019 Net sales$ 5,221 $ 5,414 The following table summarizes sales variances by segment and geographic region from the prior year: Sales Variances by Segment andGeographic Region Three Months Ended
Local Price &
Percentage change from prior year Product Mix Currency Volume Portfolio & Other Total
Electronics & Imaging (1 )% (1 )% 9 % - % 7 %
Nutrition & Biosciences 2 (2 ) 1 - 1
Transportation & Industrial (4 ) (1 ) (8 ) - (13 )
Safety & Construction 2 (1 ) (4 ) 2 (1 )
Non-Core 2 - (12 ) (9 ) (19 )
Total - % (1 )% (2 )% (1 )% (4 )%
U.S. & Canada - % - % (2 )% - % (2 )%
EMEA 1 1 (3 ) (5 ) (1 ) (8 )
Asia Pacific (1 ) (1 ) - - (2 )
Latin America 2 (3 ) (3 ) (2 ) (6 )
Total - % (1 )% (2 )% (1 )% (4 )%
1.
The Company reported net sales for the three months endedMarch 31, 2020 of$5.2 billion , down 4 percent from$5.4 billion for the three months endedMarch 31, 2019 , due to a 2 percent decrease in volume, a 1 percent unfavorable currency impact and a 1 percent decline in portfolio actions. Local price and product mix remained flat. Volume declined across all geographic regions with the exception ofAsia Pacific where it remained flat. Volume declined across all segments with the exception of Electronics & Imaging (up 9 percent) and Nutrition & Biosciences (up 1 percent). The most notable volume decrease were in Transportation & Industrial (down 8 percent) and Non-Core (down 12 percent). Currency was down 1 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 Non-Core (down 9 percent). Local price was flat compared with the same period last year. Local price increased inLatin America (up 2 percent) and EMEA (up 1 percent) and in all segments except Transportation & Industrial (down 4 percent) and Electronics & Imaging (down 1 percent). Cost of Sales Cost of sales was$3.3 billion for the three months endedMarch 31, 2020 , down from$3.6 billion for the three months endedMarch 31, 2019 . Cost of sales decreased for the three months endedMarch 31, 2020 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 endedMarch 31, 2020 was 64 percent compared with 67 percent for the three months endedMarch 31, 2019 . Research and Development Expenses ("R&D") R&D expenses totaled$236 million in the first quarter of 2020, down from$267 million in the first quarter of 2019. R&D as a percentage of net sales was 5 percent for the three months endedMarch 31, 2020 and 2019. The decrease for the three months endedMarch 31, 2020 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. 41
--------------------------------------------------------------------------------
Table of Contents
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $633 million in the first quarter of 2020, down from $726
million in the first quarter of 2019. SG&A as a percentage of net sales was 12
percent and 13 percent for the three months ended March 31, 2020 and 2019,
respectively. The decrease for the three months ended March 31, 2020 as compared
with the same period 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.
Amortization of Intangibles
Amortization of intangibles was $533 million in the first quarter of 2020, up
from $256 million in the first quarter of 2019. 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 Proposed N&B Transaction.
Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $404 million in the first
quarter of 2020, up from $71 million in the first quarter of 2019. The activity
in the first quarter of 2020 included a $270 million impairment charge related
to long-lived assets in the Non-Core segment, a $111 million charge related to
the 2020 Restructuring Program, $18 million charge related to the 2019
Restructuring Program and a $5 million charge related to the DowDuPont Cost
Synergy Program (the "Synergy Program"). The charges in the first quarter of
2019 related to the Synergy Program. See Note 5 to the interim Consolidated
Financial Statements for additional information.
Goodwill Impairment Charge
Goodwill impairment charge was $533 million in the three months ended March 31,
2020 . The goodwill impairment charge relates to the Non-Core segment. There were
no goodwill related impairments in the same period of 2019. 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
post-Merger integration, activities related to the Distributions, and, during
2020, the intended separation of the Nutrition & Biosciences business, were $197
million in the first quarter of 2020, down from $611 million in the first
quarter of 2019. The decline was primarily related to the timing of the
Distributions.
Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $39
million in the first quarter of 2020, down from $40 million in the first quarter
of 2019. The decrease 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 first
quarter of 2020 was income of $211 million compared with income of $84 million
in the first quarter of 2019. The first quarter of 2020 included benefits
related to sale of the Compound Semiconductor Solutions business unit of $197
million , income related to non-operating pension and other post employment
benefit credits of $11 million and miscellaneous income of $9 million , partially
offset by foreign currency exchange losses of $8 million . The first quarter of
2019 included benefits related to sales of assets of $53 million , interest
income of $40 million , miscellaneous income of $31 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 $61 million .
Interest Expense
Interest expense was $183 million and $151 million for the three months ended
March 31, 2020 and 2019, respectively. The increase primarily relates to
financing facilities that were drawn after March 31, 2019 for the Company to
operate on a stand-alone basis and complete the capital structures of Corteva
and Dow in advance of their respective separations, which include the Term Loan
Facilities and the DuPont Commercial Paper Program.
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 first quarter of 2020 was
(7.8) percent, compared with an effective tax rate of 55.2 percent for the first
quarter of 2019. The effective tax rate for the first quarter of 2020 was
principally the result of the non-tax-deductible goodwill impairment charge
impacting the Non-core segment.
42--------------------------------------------------------------------------------
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 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 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 three months endedMarch 31, 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 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 three months endedMarch 31, 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 months endedMarch 31, 2020 . Restructuring or integration activities or other costs following the Distributions that may be incurred to achieve cost or growth synergies ofDuPont 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 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
