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 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 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. 43
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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 second quarter of 2020, the Company benefited from COVID-19 related
demand in certain markets, principally personal protection, health & wellness
and electronics. Although management currently expects strong demand from
certain markets to continue into the third quarter of 2020, the COVID-19
pandemic is expected to continue to adversely impact demand in automotive,
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, and has idled 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") which replaced
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.
Transportation & Industrial Impairments
In the second quarter of 2020, continued near-term demand weakness in global
automotive production resulting from the COVID-19 pandemic, along with revised
views of recovery based on third party market information, served as a
triggering event requiring the Company to perform an impairment analysis of the
goodwill associated with its Transportation & Industrial reporting unit as of
June 30, 2020 . As a result of the analysis performed, the Company recorded
pre-tax, non-cash impairment charges related to goodwill of $2,498 million . The
charges were recognized in "Goodwill impairment charges" in the interim
Consolidated Statements of Operations. Refer to Note 11 of the interim
Consolidated Financial Statements. In connection with the Transportation &
Industrial impairment analysis, the Company also recorded pre-tax, non-cash
impairment charges of $21 million related to indefinite-lived intangible assets.
The charges were 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
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SELECTED FINANCIAL DATA
Three Months Ended Six Months Ended June
June 30, 30,
In millions, except per share amounts 2020 2019 2020 2019
Net sales $4,828 $5,468 $10,049 $10,882
Cost of sales $3,291 $3,496 $6,609 $7,117
Percent of net sales 68.2% 63.9% 65.8% 65.4%
Research and development expenses $209 $232 $445 $499
Percent of net sales 4.3% 4.2% 4.4% 4.6%
Selling, general and administrative expenses
11.2% 11.7% 11.7% 12.6%
Effective tax rate - continuing operations 1.4% (16.4)% (0.3)% (5.8)%
Net loss available for
Loss per common share - basic$(3.37) $(0.76) $(4.20) $(0.07) Loss per common share - diluted$(3.37) $(0.76) $(4.20) $(0.07) RESULTS OF OPERATIONS Summary of Sales Results Three Months Ended June 30, Six Months Ended June 30, In millions 2020 2019 2020 2019 Net sales$ 4,828 $ 5,468 $ 10,049 $ 10,882 The following table summarizes sales variances by segment and geographic region from the prior year: Sales Variances by Segment andGeographic Region Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 Percentage change from Local Price & Local Price & prior year Product Mix Currency Volume Portfolio & Other Total Product Mix Currency Volume Portfolio & Other Total Electronics & Imaging - % (1 )% 7 % (1 )% 5 % - % (1 )% 7 % - % 6 % Nutrition & Biosciences - (2 ) 1 - (1 ) 1 (2 ) 1 - - Transportation & Industrial (5 ) (1 ) (28 ) - (34 ) (5 ) (1 ) (18 ) - (24 ) Safety & Construction 2 (1 ) (10 ) 2 (7 ) 2 (1 ) (7 ) 2 (4 ) Non-Core 2 (1 ) (22 ) (9 ) (30 ) 2 (1 ) (17 ) (9 ) (25 ) Total - % (1 )% (10 )% (1 )% (12 )% - % (1 )% (6 )% (1 )% (8 )% U.S. & Canada (1 )% - % (16 )% - % (17 )% (1 )% - % (9 )% - % (10 )% EMEA 1 - (2 ) (16 ) - (18 ) - (2 ) (10 ) (1 ) (13 ) Asia Pacific - (1 ) 1 (1 ) (1 ) (1 ) (1 ) 1 - (1 ) Latin America 3 (5 ) (21 ) (2 ) (25 ) 3 (4 ) (12 ) (2 ) (15 ) Total - % (1 )% (10 )% (1 )% (12 )% - % (1 )% (6 )% (1 )% (8 )%
1.
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The Company reported net sales for the three months endedJune 30, 2020 of$4.8 billion , down 12 percent from$5.5 billion for the three months endedJune 30, 2019 , due to a 10 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 increased 1 percent. Volume declined across all segments with the exception of Electronics & Imaging (up 7 percent) and Nutrition & Biosciences (up 1 percent). The most notable volume decreases were in Transportation & Industrial (down 28 percent) and Non-Core (down 22 percent). Currency was down 1 percent compared with the same period last year, driven primarily by Latin American currencies (down 5 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 3 percent) and in Safety & Construction (up 2 percent) and Non-Core (up 2 percent). Net sales for the six months endedJune 30, 2020 were$10.0 billion , down 8 percent from$10.9 billion for the six months endedJune 30, 2019 , due to a 6 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 increased 1 percent. Volume declined across all segments with the exception of Electronics & Imaging (up 7 percent) and Nutrition & Biosciences (up 1 percent). The most notable volume decreases were in Transportation & Industrial (down 18 percent) and Non-Core (down 17 percent). Currency was down 1 percent compared with the same period last year, driven primarily by Latin American currencies (down 4 percent) and EMEA currencies (down 2 percent). Portfolio and other changes contributed 1 percent of the sales decrease which impacted Non-Core (down 9 percent). Local price and product mix was flat compared with the same period last year. Local price increased inLatin America (up 3 percent) and in all segments except Transportation & Industrial (down 5 percent) and Electronics & Imaging (flat). Cost of Sales Cost of sales was$3.3 billion for the three months endedJune 30, 2020 , down from$3.5 billion for the three months endedJune 30, 2019 primarily due to lower sales volume, cost synergies, and currency impacts offset by approximately$160 million of charges associated with temporarily idling several manufacturing plants to align supply with demand due to COVID-19, mainly in the Transportation & Industrial segment. Cost of Sales as a percentage of net sales for the three months endedJune 30, 2020 was 68 percent compared with 64 percent for the three months endedJune 30, 2019 , driven mainly by the charges associated with temporary idling several manufacturing plans referenced above. For the six months endedJune 30, 2020 , cost of sales was$6.6 billion , down from$7.1 billion for the six months endedJune 30, 2019 . Cost of sales decreased for the six months endedJune 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 Distributions, offset by approximately$160 million of charges associated with temporarily idling several manufacturing plants to align supply with demand due to COVID-19, mainly in the Transportation & Industrial segment. Cost of sales as a percentage of net sales for the six months endedJune 30, 2020 was 66 percent compared with 65 percent for the six months endedJune 30, 2019 . Research and Development Expenses ("R&D") R&D expenses totaled$209 million in the second quarter of 2020, down from$232 million in the second quarter of 2019. R&D as a percentage of net sales was 4 percent for the three months endedJune 30, 2020 and 2019. For the first six months of 2020, R&D expenses totaled$445 million , down from$499 million in the first six months of 2019. R&D as a percentage of net sales was 4 percent and 5 percent for the six months endedJune 30, 2020 and 2019, respectively. The decrease for the six months endedJune 30, 2020 compared with the same period 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$541 million in the second quarter of 2020, down from$642 million in the second quarter of 2019 primarily due to productivity actions and reduced spending. SG&A as a percentage of net sales was 11 percent and 12 percent for the three months endedJune 30, 2020 and 2019, respectively. 46
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For the first six months of 2020, SG&A expenses totaled$1,174 million , down from$1,368 million in the first six months of 2019. SG&A as a percentage of net sales was 12 percent and 13 percent for the six months endedJune 30, 2020 and 2019, respectively. The decrease as compared with the same period of the prior year was primarily due to productivity actions 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 Distributions. Amortization of Intangibles Amortization of intangibles was$528 million in the second quarter of 2020, up from$252 million in the second quarter of 2019. In the first six months of 2020, amortization of intangibles was$1,061 million , up from$508 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$19 million in the second quarter of 2020, down from$137 million in the second quarter of 2019. The activity in the second quarter of 2020 included a$21 million impairment charge related to indefinite-lived intangible assets in the Transportation & Industrial segment, a$15 million charge related to the 2020 Restructuring Program, a$16 million credit related to the 2019 Restructuring Program and a$1 million credit related to the DowDuPont Cost Synergy Program. The charges in the second quarter of 2019 included a$63 million impairment charge related to an equity method investment, a$53 million charge related to the 2019 Restructuring Program and a$21 million charge related to the DowDuPont Cost Synergy Program. In the first six months of 2020, restructuring and asset related charges - net were$423 million , up from$208 million in the same period last year. The activity for the six months of 2020 included a$270 million impairment charge related to long-lived assets in the Non-Core segment, a$21 million impairment charge related to indefinite-lived intangible assets in the Transportation & Industrial segment, a$126 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 related to the equity method investment impairment charge and 2019 Restructuring Program, both described above, as well as a$92 million charge related to the Synergy Program.
See Note 5 to the interim Consolidated Financial Statements for additional information.
Goodwill Impairment ChargesGoodwill impairment charges were$2,498 million in the second quarter of 2020, up from$1,175 million in the second quarter of 2019.Goodwill impairment charges were$3,031 million in the six months endedJune 30, 2020 , up from$1,175 million in the same period last year. In the second quarter of 2020, the charges relate to the Transportation and Industrial segment. In the first six months of 2020, the charges relate to the Transportation & Industrial and Non-Core segments.Goodwill impairment charges in the second quarter of 2019 and for the first six 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 post-Merger integration, activities related to the Distributions, and, during 2020, the Intended N&B Transaction, were$145 million in the second quarter of 2020, down from$347 million in the second quarter of 2019. In the first six months of 2020, integration and separation costs were$342 million , down from$958 million in the same period last year. The decline was primarily related to the timing of the Distributions. Equity in Earnings of Nonconsolidated AffiliatesThe Company's share of the earnings of nonconsolidated affiliates was$103 million in the second quarter of 2020, up from$49 million in the second quarter of 2019. In the first six months of 2020, the Company's share of the earnings of nonconsolidated affiliates was$142 million , up from$89 million in the first six months of 2019. The increases are primarily due to higherHSC Group equity earnings, 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 second quarter of 2020 was expense of$14 million compared with expense of$19 million in the second quarter of 2019. The second quarter of 2020 included foreign currency exchange losses of$23 million , partially offset by income related to non-operating pension and 47
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other post employment benefits credits of$8 million . The second quarter of 2019 included a$48 million charge reflecting a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement included in miscellaneous income and foreign currency exchange losses of$17 million , partially offset by income related to non-operating pension and other post employment benefit credits of$18 million , a gain on the sale of assets of$10 million and interest income of$9 million . In the first six months of 2020, sundry income (expense) - net was income of$197 million compared with income of$65 million in the first six months of 2019. The first six months of 2020 included benefits related to the sale of the Compound Semiconductor Solutions business unit of$197 million , income related to non-operating pension and other post employment benefit credits of$19 million and miscellaneous income of$12 million , partially offset by foreign currency exchange losses of$31 million . The first six months of 2019 included a gain on sale of assets of$63 million , interest income of$49 million and income related to non-operating pension and other post employment benefit plans of$39 million , partially offset by foreign currency exchange losses of$78 million . Interest Expense Interest expense was$193 million in the second quarter of 2020, up from$165 million in the second quarter of 2019. The increase primarily relates to incremental financing costs associated with the May Debt Offering and financing costs associated with the Intended N&B transaction. In the first six months of 2020, interest expense was$376 million , up from$316 million in the same period last year. The increase primarily relates to financing facilities that were drawn afterMarch 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 theDuPont Commercial Paper Program, as well as the factors noted above. (Benefit from) 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 second quarter of 2020 was 1.4 percent, compared with an effective tax rate of (16.4) percent for the second quarter of 2019. For the first six months of 2020, the effective tax rate on continuing operations was (0.3) percent, compared with (5.8) percent for the first six months of 2019. The effective tax rate for the second quarter of 2020 and for the first six months of 2020 was principally the result of a non-tax-deductible goodwill impairment charge impacting the Transportation and Industrial segment in the second quarter and a non-tax-deductible goodwill impairment charge impacting the Non-Core segment in the first quarter. The tax rate in the second quarter of 2019 and for the first six 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 11 to the interim Consolidated Financial Statements for additional information on the goodwill impairment charges. Income from Discontinued Operations, Net of Tax In the second quarter of 2020 and for the first six months of 2020, the Company did not have income from discontinued operations. In the second quarter of 2019 and for the first six months of 2019, income from discontinued operation, net of tax was$566 million and$1,212 million , respectively. The decrease period over period is attributable to the timing of the 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 second quarter of 2020, down from$34 million in the second quarter of 2019. For the first six months of 2020, net income attributable to noncontrolling interests was$13 million , down from$85 million for the same period last year. The decreases are attributable to the timing of the Distributions. 48
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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 six months endedJune 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 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 six months endedJune 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 six months endedJune 30, 2020 and for the three months endedJune 30, 2019 . 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 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.
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